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Old 08-09-2013, 11:15 PM   #21
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How many times have we seen claims of 'I haven't recovered from the 07-08 meltdown' - that's overwhelmingly a discipline issue, where methodology has gone out the window.
It is distressingly naive that sentiment like this leads you to believe that with an adviser these people would do any better. Advisers like to suggest that if only people had been their clients they would not have made decisions that in hindsight turn out to be foolish, but in actual practice, there are plenty of advisers suggesting active management, market timing strategies, high fee schemes of all sorts and worse. There are many advisers who's own knowledge of investment principles is minimal and who for the most part function as salesmen, with glib answers and ready counters to resistance to buy. It is overly romanticizing them to suppose that they might help their "clients" avoid abstract problems like selecting improper asset allocation or making poor investment decisions, since in many cases that is what the advisers themselves recommend. In many cases, that's where there are commission dollars to be earned.
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Old 08-10-2013, 03:57 AM   #22
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not only are most people financially ignorant and it would be worth every penny in a fee to them to see a planner but even knowledgable people screw up and they should know better.

planning is more than buying index funds. it takes in tax planning, strategys, college funding ,long term care etc etc etc.

there is always a piece of the puzzle amatuers miss on their own.

if you all remember back in 2006 i think it was we accepted the money magazine challenge to see if their team of pro's could find errors in my own planning.

overall we did very well but there were a few issues the pros were right about .

i would bet everyone here no matter how well schooled you think you are would benefit from a sit down with an ed slott kind of guy.
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Old 08-10-2013, 07:02 AM   #23
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But the bolded parts are the point I was making. How can you know 'it worked out well' for you? Wouldn't that take some understanding of how to measure the performance of this advisor against some benchmark? What is that benchmark? And when you have determined that benchmark, why not just invest directly and save the fees? Something like the "couch potato portfolio".

There might be special cases, like complicated tax issues, trusts or some pending future payments. But for most people who want to retire on a portfolio with maybe some help from SS and pensions, it is pretty straightforward.


-ERD50
I really agree to me one of the most difficult things of hiring any expert is how the heck to I really judge if the guy is good or not.

If go to mechanic because the check engine light is on, but nothing is obviously wrong. All I really know is that engine light is off and the car still is running well. I have no clue if $400 I got charged to fix the car was a reasonable fee or a rip off. Same thing is true for a doctor,dentist, or an electrician. I simply don't have the time or skill to be good judge of the quality or service delivered, nor figuring out if it is a good value. I am forced to use objective measurement, going to Stanford or Harvard medical is probably better than in Mexico. In the case of doctors and dentist, CPA there is some pretty difficult hurdles to pass before they get certified. For other profession there is not much more to do but depend on recommendations from friends, reviews from Yelp, Angie's list, and price shopping.

Physician take an oath to first do no harm, and the honest ones (or at least those at Kaiser who don't get paid to run useless tests) will often tell you, "your body will heal itself go home and take some aspirin." Still on aggregate we live longer and our healthier to thanks to the skill of doctors.

In contrast because things like picking stocks, bonds, mutual funds, are essentially a zero sum game on aggregate financial helpers add no value in the execution portion of there services. The only things they do that actually help develop plans and provide tax advice and such.

The situation is made worse by no universal certification for financial advisers, or a universal benchmark.
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Old 08-10-2013, 07:44 AM   #24
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But the bolded parts are the point I was making. How can you know 'it worked out well' for you? Wouldn't that take some understanding of how to measure the performance of this advisor against some benchmark? What is that benchmark? And when you have determined that benchmark, why not just invest directly and save the fees? Something like the "couch potato portfolio".
I say it worked out reasonably well for me because her returns have outperformed my own self-invested ones, even after subtracting the fee. She's done better with her chunk of the money than I have with mine. She's also given me useful advice about a variety of things, including how to educate myself, what I need to be considering, potential pitfalls, etc.
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Old 08-10-2013, 08:28 AM   #25
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...

if you all remember back in 2006 i think it was we accepted the money magazine challenge to see if their team of pro's could find errors in my own planning.

overall we did very well but there were a few issues the pros were right about . ...
But Money Magazine assembled a team for you. I would assume they picked some pretty sharp people. What are the odds of a naive investor getting any single advisor as good as any of the people on that team, let alone an entire team of them?

And just maybe, the team, put in a little extra effort, knowing the results would be published, and their name would be attached? I know I would if I were in their shoes.

I think your experience, while interesting, has almost zero relevance to the typical naive investor.

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I say it worked out reasonably well for me because her returns have outperformed my own self-invested ones, even after subtracting the fee. ...
But how has she done versus a 'Couch Potato Portfolio" or similar typical DIY approach. I have no idea what your self-invested approach is, but it may not be typical of what is generally promoted here for DIY, so that may be a factor.

