Hired a FA

[audreyh1]

Yes, my earlier 'static model' is true for a portfolio that maintains its buying power over time. In that case, the 1% is a constant, inflation adjusted hit to the portfolio.

When you plug it into FIRECalc, with a 1% higher fee, and investigate for success rates, you are measuring the effect on a dwindling portfolio that goes to zero. For me, it would be cold comfort to say that the draw from fees wasn't so bad as thought, because it caused my portfolio to drop faster than DIY, and therefore the fees went to zero too!

Also, if you care about heirs, that money is gone, regardless of your success.

Another view - 100% safe for 40 years was a $33,413 initial withdraw, with the default 0.18% fee. But draw the same, with a 1.18% fee, and success drops to 92.6% with a max minus 574K balance (although negative balances may not accurately reflect reality - I think the negative gets multiplied by stock returns).


-ERD50

I guess if you want some minimum left over for heirs, you have to model in FIRECALC with some guaranteed remainder and compare the difference with the two fees.

 

[Bestwifeever]

Managed funds like pssst Wellesley and Wellington having trading done within them by their managers—the prospectus for Wellesley says 22 percent of its holdings were turned over in the last fiscal year (see p. 10 here: https://personal.vanguard.com/pub/Pdf/p027.pdf). One could consider AUM with a FA to be a kind of a managed mini-fund that the FA can adjust the holdings as he or she deems appropriate without express permission each time.

 

[youbet]

Managed funds like pssst Wellesley and Wellington having trading done within them by their managers—the prospectus for Wellesley says 22 percent of its holdings were turned over in the last fiscal year (see p. 10 here: https://personal.vanguard.com/pub/Pdf/p027.pdf). One could consider AUM with a FA to be a kind of a managed mini-fund that the FA can adjust the holdings as he or she deems appropriate without express permission each time.

Perhaps

without express permission each time

but with a written plan documenting the guidelines (as Wellesley and Wellington provide).

 

[RobbieB]

If I wanted to be able to tell him his buy/sell instructions I wouldn't need to hire him in the first place.

 

[Bestwifeever]

Perhaps but with a written plan documenting the guidelines (as Wellesley and Wellington provide).

Right—I would think very specific guidelines about the extent of “un-preapproved” trades would be essential for both parties.

 

[stephenson]

I don’t follow the FA world - does RJ have a good rep?

 

[audreyh1]

I don’t follow the FA world - does RJ have a good rep?

Not particularly. But the OP is using an FA independent of RJ. The FA is just using RJ as his "back office" - brokerage.

 

[Scuba]

If I wanted to be able to tell him his buy/sell instructions I wouldn't need to hire him in the first place.

That was precisely my point!

 

[stephenson]

So, given the new FA, what recommendation for investments has he made?

This is where it gets interesting - I have heard horror stories about front end loaded funds, way out of whack portfolios, bond churning, etc ... and, of FAs reading their clients wrong and just sitting on CDs, or buying risky investments.

So ....what specifically is this FA doing for you?

 

[Rustward]

So, given the new FA, what recommendation for investments has he made?

This is where it gets interesting - I have heard horror stories about front end loaded funds, way out of whack portfolios, bond churning, etc ... and, of FAs reading their clients wrong and just sitting on CDs, or buying risky investments.

So ....what specifically is this FA doing for you?

So interesting:
Would you like to get excruciatingly specific about these "horror stories" that you have heard? Can you provide these "horror stories" in razor sharp detail? Precisely what was bought, what was sold, in what type of accounts, and on what dates and for for how much?

Can you provide names and contact information of specific investors who told you these "stories", and names and contact of specific financial professionals that they say did this to them? Come on, it's not that hard -- if you have the information. Or did you just make this up. Information, please.

If you don't have the information, your comments are just FUD -- Fear, Uncertainty, and Doubt based only on supposition, not reality (unless you can give us some concrete details). There is no reality if you cannot provide details.

As far as front-loaded funds, if you tell your rep you do not want front-loaded funds, they cannot sell you front loaded funds (unless you authorize that, which you should not). Duh! Tell them you do not want front-loaded funds. Done. You should be getting no load institutional class funds anyway, and those have lower expense ratios. If the investor does not inform the rep that they want only no-load funds, and the rep sells a loaded fund, then that is the investor's fault for buying it. Transfer out.

