Should I avoid a Wealth Management Advisor?

[mrfeh]

Paying less than 1% for managing investments, tax planning, tax filing retirement planning and just having an independent 3rd party to bounce ideas off regarding retirement, withdrawal planning, planning for Roth conversions, optimizing income for tax and Insurance planning.

Depending on the size of the portfolio it could be a bargain or an absolute rip off.

 

[Dtail]

Thanks for sharing your view that seems to be in the minority here,

Paying less than 1% for managing investments, tax planning, tax filing retirement planning and just having an independent 3rd party to bounce ideas off regarding retirement, withdrawal planning, planning for Roth conversions, optimizing income for tax and Insurance planning.

These are the reasons we now have an advisor.

When my wife worries that we need to work xx more years because she fears of running out of money, I can have someone else run scenarios and review. Just another reason.

I understand your reasoning, but must state that I get many of the advice you mentioned from Fidelity without paying any fees.

 

[Koolau]

You could do the same thing by putting just part of your nestegg with them and see how it does.

My last foray into "wealth management" was with a company that used some sort of technical analysis (charts and graphs, etc.) Their minimum for the best rate (lowest charge) was $100K. They ended up churning my accounts and charging me the minimum. When, after two years, my account dropped below $100K, sure enough, they charged me the higher rate (to lose more money.) I pulled the plug and made up my mind that, under no circumstances, would I ever hire a wealth manager again. I figured it was cheaper for ME to lose my own money than to let someone else lose it for me - and charge me to do so. YMMV

 

[wdberry62]

There's an old saying in the FA game - '"I'll take your money and my experience and make it my money and your experience". You've done a great job for many years managing your egg; avoid these guys like the plague. If you need advice for a specific situation (e.g. taxes), pay a fee on a per request basis. Stay the course.

 

[aubailey]

First time responding to someone on website so hope it works----was in same situation 10 years ago and went with an advisor---wish I had given him a million and I take a million and look at the results at year end and make a decision. All in all over ten years I have withdrawn $2 million and am still at $500,000 over what I started with. Not sure if it was the advisor or the market. Am only paying 0.3% on $2.5 mill. Mainly so my wife will have someone to advise her when I am toast.

 

[gooddog]

This would have made an interesting poll. The votes may have looked something like: (95 votes stay the course), (5 votes change course).

 

[zippy2020]

The question the OP needs to ask him/her self is, "What if something happens to me?"

It could be an accident - a car crash, a fall down some stairs - unexpected things happen! It's not like my spouse decided to wake up one day and have a haemorrhagic stroke because he wanted to see how it felt.

Can your spouse handle not just the financial, but the emotional impact of a truly life-altering change? Can your children? (or whoever your secondary heir(s) may be?)

Unfortunately, it is very true that the best FA firms don't do "hard advertising". They don't have to. They will get 85+% of their new business by referral.

As other FA clients have said, using a good quality firm is NOT a search for "the highest return/hottest stock or fund". It's the recognition that you have sufficient assets to make estate planning - for which a CPA is NOT trained unless they have specifically studied and received such certification - helpful.

This is true even if you don't have children (which we don't). I handled our investments for decades and did a pretty darn good job, if I may say so myself. But what I did NOT want to do was continue doing it, and start calculating tax-efficient distributions.

Plus, I have a spouse who is capable but totally uninterested in any kind of financial planning, and heirs who would be eternally grateful for any kind of windfall, but are completely unprepared and totally ignorant of handling a large estate.

When I worked at an excellent independent CFP's office a couple of decades ago, a new client was referred to us and came in for an interview (the CFP is semi-retired so he turns away more clients than he accepts).

The guy was very nice - but he had already settled his parents' estate. He had also already distributed the sizable retirement account to his siblings - by writing checks to them. Yes, you got it - he'd done it four months prior to seeing us!

So he and his siblings were going to get absolutely walloped on income taxes next year....and there wasn't a single thing anybody could do to help them.

Lest you think this was an isolated incident, it unfortunately wasn't. At least one other new client came on board during the time I worked there, but fortunately had just started to tackle his parents' estate, so we were able to set up the Inherited IRAs properly for all the heirs.

