Hired a FA

[HI Bill]

Most people that have the fund are thinking defensively with the 2008 return of -9.84%. It won't keep up with the Total Stock Market Indexes in the good times or bad (-36.99 in 2008 for VTSAX)

It is not a magic fund, but if you want part of your money in a balanced fund, this is a well managed fund.

Not recommended for a taxable account for sure.

This is an unusual year for bonds, so the recent returns are not great.
Foreign Indexes look bad this year too, but the TAX Loss harvesting has been one advantage.

VW

So...as a hedge against the extreme market corrections, it might be a good investment, so I'd maybe keep 3-5 years worth of spending in the fund if I were more conservative. But I think it's a mistake that will cost you dearly when inflation rises, to have an undiversified portfolio of only this fund.

 

[Jerry1]

Jerry and Robbie have a much better chance of getting a Christmas Card from an FA than you.

Can buy a whole lot of Christmas cards for 1% AUM fee.

Card schmard. I’m already invited to the Christmas concert.

 

[Ginny]

The last FA I interviewed came from another state to my home. I asked him if the limits had changed for a QLAC- longevity annuity and he did not know what it was. He almost ran from my home. HA! HA!

I do talk the FA at Vanguard on occasion. I think I should put that on my list for the NY.

 

[wolf]

Observation: Relatives/friends who use F/A have different thought process. Paying more $, yields better returns. Also, they lack the confidence," suppose I make a mistake". And the F/A, being the "expert", will make $ and avoid losses.

My case. Wife cannot understand $ management. So I make it simple. When I'm gone.

1. Do not change anything.
2. Mutual funds, Total Stk Mkt, Vanguard. Leave alone.
3. Cd's. at maturity. Keep reinvesting.
4. Rental Property. Hire a "manager", if you cannot be landlord.
5. Avoid annuities. Run, do not talk to sale people. They can be to "convincing".
6. No F/A. 1% to expensive. No one can predicate the future.
7. Hire good CPA for income tax preparation.

 

[Momcpa]

Following this post with great interest. I am a lot like Jerry. Using a FA., and am a retired CPA who worked outside of taxes but has a reasonable understanding of taxes. I am looking out for my spouse who doesn't 'get' finances, nor does he want to (he's smart in so many other areas!).

But the main similarity is that I don't want to spend 24-7 thinking and analyzing my finances. We want to travel, enjoy grandchildren, spend time being involved in our community, etc. I'll gladly monitor a FA's work and suggestions. I will work with them on my 5 yr, 10 yr, 25 yr goals. But I don't want to research, research, research every option available to me in getting there.

 

[VanWinkle]

So...as a hedge against the extreme market corrections, it might be a good investment, so I'd maybe keep 3-5 years worth of spending in the fund if I were more conservative. But I think it's a mistake that will cost you dearly when inflation rises, to have an undiversified portfolio of only this fund.

I agree with your statement above HNL Bill. I think we think alike on this one.

VW

 

[audreyh1]

Following this post with great interest. I am a lot like Jerry. Using a FA., and am a retired CPA who worked outside of taxes but has a reasonable understanding of taxes. I am looking out for my spouse who doesn't 'get' finances, nor does he want to (he's smart in so many other areas!).

But the main similarity is that I don't want to spend 24-7 thinking and analyzing my finances. We want to travel, enjoy grandchildren, spend time being involved in our community, etc. I'll gladly monitor a FA's work and suggestions. I will work with them on my 5 yr, 10 yr, 25 yr goals. But I don't want to research, research, research every option available to me in getting there.

Just so you know, many of us only spend a few hours a year managing our investments, maybe an hour a month and a few more annually.

I did spend a year or two getting up to speed finance-wise in preparation for retirement, but after that didn’t need to learn more. Keeping it simple works well with investments, so it’s not necessary to get up to speed on any exotic assets. A few low-cost cost mutual funds providing adequate diversification and a simple AA is all that is needed. Probably most of the work goes into preparation for retiring, like figuring out if you have enough to retire, and understanding your retirement spending.

