Hired a FA

[Bestwifeever]

One simple strategy that seems to work is put it all into Wellesly Income fund. Get a check for the dividends every quarter and reinvest the gains (hopefully gains will be the usual result).

I agree, but DD is appalled that all our $$ is at one place, Vanguard, which she feels is risky by definition. If we went further and put it all in one fund there, she would give me a figurative smack upside my head.

OP is a CPA which to me says he probably put a lot of thought making a decision that is best for his family. I love that he is openly sharing this decision with us.

We might move our $$ to Fidelity as DH likes face to face. If I go first there’s a 50-50 chance he will actually move it all to his hometown’s EJ where he keeps a $50K inheritance and feels most comfortable. I will then be reaching out and giving him a smack upside the head as I spin in my grave and flogging him besides, but it would still be the best choice for him.

 

[Jerry1]

Does the FA have trading authority?

Yes. I will get an email on all transactions but he is pre authorized to act on my behalf.

 

[SumDay]

I have a relative that is a FA for Raymond James. Let me just say be has nothing to do with my portfolio.
.......

It I am going to hire a financial advisor, it is going to be a few based Certified Financial Planner who is paid for his time.and not.on commission.

Raymond James is not a low cost broker. Then are.quite large, but many serious investors' business seems to be wit h other companies wit h lower commissions.

I'm glad the OP found someone they are comfortable with, but I have to agree with Bamaman. I pay my fee only planner ~$400 for tune-ups, which I usually need every other year. You may want to keep an eye on what you're paying him and decide if it's worth that. She gives us tax advice, suggests asset allocation adjustments for my 401(k) and DH's Vanguard IRA, and even gave us some guidance when it was time to enroll for Medicare.

Might be worth exploring what a fee-only person in your area would charge: https://www.napfa.org/find-an-advisor#tab=filters

But, if you're good with it, and it's worth it to you, and helps you sleep, well, good on you. Enjoy! Just my .02.

 

[pb4uski]

.... 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. ...

I'm 60/40 and use the Vanguard Lifestrategy Moderate Growth fund as my benchmark. Since you are 40/60 you could consider using Vanguard Lifestrategy Conservative Growth fund (VSCGX)... or Wellesley would also be a good benchmark.

https://personal.vanguard.com/us/funds/management?FundId=0724&FundIntExt=INT&APP=PE

 

[Bir48die]

That's not too bad- $10,000 a year on a million dollars. They'll probably give you a good ten hours of their time for that.

This is why the OP said he'd get flogged. I'm of the mind that if you don't have something nice to say, don't say it.

 

[pb4uski]

....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." ...

Another way to see the impact of fees is to take your situation in Firecalc and use the Investigate tab and select "How do fees impact..."

I was surprised at the impact. A base case with $40k spending (4% WR) and $1m portfolio for 30 years with 40% equities had a 93.2% success rate with the default of 18 bps of expenses.... increase that 18 bps to 118 bps and the success rate plumments to 67.8%.

 

[mrfeh]

Another way to see the impact of fees is to take your situation in Firecalc and use the Investigate tab and select "How do fees impact..."

I was surprised at the impact. A base case with $40k spending (4% WR) and $1m portfolio for 30 years with 40% equities had a 93.2% success rate with the default of 18 bps of expenses.... increase that 18 bps to 118 bps and the success rate plumments to 67.8%.

Yup, because the annual "loss" due to the fee is compounded each year.

If your portfolio (historically) returned 6% each year, it will now return 5%. That's a 17% decrease.

 

[Jerry1]

This is why the OP said he'd get flogged. I'm of the mind that if you don't have something nice to say, don't say it.

It’s all good. I liken it to the coffee room at work. Not all conversation was nice, but all taken in good spirit and rarely any hard feelings. I’ve never been one to get upset about words on my screen. The somewhat negative comments still make good points.

I see two outcomes. I’m happy and making money and all is good and I leave well enough alone. Or, I don’t see the value and I bail. I’ll reevaluate every quarter but I think I’ll give him a year to get me set up, get me through some major decisions and then, as ERD50 said, things may be straightforward forward enough that I’ll take over.

In discussion with DW, I looked at this as a gym membership where it’s expensive but if you go, it’s worth it. In this case, what will make it worth it is if I use my time well. Right now, I don’t feel I am. Along with this change (the FA), I’m doing some soul searching regarding my time. This has been a great 9 months, but not rewarding enough long term. My main focus to start is a community college nearby. I’m looking at some classes to get out and do something healthy and different (drone flying, cooking, water aerobics). If I’m active and happy, it will be worth the money to offload the finances, especially for a year or two.

 

[Qs Laptop]

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?

^^ THIS ^^

There is plenty of resources available so you could have confidence in doing-it-yourself.

I'm not an index fund person but they have their places. You sound like an ideal candidate. Not only that, but your asset allocation of 40/60 makes it really simple. How much picking of winners can the person at Raymond James do with "only" 40% in equities? I'm going to guess that a part of that 40% will be in an equity index fund. You might as well be doing index funds.

 

[The Cosmic Avenger]

Yup, because the annual "loss" due to the fee is compounded each year.

If your portfolio (historically) returned 6% each year, it will now return 5%. That's a 17% decrease.

All of these comparisons seem to assume that the FA will get the exact same return with our money that we would. One of the first things I'd ask before turning over control would be what they plan on changing, and then I would estimate how that would affect my portfolio based on historical returns. I know I'm doing a lot of things right, but even I'm not perfect.

