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Interesting Forbes piece on the changing landscape for FAs
Old 05-07-2012, 08:48 PM   #1
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Interesting Forbes piece on the changing landscape for FAs

Article makes a number of good points on the future of financial advising.

No, You Don't Actually Need To Hire A Financial Advisor - Forbes
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Old 05-07-2012, 09:11 PM   #2
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Nice summary of the state of financial advisors and what the future holds. Glad I fall into the low fee do-it-yourself category.
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Old 05-08-2012, 07:38 AM   #3
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The piece basically says that FAs are too expensive for what they offer. It predicts that comission advisors will disappear, fee advisors will continue to serve high asset clients (albeit fewer and fewer of them), and online advisory services will become dominant like Turbo Tax did in the tax prep arena in the 90s. The article may be right but I fail to see the value in the online services. I saw one of them listed in an article as a "best in breed" and took a brief look. I can't remember the details but it was still pretty darned expensive for nothing more than a Fidelity or Vanguard advisor would provide gratis. But maybe it will work out for the best. Maybe investors will switch to the simple online services to save a few bucks and then realize that they can do it better on their own as the next step.
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Old 05-08-2012, 07:57 AM   #4
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donheff, thanks for the additional detail. You summed up the article nicely.

I think the author leaves out a third category of advisors who are an important influence for many investors with limited assets: Money Magazine and others. They routinely publish advice and specific recommendations and I see no reason this will change.
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Old 05-08-2012, 09:05 AM   #5
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Why would 99% of us need a financial adviser unless you feel it's necessary to hire a mommy or daddy to tell you the obvious? Index fund investing and basic asset allocation are certainly not complicated. There are many simple books on the subject. After that, we get will, POAs and Medical POAs from a lawyer.

Unless we have something very complicated in our lives, what is there for a FA to do that would add value? I can't see paying for an on-line version any more than one with flesh and blood.
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Old 05-08-2012, 09:32 AM   #6
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This stuff is so important that anyone interested in their money should be able to take a little effort and learn that an appropriate asset allocation and index funds is all you need. I got a kick out of hearing two people here at work (OK, I'm in process of escaping) mention meetings with their FA's. I'm pretty sure from their lifestyles and what I know of their incomes, they can't be holding much more than a few hundred k. So they either are afraid to learn this stuff, which IMO is not that hard, or like to talk about their FA! I just shrugged it off rather than question why they felt they needed an FA. I get that some people may have very complicated family/financial/tax situations, but most of us need learn enough to DIY. And if you have a lot, then 1% of a lot is....a LOT! More reason to learn as it grows!

Anyway, not putting down those who have FA but would encourage you to learn this stuff. That's why you're here, eh?
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Old 05-08-2012, 09:59 AM   #7
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The garden variety financial advisor has to be a pretty new development in the history of money, imho. The "greatest generation" had pensions and social security, and a savings account and a paid off house (no refinancing for the little people in those days--you bought it, paid on it for 30 years, and you owned it unless you sold it before then and started up again) as their nest egg. Maybe an insurance agent was advising them. I think of "financial advisors" back then as being for the truly rich, who had more money and other assets than they could handle so someone at their banks and their brokers took care of it for them, but they weren't the "financial advisors" we know today.

Now there's an advisor for everyone who has a dollar to spare, but the information on what to do with that dollar and the means of doing it are available to everyone too.
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Old 05-08-2012, 10:58 AM   #8
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Good article thanks. As for why people need an FA at all, most people I know are intimidated by investing, very different from members or most noobs who stumble in here. I will promote DIY investing whenever asked, but some people simply won't "drink." Unfortunately they will probably waste a lot of potential return on brokers, FAs or assorted magazine, TV and/ BIL hot tips.

There are several members of my extended family who can't/won't manage their investments (my MIL is hopeless) - I'd be very surprised if every member of ER.org doesn't know friends or family who can't manage for themselves. FAs for low net worth clients may go online, that's a good thing IMO, but they won't become an endangered species any time soon.
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Old 05-08-2012, 11:23 AM   #9
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There are several members of my extended family who can't/won't manage their investments (my MIL is hopeless) - I'd be very surprised if every member of ER.org doesn't know friends or family who can't manage for themselves. FAs for low net worth clients may go online, that's a good thing IMO, but they won't become an endangered species any time soon.
I don't know anyone who "can't" but I know a lot that "won't." It's not like it requires any higher math skills.

I'm slowly but surely bludgening DW in understanding index funds and rebalancing. She knows I'll do it so she can just ignore it in her mind. I keep telling her I can certainly fall over dead and then she's stuck.