 

[Rustward]

Can buy a whole lot of Christmas cards for 1% AUM fee.

This is the kind of comment that is completely uncalled for. All the one liners.

Go ahead and have your fun.

When you decide to post something constructive please do so, otherwise keep comments like this to yourself.

Why are posts like this one allowed to exist? It is completely non-constructive, divisive, and probably violated some of the forums' posting guidelines, but maybe nobody cares about posting guidelines.

And some of us pay a whole fooking hell of a lot less than 1%, in case you didn't know.

Another of one of those "Open minded posters".

 

[Yarnstormer]

Interesting. My raymond james guy just tried to get me to use an outside money manager too. He quoted 1.5% fee - prob because I don’t have 500k there. This is the second time he’s tried to hand me over to someone else. It’s time for me to handle it all myself. He also has said to me that I “worry too much about taxes” ?!?

 

[Scuba]

I told DW that I would be flogged for telling the forum this, but today I signed off on a FA. We will move basically everything to Raymond James (RJ). This FA is paid on a percentage of our investments under management but is not connected with RJ. They are a fiduciary and came highly recommend to me by two previous bosses of mine who are also retired and using this FA.



One of the oddest things regarding the recommendation is that these are two very frugal people. I've never known either of them to waste money. Money they both have plenty of. However, they both feel it's worth it. Their main reason for the FA and one that I have come to share, is that they don't want to have to think as much about the finances. That's not to say that I don't know what's going on now or that I won't know what's going on in the future, it just will not be something I need to concentrate on.



From another point of view, and the main reason I engaged the FA, I want help making good decisions. True, I could research and understand things like whether to take my pension or a lump sum, when to take SS, how to handle a ROTH . . ., but it's a lot of work that I just don't want to do any longer. This FA (a group, not just one person) has great tools and has already been very helpful. The members of this forum have been equally helpful and for that, I'm thankful. It was certainly easier to accumulate than to spend down and make the accumulated money last. I figured that if I'm not happy, I can always cancel the engagement, but so far, I'm happy with them.



Well, that's my update for today. Today, about 9 months into retirement (sort of - I'm on my severance package until 2/1/2019), I handed over the bulk of the work for my finances to a FA. Go easy on me.

Jerry1, I’m also a CPA who worked as a CFO but never did individual taxes or personal financial planning as a profession. We hired an FA 3.5 years prior to ER and kept her for 1.5 years after ER. She helped us validate that we had enough to ER, analyzed our different potential streams of retirement income to help us create a retirement cash flow plan, advised us about insurance, and managed our portfolio. I found her services to be helpful but our portfolio performance slightly lagged the benchmark I created and I felt we had gotten what we needed so I transferred the assets back to DIY about six months ago. She never tried to sell us anything other than her portfolio management services, for which we paid 75 bps. All in all, we got some peace of mind but as our portfolio grew with the market, so did the fees and it just got to the point where we decided we’d rather have those funds for travel.

I still rely on our tax CPA to help me analyze various questions. I think this forum is great for general financial advice and there are a lot of smart people with great ideas and approaches here. However, I prefer to pay someone to look at the details of my specific situation and run models for me to help me make important and sometimes irrevocable decisions. The answers my CPA has derived have sometimes not been aligned with the conventional wisdom on this forum, likely because there are specific details about my situation that may be unique.

Good luck with your FA. They are not all bad as some suggest.

 

[clifp]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%. Yes, that hurts, but Fido wanted .8% and I just couldn’t get comfortable with them. This company is much broader in their support. They are not tax experts, but they know how taxes work, they also seem more holistic in that they’re encouraging use to get all are other paperwork in order (will, trust, etc).

Regarding taxes, I am a CPA who worked outside of the tax area. I know enough to understand my taxes, but they are able to keep up on all other things that need to be kept up on like estimating my RMD’s and combining that with a ROTH conversation strategy. Their models are well thought out and are something I could not have created myself.

