Here's what my 1% fee Fidelity Portfolio Advisors have me in

[Dawg52]

My new Fidelity acct representative called to introduce himself the other day and he said he was a CFP and that he was salaried. That was basically the first thing out of his mouth and I couldn't help but chuckle as I thought about this forum. But he seemed to be a nice guy, just asked a few basic questions and said he would check in every few months. No pressure what so ever. Over the years, I have actually had very few calls from Fidelity. We will see how it goes with this guy......

 

[FinanceDude]

I hear you. I think what some of us are visualizing is, a kind of "rough cut" approach to FA, without a lot of hand-holding, but done on an almost assembly-line basis so that costs could be kept to a minimum. It makes sense that individual FAs don't have the economy of scale to do that, so they need to charge what they need to charge to make a living (or get out of the business, as you say many are doing). But maybe a large organization could provide a very good service at a very good price.

If it could be done at a profit, someone would already be doing it. I am NOT referring to the Amerprise model, where they charge you a lot for a financial plan, charge you an annual retainer fee to have a CFP "talk" to you, and then put you in proprietary products with large commissions......

Really, if you have the client fill out the survey, provide their current status and get an indication of their risk tolerance, how many hours of effort would it really take to provide a cookie-cutter asset allocation?

Not many, heck you can do it on the Internet........

Again, this isn't knocking the good FAs who provide a valuable service and need to charge accordingly. It's just thinking out loud about an alternative for the masses.-ERD50

We need to put you in charge........

 

[ERD50]

This sounds like a job for the old farts! People can't trust FAs because of conflicts of interest. People with no conflicts of interest can't make enough money to survive. So people with no conflicts of interest and no major financial needs, combined with a desire to help people, can step in and fill the gap. Here's our chance!

I bounced this idea around a little bit after I retired. I'm just not motivated to go out and get whatever certifications I might need, and then how do you go about getting a client base?

Sounds attractive at first, then quickly starts to sound like work. I never even came close to taking the first baby steps towards this. It m,ight be just the ticket for some other people though.

I recall reviewing a retired relative's portfolio with them. It was a mish-mosh of funds, lots of over-lap, and probably relatively high fees. But to make any real decisions, we'd need to dig in and understand the cost basis of each and every investment, check for any surrender fees (probably none, they had been in these for a while). In the end, nothing looked so out-of-whack that I felt it was all that important for them to change. About the only thing we did was to change some of these funds from re-investing dividends, to dumping any pay-outs into their checking account. After all, they were in a withdraw phase, not accumulation phase. But that was pretty minor.

If someone was in an accumulation phase, it would be easier. You could just direct new money into appropriate funds, whether you do anything with the old funds would be less of an issue.

-ERD50

 

[samclem]

I hear you. I think what some of us are visualizing is, a kind of "rough cut" approach to FA, without a lot of hand-holding, but done on an almost assembly-line basis so that costs could be kept to a minimum. It makes sense that individual FAs don't have the economy of scale to do that, so they need to charge what they need to charge to make a living (or get out of the business, as you say many are doing). But maybe a large organization could provide a very good service at a very good price.

Really, if you have the client fill out the survey, provide their current status and get an indication of their risk tolerance, how many hours of effort would it really take to provide a cookie-cutter asset allocation?

Would it be "perfect"? - no. Would it be better than an uninformed investor might do? - probably. Should it cost a lot? - I don't think so.

Most of us would be more comfortable in tailor-fit custom clothes. But most of us get by just fine with off-the-rack clothes, and some of us don't have the skills to sew our own. So, an "off-the-rack" (not one-size-fits-all) asset allocation might be "good-enough" and represent a good value for many.
-ERD50

Yes, that's it. The customer fills out the questionnaire (online if they want), with telephone/email support if needed. Info collected deals with present holdings, goals, even a space for comments about why they bought the holdings they own, etc. Company rep calls back with any questions, then the whole thing is analyzed. With the information in a standardized format, the review should go quickly. Send them a reply with the analysis attached, complete with recommendations for their consideration. The up-front fee includes a telephone debriefing to discuss the recommendations.