As far as help with "what I need to be considering, potential pitfalls, etc.", try asking at a forum like this, the FAQ and Bogleheads and their wiki - see how those free answers compare. Another option is a pay-by-the-hour advisor for specific tricky situations.


-ERD50
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Old 08-10-2013, 09:20 AM   #26
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When having this discussion, we should keep in mind that the typical person on this forum knows more about investing than probably 99% of the population. Sitting down for a few hours with a pay-as-you-go advisor would be invaluable for a lot of people I know who are well educated, but I'm not sure even know the definition of "stock" and "bond" and certainly would not be able to explain concepts like "rebalancing bands", "tax loss harvesting", and "risk tolerance".
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Old 08-10-2013, 09:33 AM   #27
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When having this discussion, we should keep in mind that the typical person on this forum knows more about investing than probably 99% of the population. Sitting down for a few hours with a pay-as-you-go advisor would be invaluable for a lot of people I know who are well educated, but I'm not sure even know the definition of "stock" and "bond" and certainly would not be able to explain concepts like "rebalancing bands", "tax loss harvesting", and "risk tolerance".
And my position is, you can understand a "couch potato portfolio", and implement it in less time than it would take to interview three advisors, and determine which, if any, you feel 'comfortable' with.

Rebalancing may be over-rated. Do it or don't do it. And if you do, a once a year calculation is pretty darn simple, as is the concept. One can get feedback on tax loss harvesting (if needed), as well as risk tolerance here (historically, portfolio safety seems pretty insensitive to a wide range of AAs - anything from about 45% to 100% has similar results). One could certainly hire a tax specialist by the hour to deal with specific tax issues as they arise.

-ERD50
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Old 08-10-2013, 10:11 AM   #28
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And my position is, you can understand a "couch potato portfolio", and implement it in less time than it would take to interview three advisors, and determine which, if any, you feel 'comfortable' with.

Rebalancing may be over-rated. Do it or don't do it. And if you do, a once a year calculation is pretty darn simple, as is the concept. One can get feedback on tax loss harvesting (if needed), as well as risk tolerance here (historically, portfolio safety seems pretty insensitive to a wide range of AAs - anything from about 45% to 100% has similar results). One could certainly hire a tax specialist by the hour to deal with specific tax issues as they arise.

-ERD50
I agree that a couch potato or three-fund portfolio or everything in a single target date fund is simple and probably the best option for someone with little knowledge of or interest in investing. And probably even for many knowledgeable investors. But the hard part is for that person to understand why those are better options than buying the "highest-rated fund" or "the fund with the best performance" and to understand that there are no guarantees, and even if the value of your assets drops 20% in the first year after you put everything into a couch potato portfolio, it doesn't necessarily mean you did the wrong thing or got bad advice.

As I said in an earlier post, investing is simple, but understanding that investing is simple is complex.
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Old 08-10-2013, 10:43 AM   #29
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But how has she done versus a 'Couch Potato Portfolio" or similar typical DIY approach. I have no idea what your self-invested approach is, but it may not be typical of what is generally promoted here for DIY, so that may be a factor.
It definitely is a factor, yes. I spent about a year stumbling around, doing the best I could with what I knew, and my returns no doubt suffered for it. That's my point. My FI did better than I did, because she knew more than I did. It is only within the past few months that I have reached minimal competence with investing and gotten my portfolio into good shape.

Whether she will continue to outperform my newly optimized portfolio, I don't know. But I was just saying that, over the past year, while my knowledge was lagging, she outperformed me.

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As far as help with "what I need to be considering, potential pitfalls, etc.", try asking at a forum like this, the FAQ and Bogleheads and their wiki - see how those free answers compare. Another option is a pay-by-the-hour advisor for specific tricky situations.
Oh yes, I understand all that now. But at the time, it was not so simple and clear. My dad died, I inherited a bunch of money, and I was overwhelmed with dealing with my normal stresses plus all of the estate duties (I was administrator, and it was a multi-state mess, with lots of people involved and relationships to keep in balance). I knew little to nothing about investing, taxes, estates, inheritance, real estate, ctc. I really benefitted from the help.

I'm not saying it's a long-term, permanent arrangement. But for the interim between ignorance and minimal competence -- during that time of "crisis" and overwhelm -- I was supremely grateful to have someone who knew what they were talking about helping me through it.
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Old 08-10-2013, 10:43 AM   #30
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It can't hurt to have a second set of eyes to look at what you are doing. I think it wise to at least once have a fee based investor look over what you are doing and make recommendations. You can freely ignore them if you desire. I am fortunate to have access to financial advisors through Megacorp, but I only consult with them once every few years. Iif I didn't have access to them I pay since it is infrequent and I'm able to resist their temptations fairly well.