I've known people (like my late FIL) that liked to talk about his FA and CPA like it somehow it made him more important and obviously successful. When DW and I took over his finances, we found what little he had was stuck into rip-off annuities by his FA. His CPA that charged him $600 to do his taxes was replaced by me and 20 minutes on Turbo Tax.
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Old 05-08-2012, 11:41 AM   #10
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It is often difficult to see why others don't "get" the things we do understand. How to manage and invest money is not taught at public school, it is learned at home or self taught. I agree with Midpack that many are intimidated and make poor choices. Self funding retirement is an idea with lots of potential, but people need assistance.
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Old 05-08-2012, 06:12 PM   #11
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I think an investment advisor can be as helpful when you're taking the money out as when you're putting the money in. I don't have one, but I will definitely consult with the one Vanguard provides as we get closer to retirement. Taxes and a poor method for retirement withdrawal can eat away at a lot of your investment gains. Using a financial planner to devise an exit strategy (based on your investment strategy) seems valuable to me. I'm not sure how much I'd pay for that advice, but I would consider it.
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Old 05-08-2012, 08:50 PM   #12
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Investing life savings with the possibility of massive fail is scary. I've seen many co-workers and relatives who finally worked up the nerve to risk their hard-earned money with the finance gurus on financial porn (coff, coffForbes, coff), buy in at the market highs, pay ridiculous fees, then quit in disgust when the market drops, only to have to again pay ridiculous fees to bail. Worse yet, I've watched some brokers trade on their fears to intimidate their clients, keeping them dependent on them.

Many boomers are looking at poor prospects in their not so golden years because they got caught up in the BS. IRAs and 401Ks replacing traditional defined benefits have burned many who couldn't adapt. Caveat emptor. I am cynical over their future prospects.

Financial advisers have their time and place, as jennypenny pointed out. Using an adviser with fiduciary duty, is wise IMO, and why I too like Vanguard, but even so, I am cautious.
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Old 05-08-2012, 09:43 PM   #13
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Originally Posted by MichaelB View Post
It is often difficult to see why others don't "get" the things we do understand. How to manage and invest money is not taught at public school, it is learned at home or self taught. I agree with Midpack that many are intimidated and make poor choices. Self funding retirement is an idea with lots of potential, but people need assistance.
I've heard a variety of comments over the years from people on this subject.

One time when I was talking to a woman that I was getting to know (on a date), the subject of her investments came up. I don't recall the exact wording, but when the concept of managing her own portfolio came up, she essentially said "why wouldn't you let a professional do it?" (meaning a so-called financial advisor).

A recent discussion with an engineer that was trying to hire me came to the point of reviewing their 401k plan. He handed me the book of their funds, and as I started to read through it, he casually said "yeah, I gave [the book listing the 401k funds] to my Edward Jones guy, and he said they're all pretty good funds".

A female friend (self-employed) mentioned how her financial advisor told her about some sort of 'safe, guaranteed' investment paying 6%, and guaranteed to double in 10 years (this was 3 months ago). I tried to tell her her that nothing these days is paying that high of a yield that has a guarantee of anything (other than a guarantee of a fat commission to the sales person). She REFUSED to even want to listen to me! It's not like I was hitting her over the head with reams of printouts of ER Forum threads, or waxing eloquently about expense ratios, withdrawal rates, and the like. I was barely saying anything, yet she absolutely wanted no part of it.

To sum it up - there are two groups: 1) A huge number of people see financial advisors as "professionals" (I guess they do meet the definition, considering they are paid), and probably associate them on the same level as lawyers, doctors, tax preparers, and insurance sales people: "they'll tell me what I need, because they know this more than I do, and they won't take advantage of me", and people are conditioned to let someone else wipe their nose, unclog their toilet, cut their tiny lawn, and do everything else for them. (as a side note, I am surprised that so many people on this forum buy tax software or even pay someone to do their taxes for them, given how uncomplicated it can be for many returns, and given the self-sufficiency and fairly high level of familiarity with numbers the forum members have)

2) A probably even larger number of people refuse to even want to try to understand investments. A minority of them COULD eventually understand it if they bothered to try, but I fear that many of the second group are simply unable to grasp the concept of financial concepts and monetary cause/effects, just as many people are simply unable to understand a concept like 8 dimensions in astrophysics.
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Old 05-08-2012, 10:44 PM   #14
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Originally Posted by MooreBonds View Post
(as a side note, I am surprised that so many people on this forum buy tax software or even pay someone to do their taxes for them, given how uncomplicated it can be for many returns, and given the self-sufficiency and fairly high level of familiarity with numbers the forum members have)
I have no ida how complicated or uncomplicated are the returns of the "average person here", but plenty of us have returns that are far from simple. For years I did mine by hand, and later by making linked spreadsheets, but Turbo-Tax is so much less stressful that it is hard for me to understand why anyone with more than a 1040-EZ would want to do it by hand. Turbo-Tax Premier costs less than a mediocre dinner out. I'd rather cook my dinner and buy Turbo-Tax.

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Old 05-08-2012, 11:24 PM   #15
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I am surprised that so many people on this forum buy tax software or even pay someone to do their taxes for them, given how uncomplicated it can be for many returns, and given the self-sufficiency and fairly high level of familiarity with numbers the forum members have)
I am a late convert to TurboTax. I did my taxes by hand every single year until, I think, about 2008.