Churning: tell your rep that you will not tolerate churning, or else they will see transfers out. No churning will happen. If the investor allows the rep to churn their account, then that is the investor's fault. Transfer out.

Tell them what you want and what you do not want. If you fail to tell the rep what you want and what you do not want, then whatever you get is entirely your fault.

You can also put limits on the rep's trading authority per the contract. For example, you can set a trading limit over which you must approve the trade, for example, anything over $50K, or $100K, or whatever number you specify.

See, this is not so scary, unless you want it to be scary. So be scared if you want to be scared by reading these forums. Is this so hard?

BTW there are CFP's, and there are RIA's, and there are FA's. These forums seem to focus on FA's which are probably the lowest common denominator of the three -- just about anybody even without formal education can call themselves a FA. This is kind of like loading the dice in the favor of all the critics here. (Anybody can call themselves a FA) -- and if that is the general attitude then OK. But don't try to tell me my CFP is "just" an FA.

Nobody cares, but we use a CFP who is also an RIA.

 

[target2019]

So interesting:
Would you like to get excruciatingly specific about these "horror stories" that you have heard? Can you provide these "horror stories" in razor sharp detail? Precisely what was bought, what was sold, in what type of accounts, and on what dates and for for how much?

I can.
For example, more than 10 years ago, in-laws asked for my help in getting rid of the Frick and Frack team that one daughter brought to the house. Yeah, there was churning. A state investigator later came to speak with in-laws, and as I recall, they were not an isolated case.
In addition, I posted a link above (I think) wherein you can search for specific firm and find out about any judgments about them. Specifically, I typed in the name of an FA we had met with, for purpose of hearing the shpiel and reporting back to AARP. I found out this week that his record had more than a few blemishes, with different fines and judgments paid out before year 2000. Has he cleaned up his act? I don't know, but I would guess so, since we met with him just a few years ago.
I am very sure there are many others with horror stories, and other ways to find specifics.

 

[Luck_Club]

So, given the new FA, what recommendation for investments has he made?

This is where it gets interesting - I have heard horror stories about front end loaded funds, way out of whack portfolios, bond churning, etc ... and, of FAs reading their clients wrong and just sitting on CDs, or buying risky investments.

So ....what specifically is this FA doing for you?

This truly is where the rubber meets the road. Post his initial buys and keep us informed of the trades.

Since August, I have trades that are down 6-8.19% this morning after 3 strong days. NONE OF THE ADVISERS TRADES ARE ABOVE WATER. At the bottom of the market correction a few weeks ago his trades were off nearly 7%.

I placed bets at the same time as the adviser. I'm 50/50 with my worst pick down 0.62% and a net positive. His best trade is down 0.34% and the second best holding 30% of the funds is down 1.33%. for a net negative.

Thomas partners is managing some other money, and their performance was much better then the advisers. However they are more of a position then an adviser.

 

[Jerry1]

Couple responses to the last few comments:

The FA I chose is a CFP I’m not sure about an RIA but I’ll check.

I don’t think I’ll be posting a comprehensive list of his build of my portfolio. That would be work that I’m not interested in and gets me to the point of thinking that I wouldn’t share something for free that I’ve had to pay for. However, I’ll be glad to share my experience. Once I get a clean starting point, I’ll start tracking his performance and share that. Of course, his performance is based on my risk tolerance and my plan so I don’t know how meaningful that will be.

As for trust and him trading on my behalf. Yes, it’s a bit risky but that’s what I’m paying him for. As others have discussed, we sat down and developed a plan. He understands mine and DW’s risk tolerance. He also understands my concern about his fee and the imbedded portfolio fees and he knows my expectation is to keep the portfolio fees in mind as he manages the portfolio.

Also, while I know this seems counterintuitive for someone using an FA, but DW was a fabulous bookkeeper in work and for us personally. I’m a CPA who performed audits and prepared year end financial statements even though that did not end up being my main occupation. I have no concern at all, at least at this point in our lives, that DW and I will have any trouble knowing exactly how any and all money is handled. Someone already said it, trust but verify.

 

[pb4uski]

If I wanted to be able to tell him his buy/sell instructions I wouldn't need to hire him in the first place.

But that is totally different from him getting your consent for trades over $x prior to executing them.

 

[EastWest Gal]

WTF? Are you serious? Your statement is absolutely inconsistent with the general sentiment in these forums.