Also, as someone said, if it's 10 hours of work that I could do for $10K, I would do it myself. But what might take an experienced FA 10 hours might take me 50, at least for the first couple of years. And they do it all year round, so I might never get as efficient as them. If I was looking at FAs, I'd have to take that into account, too.

 

[target2019]

A couple of points I recall from my meetings with local RJ office.
1) Individual stock purchases (1/3 portfolio)
2) Individual bond purchases (1/3 portfolio)
3) Fixed income, as from annuity
Would be interesting to know how an independent FA/fiduciary differs from the RJ standard.

 

[ERD50]

All of these comparisons seem to assume that the FA will get the exact same return with our money that we would. ... .

And why would you assume otherwise? If anything, I'd assume they would underperform, even before the AUM fee. They may have an incentive to put you into funds with high ERs, and history says those are likely to underperform. After all, how can they justify their fees if they just put you into plain vanilla broad-based index funds? They gotta sell some sizzle!

.... One of the first things I'd ask before turning over control would be what they plan on changing, and then I would estimate how that would affect my portfolio based on historical returns. ....

Anyone can do a historical analysis (hint... 'FIRECalc'), why the heck would you need an FA to suggest something and then test it yourself? What's the point in that? Do you really expect them to have some magic mojo for them to hand out to anyone for 1%?

.... Also, as someone said, if it's 10 hours of work that I could do for $10K, I would do it myself. But what might take an experienced FA 10 hours might take me 50, at least for the first couple of years. And they do it all year round, so I might never get as efficient as them. If I was looking at FAs, I'd have to take that into account, too.

40% VTI, 60% BND and a possible annual rebalance is not 10 hours work for anyone.

-ERD50

 

[pdxgal]

FA or not?

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.

Reminiscent of Michael Pollan's "7 rules for eating". Keep it simple! Hopefully your wife is reassured.

 

[pdxgal]

My sister and I have this debate yearly. Are we getting our money's worth from our FA? (we use the same one). For now at least I believe so, in no small part due to the bond investments. The FA is able to buy tax-advantaged bonds (local munis) that would be difficult and very time consuming for me to do on my own. When the same FA did this for my mom, I saw how it had a huge benefit on my mom's state taxes. Plus, as others have noted at this point in life I don't have the time nor inclination to manage things myself, even though I feel capable enough. I recently rebalanced my 401k (which my FA doesn't have access to) after the stock % got too high. Thankfully I did this before the recent market dip so was able to lock in much of this year's stock gains. But because of my busy life I'd put on the back burner for too long, and thus could've taken a financial hit. I'm still working (ER slated for 2019), so maybe things will change in a few years. For now I feel my FA is well worth her fee and my peace of mind. She's super smart, independent (not in a brokerage) and frugally minded like me. No shiny shoes, spendy clothes or cars : - )

 

[jimbee]

Yes. I will get an email on all transactions but he is pre authorized to act on my behalf.

 

[pb4uski]

^^^ I was thinking that too.. I would never think of giving an FA trading authority.

 

[Big_Hitter]

For now at least I believe so, in no small part due to the bond investments.

+1

About half of what we have with the FA is in a managed muni bond account. I'm not sure how I would even set one of those up myself.

The other half is in individual stocks. Sure I could set up an etrade account and buy-sell myself, maybe I will eventually. Since the other half of my stash is in a 401k with index funds, I kind of like the active management side of this.

 

[Big_Hitter]

^^^ I was thinking that too.. I would never think of giving an FA trading authority.

mine has full trading authority

 

[TwoByFour]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket.

Many years ago we had a FA, so I am not going to flog you. Here is why we left the FA...

That 1% (or so) fee is about 1/3 of our annual withdrawal rate. That is a huge fraction of what we are earning in portfolio return to pay someone. In effect, it means I either need to increase our withdrawal rate from 3% to 4% just to cover the FA expense, or I need to keep our withdrawal rate at 3% and lower our other spending to 2%. Neither of those worked for me, so I took it on myself.

 

[Dtail]

+1

About half of what we have with the FA is in a managed muni bond account. I'm not sure how I would even set one of those up myself.

The other half is in individual stocks. Sure I could set up an etrade account and buy-sell myself, maybe I will eventually. Since the other half of my stash is in a 401k with index funds, I kind of like the active management side of this.

So if one is going with a Wellesley Income type fund and no individual stocks or bonds, then it would be hard to see what the FA would bring to the table above and beyond that concept.

 

[pb4uski]

mine has full trading authority

Is it over your entire nestegg or a subset of your nestegg?

I might consider trading authority for a separate account that is a subset of the total... for example for bonds... but with agreed guidelines as to diversification, credit quality, maturity, etc.

 

[Big_Hitter]

Is it over your entire nestegg or a subset of your nestegg?

I might consider trading authority for a separate account that is a subset of the total... for example for bonds... but with agreed guidelines as to diversification, credit quality, maturity, etc.

just what I have with the FA, which is about a third

I have given them guidelines for the equities. All the munis are investment grade.

 

[Big_Hitter]

So if one is going with a Wellesley Income type fund and no individual stocks or bonds, then it would be hard to see what the FA would bring to the table above and beyond that concept.

that's a bond fund, not individual munis

 

[CaliKid]

Lots of snarky comments. Some more subtle than others. That's why people don't like to "admit" if they use an FA on here. I use one for part of my funds. Is it worth it? Impossible to really know but he tells me over and over that he is! Lol.

 

[Dtail]

that's a bond fund, not individual munis

Sorry that is my point not expressed clearly.
Unlike your investments with your FA, if the OP would go with some simple index fund with a 40/60 AA, then there really wouldn't be much that the FA could bring to the table over and above.