Hired a FA

[audreyh1]

My strategy as I age is to simplify, simplify, simplify. Reducing number of funds and other accounts to a minimum. Past that - I’ll have to hire someone at one of the discount brokerages.

Some things like RMDs can already be automated.

 

[Jerry1]

I appreciate this thread- as an FA, at times I have felt unwelcome here. I completely agree that there are bad ones out there- I spent a lot of time yesterday explaining some bad investments (courtesy of their former advisor) to some new clients. There are some great FAs too, who manage to be a great value to clients who don't want to, or don't have time to manage their own investments.

Being an FA is nothing. There’s a person here who I suspect has actually sold, gasp, ANNUITIES

But seriously, s/he was very informative in the thread I’m recalling. I believe your experience would be very helpful and welcome to the group as well.

 

[Jerry1]

General question to the group - All else being equal (similar experience and skill level), is there ever an advantage to a commissioned FA compared to a fee based FA?

No doubt that a percent of AUM is going to be greater than a typical fee situation, however, the one thing I would say is that at least with percent of AUM, the incentive is in the right place. They’ll do better as you do better.

 

[flintnational]

No doubt that a percent of AUM is going to be greater than a typical fee situation, however, the one thing I would say is that at least with percent of AUM, the incentive is in the right place. They’ll do better as you do better.

You have done a good job managing a thread on a controversial and important topic. Thank you.

 

[aja8888]

It seems like one can do pretty well using this three fund approach:

https://www.bogleheads.org/wiki/Three-fund_portfolio

In essence, it's pretty simple, and will probably stay up with the performance of a decent FA's choices.

 

[aja8888]

My strategy as I age is to simplify, simplify, simplify. Reducing number of funds and other accounts to a minimum. Past that - I’ll have to hire someone at one of the discount brokerages.

Some things like RMDs can already be automated.

Schwab and Vanguard automatically send me an email in January telling me what my RMD draw is for the year end based on their records. All I have to do is direct the funds pull. Easy peasy.....

 

[audreyh1]

Schwab and Vanguard automatically send me an email in January telling me what my RMD draw is for the year end based on their records. All I have to do is direct the funds pull. Easy peasy.....

Yeah, I think with Fidelity you can even automate those draws with several options.

 

[RunningBum]

No doubt that a percent of AUM is going to be greater than a typical fee situation, however, the one thing I would say is that at least with percent of AUM, the incentive is in the right place. They’ll do better as you do better.

A 1% better gain is worth .01% to them. If there are any other incentives to get you into certain funds, those will probably be worth more to them than optimizing your gain.

 

[aja8888]

Yeah, I think with Fidelity you can even automate those draws with several options.

I have that option also, but I like to pick where to place the funds.

 

[Jerry1]

A 1% better gain is worth .01% to them. If there are any other incentives to get you into certain funds, those will probably be worth more to them than optimizing your gain.

Yeah, I was reaching.

 

[travelover]

I have my stash at both Fidelity and Vanguard and neither of them send me a birthday card. A good FA will send a card to you and your spouse.

 

[Bir48die]

Ok. Truth be told I have a mix of both worlds. I have a manager (not a financial advisor) who has a considerable part of my portfolio in MLP's and they are experts in this area so I don't try to match their wisdom. Then I have a local guy who my wife wants so she doesn't have to chase down things when I croak. He is a friend and has given me reduced fees. Both of these are not in funds thus only trading fees.

The remainder is managed by myself.

I have said before that a great portion of my strategy is that I don't fret over this due to having enough anxiety for the whole lot of you.

Also my background is accounting and finance so it's not the lack of knowledge of the system.

Today as we bake in the sun in Mexico it's one thing I don't think about.

 

[cathy63]

I am a CPA

Using a FA., and am a retired CPA

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.

Ok. Truth be told I have a mix of both worlds. I have a manager (not a financial advisor) ... Also my background is accounting and finance

I'm finding an interesting pattern here. I think most of us who haven't worked in your profession(s) would expect folks with your backgrounds to be comfortable managing their own finances, but you have all chosen to get outside help for at least some period of time.

 

[SnowBound]

Biggest problem with FA's:

If my stock market account goes down 30%, I have no issue, will just ride it out.

FA designed account goes down 15%, I'm going to have a panic attack and sell at the bottom.

 

[Jerry1]

I'm finding an interesting pattern here. I think most of us who haven't worked in your profession(s) would expect folks with your backgrounds to be comfortable managing their own finances, but you have all chosen to get outside help for at least some period of time.

A lot of professional people do not do their own specialty for themselves. I think one obvious reason is that they’ve had enough from work and don’t want to do it for themselves. Another reason more particular to this situation is that personal finance is a speciality of finance. Doctors and lawyers are generally specialists even though they have broad general knowledge of their field. Financial people are similar.

Even the FA talks in terms of a team, including the FA, a lawyer (estate planning) and a CPA for taxes. Personal finance can range from relatively simple to very complex.

 

[Jerry1]

Biggest problem with FA's:

If my stock market account goes down 30%, I have no issue, will just ride it out.

