I finally fired my FA

[Nords]

So, when does it make sense to have an FA? I have one now.

I think people tend to get a FA when the professional can do something that the inveestor can't (or won't or doesn't want to) do for themselves. Asset allocation or diversification or external discipline or even just education/handholding.

One example that's been mentioned is "Holy cow, I just realized that 90% of my net worth is in company stock and we're contemplating layoffs. Now what?!?"

I think people fire their FAs when the investor starts to become educated and take an interest in figuring out how to run their own future, instead of being taken care of by a contractor-- or saved by Prince Charming.

I think a lot of FAs are fired when people realize the ratio between a 1% annual fee and a 4% SWR...

 

[John23]

I met a guy a few years ago, on the Worth Magazine, "The Nation's 100 most exclusive wealth advisors". They come out with a list every year.

This was right in the middle of the housing bubble (2004). And there was no bubble according to him! And he was down, 20 or 30% in the bad market of 2001, 2002.

Not every FA of course, but I think you can say they're better at marketing themselves as experts, than actually delivering truely value added services.

It's not the same as hiring an accountant, plumber, doctor, or someone that adds value above and beyond what you pay for their services. You pay X in commissions or fees, but do you get X in added value?

I'd also be very skeptical of any type of "pitch" by anyone selling investments that uses cookie cutter, broad language when describing an investment. This does X. This does Y. The old pitch..."stocks always go up!' Or, "stocks for the long haul". And you see in front of you the S&P has been flat for 10 years, hmmmmm.

Or using a sophisticated "tool" or "analytic" to analyze a company. You see it in all the brokerage commericals.

Their exotic sounding models and "tools" wouldn't tell you what was on lehman brothers balance sheet or the mistakes a subprime mortgage lender made. Run common sense against their "tools".

 

[2B]

So, when does it make sense to have an FA? I have one now.

Nords brought up the key issue -- the fee. If you have $500,000 with a FA that charges a 1% fee, you are paying $5,000 for whatever service they are providing in addition to any fees for the mutual funds they put you into. Ask yourself, are you getting value for that fee?

The other approach is a fee only planner that may run a few thousand once a year or more often in some cases. There you get some advice but not the "active management" you get from the guy mentioned above. You'll have to rebalance your portfolio all by yourself. The stress of doing that obviously gets to some people.

You can save all the fees by doing some educating of yourself. There's a reading list for getting up to speed (do a search or ask for help). It's probably the best paying and easiest second "j*b" you'll ever find. If you are a basic passive investor, it might take you 30 minutes every year or so once you set up your asset allocation. Where else can you make $10,000 per hour?

I've described why you don't want one but I do realize you asked why you would want one. Here, I'll say you would want one if you have a very complicated financial life with many conflicting demands. A good FA can steer you among many of the issues (insurance, business planning, wills, trusts, and - yikes- even annuities). You would also need be have a substantial amount of personal wealth. I doubt that 1/2% of the the people in the US meet that level.

If you are in this level, you would want a fee only planner that doesn't have a big interest in selling you things. You would have to interview carefully for who to hire. You would still need a lawyer and probably a CPA. Both of whom would probably tell you that you don't need the FA.

Of course, my advice to you if you have a very complicated financial life is to simplify your life for your own peace of mind. Then you don't need a FA.

 

[RetiredWW]

Well if it works for you (the fee structure seems reasonable, you are happy with your returns, investments' risks and costs are properly explained to you, etc...), then it may make sense for you.

Thanks for your reply. I guess I am not sure if a FA works for me. I currently have one. My / FA returns are tipically better then the indices. My FA is fee-only based (about .30% of what is managed). We tipically meet quarterly, but have the option to meet as often as I want to. Everything is properly explained to me. My problem is, I don't think I know enough to be making the right selections when picking funds.

 

[BunsGettingFirm]

When things are going well, people take 100% responsibility, even if they had help. When things are going poorly, people absolve themselves of 100% of the responsibility, even if the decision was ultimately theirs.

LOL! That's why FAs get paid what they do. Just ask Brewer or Saluki.

I have colleagues who wanted to engage in "stock analysis" at work. It took all of my restraint to not jump in and hit them up the side of the head. First of all, stock analysis cannot be done in 15 minutes around the water cooler. That's just talking financial porn at work. It takes considerable time to analyze even a business with only $50 million revenue. Second of all, "I heard this economist say" is not analysis. Lastly, randomly tossing around P/E is not analysis. Just getting to the real E is like taking apart of sausage and picking up each piece of unidentifiable meat and, after pain-staking work, being able to say whether the meat came from the cow's head or the cow's ulcer.