Fee for Financial Advisor

[FinanceDude]

He should be paid exactly what it is worth. Lawyers also work on contingent fees.

Which is yet another reason for tort reform..........

30% of the gains above an appropriate index is a fair fee and he returns 30% of the losses below the index.

So, tell him to buy a hedge fund?

 

[FinanceDude]

It is about $3M. For no particular reason I was expecting something around 0.5% - was surprised by 1.25%.

It should be NO more than .5%, actually it should be .25-.40% depending on the mix. You would be paying 1.25% PLUS the ER of the funds, irregardless of which share class they are in, which is a terrible deal. I would hire someone to manage $3 million if I was uncomfortable doing it myself.........YMMV..........

 

[leyland]

I should probably expand on a few more details. The advisor fee is 0.9% and there is another "adminstrative fee" of 35 basis points for a total of 1.25% of the assets. The recommended funds are no loads and don't appear to have any particulary high expense ratios. I am thinking of retiring soon and the FA fees would be almost as much as we spend each month.

It should be NO more than .5%, actually it should be .25-.40% depending on the mix. You would be paying 1.25% PLUS the ER of the funds, irregardless of which share class they are in, which is a terrible deal. I would hire someone to manage $3 million if I was uncomfortable doing it myself.........YMMV..........

 

[FinanceDude]

I should probably expand on a few more details. The advisor fee is 0.9% and there is another "adminstrative fee" of 35 basis points for a total of 1.25% of the assets. The recommended funds are no loads and don't appear to have any particulary high expense ratios. I am thinking of retiring soon and the FA fees would be almost as much as we spend each month.

Still WAY too high. What is the "admininstrative fee" for? Kind of sounds like that overpriced rust-proofing package on a new car..........

 

[leyland]

The "admin fee" appears to be paid to another company that handles the transactions (i.e. manages the accounts??) - this is different than the FA (whose fee is 0.9% ). The FA fee is actualy 0.97% - read the fine print - it 1% for the first $2M and 0.9% for the next $1M.

Still WAY too high. What is the "admininstrative fee" for? Kind of sounds like that overpriced rust-proofing package on a new car..........

 

[73ss454]

That's not how it works.............

When I woke up and checked out what I was paying to Oppenheimer via AGEdwards it was 5.75% for the 1st 100K. Then I paid the yearly fees with the 12B1 and any other nonsense fees they could steal from me.

You wouldn't do anything like that would you?

 

[Sarah in SC]

Nah, 73, those kinds of ripoffs are more likely from the big boys like Edward Jones and the like! Not your garden variety FA. Glad you woke up, though!
I had a little 403b with EdJones years ago and loved being held hostage to their high fee lousy mutual funds and was so happy when I could transfer it to Schwab and funds of my own choosing.

 

[FinanceDude]

When I woke up and checked out what I was paying to Oppenheimer via AGEdwards it was 5.75% for the 1st 100K. Then I paid the yearly fees with the 12B1 and any other nonsense fees they could steal from me.

You wouldn't do anything like that would you?

If you paid the 5.75%, that is an A-share, an upfront load fund. Like all mutual funds, you also pay the ER of the fund, including 12B-1 fees.

I do very little MF business..........

 

[FinanceDude]

The "admin fee" appears to be paid to another company that handles the transactions (i.e. manages the accounts??) - this is different than the FA (whose fee is 0.9% ). The FA fee is actualy 0.97% - read the fine print - it 1% for the first $2M and 0.9% for the next $1M.

Is this a bank, or a brokerage firm you are looking at? Anyway, much too high for $3million...........

 

[leyland]

It is a financial advisory company.

Is this a bank, or a brokerage firm you are looking at? Anyway, much too high for $3million...........

 

[GregLee]

How would any of us make a good recommendation now knowing his situation?

I must be underestimating what is involved in picking mutual funds. Back when I was investing my modest funds, I got the impression from my reading that no investment advisers had ever demonstrated the ability prospectively to pick winning mutual funds, so I might as well just choose at random. Why pay an expert if a random choice will do as well?

 

[ziggy29]

If financial "advisers" really believe they add value, I'd like to see them put their money where their mouths are and change their fee structure so they only get paid when they beat an appropriate benchmark, and their fee is a percentage of the "market beating" returns.

 

[FinanceDude]

I must be underestimating what is involved in picking mutual funds. Back when I was investing my modest funds, I got the impression from my reading that no investment advisers had ever demonstrated the ability prospectively to pick winning mutual funds, so I might as well just choose at random. Why pay an expert if a random choice will do as well?

You're right, there's NO knowledge involved, just put $3million wherever and you'll be fine............

 

[ERD50]

If financial "advisers" really believe they add value, I'd like to see them put their money where their mouths are and change their fee structure so they only get paid when they beat an appropriate benchmark, and their fee is a percentage of the "market beating" returns.

Amen! And they should be very willing to do this, since they get to make money off of "other peoples money".

