Do You Use A Financial Advisor?

[FinanceDude]

At least the lawyer has a set fee for generating a letter...It may be exorbitant. Heck a Financial Advisor who charges a flat hourly fee could be rip-off too if he charges exorbitant hourly fees. BUT the fee is the fee...the lawyer does not say-I charge $300 an hour for a will if your estate is a million, but if it is 2 million my rate goes up to $350 an hour. And over 2 million I charge $375/hour. and over 3 million $385 an hour.,e tc. etc... That is the difference....and since when are lawyers the best example of honest and straightforward professionals anyway?

I have no idea how you do math........

Well, you seem to believe FA's are not straightforward, so I offered another career path where questions can be raised in regards to fees..........

 

[urn2bfree]

I have no idea how you do math........

Well, you seem to believe FA's are not straightforward, so I offered another career path where questions can be raised in regards to fees..........

I am sure that anyone who represents sliding fee scales that end up charging ever higher sums of money as portfolios grow as an example of fees being REDUCED certainly is likely to have math related challenges. In the real world, when you charge someone $12,500 one year and $16,000 the next year we call that an increased fee not a reduced fee.

 

[bUU]

You really can't compare returns from a fund made up of stocks and bonds to "the stock market", especially over the short term. It is about return for a given amount of risk.

Discussion of alpha and beta should probably be a sticky thread, somewhere.

 

[daytripper]

In terms of performance, I have been pleased with the results.

Just wondering if you and anyone else using an advisor can share what annual return you are getting?

 

[bUU]

The problem, daytripper, is that I've never seen investors who do poorly share such data, so all we ever hear about are the successes.

 

[travelover]

Just wondering if you and anyone else using an advisor can share what annual return you are getting?

Again, you need to look at returns in the context of risk.

 

[braumeister]

My advisor is somewhat conservative, but manages to get me a good return nearly every year.

He charges between 2 and 3 percent of my total portfolio each year.

Some consider that high, but I know that his entire fee is put to good purposes that I approve of. Besides, he's a nice guy and that counts for something, doesn't it?

 

[urn2bfree]

My advisor is somewhat conservative, but manages to get me a good return nearly every year.

He charges between 2 and 3 percent of my total portfolio each year.

Some consider that high, but I know that his entire fee is put to good purposes that I approve of. Besides, he's a nice guy and that counts for something, doesn't it?

What matters is not what he gets you or what he charges.
Like anything you buy, it is about how much you want to Pay for what you get, if you can get the same for less.
If you can buy a car from one dealer for 2% less than another dealer, all other things being equal you probably buy the cheaper car. If the more expensive car is sold by the nice guy, I don't think I would pay up for that. And that is just 2% over a relatively low number for a one time purchase. Even fractions of Extra percentage points for portfolio management that you could get for less translates into giving away hundreds of thousands of dollars...what kind of a nice guy takes that kind of money out of my pocket?

 

[bUU]

Precisely. I would expect that every penny I spend toward financial planning, estate planning, tax advice, would show a profit in the short to medium term, or be mathematically demonstrably profitable in the long term.

 

[Seeking Hobbes]

So... How do you know if you're paying too much

After following this thread (and others) re: Financial Advisors... not to mention watching the Frontline Doc. I must admit, I'm left with more questions than answers.

I've reviewed my accounts & now I'm concerned that I am paying too much in fees (sigh).
No surprise, given the consensus of many on this site.

With three main accounts, each at different firms, my expenses vary from...
~ .60% for a ML 401K (This expense I'm comfortable with)
All no load mutual funds.
~ 1.9% for an Equity account with a Private Mgt Co.
individual Stocks
(but when you add the value my bond holdings to the base, they aren't included in the fees, the fee percent of the total drops to .80%)
~ 1.8% for a WF Equity Account
No load, mutual funds
(similarly, when you add my bond holdings to the base, the fee percent of the total drops to 1.4%)

Am I looking at this correctly? Should I consider fee percentage based on TOTAL account value (Stocks & Bonds) or simply against the equity portion on which the fees are charged?

I've thought about seeing an independent CFP for a review/audit of my holdings... but have yet to make the appointment.

I feel pretty comfortable managing the equity portions of my accounts - shifting to low cost index funds. However, the bond markets concern me. Ironically, the Managers I use seem to spend more time/effort finding & constructing secure bond ladders (which aren't part of the fee structure) than actively managing the equity portion of the accounts.

Any suggestions regarding...

How I might realistically review/critique my current fees??
Where to start, if I decided to shift my accounts into low cost index funds/bonds??

 

[FinanceDude]

Like anything you buy, it is about how much you want to Pay for what you get, if you can get the same for less.

Or personal choice. If braumeister wants to use an FA, that's his business. It is still a free country..........

If you can buy a car from one dealer for 2% less than another dealer, all other things being equal you probably buy the cheaper car. If the more expensive car is sold by the nice guy, I don't think I would pay up for that. And that is just 2% over a relatively low number for a one time purchase.

I know some guys like that. They are willing to drive 300 miles all over the place from dealer to dealer and city to city in a big SUV that gets 16mpg to save $100...........

 

[rbmrtn]

what kind of a nice guy takes that kind of money out of my pocket?

I think he was making reference to himself . same guy I use

 

[Bestwifeever]

I think he was making reference to himself . same guy I use

Yes, I thought so too. DH's FA charges whatever she feels like, sometimes 100 % of the annual withdrawal, because he likes to keep her happy and for no extra charge she pays the bills out of it.

 

[urn2bfree]

Or personal choice. If braumeister wants to use an FA, that's his business. It is still a free country..........

I know some guys like that. They are willing to drive 300 miles all over the place from dealer to dealer and city to city in a big SUV that gets 16mpg to save $100...........

