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Old 01-23-2009, 07:19 AM   #161
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Here's my view...
If you need legal advice, you see a lawyer. You don't go to law school.
If you need medical advice, you see a doctor. You don't enroll in pre-med.
So, it follows that if you need financial advice...who ya gonna call?
Seriously, DIY can only go so far.
It is the smart person who recognizes their limits and seeks professional assistance, WHEN they need to.
It is the prudent person who educates themselves BEFORE they go for professional consultation.
Ok, throw the rotten tomatoes...I can take it.
Hey, weren't you shilling for the lawyers on another thread?...
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Old 01-23-2009, 07:35 AM   #162
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Originally Posted by freebird5825 View Post
Here's my view...
If you need legal advice, you see a lawyer. You don't go to law school.
If you need medical advice, you see a doctor. You don't enroll in pre-med.
So, it follows that if you need financial advice...who ya gonna call?
Seriously, DIY can only go so far.
It is the smart person who recognizes their limits and seeks professional assistance, WHEN they need to.
It is the prudent person who educates themselves BEFORE they go for professional consultation.
Ok, throw the rotten tomatoes...I can take it.
If you see a lawyer, you know they have, at least, been to law school, passed the bar exam, and fulfilled licensing requirements.
If you see a doctor, you know they have, at least, been to medical school, interned, perhaps done a residency and fulfilled licensing requirements.

If you see an FA..?
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Old 01-23-2009, 08:47 AM   #163
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Originally Posted by freebird5825 View Post
Here's my view...
If you need legal advice, you see a lawyer. You don't go to law school.
If you need medical advice, you see a doctor. You don't enroll in pre-med.
So, it follows that if you need financial advice...who ya gonna call?
Seriously, DIY can only go so far.
It is the smart person who recognizes their limits and seeks professional assistance, WHEN they need to.
It is the prudent person who educates themselves BEFORE they go for professional consultation.
Ok, throw the rotten tomatoes...I can take it.
And in some cases, after that education, the person determines that they *are* capable of DIY. Sometimes not.

I don't think anyone on this board is claiming that seeking professional help in financial matters is automatically a "bad" thing to do. Some would rather pay for the service, and that's fine.

I think the problems most of us have is, our experience is that the vast majority of those FAs are not doing a very good job for their clients. Sure, they gotta make a buck, and that will cut into returns - that has to be accepted. But beyond that, it seems that most FAs are not really giving their clients much in the way of service. The financial decisions appear to be more based on generating fees.

There are exceptions of course, and the board members here appear to be in that group.

Further, if I *do* go to a pro, I should reasonably expect them to do a *better* job than I would do myself. Now we get to the revelation I sometimes have when doing my education - sometimes I find that after I've educated myself enough to know the difference between a good pro and a not-so-good pro, I know enough to DYI. That was my assessment in financial matters, in other cases I still call in the pros.

-ERD50
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Old 01-23-2009, 08:59 AM   #164
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And in some cases, after that education, the person determines that they *are* capable of DIY. Sometimes not.
...
Further, if I *do* go to a pro, I should reasonably expect them to do a *better* job than I would do myself. Now we get to the revelation I sometimes have when doing my education - sometimes I find that after I've educated myself enough to know the difference between a good pro and a not-so-good pro, I know enough to DYI. That was my assessment in financial matters, in other cases I still call in the pros.

-ERD50
When i was wrenching for a living there were a very few people who had had their cars for some time and knew the idiosyncrasies and minutia of their particular year, make and model really well. Real pains in the neck, because they were attuned to the slightest variance in performance of their particular rides. They weren't up for the stuff deep inside, nor were they sharp around any other make or model. Hope would be that the FA is hep to the deep stuff and all the different financial vehicles.

Being human, there is no more reason to expect perfection - or or familiarity with your particular variables - from a FA than there is from a mechanic, appliance repairman, or even - gasp - doctor or lawyer.
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Old 01-23-2009, 10:49 AM   #165
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If you see an FA..?
It depends on the FA. The powers that be that regulate advisors, as well as certification associations like the CFP Board, have failed to set requirements to be an FA. They have left it up to "self-regulation". So far, it hasn't worked well. Up until late last year, if you wanted to be a CSA (Certified Senior Advisor), you had to pay some money, take a couple hour class, and then take a not so hard test.

FINRA is trying to get it passed that the only meaningful certification for advisors that provide financial planning and advisory services is a CFP. I have no problem with that even though I am not one. At least it would standardize the industry, and drive some folks out who shouldn't be in it anyways.

