Fees! Fees! Thoughts for me...

[mrfeh]

If the market goes south 20% and I'm down 19% he will still be worth his salt.

Except year in, year out, he probably won't.

Adjusting for risk, active management is likely to trail passive over time.

 

[LOL!]

If the market goes south 20% and I'm down 19% he will still be worth his salt.

If that happens, so what? If I have been behind 1% year over year over year, a win of just 1% every few years does not really help me that much. Consistency is important as is risk-adjusted performance.

 

[ERD50]

An idea for a separate thread?

Just a thought, but for those who have decided on an FA that charges an annual fee based on AUM, how about a new thread dedicated to how to choose that FA (separate from discussion of should one use an AUM FA or not)?

It seems to me that choosing this person is harder than DIY, so I'm curious how you would go about it, and what suggestions you have for others who are set on this path? Some considerations:

A) Do you expect the FA to:

1) Beat the market after fees/taxes/expenses?
2) Match the market after fees/taxes/expenses?
3) It is OK if you lag the market, you just don't want to deal with it?​

For 1 & 2 - how do you go about determining if the FA is capable of that, in up, down and sideways markets?

B) Do you expect the FA to provide other advice, tax planning? Other?

C) Do you expect the FA to just keep you from your own bad decisions, hand holding so you don't sell at the bottom? But if you want to sell at the bottom, what keeps you from firing your FA and just doing it anyhow?

D) Why do you feel an ongoing AUM-charging FA serves you better than a per-hour fiduciary FA?

So nothing there about not using an FA, just questions about how to go about finding one that meets your needs. I'll be glad to "shout down" any "pro-DIY naysayers" (and I'll need to hold my tongue as well), to keep the thread focused. I am curious about it.

Any takers? Feel free to copy/paste the above - I'd start it, but I think it would be better coming from someone who can speak directly to those topics.

-ERD50

 

[Rustward]

Just a thought, but for those who have decided on an FA that charges an annual fee based on AUM, how about a new thread dedicated to how to choose that FA (separate from discussion of should one use an AUM FA or not)?

It seems to me that choosing this person is harder than DIY, so I'm curious how you would go about it, and what suggestions you have for others who are set on this path? Some considerations:

A) Do you expect the FA to:

1) Beat the market after fees/taxes/expenses?
2) Match the market after fees/taxes/expenses?
3) It is OK if you lag the market, you just don't want to deal with it?​

For 1 & 2 - how do you go about determining if the FA is capable of that, in up, down and sideways markets?

B) Do you expect the FA to provide other advice, tax planning? Other?

C) Do you expect the FA to just keep you from your own bad decisions, hand holding so you don't sell at the bottom? But if you want to sell at the bottom, what keeps you from firing your FA and just doing it anyhow?

D) Why do you feel an ongoing AUM-charging FA serves you better than a per-hour fiduciary FA?

So nothing there about not using an FA, just questions about how to go about finding one that meets your needs. I'll be glad to "shout down" any "pro-DIY naysayers" (and I'll need to hold my tongue as well), to keep the thread focused. I am curious about it.

Any takers? Feel free to copy/paste the above - I'd start it, but I think it would be better coming from someone who can speak directly to those topics.

-ERD50

Based on the history of this topic with this group, I don't think it would be productive.

Count me out.



But I'll answer some of your questions. I am not soliciting comments, though.

A.1 - No
A.2 - Not necessarily

B - You need a CPA or other qualified Tax person for tax advice.

C - If I need that, yes.

D - Ongoing AUM is not necessarily better than a per hour person. It is a personal choice.

 

[RobbieB]

I chose my FA based on performance. He handily beat Ed Jones (by a long shot) and Ameriprise (who did nothing)

A) Yes I expect my FA to earn his dough. I want better than market (or same after fees)

B) No.

C) My FA handles my account. I can't do anything with it even if I tried. Can't buy, can't sell can't transfer cash. All needs to get done by them after I request.

D) See above. He is on line and live.

 

[VanWinkle]

I chose my FA based on performance. He handily beat Ed Jones (by a long shot) and Ameriprise (who did nothing)

A) Yes I expect my FA to earn his dough. I want better than market (or same after fees)

B) No.

C) My FA handles my account. I can't do anything with it even if I tried. Can't buy, can't sell can't transfer cash. All needs to get done by them after I request.

D) See above. He is on line and live.

"Based on the history of this topic with this group, I don't think it would be productive.

Count me out."

 

[Rustward]

"Based on the history of this topic with this group, I don't think it would be productive.

Count me out."

Van, it looks like you combined some of my reply with a quote from RobbieB's reply, so it is difficult to know exactly what you are saying.

Could you clarify this for us, please?

 

[FlaGator]

Just a thought, but for those who have decided on an FA that charges an annual fee based on AUM, how about a new thread dedicated to how to choose that FA (separate from discussion of should one use an AUM FA or not)?