But as was stated above, the big difficult most people have is discipline. If a financial advisor helps with that, that is goodness. But I suspect that a lot contribute to folks not being disciplined... since many times discipline means "don't do anything different, just stay the long for the long term", which doesn't generate a lot of revenue.
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Old 08-10-2013, 10:56 AM   #31
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I say it worked out reasonably well for me because her returns have outperformed my own self-invested ones, even after subtracting the fee. She's done better with her chunk of the money than I have with mine. She's also given me useful advice about a variety of things, including how to educate myself, what I need to be considering, potential pitfalls, etc.
There are two themes in your approach which I believe are part of the success: 1) it is not all under FA management, and 2) there is advice coming to you that is valued.

These are common elements in situation(s) where I see external management working.
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Old 08-10-2013, 11:00 AM   #32
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Interesting article on the topic:

The True Role Of An Investment Adviser
This is a good summary. But I think he missed one (or perhaps is just being polite...)

He says:

  1. To put space between you and your investments so that you donít make emotional decisions.
  2. To do detailed research on asset allocation or index funds because you would rather spend time doing more enjoyable things.
  3. To provide help to a spouse or family member who isnít inclined to do it on their own.
  4. To provide help to a spouse or family member when youíre no longer able.
  5. For legal purposes to reduce your fiduciary responsibility such as a charitable trust account.
What I think he missed is to provide help to yourself if you aren't capable of doing it yourself. Not everyone is capable and not everyone is knowledgeable. One might thing that those who have sufficient assets to hire a FA would be. However, that isn't always the case. Also, some people were capable at one time but due to illness or changes with aging are no longer capable.
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Old 08-10-2013, 11:18 AM   #33
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Although I don't use an advisor (I'm a very happy DIY'er), I definitely have an example of who is better off with one.

My parents retired with two reasonable pensions and a decent sized nest egg that existed because my DD didn't know it was there. Left to his own devices he's had a tendency to speculate in precious metals and buy and sell every hot stock he sees mentioned in USA Today. This cycle has repeated itself numerous times with the money to which he's had access and he's lost every time.

My DM insisted that they have an advisor for that reason (once she finally told him how much they had saved). They had one bad experience with a clueless advisor at Raymond James, but now have a stable one at Edward Jones. I've met with him and reviewed his handling of their account. He seems like an honest capable guy.

Is he worth the commission? For them...every penny. In the last 5 years he's helped them stick to the plan they set and:
1) kept them from selling everything in 2009.
2) convinced my DD (who wanted to "ride the wave") not to buy gold at its last peak since it didn't fit their plan
3) provided a small set aside for my father to "play" the market and leave the rest alone. He has, of course, lost more than 1/2 of it so far.

For most on this forum all an advisor would provide would be a reduced SWR. For my dear parents, the difference is portfolio growth instead of emotional buying and selling (and the chance of a wiped out account). When emotions can't be controlled, they can provide a valuable safety check.

I also do take advantage of the offers to review my portfolio. I always go in with it clear that I'm happy on my own, but they usually want the chance anyway. Each time I have come out with at least one idea that I've researched (kind of like the seminars I attend for work). Most haven't panned out, but a couple have been helpful.
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Old 08-10-2013, 01:47 PM   #34
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But Money Magazine assembled a team for you. I would assume they picked some pretty sharp people. What are the odds of a naive investor getting any single advisor as good as any of the people on that team, let alone an entire team of them?

And just maybe, the team, put in a little extra effort, knowing the results would be published, and their name would be attached? I know I would if I were in their shoes.

I think your experience, while interesting, has almost zero relevance to the typical naive investor.



But how has she done versus a 'Couch Potato Portfolio" or similar typical DIY approach. I have no idea what your self-invested approach is, but it may not be typical of what is generally promoted here for DIY, so that may be a factor.

As far as help with "what I need to be considering, potential pitfalls, etc.", try asking at a forum like this, the FAQ and Bogleheads and their wiki - see how those free answers compare. Another option is a pay-by-the-hour advisor for specific tricky situations.


-ERD50
you are correct , they had some pretty sharp advisors.. however my point is that as good as i thought i did there was room for improvement in areas i was not that knowledgeable in.
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Old 08-10-2013, 01:54 PM   #35
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<snip> Wouldn't that take some understanding of how to measure the performance of this advisor against some benchmark? What is that benchmark? And when you have determined that benchmark, why not just invest directly and save the fees? Something like the "couch potato portfolio". <snip>
-ERD50
The benchmark would be what the DIY investor would have done without an advisor.

So many here focus on financial performance, but that is only one facet of ones' financial life.

It would be interesting, if it were possible, to get an objective measure of all DIY investing results vs all advised investing results. It is simply not possible, though. Many DIY investors -- well, advised ones also -- who do poorly do not want to admit it. You have to remember that the DIY investors in these forums do not, I believe, represent all DIY investors -- what you have here is the top tier, and I would bet that tier is pretty thin.