Assembly line, covers the big stuff (asset allocation, discussion of risk including major areas of risk to the present and recommended portfolio, tax implications, potential role of insurance, etc). Much of the wording would be boilerplate, customized as needed. I would think the whole thing might take 3-6 manhours for most situations once the system was in place.

When a new poster comes here and presents their questions and maybe a peek at their portfolio, they get a lot of good advice. I think many are helped, and it only takes experienced folks a few minutes to spot big, glaring issues. The need is out there, and it just seems like it might be met, at a profit, with a new business model. Maybe not, I don't know. But people aren't going to cobblers to have shoes made anymore, and online/telephone insurance companies are winning against the local storefront insurance agent. Maybe financial/investing advisory services are ready to come into the 21st century.

 

[Gotadimple]

So, an "off-the-rack" (not one-size-fits-all) asset allocation might be "good-enough" and represent a good value for many.

-ERD50

Most brokerages already provide this -- generally as an online service. That is you identify your risk tolerance and they provide a canned asset allocation for your risk tolerance. It is 'off-the-rack,' but not one size fits all, sort of. I don't know how can get both is a high volume system.

They will also monitor your portfolio performance against the canned allocation and show you where you are out of balance. They won't suggest specific investments.

Some brokerages also have assigned account reps who earn on the value of your account, regardless of whether you use their services. They're available to talk about your investments and recommend any, but they don't earn a direct commission on a sale of a specific product.

I found these services at both Schwab and Fidelity. Raymond James does something similar as an initial consultation, but, then would prefer to engage you in an account management arrangement.

So are we talking about the value of a FA as only constructing an asset allocation for a client? Or is their true value in looking your entire financial picture and suggesting the full range of financial/legal vehicles to consider (not just asset allocation)?

-- Rita

 

[samclem]

Most brokerages already provide this -- generally as an online service.
. . .
So are we talking about the value of a FA as only constructing an asset allocation for a client? Or is their true value in looking your entire financial picture and suggesting the full range of financial/legal vehicles to consider (not just asset allocation)?

-- Rita

In my opinion, a brokerage is among the worst places to have an "independent" analysis performed. It would just be a sales pitch for their products, they have no fiduciary responsibility to the client.

The envisioned service would look at the whole financial picture (not just asset allocation, but asset allocation would be a big part of the whole package). Obviously, the recommendation would go into only limited depth. For example they might note that the client might need life insurance to cover dependents or other expenses for a time before sufficient assets are accumulated, etc, and point out an approximate amount of insurance that might needed based on the info provided by the client. They might even cite typical costs for coverage. But they wouldn't sell any of these products.

 

[haha]

In my opinion, a brokerage is among the worst places to have an "independent" analysis performed. It would just be a sales pitch for their products, they have no fiduciary responsibility to the client.

The envisioned service wold look at the whole financial picture (not just asset allocation), but would obviously not go into depth. For example they might note that the client might need life insurance to cover dependents or other expenses for a time before sufficient assets are accumulated, etc. They might even cite typical costs for coverage. But they wouldn't sell any of these products.

Why would a retired person want to do this? It is hard enough for workers like FD, who we hope are getting a good piece of change for putting up with dense, anxious, ignorant and otherwise annoying people.

Do this for less?

Ha

 

[Gotadimple]

In my opinion, a brokerage is among the worst places to have an "independent" analysis performed. It would just be a sales pitch for their products, they have no fiduciary responsibility to the client.

The envisioned service wold look at the whole financial picture (not just asset allocation), but would obviously not go into depth. For example they might note that the client might need life insurance to cover dependents or other expenses for a time before sufficient assets are accumulated, etc. They might even cite typical costs for coverage. But they wouldn't sell any of these products.

Then, Sam, I would say that it can't be done outside the brokerage business model as FD as stated: there isn't enough volume to justify the services. What makes it work in the brokerage business model is the various streams of income the brokers have, in addition to financial planning. The problem with those various streams, as you've noted, is the preference for pushing the products in the broker's inventory. Someone may yet come up with an internet application, but again, it can be subjected to a bias towards certain products.

One can always provide a solution that says this should be your asset allocation and here are the other insurance/legal products you need to consider to protect your finances/protect your family. But, if the intention is to provide services to those who have little time/capacity to research, then they will be looking to the advisory service for recommendations for products. And the loop again closes around "bias."

