Are Financial Advisors Necessary?

[lennyandgragg1]

Hi, I'm Steve. I don't post very often, but I am always reading the newsletters trying to stay somewhat informed while staying extremely busy raising two daughters, being a teacher, and coaching high school girls' basketball. I always thought I wanted to retire early, but as I am about to turn 50 I feel like I will need to stay busy. I still want to be able to be financially free though and able to retire early if I want to.
Anyway, I recently received another email form Vanguard about signing up for their personal advisor services. I tried this about 10 years ago with them, but found found that once they examined my portfolio, they said it was fine and didn't change anything. Anytime I would ask if any changes should be made, I was always advised to just leave it alone since I had no plans to touch the money until much later in life. I didn't see any great benefit, so I stopped the service. I guess I am just wondering if I am missing anything. I have a little over a million with them, so it looks like it would cost me about $3500 a year for them to manage my portfolio. I have always heard to just invest your money and leave it alone until you retire. If that is true, what does the advisor do and are their services worth the fee they charge. Thanks.

 

[target2019]

Our advisors offer: Relationships built on a fiduciary duty to always act in your best interests. Advice for moments that matter, like during unpredictable markets.

Our advice technology gives you: Access to state-of-the-art financial planning and portfolio construction capabilities. Guidance to save for goals like retirement and more. An automated tax-loss harvesting* service to help reduce your tax bill and keep more of your returns.

https://investor.vanguard.com/advice/personal-hybrid-robo-advisor

At this stage of my life I can still DIY, so the service offers nothing for me.

 

[ShokWaveRider]

Simple Answer ....... No. IMHO of course.

 

[euro]

no

 

[RetiredAt49]

Save your hard earned money… buy extremely low cost index funds (e.g. VTI, VOO) and sit back and enjoy the returns!

 

[Midpack]

You realize this is not a typical slice of the (investing) public. Most people here are more than capable of DIY (very) long term passive investing, and that's the most common approach here (there are active investors too though).

If you are willing to educate yourself with the basics, you aren't a trader, and you're able to avoid panic selling when the periodic downturns inevitably happen, you don't need an FA. Unlike this forum, many people don't have knowledge or temperament (just as crucial) to manage for themselves. Those folks may be better off paying 0.3% AUM to have a passive index AA selected for them, and someone to discourage panic selling. Unfortunately many do the latter despite paying for an FA. There were millions of people, some who posted here, who lost a lot of money after 2008-2009 who would have been fine had they just 'stayed the course' instead of converting paper losses into real losses...

If you expect a Vanguard FA to recommend significant AA changes from time to time, you won't get that. Rebalancing and occasional changes in funds are their practice - same thing most of us here are doing for ourselves.

If you need a Vanguard FA and you listen to them, you won't go too far off. If you use an FA, and then don't listen, you could make some fatal investing errors.

I would not recommend most other FA’s. Too many have a primary goal is siphoning off your money and don’t know as much as you’d think. I know several EJ advisors with no prior financial education, they’re just salespersons posing as investment advisors. Problem is ‘by the time you know enough to choose a good FA, you don’t need one…’

 

[OldShooter]

You realize this is not a typical slice of the (investing) public. Most people here are more than capable of DIY (very) long term passive investing, and that's the most common approach here (there are active investors too though).

If you are willing to educate yourself with the basics, you aren't a trader, and you're able to avoid panic selling when the periodic downturns inevitably happen, you don't need an FA. Unlike this forum, many people don't have knowledge or temperament (just as crucial) to manage for themselves. Those folks may be better off paying 0.3% AUM to have a passive index AA selected for them, and someone to discourage panic selling. Unfortunately many do the latter despite paying for an FA. There were millions of people, some who posted here, who lost a lot of money after 2008-2009 who would have been fine had they just 'stayed the course' instead of converting paper losses into real losses...

If you expect a Vanguard FA to recommend significant AA changes from time to time, you won't get that. Rebalancing and occasional changes in funds are their practice - same thing most of us here are doing for ourselves.

If you need a Vanguard FA and you listen to them, you won't go too far off. If you use an FA, and then don't listen, you could make some fatal investing errors.

This.