I was nodding my head, thinking well this isn't optimal but some people are really math challenged and don't do well handling complex math and finance stuff.

But somebody who was a CPA is pretty much the exact opposite. It is not quite as bad as hedge fund manager hiring an FA, but it is in the same league.

I'm sorry but if you got a $2 million dollar portfolio and your giving them 1% you've reduced you SWR from ~80K a year to ~60K now maybe the extra 20K was just going to go to charity and the piece of mind is worth it.

I'm on the investment committee of a medium sized non-profit and our reserves/investment fund is in the 5+ million range. We have an financial adviser to manage it. They are nice group of guys and a gal, and at least two of theme have genuine passion for the charity. They are also pretty knowledgeable. So I feel confident they aren't trying to rip us off. But over the last 10 years or so, there equity performance has be almost exactly the same as VTI, plus 20-30% mix of foreign stocks minus their .75% management fee.

If I squint real hard I suppose I could convince myself that on a risk adjust basis the 40% of portfolio in bonds is outperform the appropriate benchmark. But not nearly enough to overcome their fee (bonds have done that well the last 10 years).

I do think it is pretty important to compare their performance to index funds, and if they are lacking move your money else where.

 

[COcheesehead]

I went the opposite way. I had a FA for years. It got to the point where I could almost predict what he was going to tell me at each review. Combined with the fees that I thought should really be money working for me, not going to him and I pulled the plug. That was 10 years ago.
With the tools now available to individuals to do their own planning, I see no reason to ever go back. I may spend more time managing my money, but it’s too important not to. Its why I also do my own taxes. Once you understand, you plan way better.

 

[MrsHaloFIRE]

Things to lookout for, also subtitled reasons we fired the FA:
-"Churning" stocks aka excessive buying and selling the same frigging stock over and over from day to day, times many stocks, times a long period of time
-I wanted him to be worth his money by atleast meeting the index performance, or perhaps beating it by the amount of his fee. Apparently he didn't think this was a thing.
- Would tell me verbally he was acting as a fiduciary but wouldn't give me anything in writing.
-All the things he could do were not really things we wanted or needed. He offered to have his asst take over paying all our bills (no way, Jose!). He offered us a bridge loan from our portfolio to finance our massive house purchase (no way, Jose!). Seemed like he wanted us both out w*rking super hard to generate him more bucks in mgmt. fee whereas we wanted more time sitting side by side at our desks totally ignoring each other unless we ran out of coffee.

-He used to send us a white house Christmas ornament every year at Christmas. I found a bundle of them still in the shipping envelope when I married HaloFIRE. I really liked them. Then one year he sent us a grilling spatula set instead (not really germane to this topic but Im still bitter) and the era of the ornaments ended. You know what? I can buy ALOT of ornaments for 1pct

SO Im not saying never use them because frankly I went to school to do it, but I would say if they are that freaking good with money, why are they still working? Keep a peeled eye. And keep a firm hand on the tiller so they know youre driving and its your friggin boat. They are the hired help.

 

[target2019]

Jerry1,
Everyone hears you, and appreciates your honesty.

So, you'll be paying an independent advisor about 1% of AUM (already mentioned by others as 25% of your SWR), and RJ will be taking another cut by virtue of embedded fees in the investments. RJ will take care of reporting, and someone provides you with an interface for your monitoring day-to-day, and subsequent evaluation. Somewhere there is a benchmark, and you'll be able to see how your portfolio out-performs the benchmark, and so on.

It will be interesting to see your monthly posts in the YTD thread.

Regarding taxes, I am a CPA who worked outside of the tax area. I know enough to understand my taxes, but they are able to keep up on all other things that need to be kept up on like estimating my RMD’s and combining that with a ROTH conversation strategy. Their models are well thought out and are something I could not have created myself.

