Financial Advisor fees etc.

[iibgdi]

We have been using a financial advisor for about the past 5 years or so. Prior to that, it was mostly just $ in our 401k's and an annuity I had opened on my own.

When I became self employed and my wife switched jobs about 7 years ago, we had our 401k's just sitting there and was recommended by a friend to my current FA.

I think he does a good job from what I can tell and we've had good growth the past year or so.

We meet annually and I get monthly statements from both TD Ameritrade and from him internally.

For his services, he receives 1%.

Is this the normal going rate? I'm just curious.

 

[MRG]

Probably, you will quickly find most folks here consider anything more than 0% too much.

Pick up some books, there's a recommended reading list here. Millionaire Teacher is a quick easy read, it will give you all the knowledge you need to start DIY.
Best wishes,
MRG
Edit to add: ensure thats all your paying, google mutal fund expenses and compare. Are you being charged front end loads, deffered sales charges, 12b1 fees, is he putting you in funds with higher fees......

 

[target2019]

Most who use an FA pay something like that 1% you pay.
Add in the fees and expenses for the complete picture.
I self manage our accounts, and the weighted expense ratio is about 20 basis points. I'd guess you are somewhere north of 150 basis points if you count all fees and expenses.

 

[Sarah in SC]

For those paying an advisor, 1% would be typical.

 

[Tortoise]

Just think that when in retirement, the typical safe withdrawal rate (SWR) is 4% of your portfolio adjusted in subsequent years for inflation. If you pay someone 1%, you are effectively spending 25% of your annual income. Is this really worth it? Not to me. Pick up a copy of the Bogleheads' Guide to Investing if pre-retirement, and Bogleheads' Guide to Retirement if post retirement. Get rid of the FA and keep that 25% of your withdrawals for yourself.

 

[Birchwood]

At marketwatch, one of the recommendation is to "manage" it yourself, if you can. If you have 3mil, that's 30K you'e giving away.
Everybody did well in the last year or so.

 

[ducky911]

Just think that when in retirement, the typical safe withdrawal rate (SWR) is 4% of your portfolio adjusted in subsequent years for inflation. If you pay someone 1%, you are effectively spending 25% of your annual income. Is this really worth it? Not to me. Pick up a copy of the Bogleheads' Guide to Investing if pre-retirement, and Bogleheads' Guide to Retirement if post retirement. Get rid of the FA and keep that 25% of your withdrawals for yourself.

+1

or think of it this way when you retire you can get 3000 dollars or 4000 dollars...your pick.

anyone that says they can make more with your money ,is saying they don't mind taking bigger risks with your money

 

[ERD50]

...

I think he does a good job from what I can tell and we've had good growth the past year or so. ...

I've said many times - this is the meat of the situation. The 1% fee is typical (but probably only a portion of the real expenses), but is it 'worth it'?

OK, so you've had 'good growth the past year or so'. Well, the market has also had 'good growth the past year or so'. A low cost 'set it and forget it' portfolio would have done very well for you. So what would you need to know to know if your FA was doing a good job (net of fees/expenses)? Well, you'd need to know what to compare it to. A good comparison is a plain old Target Fund, or a 60/40 mix of total market/bond funds, or a 'couch potato' fund. And guess what? Once you know how to make that comparison, you know how to DIY. It's easy. The hard part is getting to the point where you realize how easy it is.

And if your FA did do better than those benchmarks, how did he/she do during down cycles in the market? I doubt you can get reliable info on that, but any index fund will have that info available. Transparency is very comforting.

-ERD50

 

[racy]

Hi iib,
If interested in more talk about fees people here are talking about, then check out this video of Vanguard's founder, Jack Bogle:
John Bogle: How much do investors lose in charges and management fees? - YouTube
Although not in this video, the solution would be to invest in low cost index mutual funds.

 

[gcgang]

1% is typical.
The question only you can answer, is what value are you getting for that 1%?
If all your FA is doing is putting you into managed funds, which have their own internal fees, and then telling you that you did OK when the S&P was up 32%, I'd have to question the value.
If the FA is doing things like assisting with estate planning, tax management, measurement and management of risk, and they help you understand how all if this fits with your own goals, AND you feel you can't do it on your own, it's probably a good deal.

 

[FIREd]

1% is typical.
The question only you can answer, is what value are you getting for that 1%?

I agree. When I had a FA, I was paying 1% per year. But he was receiving other compensation, by investing our money in loaded funds and VUL insurance policies for example. Once I totaled how much he was costing us, I made the decision that I was not getting enough bang for the buck and I severed the relationship.

