Over-Aged Financial Planners?

[clifp]

Let me re-phrase the question then.

Why does the $10 million guy pay 25 times what the $100K does? Does he get 25 times more time/services etc.

From the tone above, maybe you should defer to FinanceChick

The same reason the Rolex buy pays 1,000 times more than the Casio buyer, he/she can afford it.

 

[73ss454]

Or maybe because they aren't paying attention!

 

[saluki9]

Do you charge the same ER's as Vanguard or are they marked up?

There is Vanguard's fee, and then our firms fee. Ad advisor can't change the ER of a fund or ETF.

 

[saluki9]

So FAs do use Vanguard. Glad to see it.

It's a huge market for them

Here is their advisor site, it has some pretty decent material, and maybe more appropriate for users of this site.

https://advisors.vanguard.com/VGApp/iip/site/advisor/home

 

[frank]

I don't use a financial planner and haven't for a long time. I invested a lot of money with one in 96 and it just sat in different funds and didn't do much. the planner though collected his fee every year. I consulted with him and asked why he wasn't moving the money to funds that were more profitable and he said the way to make money was to put the money in funds that had a good track record and let them grow until retirement. I assumed that financial planners would call you when you funds weren't doing to well and say, why don't we reallocate some of these funds elsewhere, but that didn't happen. so, I called him and asked why not move some of these funds, he said that small cap funds are doing well right now, I said move some money over there, we did that and the profit show substantial increases, I then moved my money out of there and never went back.

 

[travelover]

........... I assumed that financial planners would call you when you funds weren't doing to well and say, why don't we reallocate some of these funds elsewhere..........

I think most here would consider this flawed thinking, as in chasing performance and market timing.

 

[Gone4Good]

I think most here would consider this flawed thinking, as in chasing performance and market timing.

I see his point, though.

If I'm paying an advisor every year, I must think I'm getting some value for those fees. If on the first day, he sets me up with a bunch of funds, he's earned his fee for that day. But then if we just sit with the same funds, year after year, what am I paying for?

It would be like paying an architect to draw up blue prints and then have him send you a new bill for every year you stay in the house.

(but we're not allowed to talk about these things, because it's a free market, which means its perfect. And we know it's a perfectly competitive market because we assume it to be. But even if that market takes advantage of asymmetric information, we can't talk about it because then those who currently don't have enough information to avoid being exploited might become informed and disrupt the competitive free market, which as we all know, is perfect.)

 

[73ss454]

Like any other salesperson, they are going to take as much as they can get away with. They are always looking for people who are not paying attention. I don't blame them as that's how they make a living. "Buyer Beware"

 

[saluki9]

I see his point, though.

If I'm paying an advisor every year, I must think I'm getting some value for those fees. If on the first day, he sets me up with a bunch of funds, he's earned his fee for that day. But then if we just sit with the same funds, year after year, what am I paying for?

Well, the first question that I would ask is what is the purpose of the relationship? If the only reason you're hiring an advisor is because you think he's going to pick only the best performing funds, buy them at exactly the right time, and beat the market.... well, then I think you've hired them for the wrong reason. There has to be more to the relationship than just performance of the investments.

So to go back to that example, if I'm paying a fee and the advisor isn't trading a lot, that's fine. Do you want them placing trades just to look busy? I know some firms that do.

Having now working in this business through two major downturns I can say this. The advisors that kept their clients invested when their client's emotions were telling them differently have saved their clients many multiples of a lifetimes of their fees. I know this because I have seen it with my own eyes, and had dozens of those conversations with end clients.

 

[Sarah in SC]

Having now working in this business through two major downturns I can say this. The advisors that kept their clients invested when their client's emotions were telling them differently have saved their clients many multiples of a lifetimes of their fees. I know this because I have seen it with my own eyes, and had dozens of those conversations with end clients.

This paragraph perfectly explains what good advisors do for clients. Thank you Saluki.

 

[REWahoo]

I agree that a good advisor probably really earns their money during market downturns. All that hand-holding is serous work and it must be really discouraging to see someone panic and 'sell at the bottom' in spite of your best efforts to get them to stay the course.

 

[growing_older]

Most of the advisers I have talked to were jump into and out of the market types. They were always ready with explanations about why they or their firm knew what was best and why paying higher fees was to my benefit because you get what you pay for.

I'm sure there are good advisers out there. I couldn't find them before my own self-education became sufficient that I (mostly) no longer needed one. There are probably still areas where my structuring portfolio for tax advantage could benefit from knowledgeable advice from someone who really knows what they are talking about, but the few times I have sought this out I have been given bad or wrong advice (like laws that were expired) and it required me to do as much checking as if I did the planning myself. I have become discouraged that sorting through all the poor advisers to find the rare good one is worthwhile for me.

