Should I avoid a Wealth Management Advisor?

[Exchme]

Before my aborted retirement in 2019, I started to build a relationship with a FA for exactly those reasons. He invested several hours meeting with me to understand my investing style, he analyzed my portfolio, he knew I was not interested in putting AUM. At our last meeting, we agreed that he would give me a quote for an ongoing advisory relationship of perhaps 4 quarterly one-hour meetings in the first year of retirement, and as-needed after that. He could propose new ideas or point out things I was neglecting, and I would gladly listen.

Then he ghosted me and I never heard from him again. I let his firm know that and they didn't seem to care.

That's the heart of the problem, lots of folks might be willing to pay a few thousand per year for expertise on a fee for service basis.

But that's not where the money is for the industry. Ultimately AUM fees can add up to tens of thousands of $/year for a couple hours of their time, a much better return on invested time for the FA.

 

[Bryan Barnfellow]

Some advisors are so brazen or tone-deaf that they put their yacht photo in their website advertising their services! This one from Windward Wealth Mgmt (a financial advisor in Florida, connected with Ameriprise).




-BB

 

[LarryMelman]

That's the heart of the problem, lots of folks might be willing to pay a few thousand per year for expertise on a fee for service basis.

But that's not where the money is for the industry. Ultimately AUM fees can add up to tens of thousands of $/year for a couple hours of their time, a much better return on invested time for the FA.

Of course. I thought it was very odd that he wasted 8 hours with me for the initial discussions. I always wondered if the principal of the firm slapped his hand for coloring outside the lines like that. But the advisor was not a true employee of the firm, he was working there as a consultant and had a bit more latitude to pursue clients such as me. Oh well.

 

[CRLLS]

A more rational explanation for ghosting might be that the "consultant" soon lost his association with the firm, for whatever reason. When he left, his contact list was never turned over. Of course, I don't know if this is the case or not.

I paid a FA for a onetime financial plan looking at retirement planning and taxes in the future. It was his firm, so he had a lot of leeway. Nothing was discussed about AA or specific investments. It was just a general overview of our finances. During the process, he spent a little time on his sales pitch. He worked on an AUM basis with all of his clients. I mentioned that I would only work forward on an hourly or project-type basis. He said he was considering that. I never heard from him again except for a few form letters a year.

 

[Badger]

Not even sure why I am at this juncture. After a lifetime of LBYM, prudent money management and sticking with index funds at Vanguard and Fidelity, we have amassed a portfolio far in excess of what I imagined or need. Fast forward to today and after attending some seminars (probably a mistake) some guys at Merrill are trying to get me to invest with them (lower risk, better return, more diversification--we can do things the discount guys cant).
I REALLY DONT WANT TO DO THIS. I guess that says it all? But I am asking the community if I am being close minded and should be more open? On the other hand what I have done for decades has served us well, is simple and I have lived through the downdrafts of 2000 and 2008 and can take it. I guess it comes down to an active versus passive mentality. BTW I have not even asked about the fees yet though I know it won't be .04% of 1% like the index funds.

After I saw Merrill I didn't need to read any more. I had no choice but to deal with them when they were the only company to use for my wife's 403b other than insurance annuities. They wanted to control her retirement investments and buy and sell MFs as they wanted. They also only suggested various types of loaded funds. I recognized a "churning" opportunity and had the money place in a MM account. Then transferred the majority to Vanguard IRA every 6 months but kept the MM account active. They still made things difficult but they never got control of managing her money. Closed they out as soon as she retired. RUN!
I don't have any education in money management. I studied Biology and Chemistry and became a teacher. I just read a lot. It isn't difficult. Keep reading here and ask questions when you need to and look for the members responses that make sense.

Cheers!


Cheers!

 

[VanWinkle]

Yeah Baby!

And if anyone asks where my yacht is (broker customers are not supposed to have them)

It's in Alameda getting new heads fitted -

Is there any chance your FA has a newer one? Just sayin.....

