Let's make believe you did have a Financial Planner

[retire@40]

Just to put a twist to this, let's look at FPs from a positive point of view.

How would you be happy to pay a FP if you had to, and what would you expect for that payment?

For example, would you be happy to pay based on performance of the investments, risk minimization, hours worked, flat fee, commission?

Would you expect round-the-clock access to your FP, quarterly reviews, special monthly reports, just get me started and I'll take it from there, just tell me what I'm doing wrong, here's the money and figure out what to do?

 

[kcowan]

Interesting question. I am a DIYer now but if I could turn back the clock, I would want an hourly rate, quarterly reviews, and a bonus based upon investment success above the mean for comparables. The bonus might be %age based: zero at the mean or below, and amount that would double the hourly rate if it reached the very top.

I would also want performance to be measured net of any ER fees.

 

[free4now]

Performance is measurable but risk isn't measurable, so I wouldn't pay any performance bonuses. They create incentives for the FP to take unnecessary risks with my money, without any incentives to minimize risk.

Flat fees would be my preference when starting a relationship with a FP, and maybe hourly rates as I got to know them.

I'd expect to be consulted on any changes, and then my brokerage reports would be sufficient documentation.

 

[Nords]

How would you be happy to pay a FP if you had to, and what would you expect for that payment?

Buffett's early partnerships gave him 25% of everything over 6%.

If he didn't beat 6% then everything below that was counted against his share of future profits. It wasn't exactly a refund, but it was certainly pay for performance with a downside risk.

 

[mathjak107]

reminds me of an article i read about computing fund expenses.

since most funds own the index of whatever it is that they try to beat and then add and weight around it the article figured the expenses of active mgmt after subtracting out the index part that was in the fund. i thought it was totaly meaningless but the numbers were staggering.

 

[grumpy]

Performance. The deal I would like to be able to make with a planner is this:

You take all my assets and invest them. I will continue to track my own performance as if I was still investing the $. After some agreed upon period of time (e.g one year), we compare results. If you do worse than me, you make me whole and I take all assets back and you go away. If you do better than me I pay you half of the excess gains you made that exceed what I got and we go again.

I seriously doubt any FP would take that deal.

Grumpy

 

[saluki9]

Performance. The deal I would like to be able to make with a planner is this:

You take all my assets and invest them. I will continue to track my own performance as if I was still investing the $. After some agreed upon period of time (e.g one year), we compare results. If you do worse than me, you make me whole and I take all assets back and you go away. If you do better than me I pay you half of the excess gains you made that exceed what I got and we go again.

I seriously doubt any FP would take that deal.

Grumpy

Nor would any professional in any field

 

[Nords]

Hey, I'm with Grumpy. I'd give my money to a guy willing to work on those terms.

Nor would any professional in any field

Ahem, let's go back to that Buffett example again. And his limited partners didn't even get to learn what stocks/companies he was invested in until he was finished with the investment.

You're coming at this from a different perspective, Saluki. You're interested in providing a service to a customer who presumably chooses not to perform that function on their own. Buffett is interested in using other people's money as the high-capacity power tools he needs to do his job, and he's paying handsome "interest rates" for the loan of that money. If he's not considered a professional then we don't need 'em.

 

[FinanceDude]

Performance. The deal I would like to be able to make with a planner is this:

You take all my assets and invest them. I will continue to track my own performance as if I was still investing the $. After some agreed upon period of time (e.g one year), we compare results. If you do worse than me, you make me whole and I take all assets back and you go away. If you do better than me I pay you half of the excess gains you made that exceed what I got and we go again.

I seriously doubt any FP would take that deal.
Grumpy

Even if an FP wanted to take that deal, the SEC doesn't allow it...........

 

[Anansi]

I have only had casual discussion with an FP and never actually used one, but what I was interested was never stock picking. A second opinion on my portfolio might be worthwhile, but I was more interested in estate planning, taxes, insurance and all the other aspects of a financial plan.

I thought a good FP provided a review of your overall financial situation which is more than investments. I don't know what I don't know, but I am willing to belive there are people who know more than I do about at least some of these things and paying them for that might be a good investment.