It seems to me that choosing this person is harder than DIY, so I'm curious how you would go about it, and what suggestions you have for others who are set on this path? Some considerations:

A) Do you expect the FA to:

1) Beat the market after fees/taxes/expenses?
2) Match the market after fees/taxes/expenses?
3) It is OK if you lag the market, you just don't want to deal with it?​

For 1 & 2 - how do you go about determining if the FA is capable of that, in up, down and sideways markets?

B) Do you expect the FA to provide other advice, tax planning? Other?

C) Do you expect the FA to just keep you from your own bad decisions, hand holding so you don't sell at the bottom? But if you want to sell at the bottom, what keeps you from firing your FA and just doing it anyhow?

D) Why do you feel an ongoing AUM-charging FA serves you better than a per-hour fiduciary FA?

So nothing there about not using an FA, just questions about how to go about finding one that meets your needs. I'll be glad to "shout down" any "pro-DIY naysayers" (and I'll need to hold my tongue as well), to keep the thread focused. I am curious about it.

Any takers? Feel free to copy/paste the above - I'd start it, but I think it would be better coming from someone who can speak directly to those topics.

-ERD50

Good idea, and I appreciate you going on record as to keeping an open mind about it.

I took the bait, but won't swallow the hook

http://www.early-retirement.org/forums/f28/how-i-chose-my-fa-89506.html#post1970233

 

[VanWinkle]

Van, it looks like you combined some of my reply with a quote from RobbieB's reply, so it is difficult to know exactly what you are saying.

Could you clarify this for us, please?

Just my way of saying I agree with you Rustward. The topic is one of emotion more than actual facts. You explained it well.

VW

 

[Closet_Gamer]

These threads are always fun...we should fire up a mortgage thread soon again too!

Re: spending money to save time: Amen to the point that financial freedom gives you the ability to outsource unpleasurable tasks. For me, tho, I do keep an eye on hourly rate.

For a while I mowed my own lawn but paid someone to manage my money. My wife got tired of me spending 3 hours each weekend (complaining about) doing yard work and outsourced it for about $35/week.

I got tired of paying fees ($10k/yr at that point?) and in-sourced it. Including doing my own taxes I spend about 30 hours per year actually managing my money.

So I outsourced something "paying" me $12/hr and in-sourced something paying me $300+/hr.

Of course, I LIKE managing my money. 30 hours per year doesn't include reading this site religiously, realclearmarkets daily, Money Magazine, monthly, etc. Its essentially a hobby that pays very, very well.

On the flip side, I despise yard work while others love it. Don't tell the lawn guy, but I may be willing to pay $300/hr just to skip the back pain!

So, to me, managing my money is a WAY better use of time. Others may see $300/hour as a bargain given their circumstances and inclinations.

 

[ERD50]

I'm replying to this post from another thread here, so as not to derail that other thread...

..... One thing I believe is glossed over by "DIY with index funds is simple" is that the people I know who preach it usually have experience doing it the other way and have learned A LOT from that experience. There is confidence that comes with understanding the lessons of those experiences. ...

Yes, there's probably something to that. But as I've tried to teach my kids - " A smart person learns from their mistakes/experiences, a wise person learns from other people's mistakes/experiences".

But I do feel that we explain, and provide references to show how simple it is. There are all those studies that show that active management rarely beats the market, and there does not seem to be a system to identify future winners.

We describe a 2-3-4 fund/ETF portfolio that can be a "set & forget" (rebalancing isn't even needed).

So no, I don't really think an investor has to go through the experience, they can learn from others here. And like many of us have said many times, "the hardest thing to understand about DIY investing is how simple it can be." But you don't have to get there alone.

..... That confidence, IMO, is necessary to be successful DIY investor, and one doesn't typically get it listening the stories at the ER Pub

I don't fully agree. As an extreme example, I'm confident that jumping out of a plane w/o a parachute will end badly. I don't need to experience it to have confidence in that statement.

-ERD50

 

[Scuba]

I think strong advocates of DIY don't appreciate that there are some who simply have a mental block/fear factor regarding investing. My MIL (former teacher), best friend (marketer), and DH (former HR) are all examples of this. They just do not want to learn about investing and believe it is worth it to them to have someone else manage their money for them. And there are lots of other people who share their views.

I'm comfortable with both DIY and FA's depending on the situation, but I have a financial background. DH has helped me realize that what seems "easy" to me may not be easy for others.

 

[RobbieB]

Yes, I have the "fear factor" you speak about. Fear of losing dough so I do nothing. I think I got it when I lost 25 grand buying penny stocks.

After that I was overly conservative in my IRA / 401K and didn't make as much as I should have.

So for me the fee is well worth it, I don't worry about it, I sleep well at night and my net worth continues to increase.