 

[Freedom56]

Not even sure why I am at this juncture. After a lifetime of LBYM, prudent money management and sticking with index funds at Vanguard and Fidelity, we have amassed a portfolio far in excess of what I imagined or need. Fast forward to today and after attending some seminars (probably a mistake) some guys at Merrill are trying to get me to invest with them (lower risk, better return, more diversification--we can do things the discount guys cant).

Since you have been prudently managing your finances, why would you turn it over to someone who is likely living paycheck to paycheck? We have a money manager living down the street who works for Fidelity Wealth Management and they have refinanced their home a third time with cash out in the past four years. They drive nice cars but they now owe $878K on a home that they purchased for $320K twenty years ago. That is the type of reckless financial mismanagement that you should avoid. Don't fall for the sales pitches or the free dinners and stay the course on your own.

 

[Katiek]

Echoing the sentiments expressed above. It sounds like you've done a great job and don't need to worry about "hand holding" if the market has a decrease. It also sounds like you have a good understanding of diversification and cost savvy investing. So it doesn't sound like an advisor would help you at this point. If they really had secret tricks to earning money that others didn't know about, they likely wouldn't have to put on marketing seminars with free meals.


But if you want someone to do an overall financial review as a second opinion, it can make sense to hire an hourly advisor to do a review. They may not be easy to find, but they're out there if you keep looking.


Also, as others have mentioned, it may make sense to consider an advisor if you are worried about handling finances when you may lose some cognitive abilities. But in that case, I'd look for a trusted advisor who can specialize in that, rather than someone marketing special (and likely more complicated) investment opportunities. I know people who have made this type of arrangement, and there is definitely a cost for the services (and they believe the cost is well justified), but they are matched with an advisor who shares their investment strategies. It doesn't sound like these advisors align with your investment approach or goals.

 

[pb4uski]

Is there any chance your FA has a newer one? Just sayin.....

Even if the FA had a newer one, would Robbie care? I think not.

I think it best to focus on what happens with you compared to other alternatives rather than how much benefit the provider ends up getting. IOW, if Robbies' FA can, after fees, get better performance than Robbie could himself with similiar risk, what does it matter wht the FA fee is? Robbie still end up ahead.

 

[Koolau]

we just hired a wealth mgmt firm for a very specific reason. odds are good that my wife will outlive me and at this point in her life she has no accumen for managing our portfolio. we have no kids and she has no close living relatives. i'm getting this set up to have it in place now rather than wait until after i'm gone. this will be a seemless transition. i've managed our portfolio for the past 40-yrs and, IMHO, we've done very, very well. but i sleep a bit better now knowing that what we've built and accumulated will be properly managed for her when I'm gone.

That seems quite a reasonable approach. In our case, I have simply chosen all index funds (with the exception of pssst! Wellesley.) For 15+ years, these funds have been just doing their thing and I occasionally share with DW how much we have in each. She would be (and is) quite comfortable with letting them ride even if I'm no longer around to "manage" them (manage means looking at the quarterlies!) Typically, I "rebalance" by taking my RMDs from the funds in my 401(k) - generally maintaining my AA. I also encourage her to look at quarterlies as well - sometimes she does, sometimes she doesn't. TAXES when I'm gone are my biggest concern for her. I've transferred all my IRAs to Roth so only thing she will need to manage is the 401(k) which I continue to (unsuccessfully) try to spend down at RMD time. YMMV

 

[ScoopKona]

I get invitations for these things CONSTANTLY. They always promise a dinner someplace and "a lively discussion about wealth management."

It's basically a timeshare presentation -- the same kind of salesmanship, only these guys don't want to sell you a timeshare. They want the keys to your financial kingdom.

My mother in law, who could buy and sell me with her left hand, goes to these things constantly because she can't resist a free meal. (She would stand in line for a free headache, too.)