I am perfectly capable of doing my taxes by hand and I believe the outcome is the same either way. For me the advantages of TurboTax are:

1) I am finally joining the 20th century (in the 21st)

2) TurboTax makes doing taxes more fun. You really don't have to try very hard. It asks you all the questions, and it's on a computer with a nice user interface. So, instead of dreading taxes and spending longer (to make sure I am asking myself all the right questions), Turbotax does it for me and only takes about an hour.

If I was still pushing LBYM as hard as I was, I'd still be doing my taxes by hand. But to me, easing the process this much is worth the money. There are things that are worth spending money on, and others that aren't. To me, purchases that lower stress tend to fall in the former category.
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Old 05-09-2012, 12:02 AM   #16
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In my blogging interviews I've talked to more financial advisors than I ever would have sought out for myself.

This board is the wrong population to draw conclusions about people's ability to manage their money.

As Walt34 mentioned a while back, the Dollar Stretcher forums are a better demographic. Many of those people are still trying to get out of debt, let alone save for retirement. A few of them are chronically underemployed and seriously worried about their food security. A few are so frugal that they make Amy Dacyczyn blush with envy. They don't have any money to save because they're not earning it or spending it.

Other personal-finance blogs are filled with commenters who are "seeing the light" on materialism and out-of-control spending. They're in their 20s and learning budgeting for the first time, or in their 30s and facing their first bout of unemployment, or in their 40s and going through an expensive divorce.

They're all great customers for financial advisors. They don't need help investing-- they need help paying off their debt and learning how to save before they're even ready to pick out a 401(k) asset allocation.

Even if they're building assets they still don't have a handle on asset allocation. They've confused words like "reliable" and "guaranteed" with equity index investments or hot mutual funds. "Low cost" is a 1% expense ratio. They're convinced that fund managers have to guide them through the chaos of Wall Street, or that the stock market is rigged. They want someplace safe where they can have their hands held.

Even the "good" advisors like USAA's Scott Halliwell say that people are too busy (or too overwhelmed) or not interested or not confident in their own abilities. Scott never hears from guys like us. He hears from people who want to know what an IRA is and why they need one. They don't know where to start, and they won't go there even if someone shows them the way. They just want someone they can trust, and USAA scores big-time from that corporate quality. "Convenience" and "consolidation" just make it that much easier. They have to be internally motivated before they'll seek knowledge, let alone teach themselves about these topics.

I think there are two significant events that make people see the light:
1. They retire and realize that a quarter of their portfolio withdrawals are being paid to their advisor as a 1% fee, or
2. Groups like Ameriprise come up with such outrageous charges & fees that even their own customers get suspicious.


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(as a side note, I am surprised that so many people on this forum buy tax software or even pay someone to do their taxes for them, given how uncomplicated it can be for many returns, and given the self-sufficiency and fairly high level of familiarity with numbers the forum members have)
It's not the math skills or the independence-- it's the tax code.

When you're using paper, how do you know you're not missing something? At least TurboTax asks the questions, even if I curse them as I'm trying to find the answers.

K-1s, tax credits for college expenses, excluding interests on education savings bonds, amortizing the new carpet in the rental property, amortizing points on a mortgage refinance, recaptures, AMT, energy-efficiency improvements, foreign tax credit on investment gains, carrying forward cap losses and passive deductions, self-employment taxes, volunteer mileage deductions, charitable deductions, book royalties... I'd hate to be pushing pencil to paper to track this maze.
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Old 05-09-2012, 05:39 AM   #17
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Originally Posted by MooreBonds View Post
(as a side note, I am surprised that so many people on this forum buy tax software or even pay someone to do their taxes for them, given how uncomplicated it can be for many returns, and given the self-sufficiency and fairly high level of familiarity with numbers the forum members have)
Many (most?) of us who use tax software don't buy it - we get it free. LBYM ya know...
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Old 05-09-2012, 07:08 AM   #18
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Just the other day a new poster listed his very-many holdings, apparently all due to his FA. I've had some limited personal experience with FA's, and along with what I've seen here I get the clear impression FA's are guided first and foremost by [their own] greed. It seems no matter what, they can't resist squeezing that much more from their more gullible clients.
I just don't see, in the aggregate, where they truly perform a service.
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Old 05-09-2012, 09:27 AM   #19
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I was stunned and nauseated by what I saw while doing free AARP tax prep this season. Obvious churning of accounts by FA's from large, well-known companies.

The oldsters trust their FA's and that's what is so sickening.

I don't know how hard it is to bring charges against the FA's but it would be nice to have enforcement officials in the room with us to see what we were seeing.
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Old 05-09-2012, 09:45 AM   #20
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I was stunned and nauseated by what I saw while doing free AARP tax prep this season. Obvious churning of accounts by FA's from large, well-known companies.

The oldsters trust their FA's and that's what is so sickening.

I don't know how hard it is to bring charges against the FA's but it would be nice to have enforcement officials in the room with us to see what we were seeing.
I used to be nauseated by the frequent calls to my late MIL from her broker asking for permission to churn take advantage of a great new opportunity.

I suspect most of this is not illegal and they have an army of lobbyists to make sure it does not become illegal.
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