-- Rita

 

[Hal3]

Sounds like 1% well-spent!

The strategy is supposed to be 60/40 allocation which is "tax aware," which I guess explains the Maryland tax-exempt muni funds (I live in Maryland). They claim it's "personalized" service, but I suspect they just manage a handful of investment profiles and match new customers to the closest one.

So far though they're outperforming my own $100K "play" fund I set up for comparison, which is down 5% over the same period (my own mix of blue chip and index funds, bought mostly on popular website and TV blowhard recommendations).

I would have no regrets in your case.

It looks like they just earned their fee for the next 20 years.

I don't understand it either but it sure beats what you would have earned on your own.

 

[FinanceDude]

Why would a retired person want to do this? It is hard enough for workers like FD, who we hope are getting a good piece of change for putting up with dense, anxious, ignorant and otherwise annoying people.

Do this for less?

Ha

I assure you, after a very short time of doing it for free, you wouldn't.......

 

[FinanceDude]

For example they might note that the client might need life insurance to cover dependents or other expenses for a time before sufficient assets are accumulated, etc, and point out an approximate amount of insurance that might needed based on the info provided by the client. They might even cite typical costs for coverage. But they wouldn't sell any of these products.

Clients don't want you just to point out the need, (like life insurance needs), they want you to provide a solution. I have a small cadre of outside professionals that I work with on a referral basis. If you don't have the solution, in the form of you or a person you recommend they can call, where's the value??

If an unlicensed person cited costs of coverage, they could be sued quite easily by a person who doesn't get coverage......which is why many so-called "experts" shy away because they aren't licensed......

 

[samclem]

FD,
No one would want to pay $500 and get a concise review of their present finances and portfolio? A review of how such a portfolio would have done over the last 30 years (to include best and worst annual returns), and a recommended portfolio (same analysis), and a steer as to where they could get funds/products that could meet these allocations. They wouldn't want a suggested savings plan that would give them a shot at meeting their goals? They wouldn't want to be told if they were short of life insurance and the range of prices typical for a such insurance (not a quote for them, not an offer of insurance--just the same publicly available rate info we can all find on the Internet or in magazines.) They wouldn't want a comparison of annual costs (fees, loads, etc) for their present investments vs. lower cost providers? How much would it be worth to point out the potential issues with over-concentration in one company or one sector?

It's too bad this can't work. I'd pay that much, and I'm fairly sure I'm not making any huge blunders.

 

[FinanceDude]

FD,
No one would want to pay $500 and get a concise review of their present finances and portfolio? A review of how such a portfolio would have done over the last 30 years (to include best and worst annual returns), and a recommended portfolio (same analysis), and a steer as to where they could get funds/products that could meet these allocations. They wouldn't want a suggested savings plan that would give them a shot at meeting their goals? They wouldn't want to be told if they were short of life insurance and the range of prices typical for a such insurance (not a quote for them, not an offer of insurance--just the same publicly available rate info we can all find on the Internet or in magazines.) They wouldn't want a comparison of annual costs (fees, loads, etc) for their present investments vs. lower cost providers? How much would it be worth to point out the potential issues with over-concentration in one company or one sector?

It's too bad this can't work. I'd pay that much, and I'm fairly sure I'm not making any huge blunders.

At $500, the CFP who wants to do that would need several hundred clients a year to make enough money. For good planning software, you need to spend a few grand. Then there's E&O insurance (mine is $2200 a year), office rent, CFP CE classes, etc, etc. You would need at least one office person to help you schedule and stuff. You would have to do 20-30 plans a month to make the numbers work at all. You would NOT be able to get that volume without prospecting. And, prospecting is something FEW if ANY hourly CFP planners want to do........

Right now, these are the choices:

1)Get a "free" plan like at VG or Fido, and understand the bias

2)Pay for a plan at a place like Ameriprise, and then pay for proprietary products.

3)Get a "free plan" from one of a few brokerage firms that do it, but understand their money is made by charging management fees or commissions to manage your money.......