 

[target2019]

Not even sure why I am at this juncture. After a lifetime of LBYM, prudent money management and sticking with index funds at Vanguard and Fidelity, we have amassed a portfolio far in excess of what I imagined or need. Fast forward to today and after attending some seminars (probably a mistake) some guys at Merrill are trying to get me to invest with them (lower risk, better return, more diversification--we can do things the discount guys cant).
I REALLY DONT WANT TO DO THIS. I guess that says it all? But I am asking the community if I am being close minded and should be more open? On the other hand what I have done for decades has served us well, is simple and I have lived through the downdrafts of 2000 and 2008 and can take it. I guess it comes down to an active versus passive mentality. BTW I have not even asked about the fees yet though I know it won't be .04% of 1% like the index funds.

I wonder what prompted you to go to those seminars in the first place. Two thoughts - was it because you have amassed far more than you ever imagined? Or because you're not sure you are as good at managing all this yourself as you used to be?

-------------
tbh the free meal (please dont yell anyone But I have always had this nagging thought of whether I could be better diversified. The FAs talk about alternative investments, things that are up when the market is down, real estate and commodities, etc. But yes that will be much more costly and complicated, and I do wonder how easily these guys are going to beat the s&p especially after costs. The majority of our money is in total stock market portfolio and there really is no work involved, just collect and live off the dividends.

THANK YOU EVERYONE FOR YOUR HELP AND FOR LISTENING. I kind of knew what the reaction would be and it is always helpful to have the reinforcement.

We went to about a dozen of those free meals and sent our findings to AARP. In a few cases I went to the next step for 1-on-1 discussion. It was interesting to hear how each FA uses FUD (Fear, Uncertainty, Death) and various charts to tempt you further with their invaluable advice.

Somewhere in the sales pitch you always hear, "What will he/she do when you're gone?" That's a whole bunch of FUD, for sure. So we leveraged this "fear," and shared and hardened our investing beliefs. We ensured future success by recording our details, having a plan, and consistently working at reducing the complexity of investments.

 

[Retired Expat]

Often these people need help because the opportunity cost of managing their financial lives is very high. IOW, they make a huge amount of money in their job, and it's cheaper to pay somebody else to do their taxes, re-balance their accounts, etc. so they can continue to work and make even bigger piles of money. If I can make $400 working an extra hour this weekend, I will gladly pay somebody $100 to mow my lawn so I have the time to earn $400.

But, most of us are not in that situation. If a person needs help managing their accounts, I would use a Robo-Advisor before a big name brokerage house or insurance company.

I was in that boat, making far more working than I was paying for support but also maintained a discount brokerage account at the same time I had a wealth manager at UBS. After 2 years found that my returns at UBS far exceeded my self managed (mostly index funds) and a few sure thing bets I made that weren’t sure at all! Plus there has been a ton of advice and referrals in other areas that really have been priceless and far outweigh any savings.

Sure in the future when I am no longer doing other deals and just living on my savings might reconsider. Like all the people who buy annuities knowing full well it is a bad deal but liking not to have to even think about when the next deposit to their checking account is coming. Something to be said for that automatic lifestyle.

 

[ky-mike]

I guess that I will have the contrary (to most here) view. I am a CPA (retired). I managed my own investments for many years, but decided to turn to a professional for help (ML). I don't want the work that comes with managing my investments and my wife won't either once I pass.

I don't pay near what the fees stated in the ML link on the first page show (those are maximum fees charged) and am well below the $5MM mark.

I have a great advisor. We meet 3-4 times per year to go over strategy. I am comfortable with the fees charged for the service received.

The key is finding an advisor that you are comfortable with. Ask about fee structure and and make certain that you understand it.

For full disclosure, I will state that I have not entrusted all of my funds to ML. I still have my 401K separate (mainly target date funds) that I am keeping separate for now as the fees are next to nothing. No pressure by my advisor to move the funds to ML.

You need to decide what is right for you and what you feel comfortable with.

 

[OldShooter]

... I don't want the work that comes with managing my investments and my wife won't either once I pass. ...

@Mike, you've obviously made an informed judgment. End of story.

For others, though, I'll point out that managing investments doesn't have to be much work at all. For example, DW and I have serious 7 figures invested. 95% of the equity tranche is in one mutual fund. About 95% of the fixed income tranche is in one TIPS issue, but it could as easily be in one bond fund.