But we are talking in the context of Vanguard. That is a pretty safe place; wandering off that reservation you would risk finding FA's who are unsupervised, rapacious, or downright incompetent. Regarding your previous VG experience, a couple of my favorite quotations apply:

Jack Bogle, founder of Vanguard: "Don't just do something. Sit there."

Famed investor Warren Buffett: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell." ... "Lethargy, bordering on sloth should remain the cornerstone of an investment style."

Buffett again: “The stock market is a device for transferring money from the impatient to the patient.”​

One problem with FAs is that they are inclined towards complex portfolios and frequent activity in order to impress paying clients that they are getting something for their money. Your previous VG advisor did well for you.

 

[Exchme]

It sounds like OP is well grounded and doing the right things. Whlle the Vanguard PAS is inexpensive compared to some other services, I would only consider it much later in life, if we are slipping mentally and need someone to keep the accounts in balance. Even then, I would hope that we have one of our kids in position to take over, rather than paying a third party.

Ultimately, I think the Vanguard PAS is trying to buy the market portfolio, and it's easy enough to do that yourself. The only oddity is I believe they include foreign (currency hedged) bonds nowadays. Not clear to me that that adds anything but cost.

 

[Kings over Queens]

One problem with FAs is that they are inclined towards complex portfolios and frequent activity in order to impress paying clients that they are getting something for their money. Your previous VG advisor did well for you.

My CPA set up my 401k all those years ago, and since then it's grown considerably. Many CPA's, like him, have become financial/investment advisors, at least to one degree or another.

During a recent chat he asked about my interest in switching from the Mutual Fund based (American Funds) portfolio to a managed account. I asked for the info and was shocked at the amount of holdings and percentages in it. 1% of this, 4% of that...there must have been better than 30 holdings.

Nah, thanks. I'm good.

 

[Car-Guy]

Use some of that "I need to stay busy time" and learn about investing. No FA needed.

 

[Kings over Queens]

The OP asks, "are financial advisors necessary."

I suppose that depends on your financial and investment acumen, and what you are looking to achieve.

 

[Gallaher]

Here’s a new twist.
I have always been a DYI investor. Had accumulated $2mil when I was “laid off” at 57 in 2017. Decided “I can do this!” So I retired.
Have now acquired $2.5mil built a new house bought a couple of cars, including an adventure van, lots of travel.
All with cash.

I’ve done okay.

Recently Schwab approached me, they contract with Mariner Wealth Management. Mariner reviewed my performance. Their guy said he could not beat my investment performance but he could show me how to save $300K in taxes and that would pay their fees beyond my lifetime.
Also, he did a review of my estate plan. I know you can get cheap online planning but I have a complication, disabled son. My estate plan has to be on point.

As my situation gets more complicated, I don’t mind paying for expertise. Heck, I don’t even change the oil in my cars anymore.
I pay Mariner quarterly, not cheap, and can quit at anytime.
I am going to give this a go for at least 3-5 years.

Each to their own. I can assure you that every single investor out there, DIY or otherwise, wonders if they did the best they could at the end of the year.

 

[Time2]

I'm 68, what's a Financial Advisor?

 

[Freedom56]

Yes if you have a lot of money and can afford top notch talent. My brother is a doctor (radiologist) and owns many imaging clinics in addition to his hospital job. He does not have time to manage his portfolio and the trust fund he set up for his son. He uses Morgan Stanley private wealth management but the entrance fee is a minimum net worth of $25M. He has done well with these advisors who buy individual stocks and bonds and market time profusely. They also advise him on tax planning for his corporation and personal income tax.

The answer is no if you are stuck with any of the vast majority of financial advisors who are there to gather assets and collect fees and not give good advice.

 

[Katiek]

My short answer is it sounds like you already have a tax efficient, low cost portfolio and that you've been able to "hold the course" and not sell when the market fluctuates (sometimes by a lot). If you're already in index funds with a reasonable stock allocation, then I think you're fine and don't "need" anyone.


Having said that, I do think there are times when a financial advisor can be useful. When I first started seriously considering retirement, I hired a one time, fee advisor to review my portfolio and help make sure I wasn't missing anything (you don't know what you don't know).


Also, as I get older, I may consider either a financial advisor or using a family member to help protect me from myself if I start to suffer significant deterioration in skills. I also think they could be useful for a couple where one spouse really has not been engaged with financial matters and either can't or is unwilling to learn. My siblings and I served that purpose for my Mom when my Dad passed, but if she didn't have us, a fee only financial advisor could have been helpful.