I used to run plans all the time. The firm I used to work for had a team of CFPs that reviewed the plans we ran. They ended up cutting those people because they were too big of an expense charged to the bottom line, and not enough plans were being run.

I work in a business partnership with a guy whose been a CFP since 1986. The amount of actual CFP work he does is almost nil........

I have toyed with the idea of getting one. It's about $3500 and a year of study, and then a hard test that has a 42% pass ratio. I am fairly sure I could pass it since I have a finance degree and have been an advisor for 11 years, but the time constraint is significant........

 

[kumquat]

FD,
No one would want to pay $500 and get a concise review of their present finances and portfolio? A review of how such a portfolio would have done over the last 30 years (to include best and worst annual returns), and a recommended portfolio (same analysis), and a steer as to where they could get funds/products that could meet these allocations. They wouldn't want a suggested savings plan that would give them a shot at meeting their goals? They wouldn't want to be told if they were short of life insurance and the range of prices typical for a such insurance (not a quote for them, not an offer of insurance--just the same publicly available rate info we can all find on the Internet or in magazines.) They wouldn't want a comparison of annual costs (fees, loads, etc) for their present investments vs. lower cost providers? How much would it be worth to point out the potential issues with over-concentration in one company or one sector?

It's too bad this can't work. I'd pay that much, and I'm fairly sure I'm not making any huge blunders.

There are a few firms here in the Frozen North who do this. I won't go into what they offer, but I doubt that $500 would get you out the door. While it depends on your situation (how complicated) I'd guess that $1500 is more common. While I'm sure they might be a great resource for people who post here (especially in the tax and estate areas),most of us are too damned tight to pay them.

If you really want, I'm sure the US has 'fee only planners' as well.

 

[clifp]

I pretty much echo what FinanceDude said. Shortly before joining the board I spent $3500 to enroll in Kaplan's online CFP course. The reason for choosing Kaplan was at the advice of a former boss, who moved from advertising, to Intel, to financial planner. She spent a lot more than $3500 a UC Berkeley extension CFP course, failed her CFP test, and than took a Kaplan course. I took one online course,and realized a few things. Despite my many years of investing, MBA, and years of reading about SWR, asset allocation etc.; getting the CFP was going to be hard work, and boring.
I then made a honest reassement and said well maybe the money will be good enough for me to slough through the course, pay for the CFP review session and than take the test, and find someplace to get the necessary work experience in financial planning.

My initial idea was similar to what you and other proposed. I'd a be fee only planner in the mold of the forum and Boglehead and keeping my clients from the folks of Amerprise or Merrill Lynch. I'd meet with a client for an hour collecting information, spend 2-3 hours using software to develop an financial plan, touch on several tax tips that I knew, and refer them to other for life insurance and estate planning (as needed). I figured I could spend 6-8 hours and charge $500.

Sure most of my advice would end up looking like a couch potato portfolio, along with some specific advice how to invest their 401K to minimize their expenses while achieving a good AA. I figured once I explain how the 1.5% ER on mutual funds, or annuity was costing people a few thousand a year on modest 100-200K portfolio they'd be happy to pay $500.

By and large, I think $500 is pretty much the upper limit of what people with modest portfolio will pay maybe millionaire will fork over a 1,000 or $2,000. But by and large people aren't upset with paying 1% when the are earning 10% in a fund. Beside the horrible prospect of having to prospect for clients, the thing that dawned on me was this.

Sure I might find people willing to pay me $500 to tell them in essence to call Vanguard (or Fidelity). However the universe of people who were smart enough to recognize that a small collection of diversified index funds was good, but stupid enough to continue to pay me $500 a year to make minor tweaks to their portfolio was tiny. People are much more willing to spend $8-15K a year like the OP to have some helper put them in 42 funds, than to take my advice which would like be something along this line. "your international exposure is too small sell $12,000 worth of US large Caps, and $5,000 worth of Vanguard Total bonds and move the money into Vanguard international, buy some I-Bonds for your wife if she is planning on getting masters in a few years."

As Warren Buffett said in his letter, activity makes financial helpers look good even if it isn't really good for the clients.

In my case, I realized I couldn't make a living as fee only planner, and I couldn't in good conscious stick friends, and friends of friends into big commission products like annuities. So I dispense advice on the internet for free.