We take a serious look at our investments once a year during the week between Christmas and New Years. Maybe one year in three this has resulted in a trade or two but now that we are down to one fund our frenetic trading may slow down.

I do tie out the brokerage statements to Quicken monthly, as I do our checking and credit card accounts, etc. but that really doesn't involve any study of the investments. I just want my account totals to match the brokerage account totals.

 

[target2019]

Of all the FA's I interviewed, ML really stuck in my craw.

If you have the right asset allocation, it justs works on auto-pilot.

YMMV.

 

[pjigar]

For others, though, I'll point out that managing investments doesn't have to be much work at all. For example, DW and I have serious 7 figures invested. 95% of the equity tranche is in one mutual fund. About 95% of the fixed income tranche is in one TIPS issue, but it could as easily be in one bond fund.

I have been simplifying over the years but still have 5 tickers to manage due to assets spread out in IRA+Brokerage, 401K and differed comp plans. I would love to go down to 2 once I FIRE and all the funds are consolidated. Would you mind sharing the name of the equity tranche you finalized on?


PS: I have one line financial plan for DW in case I croak first: Sell all RE and buy Vanguard Wellington Fund!

 

[24601NoMore]

You guys will love this..

I recently talked with an AUM Advisor as wife wanted a "sanity check" of our plan.

Said AUM Advisor is a well known person in the Financial Community. I won't say who it is to avoid any negative connotations, but he goes on Fox Business Channel fairly often and has a daily show that I watch.

I've been really impressed with his overall financial knowledge (knows WAY more than I ever will), so I thought..what the heck? I'll ping this guy and see what he says about our plan since wife wants the sanity check..

First thing he comes back with.."you need to get out of all those mutual funds..the fees are dragging down your returns" (even though my ER is roughly .25% of the the risk asset part of our portfolio).

OK, great. I'll consider that..what's YOUR solution?

1% AUM up to $1M. "Sliding scale" after that.

So..help me understand..I'm WAY under 1% expenses on my Mutual Fund ERs, and you think I need to eliminate those fees. Yet, your solution actually INCREASES the fees I'd pay by 4X (AUM fees vs ER fund fees) what we're currently paying on our total Portfolio - and there's no compelling evidence his firm would deliver "better" performance than I've achieved. In fact, he gave me some performance numbers (per my request), and a simple 60/40 2-FUND Portfolio came out ahead of theirs after 15 years when I backtested everything..even though the info he sent tried to make it appear their returns were "better".

Sigh....

 

[OldShooter]

I have been simplifying over the years but still have 5 tickers to manage due to assets spread out in IRA+Brokerage, 401K and differed comp plans. I would love to go down to 2 once I FIRE and all the funds are consolidated. Would you mind sharing the name of the equity tranche you finalized on? ...

Not at all. VTWAX aka VT. We own all the investable stocks in the world, aka "the market portfolio."

Re multiple accounts we have six, but only the tIRAs and Roths have significant assets, so we finally cleaned out all the detritus and bought the VTWAX everywhere. Not quite as easy, though, if there are tax consequences to the cleanup plan.

 

[Rainbowdash]

I manage our accounts myself, it literally takes less than 1 hr every year, it’s only math and some basic financial knowledge. Everything is on autopilot, even when I’m gone, things will be easy for my spouse. Dividends flow to checking account, and just spend it, no need to do Roth conversion when I’m gone, just pay RMD taxes whatever is due. Bottom line this is way to easy to have somebody else do it for me especially considering how much I would have to pay for 1 hour of work.

 

[HarryHawk]

@Mike, you've obviously made an informed judgment. End of story.

For others, though, I'll point out that managing investments doesn't have to be much work at all. For example, DW and I have serious 7 figures invested. 95% of the equity tranche is in one mutual fund. About 95% of the fixed income tranche is in one TIPS issue, but it could as easily be in one bond fund.

We take a serious look at our investments once a year during the week between Christmas and New Years. Maybe one year in three this has resulted in a trade or two but now that we are down to one fund our frenetic trading may slow down.

I do tie out the brokerage statements to Quicken monthly, as I do our checking and credit card accounts, etc. but that really doesn't involve any study of the investments. I just want my account totals to match the brokerage account totals.

