Another Financial adviser story

[Rustward]

I am guessing that you are referring to having a financial advisor in your above post. If that's not the case...well, it's yet another wrong guess on my part. However, if the guess is correct...

You seem to have a good handle on your finances. Did you work closely with your financial advisor? Did you ever veto any purchase/sell idea? And, did you keep track of fees, expenses, etc. that it cost you to work with your financial advisor?

He is a CFP.

The only thing I have stopped him from doing was spread a $30K Roth across six funds. Too little assets, too many funds.

I usually hear a proposal for anything that involves a significant move especially if it would generate a significant tax event. That rarely happens.

I have at times requested generating a gain or loss as needed if it can be done without breaking the plan.

Short answer to the last question: absolutely yes, to the penny.
I started using Quicken in 1996 and every financial transaction -- checks, credit cards, investments -- everything goes in there. When I started I entered all trades for securities I owned at the time over a two or three month period and they are all still there. Credit card purchases are entered the day of or the next day. Two or three times a week I will update financial transactions (mostly dividend payments). This takes maybe five minutes. All statements are reconciled when received (downloaded).

There just seems to be this notion that every financial professional who converts oxygen to carbon dioxide is a boogie man hiding in the closet waiting to get you. This is not true in every case. But there are some that I don't consider worth listening to. I met one a few years ago when we were just looking around. He was trying to sell structured notes, non-traded REITS, and Jackson National life insurance. The notes and REITS I understood but would never buy. The Jackson he explained three different times three different ways and I couldn't understand it so I left.

I think to label them all as bad eggs is very prejudicial and I don't think anybody wants or deserves to be prejudged.

 

[Rustward]

When I'd consider use a financial advisor.
1. They charge by the hour
2. They do not sell anything ever!
3. It never takes more then a couple of hours.
4. I am so totally uncomfortable with financial transaction and I can't feel comfortable opening an account with Vanguard and dumping my investments into 4 low cost index funds.

Otherwise for the average person I'd avoid them like the plague.

RobbieB ...are your results after the fees? It is unclear.
S&P YTD +10%
2016 +12%

So your results could actually be poor given the amount of risk you've taken.

Study after study show the professional investors won't beat the S&P
Over time.

Ray, you wouldn't be comparing the performance of a balanced portfolio to that of the S&P 500 index, would you?

 

[braumeister]

I think to label them all as bad eggs is very prejudicial

Just for the record, I don't think I've ever seen any (well, maybe one or two) such blanket labeling of financial advisors here. Just frequent comments that most members don't feel they need one. Big difference.

 

[Ready]

While I am a DIYer when it comes to investing, I do acknowledge that what some people can do for themselves with ease is not so easy for others.

I see many people on this forum talk about how they installed a brand new kitchen all by themselves, or did a major car repair without any help. If it were me, I couldn't figure out how to unclog the drain in my kitchen without calling a plumber. So while I wish I knew how to do these things, I accept that I need help, and I pay for it.

Unfortunately, when one needs help with financial advice, and they sign up for a long term agreement to pay a percentage AUM, it can be quite expensive. But regardless, if you feel you need the help there is nothing wrong with it, and no reason for us to shame anyone who chooses to do so.

My only advice that I would give someone, if I were asked, is to choose someone who charges by the hour, rather by AUM. I think you will get just as good results for a lot less money.

 

[REWahoo]

There just seems to be this notion that every financial professional who converts oxygen to carbon dioxide is a boogie man hiding in the closet waiting to get you. This is not true in every case.

Agreed, they definitely aren't all bad eggs.

But as has been said time and time again on this forum, it is true in enough cases that you really need to do your homework to understand what a financial professional is doing with your money, and why. And once you do that homework you've learned enough to become a successful DIY investor and don't need to hire someone to manage your investments.

 

[frayne]

No they are not all bad apples but more than enough are that warranted regulations concerning fiduciary responsibilities.

 

[OldShooter]

He is a CFP. ...

There just seems to be this notion that every financial professional who converts oxygen to carbon dioxide is a boogie man hiding in the closet waiting to get you. This is not true in every case. But there are some that I don't consider worth listening to. I met one a few years ago when we were just looking around. He was trying to sell structured notes, non-traded REITS, and Jackson National life insurance. The notes and REITS I understood but would never buy. The Jackson he explained three different times three different ways and I couldn't understand it so I left.