 

[samclem]

clifp,
It's obvious you (and FD) have given this a more thorough assessment than I have--and have lived the experience, which is worth more than all the thought experiments in the world. What I have in mind is exactly what you've outlined, but with the efficiencies that a big company could offer (in training, designing/purchasing software, and especially in advertising and marketing).
It's just frustrating because I have no doubt the average person spending $500 on even a cursory review would have his money repaid many times. The "value added" is there, if an efficient way could be found to produce the product and market it. A small storefront brick and mortar operation sure can't deliver it, and maybe a centralized, bigger organization couldn't, either..

 

[FinanceDude]

Sure I might find people willing to pay me $500 to tell them in essence to call Vanguard (or Fidelity). However the universe of people who were smart enough to recognize that a small collection of diversified index funds was good, but stupid enough to continue to pay me $500 a year to make minor tweaks to their portfolio was tiny. People are much more willing to spend $8-15K a year like the OP to have some helper put them in 42 funds, than to take my advice which would like be something along this line. "your international exposure is too small sell $12,000 worth of US large Caps, and $5,000 worth of Vanguard Total bonds and move the money into Vanguard international, buy some I-Bonds for your wife if she is planning on getting masters in a few years."

Hey, I've sent a number of folks to VG and Fido for free...........

 

[harley]

clifp,
It's obvious you (and FD) have given this a more thorough assessment than I have--and have lived the experience, which is worth more than all the thought experiments in the world. What I have in mind is exactly what you've outlined, but with the efficiencies that a big company could offer (in training, designing/purchasing software, and especially in advertising and marketing).
It's just frustrating because I have no doubt the average person spending $500 on even a cursory review would have his money repaid many times. The "value added" is there, if an efficient way could be found to produce the product and market it. A small storefront brick and mortar operation sure can't deliver it, and maybe a centralized, bigger organization couldn't, either..

This was my thought too. The only advantage I would have was not needing to actually support myself at it. As long as I could bring in some additional income and feel like I was helping people I would be willing o go for it. I recognise that this isn't the position most people are in, being FI and not needing to support themselves in the job. I may be being naive and I may hate it after trying, but I'll never know unless I try.

 

[FinanceDude]

This was my thought too. The only advantage I would have was not needing to actually support myself at it. As long as I could bring in some additional income and feel like I was helping people I would be willing o go for it. I recognise that this isn't the position most people are in, being FI and not needing to support themselves in the job. I may be being naive and I may hate it after trying, but I'll never know unless I try.

Well, give it a rip. If anything, report your experiences on here, I am sure your experiences will be similar to what I have found........

 

[haha]

As long as I could bring in some additional income and feel like I was helping people I would be willing o go for it.

Nothing gets old any faster than helping people. Why not take up the violin?

Ha

 

[Grep]

Nothing gets old any faster than helping people. Why not take up the violin?

Nothing gets old faster than living next to someone who is learning the violin. For the sake of humanity, especially neighbors, I'd say helping others is the better choice.

 

[Hal3]

Kaplan's online CFP course

Shortly before joining the board I spent $3500 to enroll in Kaplan's online CFP course.

Did you finish the course?

 

[clifp]

Did you finish the course?

Nope I finished the survey course and after talking to several people including Sarah from SC, I realized that the material was very very dry and tedious. (Sahara desert dry)

 

[vcarlett]

Funds don't show those kind of returns

When I looked up some of these funds they were inconsistent with what you are showing. Some of them show 40% losses for 2008 and 7.2 loss for ytd 2009,,How can these returns all be positive with a 60/40 allocation since October 08? The individual funds don'' show those kinds of returns when you research them individually Can you explain the gains?

 

[Kabekew]

When I looked up some of these funds they were inconsistent with what you are showing. Some of them show 40% losses for 2008 and 7.2 loss for ytd 2009,,How can these returns all be positive with a 60/40 allocation since October 08? The individual funds don'' show those kinds of returns when you research them individually Can you explain the gains?

Those are gains from the cost basis... I dollar cost averaged in since late October, with $400K in October, $200K November and $200K December.