Are Financial Advisors Necessary?

[Koolau]

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.

When you say "tax advisor" is that a CPA that does your taxes and helps you plan a bit at each sit-down or is the advisor a separate person who does only tax advice? There have been several times I wished I could sit down with a tax "expert" and have a talk about scenarios. Our CPA doesn't really delve into "what ifs" except at the most basic level. Not useless but not really reliable for planning. YMMV

 

[dmpi]

I see no need for a FA except: 1) if you're cutting it so close you need to watch every penny and 2) You have many millions and you don't want to spend the time and energy to learn how to manage your own investments. For me I'm happy to do it myself.

 

[target2019]

For What-If tax scenarios there's the What-If worksheet in TurboTax.

 

[RetMD21]

+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.

LOL, dentists get beat up a lot on this forum but DIY isn't really advisable. Although not the case for OP, I have family members who insist on delegating financial matters. Even if they pay for what they can do themselves I hope they don't hire the "unsupervised, rapacious, or downright incompetent" FAs.

 

[Markola]

I call the fee we pay Vanguard Advisors “Mistake Prevention Insurance.”

OP, folks here come from all walks of life and careers and many have an avocation of studying saving and investing. Personally, I’m 57 and have been on the FIRE path since my first professional job with a 403b when I was 27. In that way, I’m a complete weirdo among all my friends. I’ve tried to learn from my mistakes (I’m looking at you, Dogs of the Dow) and know myself. I became wealthier slowly by being forced to keep my sweaty palms off of our mushrooming stash of stock index funds since it was in tax advantaged funds. I learned about the Rule of 55 right here, allowing us to both quit full time careers at that age.

In FIRE, the method we’re using to keep my sweaty palms off of our stash, which we now depend on, is to have an assigned Vanguard advisor. I trust Vanguard, it’s cheap help at 35 basis points, and this team-based method of making major financial decisions between my wife, me and a neutral and knowledgeable Vanguard CFP works quite well for us. Our CFP is not incentivized to churn us through junk bond funds or sell us insurance products or anything at all, like other advisors are. He just helped us create our plan, keeps our money in the same index funds, rebalances occasionally, helps us plan big expenses, and keeps us on track. I love it and sleep much better than when I was doing it myself briefly.

Good luck to you!

 

[arcyallen]

OP, I'd recommend interviewing a few FAs. Ask them what service they can provide to you, and at what cost. If YOU think it's worth it, move forward. If not, stay put. This may sound oversimplified, but it's a more thought out strategy than "No one needs an advisor!" or "You'll just screw it up if you do it yourself!"

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…’

It's true, EJ (and many firms) don't require prior financial education. But they (at least EJ) sure as hell give it to you once you join. I studied on the porch that I'm sitting on...12 hours a day...for two months straight (with -maybe- seven days off total)...before I could even think of -starting-. That's not including a lot of in-person training. Whether or not you might think it's "enough" or "the right kind of training" is up to you, but I can personally vouch from actual experience for the training program at EJ. It was a LOT. As for the last quote - EJ always said (and I agree) that a better educated client was always a better client. No one ever "learned their way" away from my help.

I'm sorry your friends are posing as advisors but are just trying to sell stuff. That doesn't describe any successful FA that I knew through EJ.

 

[Souschef]

I got a hustle from Fido, saying they could save me up to $5K in taxes and to schedule a meeting.
The bulk of our income is SS, small pensions and RMDs, so where can the savings be? I already do QCDs, and have some tax free munis.

 

[Stormy Kromer]

My Mom lives in a Sr. living apartment. Yesterday one of her neighbors stopped me and started asking financial questions. She just inherited over $1million and doesn't have a clue what to do. It is in a local bank checking account and savings account earning much less than 1%.

I briefly told her that online money market funds are paying around 5%.

She said "but then I have to pay income tax on that" I said yes, but you'll be left with about 4.5%.

I told her she should look for a financial planner, she said "I talked with one but they take 1% of your money every year" I countered "they'll get you at least 5% more than your passbook savings and checking accounts".

I mentioned getting a Vanguard account online and getting one of their financial planners.....I may have just as well told her to fly a plane to the moon.

Here is an example of a person that needs a financial planner. I just hope she doesn't get sucked into annuities and VUL products. But, that would be no worse than letting her local bank pay her less than 1% for over a million dollars in their bank. Reminds me of Jed Clampett and Mr. Drysdayle.

 

[mebden]

My lives in a Sr. living apartment. Yesterday one of her neighbors stopped me and started asking financial questions. She just inherited over $1million and doesn't have a clue what to do. It is in a local bank checking account and savings account earning much less than 1%.

I briefly told her that online money market funds are paying around 5%.

She said "but then I have to pay income tax on that" I said yes, but you'll be left with about 4.5%.