I think to label them all as bad eggs is very prejudicial and I don't think anybody wants or deserves to be prejudged.

I'm relatively new here but have been a bit surprised to see "FA" as a one-size-fits-all title.

At the bottom of the trustworthiness ladder are the Series 7 licensed brokers. These are the guys who will sell you a "suitable" mutual fund that pays a big commission instead of an equally-good one that doesn't pay as well. These are also the guys with the non-traded REITs, gimmick and commission-laden life insurance policies, and the ripoff annuities.

Next up the ladder are the CFPs. These are guys who have taken a few correspondence courses, maybe attended a few days of face-to-face lectures and have passed a test. The people who bestow the CFP designation get their revenue from people they recruit, hence they advertise to promote the CFP designation. This is a big deal; they grossed $30M in 2015 and the top guy made over a million bucks. I am told that a CFP is held by his contract with the seller of the CFP to be a fiduciary but IMO there is little in the way of regulatory teeth behind it. Series 7 brokers can be CFPs.

At the top of the ladder are the Series 65/66 Registered Investment Advisors. RIAs are legally fiduciaries and their licenses can be pulled if they do bad things to clients. They cannot be compensated for selling investment products; all their money comes from client fees. Mostly a % of AUM but sometimes by the hour.

(There is also an Investment Advisor Representative designation (IAR) where the person is a representative of a firm that is an Investment Advisor. I am a little fuzzy on this one as to whether this is any less a designation than a RIA. Maybe someone can comment.)

Is any of this a guarantee against idiots and frauds? Probably not. Do RIAs have conflict of interest with the client? It's possible. For example, increasing AUM feess by convincing the client to liquidate something that is not now in the AUM would be a potential conflict. But in general, I don't see much conflict with an RIA.

So, IMO it is the Series 7 guys without a CFP designation that are to be avoided at all costs. CFP is nice, but not hugely nice. RIA is, IMO, where you should be if you need an advisor. With your eyes open, watching carefully.

 

[Rustward]

He is a CFP and IAR.

 

[rayinpenn]

Ray, you wouldn't be comparing the performance of a balanced portfolio to that of the S&P 500 index, would you?

I just looked up the s&p for 2016. And ytd as points of reference. Remember not everyone is 60equity 40bonds...

FAs
I have a good deal of respect for many of the knowledgeable posters in this and other forums... however at 62 I've read countless independent research studies on FAs and have looked at the portfolios of friends under advisement.. too to many had
1. Illiquid and or inappropriate investments.
2. High cost
3. Poor performance.

Finding a FA is a very difficult process - absolute transparency is essential. "I love my guy" the question is why do you love him? Are his real returns better then the market? How do you know? Exactly how much is he costing you?

 

[gerntz]

Just for the record, I don't think I've ever seen any (well, maybe one or two) such blanket labeling of financial advisors here. Just frequent comments that most members don't feel they need one. Big difference.

When you say you don't need one, you're by default saying they aren't worth their cost. We have one and rate them as both high quality pretty low cost.

 

[braumeister]

When you say you don't need one, you're by default saying they aren't worth their cost. We have one and rate them as both high quality pretty low cost.

You must have missed the word "most" in my post.

 

[Rustward]

I just looked up the s&p for 2016. And ytd as points of reference. Remember not everyone is 60equity 40bonds...

FAs
I have a good deal of respect for many of the knowledgeable posters in this and other forums... however at 62 I've read countless independent research studies on FAs and have looked at the portfolios of friends under advisement.. too to many had
1. Illiquid and or inappropriate investments.
2. High cost
3. Poor performance.

Finding a FA is a very difficult process - absolute transparency is essential. "I love my guy" the question is why do you love him? Are his real returns better then the market? How do you know? Exactly how much is he costing you?

All that . . . and you did not answer the question. Binary answer: yes or no?

Transparency, please.

 

[Which Roger]

Part of the problem is that the term "advisor" is misrepresented by various industries and really means "advisor and sales person". When I take the car into the shop, I talk to a "service advisor" who is familiar with the vehicle, but who is also clearly looking for opportunities to sell me things that I may or may not need. Really no different than the so-called "financial advisors" who are really sales people in disguise. But not all people who service vehicles or give financial advice are like that. It's a broad brush.