 

[karluk]

Yeah, 1% isn't outrageous, it's just way more than most people on this forum are willing to pay.

You have to ask yourself if you have the right personality to manage your own money and save yourself the managment fees. You may not have all the knowledge you need as of today, but that can be changed by educating yourself. The bigger question is if you'll ever be able to confidently put your financial future in your own hands and dispense with the "moral support" of hiring a professional to make decisions for you.

I never saw the attraction of hiring somebody else to make decisions for me, so I never seriously considered hiring a FA. Others feel differently and get value out of their relationship with a FA. If you're one of them, then the only question is whether the value you get is worth the cost.

 

[travelover]

Here is how I look at it.

On a million dollar account, 1% is $10,000 a year. If you had to write a check once a year to your FA for $10,000 would you?

At $100 an hour, $10,000 is 100 hours of labor or 2 1/2 weeks. Do you think that your FA spends 2 1/2 weeks a year solely managing your account?

I don't even spend one day a year managing my accounts, and my accounts "did well last year", too.

 

[panacea]

Yes, 1% is pretty typical but it usually depends on how much is being managed. Generally the more that is managed the lower the fee (at least the percentage is lower). You can search online and find any firm's management fees by googling ADV2 and the firm's name. There's always a page that discloses a firm's fee structure. This is the first one I found when I searched ADV2 Morgan Stanley.
http://www2.morganstanley.com/wealth/investmentsolutions/pdfs/adv/Zacks_ADV.pdf

For this particular firm they start at 1.8% and generously charge only 1% if you have $10 million. Yikes! In our area, we find management fees more in the range of .25% to 1.5%.

 

[6miths]

Here is how I look at it.

On a million dollar account, 1% is $10,000 a year. If you had to write a check once a year to your FA for $10,000 would you?

At $100 an hour, $10,000 is 100 hours of labor or 2 1/2 weeks. Do you think that your FA spends 2 1/2 weeks a year solely managing your account?

I don't even spend one day a year managing my accounts, and my accounts "did well last year", too.

+1

Ouch!

 

[Animorph]

Here is how I look at it.

On a million dollar account, 1% is $10,000 a year. If you had to write a check once a year to your FA for $10,000 would you?

At $100 an hour, $10,000 is 100 hours of labor or 2 1/2 weeks. Do you think that your FA spends 2 1/2 weeks a year solely managing your account?

I don't even spend one day a year managing my accounts, and my accounts "did well last year", too.

+1. You have an easy $10k/year job just waiting for you. Once you have a portfolio set up, you can goof off all you want while still on the job!

 

[iibgdi]

Thanks for all the good posts. You've certainly made me think!

I would say this in response to those who posted that "I should do it myself"

For the time I've used them AND for the foreseable future....(5-10 years?) I believe I'm probably fine with the status quo. The main reason is I just didn't have the interest in learning about all the ins and outs of doing it myself with everything else going on in our lives.

Not to mention, I am scared of my shadow when it comes to investing so I would be a nervous wreck and the stress wouldn't have been worth it. I personally feel that I'm a long ways off from being able to manage my own $. A long ways.


I do think that in 10 years or so if I have my biz on even more cruise control than now, I will jump in and learn and take a more active role in our investments.

For now, I think I just feel most comfortable leaving it up to someone else. I know that doesn't sit well with some and some cannot fathom how I could leave it up to someone else or pay that much out for someone to do something that they could do in their sleep. I get it.

It's like hiring a cleaning lady, (Ok, no it isn't but hopefully you get my point) YES, I could save a lot each year by simply vacuuming and dusting for myself and it would be done RIGHT, but it is something that I would rather someone else do so my time and effort is freed up elsewhere.

My time is pretty valuable (as is everyones) and if I have time to do other things like cleaning or investing or playing golf, I always look at how much $ I could have made at my real job if I had used that time differently (residual commission based and self employed)

Thanks again. This board is interesting.

 

[RunningBum]

It's like hiring a cleaning lady, (Ok, no it isn't but hopefully you get my point) YES, I could save a lot each year by simply vacuuming and dusting for myself and it would be done RIGHT, but it is something that I would rather someone else do so my time and effort is freed up elsewhere.

My time is pretty valuable (as is everyones) and if I have time to do other things like cleaning or investing or playing golf, I always look at how much $ I could have made at my real job if I had used that time differently (residual commission based and self employed)

It's like hiring a cleaning lady, if you pay her about $250/hr and could push a few buttons every few months to do pretty much everything she does. That's the point many of us are making. But if it's worth it to you, that's your business.