I told her she should look for a financial planner, she said "I talked with one but they take 1% of your money every year" I countered "they'll get you at least 5% more than your passbook savings and checking accounts".

I mentioned getting a Vanguard account online and getting one of their financial planners.....I may have just as well told her to fly a plane to the moon.

Here is an example of a person that needs a financial planner. I just hope she doesn't get sucked into annuities and VUL products. But, that would be no worse than letting her local bank pay her less than 1% for over a million dollars in their bank. Reminds me of Jed Clampett and Mr. Drysdayle.

Hey Stormy I would of told her to just find 5 on line banks that are FDIC insured up to $250,000 and divide it evenly to all 5 much better interest rates

 

[Stormy Kromer]

Hey Stormy I would of told her to just find 5 on line banks that are FDIC insured up to $250,000 and divide it evenly to all 5 much better interest rates

That's what I was trying to tell her when I mentioned VG Money Market paying 5%.

She doesn't have a computer.

 

[Koolau]

Here is an example of a person that needs a financial planner. I just hope she doesn't get sucked into annuities and VUL products. But, that would be no worse than letting her local bank pay her less than 1% for over a million dollars in their bank. Reminds me of Jed Clampett and Mr. Drysdayle.

Actually, from personal experience, I would say that she'd do better with the 1% or less in the bank than the annuities and VUL products. Some may pay off, but typically, they pay off for the sales person and his/her company.

Couch Potato "Light" AA at Vanguard or Fido. Maybe S&P 500 (or better Total Stock Mkt. Index) at maybe 50 or 60 percent. and one medium term bond fund for the rest. rebalance once a year. Use funds as needed. Relax and enjoy golden years.

 

[mebden]

That's what I was trying to tell her when I mentioned VG Money Market paying 5%.

She doesn't have a computer.

ouch I guess she's in trouble then as I can see some FA's aka sales person taking her to the bank

 

[Koolau]

ouch I guess she's in trouble then as I can see some FA's aka sales person taking her to the bank

I had one do that to my mom before she passed. Before her death, I figured out what the rep had done. I called the company, expecting them to defend the agent's actions. Instead, they paid back all the premiums and assured me they would delete this (independent) agent from their ranks.

 

[Rianne]

When you say "tax advisor" is that a CPA that does your taxes and helps you plan a bit at each sit-down or is the advisor a separate person who does only tax advice? There have been several times I wished I could sit down with a tax "expert" and have a talk about scenarios. Our CPA doesn't really delve into "what ifs" except at the most basic level. Not useless but not really reliable for planning. YMMV

He's the same CPA who advises for tax purposes a strategy to keep our taxes low or lower. Does not advise on investments. Last year he advised Roth conversions and explained the coupon payments we must submit in the year or quarter we do the conversion. So, we decide to do a conversion in Sept. 2023, e-mail him we're doing the conversion, he sends us a coupon and we pay the taxes in 2023.

For us, it's all about taxes. Our goal, stay in the 12% bracket which looks like will be pretty easy. He explains how much tax we'll pay if we sell taxable index funds, combine that with a Roth rollover and SS.

I showed him this link:
https://www.irscalculators.com/tax-calculator

He said that's a great estimator tool. So we move numbers around in that tool, get an idea, and run it by him. ~$500/year cost for his advice.

 

[target2019]

When you say "tax advisor" is that a CPA that does your taxes and helps you plan a bit at each sit-down or is the advisor a separate person who does only tax advice? There have been several times I wished I could sit down with a tax "expert" and have a talk about scenarios. Our CPA doesn't really delve into "what ifs" except at the most basic level. Not useless but not really reliable for planning. YMMV

He's the same CPA who advises for tax purposes a strategy to keep our taxes low or lower. Does not advise on investments. Last year he advised Roth conversions and explained the coupon payments we must submit in the year or quarter we do the conversion. So, we decide to do a conversion in Sept. 2023, e-mail him we're doing the conversion, he sends us a coupon and we pay the taxes in 2023.

For us, it's all about taxes. Our goal, stay in the 12% bracket which looks like will be pretty easy. He explains how much tax we'll pay if we sell taxable index funds, combine that with a Roth rollover and SS.

I showed him this link:
https://www.irscalculators.com/tax-calculator

He said that's a great estimator tool. So we move numbers around in that tool, get an idea, and run it by him. ~$500/year cost for his advice.

Rianne, you found a good one. I think what many/some do is hit up the tax preparer after they see the result on the tax filing. But meeting with CPA, or discussing in email maybe, ithroughout the year is the way to go.

$500 is a reasonable cost for expert advice.

I've been fortunate to have my brother as a tax advisor, and when he passed many of the lessons were instilled in me. Even more good fortune now, because son-in-law is a tax CPA.