 

[Which Roger]

While I am a DIYer when it comes to investing, I do acknowledge that what some people can do for themselves with ease is not so easy for others.

I see many people on this forum talk about how they installed a brand new kitchen all by themselves, or did a major car repair without any help. If it were me, I couldn't figure out how to unclog the drain in my kitchen without calling a plumber. So while I wish I knew how to do these things, I accept that I need help, and I pay for it.

You've hit on a very important point. Some people save money by DIY investing. Others save money by DIY house projects. Others are DIY car mechanics. Most people do not have the time or inclination to develop the necessary expertise in all of these. But it behooves someone who hires a professional to develop at least enough knowledge about the area to spot a rip-off artist when they see one. I'm a DIYer for investing and a lot home maintenance and renovations, but pay a mechanic for all but the simplest of vehicle repairs. However, I know enough about vehicles that I can be fairly confident that I'm not getting ripped off when I take the car to the shop.

 

[bw5972]

Well, I guess we must be outliers. Except for a very few index funds that make up less than 5% of the portfolio, we have been using active management for over 30 years for funds and stocks and have a very healthy portfolio. We have never taken an IRA distribution. The last five years expenses have been financed by selling shares of Fidelity Contrafund that we bought in the late 80's and through the 90's and paid a 3.5% load on those shares until the fund went no-load. Most of the gains have been long term capital gains which are taxed at 0% if you can manage to stay in the 15% bracket. There is enough left to cover the next six years. By then one of us will be taking RMD's and the other will be 3 years from RMD's. . . . and unless something drastic happens, by then the taxable part of the portfolio (some call it personal savings, or non-IRA) should still be well into seven figures.

SS will be an additional $48K (today's dollars) if we take it in one year and 5 years, but we will probably not take it as long as we are working down the Contrafund. Of course we will start SS by 70 no matter what else is happening.

One could paint a very negative picture about the fees we have paid over the years, but that said, we have been satisfied. We have heard the horror stories (mostly here, and a lot of it is FUD), but we have managed not to be actors in such stories.

You can take just about any profession and find something negative about it.

​

Edit to add: We don't get birthday cards, free dinners, or even a phone call on any special days. It's business.
And maybe it's just me, but I think the comments about the cards and dinner are in poor taste, but if that is all you have to add to the exchange . . . well, I guess you made your contributions.

Another edit: No, I am not saying that active management is better than passive investing. What I am saying is that active management is not always the disaster that it is generally portrayed as in these forums.

One more edit: The Contrafund was bought from '94 to '04 and the load was 3%, not 3.5%. The post was written from memory but I later looked at the confirmations.

Obviously you are not unhappy with where you sit today. Still, the only meaningful assessment would be to calculate where you would be today going back to the beginning and moving forward with no management fees and year by year actual market returns.

 

[RobbieB]

I like the personal service. I like to have someone to talk to. Someone that knows my face and my voice. A whole team that knows my face and my voice.

My guys are not incompetent, lazy or greedy and they have a good track record;

Results (including fees)

2013 +12.7%
2014 +12.7%
2015 - 1.6%
2017 +12.8%
2017 (end of May) +9.1%

These guys only do my equities, my bonds and cash are elsewhere

So, there is no mismanagement here, no fraud, no ETF's or funds with high loads, just pure equities that they buy and sell according to the "plan" which is dividend & growth. There are no trading costs or commissions either just 1 % AUM and the above results include that deduction, it's net to me after fee. And the fee is tax deductible unlike mutual fund fees.

In addition I have a large line of credit available based on these equities that I can tap at any time if needed.

So yeah, I guess I pay a little more but I get a little more too -

 

[GravitySucks]

But have you started bringing those bottles and cans back for the nickel deposit? I'd hate to see you trying to cook waygu beef over a oil drum fire down at he hobo jungle.

 

[RobbieB]

I used to do that but I stopped recently.

My girlfriend missed the can crusher on the wall and tossed them into the bin. Which gave me a wonderful idea.

Instead of crushing and saving in a garbage can in the garage until I had a full bag I now just give them to the City. The space used by the garbage is now occupied by a "bin rack" that is helping me organize my mess.