The amount of EIAs sold would plummet dramatically if there was a requirement to have a securities license to sell them. The insurance companies are lobbying heavily to NOT have that happen. I don't see the argument at all because you DO have to have a securities license to sell VAs........
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Old 01-23-2009, 06:19 PM   #166
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Originally Posted by freebird5825 View Post
Here's my view...
If you need legal advice, you see a lawyer. You don't go to law school.
If you need medical advice, you see a doctor. You don't enroll in pre-med.
So, it follows that if you need financial advice...who ya gonna call?
Seriously, DIY can only go so far.
It is the smart person who recognizes their limits and seeks professional assistance, WHEN they need to.
It is the prudent person who educates themselves BEFORE they go for professional consultation.
Ok, throw the rotten tomatoes...I can take it.
I think there are several important difference between doctors and financial advisers. First as has been discussed, doctors go through many years of training, testing etc. and are well regulated. Virtually anybody can call themselves a Financial adviser (even me) and the training varies from a couple of years for CFP, CFAs, CPAs to a week course for many brokers.

Second and I think just as important is that to large extent financial adviser are engaged in a zero sum game. If Joe's FA gets above average returns, than Jane's has to get below average returns. Or to be it another way if we could magically increase the number of doctors, nurse etc by 50% (while maintaining quality standards) the average health of the nation would increase. If we did the same thing for FAs the average returns for investors would decrease.

Warren Buffett in his wonderful folksy style explains this in his 2005 Annual Letter to shareholders.

Quote:
How to Minimize Investment Returns
It’s been an easy matter for Berkshire and other owners of American equities to prosper over the
years. Between December 31, 1899 and December 31, 1999, to give a really long-term example, the Dow
rose from 66 to 11,497. (Guess what annual growth rate is required to produce this result; the surprising
answer is at the end of this section.) This huge rise came about for a simple reason: Over the century
American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses
continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way
cutting the returns they will realize from their investments.
The explanation of how this is happening begins with a fundamental truth: With unimportant
exceptions, such as bankruptcies in which some of a company’s losses are borne by creditors, the most that
owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn.
True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the
expense of investor B. And, yes, all investors feel richer when stocks soar. But an owner can exit only by
having someone take his place. If one investor sells high, another must buy high. For owners as a whole,
there is simply no magic – no shower of money from outer space – that will enable them to extract wealth
from their companies beyond that created by the companies themselves.
Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s
my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than
they historically have.
To understand how this toll has ballooned, imagine for a moment that all American corporations
are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on
dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its
companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these
dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone
grows wealthier at the same pace, and all is harmonious.
But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its
members to try to outsmart his relatives by buying certain of their holdings and selling them certain others.
The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own
all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth
diminishes, equaling the earnings of American business minus commissions paid. The more that family
members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact
is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new “beatmy-
brother” game. Enter another set of Helpers. These newcomers explain to each member of the
Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a
manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the
broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers
to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.
The family’s disappointment grows. Each of its members is now employing professionals. Yet
overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.
It arrives in the form of financial planners and institutional consultants, who weigh in to advise the
Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its
members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask,
should they expect success in picking the right consultant? But this question does not occur to the
Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.
18
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse,
and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers
– appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring
because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are
simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of
zombies?”
The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence,
the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are
what each family member must fork over in order to really outmaneuver his relatives.
The more observant members of the family see that some of the hyper-Helpers are really just
manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE
EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important,
bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he
changed into his Superman costume. Calmed by this explanation, the family decides to pay up.
And that’s where we are today: A record portion of the earnings that would go in their entirety to
owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers.
Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large
portions of the winnings when they are smart or lucky, and leave family members with all of the losses –
and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this – heads, the Helper takes much of the winnings;
tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the
family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20% of
the earnings of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to
no one.
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir
Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can
calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this
loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole,
returns decrease as motion increases.
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Old 01-23-2009, 07:04 PM   #167
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It depends on the FA.
And therein lies one one problem. No standard qualifications.

Another is a lack of a standard 'code of ethics', at least here in Canukistan, that says you have a fiduciary duty to put your client first.
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Old 01-24-2009, 09:05 AM   #168
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Another is a lack of a standard 'code of ethics', at least here in Canukistan, that says you have a fiduciary duty to put your client first.
There is a code of ethics for registered investment advisors like me. However, there is no mandatory "code of ethics" that covers EVERYONE that sells financial products in the industry. The national governing bodies haven't seen it necessary to do so.

BTW, a CFP doesn't "guarantee" an FA is good. However, its a start.......
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Old 01-24-2009, 09:59 AM   #169
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Isn't there a potential market niche for some enterprising company to fill? At present, customers have no easy way to figure out if a particular advisor will be "on their side" and competent. We've talked about certification and accreditation as possible fixes, but no organization has stepped up to the plate in a meaningful way. Laws and regulations are not being formulated to address the issue. Most people probably agree that the way the advisor is compensated plays a big role in determining the results produced, but consumers have to search and individually inquire about this. If the consumer knows enough to search out NAPFA, they can get a referral to several fee-only planners, but these are all independent operators, and NAPFA isn't training them or vouching for their competency. Garrett Planning Network is another way that a customer can find a planner who is fee-based and gets paid a flat hourly rate, but (again) services are provided by independent advisors so there appears to be no company standing behind the actual services performed.