During tax season it is very hard to get the attention you want, Koolau. Keep looking, and you'll find someone.

 

[Spock]

 

[Koolau]

He's the same CPA who advises for tax purposes a strategy to keep our taxes low or lower. Does not advise on investments. Last year he advised Roth conversions and explained the coupon payments we must submit in the year or quarter we do the conversion. So, we decide to do a conversion in Sept. 2023, e-mail him we're doing the conversion, he sends us a coupon and we pay the taxes in 2023.

For us, it's all about taxes. Our goal, stay in the 12% bracket which looks like will be pretty easy. He explains how much tax we'll pay if we sell taxable index funds, combine that with a Roth rollover and SS.

I showed him this link:
https://www.irscalculators.com/tax-calculator

He said that's a great estimator tool. So we move numbers around in that tool, get an idea, and run it by him. ~$500/year cost for his advice.

Thanks for the excellent response. This could be a very valuable resource for many people anticipating Roth conversions. I wish I'd had it a long time ago!

 

[mickeyd]

Like life, some folks need a rope to assist, some do not. My advice is to use the advisor until you are ready to DIY.

ITMT (in the mean time) keep reading here.

 

[maestro]

No. At 50 with 1M+ banked, you appear to be doing quite well with your own skills. Cheers.

 

[temartin]

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.

Curious (big picture) where $300K in tax savings from advisor comes from beyond what you could do yourself. Roth conversions, income smoothing?

 

[creekstone]

If you have a pretty good grasp of investing and a Boglehead approach, there are low cost online/teleconference options to have someone look over your shoulder, make suggestions, and help you figure out some of the what ifs. I use one that after the initial fee (it was less than $200 at the time), I pay $8 per month. The service requires use of eMoney which is a software program (with tons of various reports) used by many financial planners. I'd pay $8/month just for that. You have to do all the heavy lifting (inputing data); it's just advice. Works for me.

 

[No900SS]

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

Excellent advice here for the age appropriate amongst us.

 

[Happy30]

I considered using an advisor but decided that there wasn’t much they could do for me. I did not panic sell when covid hit and have gained all those losses back and then some.

I also use the fire calculator, Empower (previously Personal Capital) and Fidelity to run my numbers and what if scenarios. It has been very helpful.

I retired earlier this year at 57 and was scared at first but realized we had plenty saved and should do well overall.

My 2 biggest concerns are taxes and drawdown. I continue to educate myself and learn. This group has also been really great and helpful!

 

[Closet_Gamer]

I am generally advisor adverse. They add expense drag for generally zero or negative value add.

The only reason I see to do it is if you have zero long term interest in paying any attention to your money. Otherwise, one time fees, a bit of reading, and letting this forum remind you not to panic or try to get too clever and you should be fine.

But, if you're not willing to put in a bit of effort, hire a professional on a fixed fee basis. And run if he pulls out some complicated financial product.

That said, a one time fee to have someone peak over your shoulder at various points isn't a bad idea. I'm very close to pulling the plug and am using a Schwab advisor to rebuild the plan from scratch and see if he arrives at the same conclusions in terms of my plan's viability. I'm also interested in getting professional perspectives on income strategies and tax strategies. Will be interesting to see what he says.

 

[Markola]

I did not panic sell when covid hit and have gained all those losses back and then some.

It’s my belief that this is the defining characteristic that divides the few effective DIYers from the majority who would benefit from a low cost financial planner. How many people have the cast iron constitution required to sit there and do nothing while their portfolio tanks, as it certainly will periodically? Everyone has the ability to DIY like a pro when markets are rising. It’s the times when markets face-plant when the most damaging DIY mistakes that damage long-term net worth are made.

You cannot know which one you are until you live through some plunges and observe with brutal honesty how you felt and, more importantly, what you did in response.

I have invested for 25 years and I know that when I read the news and convince myself that the sh*t is likely to hit the fan (hello 2018 Trade Wars), I fiddle with my allocation in the effort to “optimize.” It never works and I always regret it later. That’s why I turned over the car keys to Vanguard’s relatively inexpensive AUM, because I know myself and I am not safe to drive when storms are on the horizon (and storms are ALWAYS on the horizon).

If you have lived through 30-50% market plunges and have not lifted a finger, great.

If your spouse will know what to do and can take good care of him or herself financially if you suddenly take a dirt nap, great.

If you and your spouse see eye to eye on all major spending decisions or can work out any differences alone smoothly in the context of your relationship, great.

If you’re still working and accumulating, not depending on your portfolio and your salary is the superpower that can fix all mistakes, great.

I know myself well enough through painful experiences to know that I am not those things. For me and for my spouse, life is much better with a low cost, neutral and knowledgeable, never-pushy Vanguard advisor. Cheers.