The RMD calculation is so simple, even I understand it. The conversion strategies are more difficult (at least for me), but I would have guessed a CPA would ace that challenge. It sounds like you want to break away from the computer and go enjoy real life.

The FA uses RJ but is not RJ. They are a fiduciary. They will manage the portfolio through RJ, but they do not get paid by RJ (I know, but that is what they said). Statements will come directly from RJ but the FA billing is separate. Their program is to meet at least quarterly until everyone is comfortable. Then annually minimally or as needed.

I hope you'll be able to share with us how much they beat the benchmark each month. I think there are some FAs who can do this.

From another point of view, and the main reason I engaged the FA, I want help making good decisions. True, I could research and understand things like whether to take my pension or a lump sum, when to take SS, how to handle a ROTH . . ., but it's a lot of work that I just don't want to do any longer. This FA (a group, not just one person) has great tools and has already been very helpful. The members of this forum have been equally helpful and for that, I'm thankful. It was certainly easier to accumulate than to spend down and make the accumulated money last. I figured that if I'm not happy, I can always cancel the engagement, but so far, I'm happy with them.

My first and best guess is that over time, you'll feel less than satisfied with the services you receive. When the next recession hits, it really is a test for all, whether FA-guided or DIY.

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%. Yes, that hurts, but Fido wanted .8% and I just couldn’t get comfortable with them. This company is much broader in their support. They are not tax experts, but they know how taxes work, they also seem more holistic in that they’re encouraging use to get all are other paperwork in order (will, trust, etc).

If you've been doing your own taxes, I can appreciate the time you'll save by handing this over to someone else. Of course you'll need follow up on most aspects of tax filing, too.

On a smaller scale, I'm also concerned about DW. I'm concerned (and so is she) about what would happen if I'm not here. This will give her some continuity. It's not likely to happen soon, but one never knows.

This is the invisible elephant in the room. We (spouse and I) have been out learning, and also watched and partially managed 1M portfolio for in-laws. What bites you is complexity. Your will deal with the moving parts, for a nice fee. In our case, we actively work to reduce complexity, so that whoever is still around at, say, 80 years of age, will have just a few investments to wrangle. As I have found out, my spouse has become enthusiastic about measuring and managing. Good timing, as she has an inheritance of some complexity, and understands what needs to be done to splice an additional 25% into our joint portfolio.

Yes. It’s expensive. That did not go unnoticed by DW and I. I’m pretty sure one of my old bosses is probably worth over $5M. My guess is closer to $10M. They probably spend 15 hours on that account. So I’m getting the same services for a bargain.

That is an interesting thought, and no doubt one of the feelings the FA hopes you'll embrace. 10K is not a lot for some people. Some spend that much on lawn service, daycare, taxes, etc. I hope this works for you over the long run.

 

[donheff]

Interesting thread. To the OP, it doesn't look like people are trashing you. By and large, we are all explaining/defending our own decisions. Since this is largely a DIY index oriented group many of us are defending that approach. I sympathize with the interest in an FA. It is scary to trust your future to someone you don't trust to understand the financials (i.e. yourself). And it is easier to delegate the work to professionals just like many of us do with plumbers, carpenters, et al.

You mentioned that you selected your FA based on the recommendation of wealthy and intelligent coworkers. Unfortunately that is what most of us do and it is a crap shoot. About thirty years ago when DW and I got serious about investing we too turned to an FA for pretty much the same reasons as you. We went with an FA recommended by very good friends who were lawyers at top tier DC law firms and loaded. They were both very bright and extremely good at what they did but it turned out they were no smarter than us at personal finance which was why they had an FA that someone else recommended. The FA was a very nice, engaging woman who put us in a passel of load mutual funds. We did OK - we ER'ed after all. But we would have done much better had we learned enough to find a good fee based, fiduciary FA. Of course, the effort to do that teaches many of us that it is easier to DIY.

 

[frayne]

Good luck and different strokes for different folks. I have many friends that prefer using a FA as compared to DIY. No big deal either way IMHO.