 

[OldShooter]

... It's basically a timeshare presentation -- the same kind of salesmanship, only these guys don't want to sell you a timeshare. They want the keys to your financial kingdom. ...

Also, the really quality people get their business via referrals. They do not have to do these sleazy dog & pony shows.

 

[Dtail]

If it is a top quality dinner, I go from time to time. I ask some questions that they can't really answer and leave with a full belly and a smile.

 

[Luvtoride]

Also, the really quality people get their business via referrals. They do not have to do these sleazy dog & pony shows.

I’ve gone to a couple of these, only at the high end restaurants like Ruth Chis. I look around at the other attendees and wonder what type of prospect list generated all of us being here.
Interesting marketing concept.

 

[Amethyst]

Early on - and I mean really early, like 2000's - we had some great dinners with filet mignon and wine. However, the dinners have gotten cheaper and shoddier over the years. The last one was inedible, you had to pay for your drink, and they didn't even offer dessert. I'd rather have had a hamburger and French fries.

I’ve gone to a couple of these, only at the high end restaurants like Ruth Chis. I look around at the other attendees and wonder what type of prospect list generated all of us being here.
Interesting marketing concept.

 

[DrRoy]

Should you avoid? YES YES YES, AVOID AVOID AVOID

 

[jazz4cash]

What I would do is say if I put $xxx,xxx with you today, what tickers would you put me in an how much in each? If they won't tell you then walk./QUOTE]

I cant imagine this would work. Why would they give you the recipe for the secret sauce? If they did they’d say you have to know what and when to buy and sell. Turnover may or may not improve performance but it definitely increases fees.

 

[pb4uski]

You could do the same thing by putting just part of your nestegg with them and see how it does.

 

[pjigar]

You could do the same thing by putting just part of your nestegg with them and see how it does.

And wait for at least 10 years before committing new principal! I only waited 3 years before committing most of my principal. They were beating marker by a point or two during those 3 years. Their performance reversed big time compared to market soon after. I waiting 3 MORE years for them to recover or at least reach the market returns. I ran out of patience and went back to the index funds. The whole detour cost me significant amount of lost returns i.e. 2 years of late FIRE. It is not end of the world but it tough me an important lesson. Trust Mr. Market.

 

[Exchme]

You could do the same thing by putting just part of your nestegg with them and see how it does.

Looking at a single instance over a limited time doesn't tell you much about their skill, instead a short term single instance is far more determined by random chance. But large numbers over a long time consistently tells the story that passive indexers beat active managers.

Below is one study on the subject, the SPIVA study updated to the end of 2021.
https://www.spglobal.com/spdji/en/spiva/article/spiva-us/

 

[VanWinkle]

And wait for at least 10 years before committing new principal! I only waited 3 years before committing most of my principal. They were beating marker by a point or two during those 3 years. Their performance reversed big time compared to market soon after. I waiting 3 MORE years for them to recover or at least reach the market returns. I ran out of patience and went back to the index funds. The whole detour cost me significant amount of lost returns i.e. 2 years of late FIRE. It is not end of the world but it tough me an important lesson. Trust Mr. Market.

Great post pjifgar, this should resonate with many here who think paying someone for higher returns is easy. Pay for service for different things that you don't want to educate yourself. Estate planning comes to mind, but an accountant may be better suited. Just don't pay for market beating returns, they are fleeting at best.

 

[OldShooter]

Looking at a single instance over a limited time doesn't tell you much about their skill, instead a short term single instance is far more determined by random chance. But large numbers over a long time consistently tells the story that passive indexers beat active managers.

Below is one study on the subject, the SPIVA study updated to the end of 2021.
https://www.spglobal.com/spdji/en/spiva/article/spiva-us/

Yes. S&P has been cranking out those reports, twice a year, for 20 years. The percentages vary from report to report, but the bottom line is always the same: Stock pickers lose. The longer the period, the bigger the percentage that lose.