 

[saluki9]

I thought a good FP provided a review of your overall financial situation which is more than investments. I don't know what I don't know, but I am willing to belive there are people who know more than I do about at least some of these things and paying them for that might be a good investment.

Don't believe it for a second! There are no skilled planners or investment advisors out there. They are all closet criminals who don't have any real skills they are just there to steal. I mean, if they knew anything about investing they would be retired right? After all, you would never use an attorney who doesn't get sued all the time or a heart surgeon who hasn't had a transplant himself would you?

In addition, there is NOTHING about investments, distribution modeling, or financial planning that can't be learned on the internet

There, how many posts did I just save?

 

[FinanceDude]

Don't believe it for a second! There are no skilled planners or investment advisors out there. They are all closet criminals who don't have any real skills they are just there to steal. I mean, if they knew anything about investing they would be retired right? After all, you would never use an attorney who doesn't get sued all the time or a heart surgeon who hasn't had a transplant himself would you?

In addition, there is NOTHING about investments, distribution modeling, or financial planning that can't be learned on the internet




There, how many posts did I just save?

 

[Alex]

Face it, most people here would never pay for financial advice. I certainly wouldn't. I don't care what the fee's are, I am a DIY'er in this area and I enjoy it.

My neighbor is a car-jock. He thinks I am crazy because I don't change my own oil. You couldn't pay me to change my oil. I drive into any Jiffy Lube and about 15 minutes and a few dollars later I drive out. no filthy oil to deal with nothing to think about. He thinks I am nuts. But ask him about investing and his eyes glaze over. He wouldn't know the first thing about expense ratios, sales loads or 12b1 fees. So you'd probably be greeted with open arms if you approached him. It is really very individual.

 

[OkieTexan]

In addition, there is NOTHING about investments, distribution modeling, or financial planning that can't be learned on the internet

I wonder if we would be so confident if conditions were like those in 2002-2003. Stocks were falling like rain. Bonds were in the sewer. Interest rates were low. Many co-workers wanted to bail out of their funds and put everything in Money Markets until the "crisis is over". Some good advice might be worth a lot.

It can get pretty lonely at those times..........

 

[FinanceDude]

I wonder if we would be so confident if conditions were like those in 2002-2003.

Well, some of us had clients that didn't lose much, because we didn;t believe that PE's over 100 were "normal".............

True story in 1999. My brother sent me a referral whose nickname was "Mr. Internet". He knew more than anyone I ever met about all the html, what the dot in websites stood for, etc. This dude was the riskiest guy I ever met. He was convinced the Internet was greater than ANY of Edison's inventions...........

But he had made some big money on some patents he sold to one of the dot-coms, and told me he "only" wanted to make 50% a year, so that is why he wanted to work with me...............

 

[samclem]

I agree with others--pay for performance wouldn't cut it for me, since I honestly don't think that he can do better than I'm doing (as far as investment returns) without taking more risk.

Paying a percent of assets doesn't seem right eaither: a strategy is a strategy, and it takes the FP the same amount of time to implement regardless of the $$ involved.

Flat hourly rate might be okay in some cases, if the guy was really qualified. But, I honestly wouldn't want to sit down with the meter running while he gives me a speil at the depth of First Command/USPA-IRA. Where I think someone with the right attitude, aptitude, and tools could help me is in figuring out an optimization of my holdings and additions/shifting/withdrawal strategies for solo401K holdings, RothIRA, conventional IRA, and college savings plan. I want a plan that meets our needs and minimizes taxes. I wouldn't know what it was worth to me until I saw it.

What I'd like is to pay for a product: An indepth analysis that will likely produce results. I sit down with the planner for 30 minutes, show him my current setup and my goals. He figures out the optimum strategy, and compares it to how I would have done, net of taxes, over X number of Firecalc-like periods of 20 years. He tells me the results and enough info to know he did it fair and square, but not enough info to give away how he did it. Then, he presents a bill. If we agree on a price, he delivers a product: A report showing how to achieve the optimum results and the rationale for same. I think something like this, well documented with a step-by step implementation plan, would be worth several thousand dollars to me, and I'd pay it without a peep. And, I think the right guy/gal could crank one of these custom reports out in 8-10 hours of work once he/she had the tools in place.