 

[Jerry1]

Great discussion. I really appreciate everyone’s thoughts on this. Thank you.

 

[scrabbler1]

Interesting. My raymond james guy just tried to get me to use an outside money manager too. He quoted 1.5% fee - prob because I don’t have 500k there. This is the second time he’s tried to hand me over to someone else. It’s time for me to handle it all myself. He also has said to me that I “worry too much about taxes” ?!?

This reminds me of something I have written about before.

I have had an unpaid Account Executive with Fido for the last 10 years. I meet with him every 12-18 months to discuss things and review Fido's RIP program along with any of its changes.

While I have had the same man as AE since 2010, I had several different ones from 2008-2010. While most of them were very helpful in my final push into ER at the end of 2008, they kept leaving the local office so I got reassigned to someone else. But in late 2009, while in between AEs, it appears I got poached by someone there trying to steal me from someone else I had been reassigned to but hadn't met yet.

Mr. Pushy met with me in April of 2010 and made a strong push (no pun intended) to take over managing my portfolio which at he time was around $1M. I told him, politely, that I wasn't interested in that. Paying $10k (1% AUM) would increase my annual expenses by 40% and become by far my largest annual expense, far exceeding what I was paying for health insurance (which was rising quickly pre-ACA) or my housing expenses.

After 2 hours of my life I really wanted to have back, I had already mentally written a letter to Mr. Pushy's boss by the time I had gotten back to my car. I sent it to his boss, the office manager, and asked to be reassigned. The boss called me a week later and granted my request, reassigning me to the man who has been my AE ever since. This AE is a mild-mannered, polite man whose only flaw is that he is a little tough to get a call back from on the rare occasion I call him. He also told me that Mr. Pushy left the office not long after 2010.

 

[Dtail]

Truly understand your thoughts. I have gone the other way, but find it quite interesting in learning all about DIY and implementing it.
I use this one example locally when we discuss this concept.
As was posted on this site from "Deposit Accounts", there was a CD for 15 months for 4.07% offered by a local Credit Union, but one had to live or work locally.
I asked my FA usage friends, would they even research deals like this one and of course the answer was they never heard of it.
This is a risk free 15 month return of 4.07%.

 

[Qs Laptop]

Totally understand your desire to have a pro do it for you. I was at Edward Jones for about nine years. About four years ago I opened an Advisory account. This had access to some high-flying institutional grade mutual funds and overall it had impressive returns.

However, after seeing their fees displayed in black and white, on paper, on 1099's the last two years, I could no longer keep them managing my money. The numbers were just too large to ignore. It's easier to think of it as a small percentage of the balance and not an annual lump sum. But seeing that lump sum was an eye-opener.

When Edward Jones made the change, effective 2018, to convert their IRA accounts to an annual percentage fee, it was the last straw. Armed with the knowledge and experience I had gained from my time at EJ I moved everything to Fidelity and am now self-managing my portfolio.

 

[ShokWaveRider]

I think people's attitudes on this forum towards a FA have matured with age. 10 - 15 years or so ago (Yes I have been here that long, since 2003 actually), I remember this forum would be mostly against them. They "had" the same rep as Annuities have had. So I understand the OP's initial concern about flogging. All joking aside, the best solution is whatever works for you, gives peace of mind no matter the cost. The same could be applied to Annuities too.

 

[happy2bretired]

On a smaller scale, I'm also concerned about DW. I'm concerned (and so is she) about what would happen if I'm not here. This will give her some continuity. It's not likely to happen soon, but one never knows.

Thank you, you sound like my late husband.
We were independent of any financial planners during the accumulation phase and that worked out very well. But, a couple of months before my husband died, he started a conversation with a FA that my in-laws had always used and began transferring the many separate accounts we held to their company.

I’ve often wondered if he knew he was sick when he began that change. I’ll never know, but I am very grateful.

I enjoy this forum because I do pick up pointers, mostly by osmosis.[emoji16] I also really appreciate the highly educated people here and their contributions.