It was sarcasm. Relax.

 

[EastWest Gal]

Don’t forget the fees are tax deductible. I have been with a FP since 1993. In 2015 we fired the original FP and switched to another group, founded by Rick Ferri, who posts on Bogleheads regularly and follows John Bogle. Yes, they charge by AUM, but their fee is 1/3 what I was paying.

 

[audreyh1]

It was sarcasm. Relax.

I don’t think Midpack’s statement was sarcasm. I wasn’t so sure about Rustward’s.

 

[gerntz]

Some things like RMDs can already be automated.

How do you automate RMD's? Thanks.

 

[gerntz]

Biggest problem with FA's:

If my stock market account goes down 30%, I have no issue, will just ride it out.

FA designed account goes down 15%, I'm going to have a panic attack and sell at the bottom.

Sounds like you have a FA phobia.

 

[audreyh1]

How do you automate RMD's? Thanks.

I haven’t done it as we aren’t at that age yet. But I looked into it a bit last year and it looked like Fidelity could configure that for you.

 

[gerntz]

This truly is where the rubber meets the road. Post his initial buys and keep us informed of the trades.

Since August, I have trades that are down 6-8.19% this morning after 3 strong days. NONE OF THE ADVISERS TRADES ARE ABOVE WATER. At the bottom of the market correction a few weeks ago his trades were off nearly 7%.

I placed bets at the same time as the adviser. I'm 50/50 with my worst pick down 0.62% and a net positive. His best trade is down 0.34% and the second best holding 30% of the funds is down 1.33%. for a net negative.

Thomas partners is managing some other money, and their performance was much better then the advisers. However they are more of a position then an adviser.

You sound like a very into it active trader. Best to you.

 

[gerntz]

Don’t forget the fees are tax deductible. .

As of 2018, I don't think so.

 

[gerntz]

I haven’t done it as we aren’t at that age yet. But I looked into it a bit last year and it looked like Fidelity could configure that for you.

OK. I think Fidelity or whomever can calculate the RMD, but wouldn't you still need to say when via phone call or electronic means? Also, need to set any deductions - we pay our income taxes from IRA withdrawals not quarterly payments.

 

[GravitySucks]

18 pages in 2 days.
I'd say you hit a nerve here Jerry1 !

 

[ERD50]

....

I don’t think I’ll be posting a comprehensive list of his build of my portfolio. That would be work that I’m not interested in and gets me to the point of thinking that I wouldn’t share something for free that I’ve had to pay for. However, I’ll be glad to share my experience. Once I get a clean starting point, I’ll start tracking his performance and share that. Of course, his performance is based on my risk tolerance and my plan so I don’t know how meaningful that will be. ...

I have no concern at all, at least at this point in our lives, that DW and I will have any trouble knowing exactly how any and all money is handled. Someone already said it, trust but verify.

I hope this doesn't come across as 'flogging', but I'm having trouble understanding this. The bolded part, how are you accounting for your risk tolerance? Mostly, we do that with an AA. If your discussion with your FA boiled down to an AA, then you can measure against a benchmark of broad-based index funds of that AA. But if it was just a general 'feeling', I'm not sure how you will do that.

And if you are going to this level of 'trust but verify', are you saving yourself any work? It sounds like it makes work to me. I don't need to check my performance, I'm confident that my VTI/BND mix will be very close to market performance, minus the small fees, and some very small random tracking error.

It seems like you expect the FA to beat the market? Good luck. If so, what is this based on?

It seems to me that an experienced FA could show you their past performance for clients in your risk tolerance range, so you could see how they have done. I would think they would maintain a pro-forma account for various risk levels, they could share that with prospective clients. Have you ever asked for this? Why should you need to put your money, time and effort on the line to get this info? It's easy for me to compare broad based index funds to 'the market', and they all track very closely.

From your OP:

.... (This FA) ... came highly recommend to me by two previous bosses of mine who are also retired and using this FA.

One of the oddest things regarding the recommendation is that these are two very frugal people. I've never known either of them to waste money. Money they both have plenty of. However, they both feel it's worth it. ...

It is interesting that they 'feel it is worth it', but do they have any hard evidence of this? Have they compared to benchmarks? There have been many reports of people who are 'happy with their FA', but that was based on feelings, rather than data. Some of those were not so happy after learning how to verify those numbers.

-ERD50