Finally, for people with specific issues (such as caring for special needs family members), a consultation to help make sure they're maximizing planning opportunities can be good.


So nothing in the OP's post suggests one of these needs to me, but I think there are opportunities where consulting an advisor can be helpful (and in those cases, make sure you're taking care to pick an appropriate fee only advisor, especially one who has limited term engagements if that's what you want

 

[RetMD21]

I think a lot of investors are unsophisticated even if wealthy and could benefit from good financial advice if they could find it

 

[Midpack]

I think a lot of investors are unsophisticated even if wealthy and could benefit from good financial advice if they could find it

+1. Repeating my (stolen) statement from above - 'by the time you know enough to choose a really good financial advisor, you don't need one.' Unfortunately there are way more charlatans than good ones, like some other professions.

 

[Markola]

OP, We use Vanguard Advisors to manage 7 figures for us and would not have it any other way, because:

1). Working and saving was easy, completely DIY. Earn, save, watch it grow, salary covers your expenses.

2) The spending phase is an entirely different beast psychologically. Once one shifts to depending on that nut, and it starts going the other direction, it can be laying awake at night fretting:

“Is it 4% SWR or has it become 3.5%?”
“ What if I’m incapacitated?”
“What if we have a Black Swan event?”
“Should I change our asset allocation?”
“When should we take SS?”
“Should we pay off the house?”
“If the stock of bond market drops 50% will I panic sell?”
“What happens to portfolio survivability if I have to replace my roof, if we move altogether, how much car can I buy?”
“DW wants different things than me, some of them expensive. How do we decide fairly whose wants are covered if I’m completely in control of our finances? Won’t she come to resent that veto power I have? I know I would.”
“Blah, blah, blah.”

Now, when we have questions or need to make decisions, we simply ask our assigned CFP. He feeds it into their proprietary system, which spits out fact-based data to show how any change affects our portfolio success score. We can then decide together what to do and when, which results in almost no money arguments. Should I bite the dust and take a dirt nap, she knows whom to call. It’s all a big weight off my shoulders.

 

[jimbee]

No.
https://www.etf.com/docs/IfYouCan.pdf

 

[lennyandgragg1]

Hopefully I’m replying to all who took the time to offer their advice. This is what I have loved about this forum for years. You guys hit things from several different angles and perspectives.
My approach has always been to invest in the index funds with the lowest fees, contribute on a regular basis and leave it alone. Occasionally,, I contribute more to one fund than another to keep things balanced or I will purchase a new fund I like for whatever the reason, but this approach has seemed to work. I guess from time to time I have wondered if an advisor could have done better for me,, but I don’t think they could have unless they were solely focused on my retirement, which they are not. I think it is a trust issue also. As many of you mentioned, there are many unscrupulous advisors out there, and when it comes to money I just have a hard time trusting anyone. At this stage in the game, I don’t think I need an advisor after reading all of your comments. I can see the value of some of you having one in special situations and for peace of mind though.
Thanks again for all of the insightful comments. I am curious about what many of you do or did for work, and how you gained your financial knowledge. Is there another part of this site where you guys just talk? Do you discuss life and other topics outside of here?

 

[TheWizard]

No...

 

[Katiek]

Thanks again for all of the insightful comments. I am curious about what many of you do or did for work, and how you gained your financial knowledge. Is there another part of this site where you guys just talk? Do you discuss life and other topics outside of here?

There are different subforums - one to introduce yourself, one to talk money topics, but others for "life after retirement", health, travel, younger investors and a general "other topics".


Great financial advice here, but I've found people to be helpful on a variety of topics and willing to share their experiences.

 

[Koolau]

Financial "advisors" have cost me more than my own stupidity has, so NO. You don't need one.

 

[DrRoy]

No, but you need to rebalance now and then.

 

[Rianne]

Since I started reading financial advice/opinions in this forum, I see no need for an FA. We're not ultra-wealthy, middle-of-the-road with $3m NW. I do see the need for a tax advisor and that's all we use. 40% in index funds, 55% in CD/bond ladder that started in early 2022. I don't think it gets more complicated than that.