My daughter is also a member here, but we don’t know each other’s screen names. She is a very smart young lady and is doing very well in managing their earnings, without a FA. A new generation is learning from this forum and I’m grateful.

 

[ERD50]

I just don't see it that way at all. My guy makes me more dough than the S&P 500 index including paying his fee. Plus the big dividends to blow.

I hope that’s the case. ....

Honestly, Jerry1 - it just isn't reasonable to expect your FA to reliably beat a benchmark. I know RobbieB reports this, but he is the exception. You can research this, there have been dozens of academic studies on the issue. A small number (~ 15% IIRC) beat the benchmark over a 5 year period, and even fewer of those repeat that over the next 5 year period.

... It was mentioned in another post and I would like to make sure I have some reasonable benchmark to evaluate him on. The S&P would not be a good fit given the conservatism built into my plan. I’ll need something that is closer to a 40% equity 60% bond index. Did I say I was conservative (i.e. very afraid of sequence risk right now). I expect my equity percentage to increase over time.

No problem, your benchmark would be 40% VTI, 60% BND. Simple.

VTI Vanguard Total Stock Market ETF
BND Vanguard Total Bond Market ETF

And you can test at this site: www.portfoliovisualizer.com

https://goo.gl/VqEqe3 << with a 40%/60% VTI/BND and annual rebalance entered.

While I do not care what anyone does with his/her money, 1% is really a big bite. Since I own my home outright, 1% of my portfolio would be very similar to what I spend on all the rest of my life.

I think I would just spend a day reading and deciding what broad low cost equity funds I wanted, and the rest would be Bills up to 1 year. ....

Ha

The effect of a 1% AUM fee has been discussed - I'd like to put a finer point on that. OP mentions that theyu are conservative, and that the fees are - "Yes. It’s expensive. That did not go unnoticed by DW and I." So discuss this with your wife:

Since you (OP) are conservative, I assume you use a conservative WR. Have you discussed this with your FA? I'll assume 3.33% for now. So that is $33,300 annually from a $1M portfolio. But if you pay a 1% AUM fee, you only get $22,300 - the $10,000 cost was mentioned. That's 1/3rd of your annual spend.

Now look at it another way - say you still want that original $33,300 to spend. That is really the apples-apples comparison. In that case, instead of a $1,000,000 portfolio, you need a $1,429,185 portfolio! Let that sink in. You need to save up 1.42x to pay your FA and still have the same spend in your pocket. You need to save an additional $429,185! How many years would that take you? Is that worse than spending a few hours a year reviewing your account, and maybe rebalancing?

Are you and DW comfortable with turning over $429,185 to your FA? In effect, that is what you are doing. You can buy a lot of CPA and tax advise with that!

The math:

A $1,000,000
B 3.33%
C $33,300 <<< Withdraw
D 0.00% <<< Fee %
E $0
F $33,300


A $1,429,185 <<< worked backwards to get to $33,000 in F, $ after Fee
B 3.33%
C $47,592
D 1.00% <<< Fee %
E $14,292 <<< Fee $
F $33,300 <<< $ after Fee

-ERD50

 

[mrfeh]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%.

I suggest you calculate the actual dollar amount you'll be paying these folks each year and ask yourself: wouldn't spending a little time doing it myself be the better option? Especially when you have a community like ER and bogleheads to help you?

 

[pb4uski]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%. Yes, that hurts, but Fido wanted .8% and I just couldn’t get comfortable with them. This company is much broader in their support. They are not tax experts, but they know how taxes work, they also seem more holistic in that they’re encouraging use to get all are other paperwork in order (will, trust, etc).

Regarding taxes, I am a CPA who worked outside of the tax area. I know enough to understand my taxes, but they are able to keep up on all other things that need to be kept up on like estimating my RMD’s and combining that with a ROTH conversation strategy. Their models are well thought out and are something I could not have created myself.

Does the FA have trading authority?