... They were beating marker by a point or two during those 3 years. Their performance reversed big time compared to market soon after. ...

@pj's idea and @pb4's idea are the same. So what if the average managers fail? Look at track records to find the above-average managers. That's the intuitively obvious solution.

S&P has another semiannual report that deals with this. Manager Persistence. IOW, do a manager's past returns persist going forward. Sadly, the answer every time is "No." Here's a graphical representation of one Manager Persistence report. It starts on the left with 5 years of manager performance, then shows the results of the top quintile of performers in the subsequent 5 years.

For anyone interested in reading, all of the SPIVA and Persistence reports are available on the S&P pages. Unfortunately they seem to keep moving them around, so I can't give you links. Try searching Google with the constraint: "Site:spglobal.com"
​

 

[wannabefire]

Agree

+1

When looking for a financial advisor, DW and I had a strange criteria. We wanted the FA to be able to finish our sentences. They had to understand us so well, that we could trust them with our funds and know they would be making choices that would meet our needs.

We have been with them for 16 years, the last 10 have been since we were both retired. We do not expect them to beat the market...we only expect our ROI to be 3% over inflation. While that is tougher lately, we have averaged 9.0% net after fees while inflation has averaged 2.2% over the same 10 years.

We do pay a fee of .85% AUM, but we do not focus on that money. A number of folks here talk about how much better our ROI would be if we had those funds working for us, and the FA is taking almost 25% of our annual withdrawals. I am not saying those statements are not true, but I do not focus on how much sales tax I pay at the grocery store. We look at what we are bringing home, and how much it cost us to make that purchase. However, we do look at how much we pay the IRS and State in taxes.

We seldom talk about what the FA's other values like helping us minimize taxes so that we can enjoy the returns we are getting. Our FA helped us average 1.3% effective tax rate for 5 years...which meant we are able to keep a lot more of OUR money than most other people do. As we entered into RMD's and SSA benefits, and our after tax account diminished, we have lost a lot of flexibility in how we meet our spending needs.

Our FA helped us with tax loss harvesting, covered calls on our megacorp stock concentration, short term borrowing from our IRA to avoid taxes, and a few other things along the way.

Net, I agree that using a FA to just handle investments may not be the best solution for many...but, one must look at the total value that is provided, and understand, and factor in, how one would get those other functions, other than using this forum.

Thanks for sharing your view that seems to be in the minority here,

Paying less than 1% for managing investments, tax planning, tax filing retirement planning and just having an independent 3rd party to bounce ideas off regarding retirement, withdrawal planning, planning for Roth conversions, optimizing income for tax and Insurance planning.

These are the reasons we now have an advisor.

When my wife worries that we need to work xx more years because she fears of running out of money, I can have someone else run scenarios and review. Just another reason.

 

[OnTheBeach]

I think it makes sense in certain circumstances. I have part of my wealth with Vanguard and part with a wealth advisor, I use Vanguard for mutual funds and the Wealth Advisor for Private Equity Investments, advice and planning services. In 2008, the advisor suggested we invest money in preferred bank stock because the banks were issuing preferred stocks to bolster their balance sheets. We invested 10% of my net worth in preferred stocks paying 6.5%-7.25% qualified dividends (LT gain treatment) - It was a great investment for cash flow. They also advised me to build a private equity/private debt portfolio which has performed well over the last 8 years. I also want them on board for the "hit by the bus" scenario - my wife is an accountant but doesn't want to be involved in managing the money. I want the wealth advisor to step in if something happens to me. In the past 15 years, we have developed a great relationship and we trust them.

 

[Helen]

I wish FAs charged the way CPAs do. It's difficult to find one that will and the one that I hired charged a lot more than a CPA and the plan was so full of errors that I was given a refund.

I could use some help with taxes and investing and my CPA isn't very knowledgeable there. I do not want to have someone manage my money for me in an AUM account.