 

[6miths]

And don't forget the time value of money. Those golden crumbs that the FA is shaving off may not seem like much but over the 40 or 50 years that they won't be working for you.... but if you'd rather be doing something else. Wall Street's great edge is making the masses believe that it is waaaaay to complicated for the average Joe to do. Of course, most FA's are the average Joe. Good luck however you decide to proceed.

 

[nvestysly]

As many have said here the going rate is 1%. If you're really years away from using this money then that is all the more reason to stop paying the 1% ASAP IMO. Work out the math on an envelope or in an Excel spreadsheet - 1% for a number of years (15, 20, 30) really eats into your compounding.

I could be pressed into making a case for a financial advisor during the distribution phase of one's life (i.e. retirement) but during the accumulation phase I don't see the point. There are too many easy ways to put the accumulation on auto-pilot rather than pay 1% every year.

Yes, your time is valuable but nobody (and I mean nobody) has a more vested interest in your financial outcome than you. Very few financial advisors are in the business for altruistic reasons - they are in the business to make money - your money. Take time to read one or two of the books mentioned in previous posts. Accumulating money and having it compound over many years is not as difficult as it might sound and 1% will make a huge difference.

 

[Katsmeow]

I would say this in response to those who posted that "I should do it myself"

For the time I've used them AND for the foreseable future....(5-10 years?) I believe I'm probably fine with the status quo. The main reason is I just didn't have the interest in learning about all the ins and outs of doing it myself with everything else going on in our lives.

There are a lot of points here.

First - If you haven't learned the basics of investing, then you don't really know whether you financial advisor is giving you any benefit at all. Yes, you had good growth last year. So, did everyone else with any appreciable equity allocation.

It is highly unlikely that you have some super duper FA who regularly beats the results you would get from a simple index portfolio of low cost Vanguard funds. At best, you might hope to get to someone who achieves the same results. The problem is, though, that you end up with less money than the self directed investor because you have to pay that fee.

The conundrum that ERD50 has regularly pointed out is that if you know enough to evaluate whether the FA does anything for you, then you know enough to do your own investing. If you don't know enough to do your own investing then you don't know enough to evaluate your FA.

Second - Despite what one might think from reading various publications, investing is one of those situation where less is more. That is, many of the most successful investors are those who buy a simple couch potato portfolio at low cost and then do nothing except occasionally rebalance.

Here are some examples:

Couch Potato Cookbook - AssetBuilder Inc., Registered Investment Advisor

In fact, you might compare how those portfolios did last year, with how your portfolio did. Remember, in comparing to those portfolios, to account for that 1% fee:

Lazy Portfolios - Couch Potato Portfolios - AssetBuilder Inc., Registered Investment Advisor

Three - How does your FA have you invested? Are you in single stocks? Are you in managed funds? Are they load or no load funds? Does the FA have you invested in something else? What fees are involved? If you can't answer all this pretty much from the top of your head then you don't really understand your investments.

Four - No one - absolutely no one - is going to care about your financial future more than you care about it. And, it is your life that will be affected profoundly by what happens with your investments. We aren't just talking about whether the cleaning lady failed to dust properly.

 

[travelover]

My dream is to manage twenty $5 million dollar accounts for nervous nellies. And yes, I'd settle for 1% even if I had to spend [-]two days[/-] one day a week doing it.

 

[iibgdi]

My dream is to manage twenty $5 million dollar accounts for nervous nellies. And yes, I'd settle for 1% even if I had to spend [-]two days[/-] one day a week doing it.

How about .025 %?

 

[semi55]

true cost of financial advisors

There are advisors and there are salesmen posing as advisors.

If your advisor is registered as a broker, or gets some pay from a brokerage, then he's really a broker offering advice. If that's what you want, fine. But you will pay more like 2% when you look at it in total.
Other, fee only advisors, will run you 1%-1.5%, plus transaction costs. Hopefully they don't churn much and you get out alive at a little over 1%. If you feel you need someone to guide you, this might work.
A financial planner could charge a lot less to give you a plan that you follow.

And, if you want to have someone not only take your money, but tell you that you can't survive without them, argue with you when you leave, but offer you a free lunch every once in a while - go with Fisher Investments.

Personally, there's a lot of good material out there from a lot of really smart guys - read it and make your own decisions. The FA blogs allow you to get the opinion of a lot of really smart guys, not just one perspective.

 

[LOL!]

It's like hiring a cleaning lady, if you pay her about $250/hr and could push a few buttons every few months to do pretty much everything she does. That's the point many of us are making. But if it's worth it to you, that's your business.

Actually, it is more like hiring someone to play golf for you.

As in, "Yep, I pay my guy 1% in order to shoot 15 over par for me."