A lot of DIY investors do not know what they are doing. I used to be one myself.


This topic is always so entertaining. You have some minority of posters who will say "Do whatever turns your crank.", and usually some majority who wiggle around and get their shorts all wadded up because somebody talks about using an advisor, and they think that minority needs to be "saved" from the evil advisors.

Here is what I think everybody should do: If you want to use an advisor, then use an advisor. If you want to DIY, then DIY.

But don't try to convince me that one is better than the other.



Edit to add: When an individual buys a VA from an insurance agent, I consider that DIY.
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Old 08-10-2013, 03:38 PM   #36
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And my position is, you can understand a "couch potato portfolio", and implement it in less time than it would take to interview three advisors, and determine which, if any, you feel 'comfortable' with.

Rebalancing may be over-rated. Do it or don't do it. And if you do, a once a year calculation is pretty darn simple, as is the concept. One can get feedback on tax loss harvesting (if needed), as well as risk tolerance here (historically, portfolio safety seems pretty insensitive to a wide range of AAs - anything from about 45% to 100% has similar results). One could certainly hire a tax specialist by the hour to deal with specific tax issues as they arise.

-ERD50
But that's just the "easy" part.

Heck, it might be worth it even to me to have an FA handle my Roth conversions up to the AMT tax hit, sell to raise cash every year, find places to keep that cash until I spend it, and do my tax planning and returns. Heaven forbid DW has to do it by herself any time soon. I'm looking forward to simplifications in the future when our fully taxable accounts finally run out.
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Old 08-10-2013, 04:04 PM   #37
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This topic is always so entertaining. You have some minority of posters who will say "Do whatever turns your crank.", and usually some majority who wiggle around and get their shorts all wadded up because somebody talks about using an advisor, and they think that minority needs to be "saved" from the evil advisors.

Here is what I think everybody should do: If you want to use an advisor, then use an advisor. If you want to DIY, then DIY.

But don't try to convince me that one is better than the other.
lol, I like the way you put that.

I also agree with your thoughts on the subject. This isn't a "one size fits all" or "one right answer" type issue. There are a lot of valid possibilities.
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Old 08-10-2013, 04:22 PM   #38
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The benchmark would be what the DIY investor would have done without an advisor.

....

A lot of DIY investors do not know what they are doing. I used to be one myself.
Sure, a totally uninformed investor might well be better off with the kind of average FA that an uninformed investor might pick.

But I think that is not a useful way to look at it - a DIY home repair analogy:

A) Say I take a totally uninformed approach to some DIY project at home. Being uninformed, I screw it up, and it ends up costing me more to have a pro fix my mistakes plus do the original job than if I just called a pro at the start.

B) I go to the Internet, and find some simple DIY approach to the project. It is within my capabilities, and has a few precautions, and armed with this knowledge I complete the DIY and save $$$$.

Now, does scenario A tell us we should not tackle DIY? Or does it say, try to learn a little first, and then see if DIY makes sense for you?

When I Googled "simple DIY retirement portfolio", the first hit was to a BogleHeads wiki on a three-fund portfolio. This isn't rocket science.


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Here is what I think everybody should do: If you want to use an advisor, then use an advisor. If you want to DIY, then DIY.

But don't try to convince me that one is better than the other.
Of course anyone can do what they want. But a lot of people on this forum try to help others out, and we get help in return. And I think it is fair to say there are very few cases where an FA is going to really help someone. An uninformed person will most likely end up with an FA charging 1%, and get put in some higher fee funds.

If they are looking to draw $35,000 for themselves, at a 3.5% "SWR", then an added 1% annual fee requires ~ $1,300,000 versus $1,000,000 for DIY.

Saving an additional 30% in NW is a big deal - that is going to be tough for an FA to overcome. Or cutting spending from $35,000 down to $25,000 to support that $10,000 to the FA is a big deal. We are not talking small potatoes, and I was conservative by not adding the typical added .5%, .75% or more for the expenses on those FA recommended funds.

-ERD50
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Old 08-10-2013, 08:41 PM   #39
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"Who REALLY is better off with an advisor?" Well, not somebody who would like to be able to open a position in Wellington Fund (at least not if the FA is doing the actual buying and selling for you).
Of course, to be fair, if you want access to DFA, you have to pay the troll toll.
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Old 08-10-2013, 09:26 PM   #40
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"Who REALLY is better off with an advisor?" Well, not somebody who would like to be able to open a position in Wellington Fund (at least not if the FA is doing the actual buying and selling for you).
Of course, to be fair, if you want access to DFA, you have to pay the troll toll.
Nice "nightman cometh" reference.
But DFA IS available for no fee thru some 529's and for very low fees thru some flat fee advisors.
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