 

[OkieTexan]

But he had made some big money on some patents he sold to one of the dot-coms, and told me he "only" wanted to make 50% a year, so that is why he wanted to work with me...............

Good point......
Expectations soar with the market indices....... Fear makes 'em drop!
I wonder who came up with the "bulls and the bears" terminology we use when referring to stock market trends. When you think about it, it really fits the mood investors seem to have when the market swings.

 

[MooreBonds]

Well, some of us had clients that didn't lose much, because we didn;t believe that PE's over 100 were "normal".............

True story in 1999. My brother sent me a referral whose nickname was "Mr. Internet". He knew more than anyone I ever met about all the html, what the dot in websites stood for, etc. This dude was the riskiest guy I ever met. He was convinced the Internet was greater than ANY of Edison's inventions...........

But he had made some big money on some patents he sold to one of the dot-coms, and told me he "only" wanted to make 50% a year, so that is why he wanted to work with me...............

So how did you fare with him? Did you exceed his expectations with 60% returns? Or did you say "Gosh, I'm already tied up with people earning 40% returns that I can't make time for someone in the 50% bracket".

 

[FinanceDude]

So how did you fare with him? Did you exceed his expectations with 60% returns? Or did you say "Gosh, I'm already tied up with people earning 40% returns that I can't make time for someone in the 50% bracket".

No, I told him I try to get 10-12% returns and take a LOT less risk than what he was willing to. In the end he seemed disappointed, so I made him a deal, we could split the account. He could take half the money and invest any way he wanted, and I would invest the other half. We would meet twice a year, and see how it went.

He bought CMGI, Lucent, Enron, etc, etc. I bought P&G, Exxon, Berkshire Hathaway B, Warner-Lambert, WalMart, Home Depot, Lowes, and Apple. I don't have him as a client anymore, as he went out to Silicon Valley to work at some Internet place, but that dude cracked me up with his "New Economy" optimism...........

 

[FinanceDude]

Good point......
Expectations soar with the market indices....... Fear makes 'em drop!
I wonder who came up with the "bulls and the bears" terminology we use when referring to stock market trends. When you think about it, it really fits the mood investors seem to have when the market swings.

If I knew how to make 50% returns consistently, I would put it on a CD, and charge $10,000 a copy for it..........

 

[Nords]

If I knew how to make 50% returns consistently, I would put it on a CD, and charge $10,000 a copy for it..........

No, no, no, you'd run seminars & training classes because you love the subject and enjoy meeting people whom you can treat like family!

 

[brewer12345]

I can easily come up with a scenario in which I would happily pay a (modest) percentage of assets or other fee structure for competent, unconflicted advice: if I croaked. DW has little clue about finance, even though she is no dummy. I have tried, but she isn't interested, so it doesn't stick. If I could find a planner I was comfy with, I'd happily point her in their direction in my "what to do with the money if I drop dead" sheet.

 

[HFWR]

If I had brazillions in assets, I'd probably be willing to hire someone to manage all my tax dodges my portfolio...

My current and projected financial situation does not warrant any expert advice I can't get from the internet the library.

 

[FinanceDude]

I can easily come up with a scenario in which I would happily pay a (modest) percentage of assets or other fee structure for competent, unconflicted advice: if I croaked. DW has little clue about finance, even though she is no dummy. I have tried, but she isn't interested, so it doesn't stick. If I could find a planner I was comfy with, I'd happily point her in their direction in my "what to do with the money if I drop dead" sheet.

Sounds like my wife.............

 

[Martha]

I can easily come up with a scenario in which I would happily pay a (modest) percentage of assets or other fee structure for competent, unconflicted advice: if I croaked. DW has little clue about finance, even though she is no dummy. I have tried, but she isn't interested, so it doesn't stick. If I could find a planner I was comfy with, I'd happily point her in their direction in my "what to do with the money if I drop dead" sheet.

I am not much interested in the financial planning stuff either. How much posting do I do on the allocation threads and fund threads? Nuthin. Greg does all of that. He has a "what to do with the money if I drop dead" sheet as well. He tries to talk to me about finance but I see it as not part of my job description so I am not very cooperative.

But, if worst came to worst, I would learn what I need to know. Good chance your wife would too. But for now, we are taking care of other business.