I have friends who are delighted with their advisers. But when they tell me about how they are being helped it is mostly through reassurance that their mediocre results are normal and they should be happy with a few isolated positions that have good gains. Maybe that is helpful enough to them that they need this service. Like the example of the BIL that was so freaked that he needed basic instruction.

 

[Gone4Good]

Having now working in this business through two major downturns I can say this. The advisors that kept their clients invested when their client's emotions were telling them differently have saved their clients many multiples of a lifetimes of their fees. I know this because I have seen it with my own eyes, and had dozens of those conversations with end clients.

Yup, it's certainly true the FAs who did that earned their keep.

I just wonder if there is any way to know in advance if your FA is going to give you good, disciplined advice or bad, emotionally driven advice. I guess its only possible to know in retrospect, but even then, you'd have to be able to discern the former from the later. And if you could do that, you probably don't need an FA in the first place.

So I'm kind of back were I started.

 

[FinanceDude]

The same reason the Rolex buy pays 1,000 times more than the Casio buyer, he/she can afford it.

I own a Casio and a Movado, both gifts. Why would I own a Rolex when the Casio keeps better time?

 

[FinanceDude]

Like any other salesperson, they are going to take as much as they can get away with. They are always looking for people who are not paying attention. I don't blame them as that's how they make a living. "Buyer Beware"

Well, that's how it works in the car business, not the FA business.......

 

[73ss454]

Right!

 

[haha]

In the usual buy/sell relationship the seller wants to have a monopoly on information, the buyer wants to lessen that advantage but he can never really eliminate it except in true commodity items or services. Anyone who has ever sold to pay his bills knew this,-or else he soon found another way to pay the bills.

I suspect this is why it is so frustrating to shop for a life insurance policy, or an annuity, or health insurance. Lots of moving parts are designed in these things to make comparisons difficult.

If I am an agent, I love this. If I am a potential buyer, I hate this!

Ha

 

[fritz]

I have two close friends who are financial planners. Both are well past normal retirement age but can't afford to stop working. Hmmmm.

Scott
FIREd 7/1/2008

Really picked a scab here, didn't you.

 

[chinaco]

Well... I would avoid them. It could be that they are great FPs but had no discipline to save for themselves.

But it could be that they are incompetent at FP.

Either way.... I would not take the risk. At a minimum, there would be no continuity in the plan since they would (because of the large aged difference) likely die before me.

Of course most people that go to an FP know nothing about FP, investing, etc... therefore they have not thought about these issues.


Regarding the age difference issue... the same goes for an estate attorney. Make sure there is a succession plan for continuity. This is where partners in a firm make sense (as opposed to the lone attorney).

 

[frank]

I went to a fp because I did not know anything about which funds and stocks were profitable and which ones would give me the most growth over time. I had no knowledge of financial planning and buying or choosing funds. I had no interest in learning, as I had other things which made my income at that time. my intention was to put my money with a fp and let him make my investments grow, as that is why he took a percentage every year. when the years go by and you see minimal growth, but his commission stay the same, then it is time to rethink the premise. It was my intention when I hired the person, that he would reevaluate my position every so often (annually), meet with me and suggest changes that would improve my bottom line. this is not what happened and our relationship was terminated. I do know one thing and that is not to sell at the bottom of the market. I do not sell because of panic. there was no hand holding and when the market dropped I would stay invested. I have thought about taking a class in investing and money management, but don't know where or what kind of class to enroll in that would give the most extensive training in this area. any suggestions? I know there a lot of books out there and have read a couple but I think that classroom interaction would be better than reading other peoples methods for investing.

 

[chinaco]

.... my intention was to put my money with a fp and let him make my investments grow, as that is why he took a percentage every year. when the years go by and you see minimal growth, but his commission stay the same, then it is time to rethink the premise...

Sounds kinda like a leech on a host.

I guess you can look on the positive side... at least you got minimal growth. Chalk the rest up to educational cost and move on.

 

[Rustward]

A lot of what has been said here about financial planners could also be said about lawyers, doctors, auto mechanics, plumbers, HVAC people, car salesmen, . . . you name it.

 

[frank]

how much money do you invest with you doctor, auto mechanic, plumber, hvac people. they work for you and charge you for their labor. you know how much it cost and it is not an ongoing drain. you only pay for their services when you need them.

 

[saluki9]

how much money do you invest with you doctor, auto mechanic, plumber, hvac people. they work for you and charge you for their labor. you know how much it cost and it is not an ongoing drain. you only pay for their services when you need them.

You're right all of the above work with totally transparent billing without any profit motive, intentional over billing, or putting their interests before their clients

 

[frank]

If you don't know what you are going to pay these kinds of people before they work for you. maybe you should work at it a little harder. I don't give people an open ticket to charge whatever they want.