Yeah, frugality overcome again. My broker is making me so much dough I no longer need to save cans and shlep them over to the recycle center for dough.

 

[Rustward]

Obviously you are not unhappy with where you sit today. Still, the only meaningful assessment would be to calculate where you would be today going back to the beginning and moving forward with no management fees and year by year actual market returns.

So sorry to disagree with you, but the only meaningful assessment of my personal situation is the one I choose to make.

Your vote does not count.

 

[uofmbish]

I like the personal service. I like to have someone to talk to. Someone that knows my face and my voice. A whole team that knows my face and my voice.

My guys are not incompetent, lazy or greedy and they have a good track record;

Results (including fees)

2013 +12.7%
2014 +12.7%
2015 - 1.6%
2017 +12.8%
2017 (end of May) +9.1%

These guys only do my equities, my bonds and cash are elsewhere

So, there is no mismanagement here, no fraud, no ETF's or funds with high loads, just pure equities that they buy and sell according to the "plan" which is dividend & growth. There are no trading costs or commissions either just 1 % AUM and the above results include that deduction, it's net to me after fee. And the fee is tax deductible unlike mutual fund fees.

In addition I have a large line of credit available based on these equities that I can tap at any time if needed.

So yeah, I guess I pay a little more but I get a little more too -

Just as points of reference, that works out to your return being 53.8% over that timeframe.

The MSCI World was up 60.1%, and S&P500 up 85.6% over the same timeframe.

Also everyone always pays trading cost. You may not pay any explicit trading costs like commissions, but everyone, even giant investment firms, pay implicit trading costs (bid-ask spread, etc.).

I'm also not following the logic of being ok paying 1% fee so you can deduct a portion of it on your taxes. I personally prefer to save the whole thing by not paying that fee in the first place.

That said, It's totally understandable that some folks like having an FA. I'm not against having an FA at all. It's a service that comes with a cost just like any other. Some in the industry are relatively up front about those costs, and if people find them to be acceptable, it's no skin off my rear. The only FA's that bother me are the ones selling clearly inappropriate securities, to the elderly in particular, to make a commission.

 

[GravitySucks]

I used to do that but I stopped recently.

My girlfriend missed the can crusher on the wall and tossed them into the bin. Which gave me a wonderful idea.

Instead of crushing and saving in a garbage can in the garage until I had a full bag I now just give them to the City. The space used by the garbage is now occupied by a "bin rack" that is helping me organize my mess.

Yeah, frugality overcome again. My broker is making me so much dough I no longer need to save cans and shlep them over to the recycle center for dough.

I got $10.60 on yesterday's bottle run. Seems the Boyscouts have stopped collecting them for fund raisers and I was running out of room.
I'll use the cash to upgrade from Genesee to a nice hoppy IPA. Ithaca Flower Power sounds good tonight

 

[SumDay]

We met with Fischer in 2008 when DH got a lump sum from his DB plan. He spent more time telling us about how much he'd make for us and how his clients loved him (and his son) than he did explaining what he has going to invest us in. I finally pushed him on it and the reply was "oil futures." I explained I didn't invest in things I couldn't explain to anyone else, and we left. He hounded us via phone - finally had to block his number. Not impressed. Then we found (thanks to this board) http://napfa.org That was money well spent. Going in for a tune up in two weeks as a matter of fact, to make sure we're on track for a 7/1/18 retirement date.

 

[bw5972]

So sorry to disagree with you, but the only meaningful assessment of my personal situation is the one I choose to make.

Your vote does not count.

Ok, I concede, the measure of an FA's performance/value should consist entirely of how you feel.

 

[rodi]

At least I was told to stay away from no load mutual funds so I never invested in any.

Is this a misstatement? You avoid no load funds? You insist on paying loads/fees?

Your choice but I'd love to hear why you think this is preferred.

Personally I stick with no-load index funds.

 

[redduck]

. Then we found (thanks to this board) http://napfa.org That was money well spent. Going in for a tune up in two weeks as a matter of fact, to make sure we're on track for a 7/1/18 retirement date.

Can you tell elaborate a bit on how this all works? Do you pay your FA by the hour? If you just want Vanguard products would the FA be on board with that? Do you get a birthday card?