Of course, I'd want a downside cover also. Else, they could just shoot for the stars, take the profit if they hit the jackpot, and leave you with the loss if not. So, to do that, they would need some % in a low-risk investment to cover draws on losses. Which means they'd have to beat the market with maybe only 80~90%% invested. They could use leverage, but that costs something.

-ERD50

 

[FinanceDude]

If financial "advisers" really believe they add value, I'd like to see them put their money where their mouths are and change their fee structure so they only get paid when they beat an appropriate benchmark, and their fee is a percentage of the "market beating" returns.

Do you work for the SEC?

 

[FinanceDude]

It is a financial advisory company.

Well, I guess they have high overhead to cover or something.

 

[jIMOh]

I should probably expand on a few more details. The advisor fee is 0.9% and there is another "adminstrative fee" of 35 basis points for a total of 1.25% of the assets. The recommended funds are no loads and don't appear to have any particulary high expense ratios. I am thinking of retiring soon and the FA fees would be almost as much as we spend each month.

Make sure all of the investments are mutual funds and one of them is not a variable annuity.

Even .9% is high.

 

[SVHoper]

In my humble opinion 1% of $3mm sounds too high for an advisor fee just for setting up an asset allocation of mutual funds, which I think the general wisdom of this board advocates. I thought I would provide 2c worth of thoughts as to how I personally am getting value from an advisor.

At the beginning of this year, I felt my education could benefit from a professional financial advisor mainly because I needed to learn quite a lot: I had a no bonds, v.aggressive almost 100% small stock w some gearing and REIT mutual fund allocation and they would be focussed on our specific situation (current net worth allocation, priorities, goals, real estate and other biases) and be able to help me optimize return/risk and prevent me from making big mistakes. Unfortunately, I felt none of my friends or family (husband so totally not interested) were appropriate, so I yelped for a fee only advisor $700 per year... but I later find out he charges 1% total for funds he actively manages.

It is too soon to tell yet - I have not suddenly been transformed into an investment guru (despite my avid reading of this and other forums), but so far I feel I have received a lot of value meeting almost monthly for 1 to 1.5 hours. As previously mentioned - a good financial advisor checklist (not necessarily performed by them) includes many life aspects e.g. advanced health care directive, wills, tax, refinance of line of credit. However, the main benefit for me is it helps me work out how to make decisions - he addresses (ongoing) my thinking errors. I am a spreadsheet/numbers driven person, but find a lot of investment decisions involve crystal ball guestimates that cannot be answered by a simple spreadsheet e.g. will beach front property or cashflowing property or mortgage payoff or stock allocation return more over the next decade? I definitely treat him as one advisor (also accountant, forums) and have said no and deliberately delayed acting on some of his advice, but was quite happy to see how he handled $100k kinda like one portion of my as yet informal asset allocation - I expect him to come out better than some of my other choices, but not as well as my best returners.

On his side - he has $700 plus $100k under management since Mar. It has single stocks as well as funds I would never have purchased. I intend to watch and compare for a while - years (he was down until recently but so were/are some of my other investment choices).

In summary, I think I get value from my financial advisor because he fills in some of my many financial management gaps... your mileage may vary.... especially if you are like the top posters on this board who have no obvious gaps.

 

[golfnut]

Check out the Boglehead forum. Most forum members prefer rolling their own without the aid of a FA. However, one of the forum members is a FA by the name of Rick Ferri who is a big proponent of Vanguard Funds and I think he charges about .25 over and above the the expense ratio of the funds themselves. He has written a number of investment books - All About Asset Allocation - might his most famous book. I read it and it is easy to follow and quite informative.His company goes by the name -Portfolio Solutions, if interested google it. He also has been interviewed by Morningstar.

If you choose to go without a FA, you can check out the Boglehead's recommended investment books.

For the record, I am rolling my own.

Good Luck!

 

[FinanceDude]

However, one of the forum members is a FA by the name of Rick Ferri who is a big proponent of Vanguard Funds and I think he charges about .25 over and above the the expense ratio of the funds themselves.

So, WHY would anyone PAY Rick Ferri .25% a year to manage a DIY portfolio? ......

 

[DblDoc]

So, WHY would anyone PAY Rick Ferri .25% a year to manage a DIY portfolio? ......

Maybe so he can hold their hands and talk them out of stupid decisions from listening to too much CNBC. For many that would be money very well spent.

DD

 

[FinanceDude]

Maybe so he can hold their hands and talk them out of stupid decisions from listening to too much CNBC. For many that would be money very well spent.DD

I think a lot of FAs do that..........

 

[Sarah in SC]

I think a lot of FAs do that..........

YES.

 

[73ss454]

Some just do it cheaper than others.

 

[FinanceDude]

Some just do it cheaper than others.

So, because Rick Ferri "only" charges .25% and uses only Vanguard Funds, he's "ok"?? You crack me up!