Is there room in the marketplace for a company that provides hourly-rate based financial planning services? They don't sell investment products and receive no money from anyone but their clients. The advisors would be employees of that company. They would benefit from centrally-provided streamlined training materials (rather than having to find and pay for their own training), centrally-available research services, a company that would do the advertising and marketing. The customer benefits by having a big company stand behind the services provided--they certify that the planners are trained and that they are proficient. To set themselves apart from existing independent solo-advisors, the company could market the every financial plan they produce is checked by a second qualified planner.

I guess some company would be doing it if there were a sufficient market for services like this. Maybe many have tried and failed. As FinanceDude says, the present independent fee-based planners are having a tough time making it. Still, it would seem that the efficiencies of a real company (which could establish itself as the Vanguard or USAA of this industry) might make the difference. I'd be tempted to go to them.
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Old 01-24-2009, 10:07 AM   #170
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samclem, wasn't Vanguard offering a "common sense" no-charge portfolio review for clients? I'd have to look back a the old posts, but this sounds along the lines of what you are talking about. Maybe the diff is they are not going out and soliciting *new* clients with this approach?

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Old 01-24-2009, 10:13 AM   #171
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samclem, wasn't Vanguard offering a "common sense" no-charge portfolio review for clients? I'd have to look back a the old posts, but this sounds along the lines of what you are talking about. Maybe the diff is they are not going out and soliciting *new* clients with this approach?

-ERD50
Yes, they do offer a review like that, and it is free (it might be a bennie for Flagship status). It's a start, but it would be preferable to have an independent company with no stake in what I buy--will Vanguard really tell me that Fidelity Spartan funds are cheaper than theirs? Also, I would like to go a little deeper than a free Vanguard appraisal can go--I don't expect them to know about/provide assistance with tax optimization, etc. But, yes, it is a start.
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Old 01-24-2009, 11:13 PM   #172
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samclem, wasn't Vanguard offering a "common sense" no-charge portfolio review for clients? I'd have to look back a the old posts, but this sounds along the lines of what you are talking about. Maybe the diff is they are not going out and soliciting *new* clients with this approach?

-ERD50
Problem is, since its sponsored by a fund company, (VG), you're not going to get an unbiased approach.

The business model for fee-based only planners is broken. They can't make it because the amount they can charge has plummeted. I know of at least 6 (7th is on life support) very experienced CFP's that are gone from the business. No income to be made........
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Old 01-24-2009, 11:17 PM   #173
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Is there room in the marketplace for a company that provides hourly-rate based financial planning services? They don't sell investment products and receive no money from anyone but their clients. The advisors would be employees of that company. They would benefit from centrally-provided streamlined training materials (rather than having to find and pay for their own training), centrally-available research services, a company that would do the advertising and marketing. The customer benefits by having a big company stand behind the services provided--they certify that the planners are trained and that they are proficient. To set themselves apart from existing independent solo-advisors, the company could market the every financial plan they produce is checked by a second qualified planner.
Noone is going to do that. It's too expensive to implement, and all you are creating is a bunch of salaried folks (expenses) and the income you would take it would be nowhere near enough to pay them.........

The bigger problem is that EVERYONE wants a qualified FA but NOONE wants to pay for one.........
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Old 01-24-2009, 11:46 PM   #174
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This sounds like a perfect opportunity for what I was talking about. If I was ready and qualified (I'm not yet) I, as a FIREd person, could set up shop as a fee-only advisor. I wouldn't be dependent on the salary, so slow times wouldn't wipe me out. I would be in the business mostly to help people with their financial needs, although any income would be OK too.

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!
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Old 01-25-2009, 12:02 AM   #175
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Problem is, since its sponsored by a fund company, (VG), you're not going to get an unbiased approach.
Agreed. It was an example of the kind of approach samclem was looking for, but it certainly can't be viewed as unbiased.

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The business model for fee-based only planners is broken. They can't make it because the amount they can charge has plummeted. I know of at least 6 (7th is on life support) very experienced CFP's that are gone from the business. No income to be made........
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Noone is going to do that. It's too expensive to implement, and all you are creating is a bunch of salaried folks (expenses) and the income you would take it would be nowhere near enough to pay them.........

The bigger problem is that EVERYONE wants a qualified FA but NOONE wants to pay for one.........
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.

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
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Old 01-25-2009, 09:03 AM   #176
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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......
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Old 01-25-2009, 09:39 AM   #177
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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......

Quote:
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........

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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........
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Old 01-25-2009, 10:57 AM   #178
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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
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Old 01-25-2009, 11:36 AM   #179
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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.
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Old 01-25-2009, 11:46 AM   #180
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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
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