Wow, where can I go where there are car dealers selling cars for $5000!? (2% savings = $100)

Of course braumeister is free to use a FA, what to pay for that choice was the point.
IF using a FA one should asses what you get for what you pay. If you can get that service (or any service or product you buy) for hundreds of thousands of dollars less, why wouldn't you? Some one being a nice guy is hardly worth that kind of difference in cost.
What seems to be little known or appreciated (besides the wide range of fees one can be charged for no added returns) is how huge the sums are that can be generated by fees that appear to be small numbers. Even fractions. Imagine a portfolio of $2 million -one advisor charges 0.8% and another 1.2%. And all else is equal, except Mr 1.2% is a nice guy. That extra 0.4% fee will cost about a quarter of a million dollars $250,000!!!
Might be worth driving around a bit to save that kind of dough.

 

[braumeister]

My apologies. I was apparently a little too subtle.

In my post above, what I actually meant was that my financial advisor is me. His 2-3% "fee" represents my withdrawal rate.

Sorry for any misunderstanding.

 

[urn2bfree]

My apologies. I was apparently a little too subtle.

In my post above, what I actually meant was that my financial advisor is me. His 2-3% "fee" represents my withdrawal rate.

Sorry for any misunderstanding.

Sorry I missed the gag.. Unfortunately it is so close to the sorts of highway robbery some of these guys do charge that the reality was all too plausible.

 

[photoguy]

How I might realistically review/critique my current fees??

Take the fees as a percent and divide by 4% (or your SWR). That's the percentage of your portfolio you're giving up to pay for the advisor.

E.g., if your fee is 0.5% then 0.5% / 4% = 12.5% of your portfolio which is effectively lost. Only you can decide if your advisor is worth that much.

 

[NC 57]

Take the fees as a percent and divide by 4% (or your SWR). That's the percentage of your portfolio you're giving up to pay for the advisor.

E.g., if your fee is 0.5% then 0.5% / 4% = 12.5% of your portfolio which is effectively lost. Only you can decide if your advisor is worth that much.

It is only lost if one can equal or better the performance of the manager.

Actually I've just gone through the process of analyzing the performance of my financial advisor (USAA Wealth Management) at the three year anniversary. During the three years I've done a lot of research (including joining this forum) which has given me the confidence to take over management of the portfolio.

My actively managed, not tax deferred, portfolio with USAA is conservative with a 60% bond, 40% equity allocation. Over three years the actively managed portfolio has generated an average annual return of 6.28% after fees but before taxes. In contrast Vanguard's Conservative Lifestrategy fund has delivered a 7.3% average annual return after fees for the same period with a 60/40 bond to stock allocation. Looking at USAA's own fund family it's Cornerstone fund with the same 60/40 asset allocation has outperformed my managed portfolio by 150 basis points after fees.

My fees for this actively managed portfolio have averaged 0.7% per year. Fees have consumed 28% of the interest and dividend income over the period and 10.7% of the total return. This is significant when one is fully retired and living on the portfolio (too young for SS).

Looking at my IRA accounts, they have an average annual return of 2.6% after fees for the same period. Asset allocation is the same. In looking at performance by asset class, the equity potion of the portfolio has delivered a negative 18% annual return over a period in which the US equity markets have performed well. The USAA managers have overweighted foreign stocks during this period plus picked US equities poorly.

I sent my analysis to my advisor who has set up a telephone conference for next week with the portfolio manager. At this point I believe I can do better by simply moving my assets to either a balanced fund, such as Vanguard's Conservative Lifestyle fund, or to minimize risk, a portfolio of low fee index funds from 3 or 4 different investment companies,

 

[Don46]

Three years ago I signed on with one of Schwab's advisory network money managers. I went from reluctance to satisfaction and am now back to questioning why I am paying someone nearly 20k a year to do what I can do myself and possibly better. In my taxable account he has done well for me adding more than 36% after fees to my net value after 3 years. In my IRA he has done poorly, a little over 12% after three years. I got a lot of attention when we first signed on and then I think he's been coasting. Also, I was promised some help with overall financial planning and he is not providing that. I'm planning to pull out and transition to a three index fund account on the Bogle model. I wish I had made the effort to learn more about that kind of investing when I was reviewing my options 3+ years ago.

 

[samclem]

Actually I've just gone through the process of analyzing the performance of my financial advisor (USAA Wealth Management) at the three year anniversary. During the three years I've done a lot of research (including joining this forum) which has given me the confidence to take over management of the portfolio.

NC,
I think it's great that you've gathered enough knowledge to enable you to manage your investments yourself, and I think you'll do better that way. But still, you are probably kidding yourself if you are trusting the results of your small sample as a reason to do this. It would take many, many years across many market cycles and many types of investments to statistically determine to a high level of confidence that an advisor does/doesn't add value. And by the time the data becomes information, the advisors have changed.
Over the last 3 years your advisors might almost as easily have produced results well ahead of the market--just by chance. Most academic research shows you'd nonetheless be well advised to dump them.

 

[F4mandolin]

I have a buddy who got me to use Edward Jones in the past. I have just now switched to Vanguard. I KNEW when I started using EJ that I was going to pay an upfront load on the things that I bought because I checked....and asked.....before I knew better. I have talked to him a number of times about this and the fact that he was paying an up front load/payment on what he gave them. He still believes that he hasn't payed it....no matter how many times I have told him that he has....he just won't believe that he has paid it. He just states that he has never seen it on his statements. I tell him to look online to see what the payments are for buying at different $ amounts.....he won't do it. Still believes he hasn't paid it. He NEEDS a financial adviser, and luckily for him the guy he uses is pretty trustworthy and has recently quit EJ because he didn't like EJ forcing him to push things on people. But......