FA designed account goes down 15%, I'm going to have a panic attack and sell at the bottom.

I think just the opposite for me. I see the benefit of a FA to help me stay calm and stay the course. One of the things I’ve not mentioned is that if the FA keeps me from shooting myself in the foot, he could well earn his money. I have not yet developed a steel constitution. I’m sure I lost more in 2008 than the FA will ever cost me. I got out early and felt smug, but I didn’t get back in soon enough and left a lot on the table.

 

[RobbieB]

Yup, that's me too. Way too conservative, paralysis by fear and do nothing.

Since I hired my guy I'm makin' bacon!

 

[pb4uski]

I'm finding an interesting pattern here. I think most of us who haven't worked in your profession(s) would expect folks with your backgrounds to be comfortable managing their own finances, but you have all chosen to get outside help for at least some period of time.

FWIW, I am a retired CPA (corporate accounting/consulting, not a tax practitioner) and I DIY and have forever.... never had a FA but did have a broker back in the late 70s... have used Vanguard CFPs for plan to confirm my own planning.

To me, it is an area of interest and a bit of a hobby.

 

[Scuba]

Mine has trading authority too. I would certainly hope so, I'm hiring him to make me dough and trust him to do his job.

Yes, I don’t see the point of giving an FA a portfolio to manage and telling them they can’t trade. Hard to hold them accountable for performance if they have no trading authority.

 

[youbet]

Yes, I don’t see the point of giving an FA a portfolio to manage and telling them they can’t trade. Hard to hold them accountable for performance if they have no trading authority.

You're not telling him/her they can't trade. You're telling them they can't trade without telling you their plans in advance. For example, they tell you they want to increase your equity allocation to 60% and will do so by, for example, dollar cost averaging into VTI over the next three months. You say OK and they proceed.

OTOH, if your FA is managing your portfolio through ownership of individual stocks and bonds and you want them to actively trade in an attempt to generate CG's, I can see where giving him/her more discretion would be beneficial for expediency and timing.

Even for an FA who you have directed to be an active trader in your behalf, there should be some written guidelines he/she must stay within.

Or maybe I'm just a control freak.............

 

[target2019]

For kicks, try a google search of an advisor company you know:

Form ADV Part 2 "investment adviser registration"

After the terms above, add the advisor company name, and perform your search.

I found that one firm I interviewed had stated breakdown of 55% Equities, 35% securities, and 10% Cash for clients.

 

[audreyh1]

Around when we first retired, there were wealth management firms in town who would run your personal stock and bond portfolio for a ~1+% of AUM. Kind of like your personal mutual fund (OK without the mutual part). I never saw the point of this since I could already buy professionally managed and well diversified no load funds from the big discount houses for less, considerably less if you looked for them.

 

[tulak]

The impact isn't a direct reduction of the WR by the amount of the FA fee... it is a 1% reduction in net investment return... the impact on WR is about 0.5% for a 1.0% increase in expenses.

Take Firecalc with default assumptions, change stock from 75% to 40% and solve for spending at 95% success... result is $29,583 or 3.94% WR. Then change fees from 0.18 to 1.18 and recalculate... result is $25,986 or 3.46% WR.

Yes, that’s the way to accurately model the effect on how it lowers the SWR.

Yep, my bad. Thanks for the correction.

 

[ERD50]

The impact isn't a direct reduction of the WR by the amount of the FA fee... it is a 1% reduction in net investment return... the impact on WR is about 0.5% for a 1.0% increase in expenses.

Take Firecalc with default assumptions, change stock from 75% to 40% and solve for spending at 95% success... result is $29,583 or 3.94% WR. Then change fees from 0.18 to 1.18 and recalculate... result is $25,986 or 3.46% WR.

Yes, that’s the way to accurately model the effect on how it lowers the SWR.

Yes, my earlier 'static model' is true for a portfolio that maintains its buying power over time. In that case, the 1% is a constant, inflation adjusted hit to the portfolio.

When you plug it into FIRECalc, with a 1% higher fee, and investigate for success rates, you are measuring the effect on a dwindling portfolio that goes to zero. For me, it would be cold comfort to say that the draw from fees wasn't so bad as thought, because it caused my portfolio to drop faster than DIY, and therefore the fees went to zero too!

Also, if you care about heirs, that money is gone, regardless of your success.

Another view - 100% safe for 40 years was a $33,413 initial withdraw, with the default 0.18% fee. But draw the same, with a 1.18% fee, and success drops to 92.6% with a max minus 574K balance (although negative balances may not accurately reflect reality - I think the negative gets multiplied by stock returns).

You're not telling him/her they can't trade. You're telling them they can't trade without telling you their plans in advance. ....

Even for an FA who you have directed to be an active trader in your behalf, there should be some written guidelines he/she must stay within.

Or maybe I'm just a control freak.............

Well, it was the money you earned, scrimped and saved for, and invested carefully - I think you should be in control of it!

-ERD50

 

[happy2bretired]

Mine has trading authority too. I would certainly hope so, I'm hiring him to make me dough and trust him to do his job.

Exactly!