I manage our accounts myself, it literally takes less than 1 hr every year, it’s only math and some basic financial knowledge. Everything is on autopilot, even when I’m gone, things will be easy for my spouse. Dividends flow to checking account, and just spend it, no need to do Roth conversion when I’m gone, just pay RMD taxes whatever is due. Bottom line this is way to easy to have somebody else do it for me especially considering how much I would have to pay for 1 hour of work.

Different horses for different courses.

If one's investment strategy is to buy and hold one or two funds, not much analysis or advice is required. Paying a FA would be a total waste of money.

There are other investment strategies that require a much more active management process.

It really comes down to being comfortable in how your funds are invested and if they are meeting your needs and expectations.

 

[Rainbowdash]

By the way, study after study have shown over 80% of actively managed accounts by wealth managers can’t beat the simple low cost index funds, over 90% can’t if you count the extra fees charged. I don’t understand why anybody would choose to have a wealth manager at all.

 

[HarryHawk]

By the way, study after study have shown over 80% of actively managed accounts by wealth managers can’t beat the simple low cost index funds, over 90% can’t if you count the extra fees charged. I don’t understand why anybody would choose to have a wealth manager at all.

As I said, different horses for different courses. I would never advise anyone that what I do is the only or best way. I used to follow buy and hold of low cost index funds and did fine for a long time. I decided to try something different for the past 12 years and things have worked out very well, actually exceeded my expectations.

Of course, everyone gives the same disclaimer - past performance is no indication of future results. No one understands that statement better than us old guys.

 

[OldShooter]

By total concidence I am currently reading a book called The Paradox of Choice, by psychologist Barry Schwartz. One area he explores is the paired concepts of "satisficers" and "maximizers." The general idea is that satisficers will seek solutions until they find one that is satisfactory to them while maximizers will continue the quest. I think @HarryHawk's statement is of the satisficer sort:

... It really comes down to being comfortable in how your funds are invested and if they are meeting your needs and expectations.

Note that the concept of maximizing returns does not appear. I would guess that a huge percentage of investors, including most 401K holders, fall into the satisficer category. 90%? I know many myself.

The other approach is to seek maximization. IMO @Rainbowdash is probably a maximizer, as am I.

By the way, study after study have shown over 80% of actively managed accounts by wealth managers can’t beat the simple low cost index funds, over 90% can’t if you count the extra fees charged. I don’t understand why anybody would choose to have a wealth manager at all.

The psychologists tend to criticize maximizing as a strategy. (https://www.psychologistworld.com/cognitive/maximizers-satisficers-decision-making), but IMO in the world of investing, 50 years of studies and data is pretty clear. So I can be comfortable with our simple portfolio and simple investment strategy while still believing that I am maximizing. YMMV or course.

 

[target2019]

By the way, study after study have shown over 80% of actively managed accounts by wealth managers can’t beat the simple low cost index funds, over 90% can’t if you count the extra fees charged. I don’t understand why anybody would choose to have a wealth manager at all.

With the bull market of last decade or so, some will point to that and make claims. It's true, I did well with my picks, but we know it doesn't go like that for 20 years.

I'd like to think I am in that advanced 10% class, and know what will do better in the next year. But I'm not.

 

[Rainbowdash]

Actually that’s not true, data have shown the longer the timeframe the LESS likely active managed accounts can outperform S&P 500.

 

[mickeyd]

after attending some seminars (probably a mistake) some guys at Merrill are trying to get me to invest with them

Run Away, Run Away!!!

 

[HarryHawk]

Actually that’s not true, data have shown the longer the timeframe the LESS likely active managed accounts can outperform S&P 500.

Speaking only for myself; being a certified old geezer, time is not on my side.

 

[OldShooter]

Speaking only for myself; being a certified old geezer, time is not on my side.

Well, the math is fairly understandable. After one year, about 30-40% of actively managed funds beat their benchmarks. So multiply to get the percentage that beat after two years; about 15%, and so on. It's like rolling dice or flipping coins. There is always the probability of a long streak of one result, but the longer you go the less likely that the streak will be unbroken.

The problem with any of this is to pick the winners ahead of time. To thicken the pudding, something like 7% of poor-performing actively managed funds go out of business every year or are merged into more successful funds.

Here is the math: Sharpe on arithmetic: https://web.stanford.edu/~wfsharpe/art/active/active.htm