First visit to FN planner- fee shock

S

supernova72

Recycles dryer sheets
Joined
Apr 12, 2012
Messages
479
Location
Seattle
Hi, I only have a few posts so far so please be easy on me :)

I'm 52 ish and for the mega corp I work at has an out at 55 for "early retirement" without much impact to pension. Lots of folks I work with at my company who have recently retired have referred me to a local Seattle WA FN advisor. Hope it's OK to attach below because I did :D

Paul Ried.Financial Group, LLC: Financial planning, investment management

This guy is full service. The first 30 minute telecon was free. If I want to do a "you are on track or not on track" it's $550 for a two hour analysis and you walk away with a boat load of model runs with up to three retiree age scenarios.

I was impressed by his knowledge of our company's pension, 401K, retiree medical, medigap insurance, and even our business itself (he used to give retirement classes here).

His full service fee is 1.25%. That does not settle well with me given I want to be active in my post retirement finances vs. just hand over the keys.

I"m guessing this forum has many posts on this but I'm being lazy to do a search and asking for input or the link to other posts who've asked about "normal" fees for a FN advisor.

Having said that I"m also guessing most folks on here manage their own finances so maybe this is a silly question. :facepalm:
Trying not to be cheap but my Plan B is use the guy at Merrill Lynch my dad used (he's passed, now I help my mom out with that).

His fee is $125 a year. No kidding. Maybe I just answered my own question.

My 401K will be ~ $750K at retirement so the thought if 1.25% on that balance is not feeling all that user friendly :D FIRECALC says 93% for me at 55. I did a longerish post a few months back with all my stats if you are curious.

Thanks in advance.
 
Some recent threads (within the last week) that might be useful to you.

Do you use a Financial Planner?
Financial Planner or Do It Yourself?

1.25% is about 1/3rd of the amount you'll probably be withdrawing from your accounts in retirement. Is it worth it to you to reduce your available income by 33%? Probably not, if you can do this yourself.

Paying by the hour makes more sense than paying as a % of assets.

I'd bet the Merril Lynch guy is making money on commissions or fees. He wouldnt be able to live on $125 per client. You'd likely end up paying >much< more in these fees and costs (some of which may not be very obvious) than simply paying a fee-only planner by the hour. But you probably don't need to do that, either. See all the posts at the above two links.

Good luck
 
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samclem said:
Some recent threads (within the last week) that might be useful to you.

Do you use a Financial Planner?
Financial Planner or Do It Yourself?

1.25% is about 1/3rd of the amount you'll probably be withdrawing from your accounts in retirement. Is it worth it to you to reduce your available income by 33%? Probably not, if you can do this yourself.

Paying by the hour makes more sense than paying as a % of assets.

I'd bet the Merril Lynch guy is making money on commissions or fees. He wouldnt be able to live on $125 per client. You'd likely end up paying >much< more in these fees and costs (some of which may not be very obvious) than simply paying a fee-only planner by the hour. But you probably don't need to do that, either. See all the posts at the above two links.

Good luck
Click to expand...



Good point on the 33% indeed. On the ML guy for my mom he does recommend funds at times that my gut says he's getting some commission on (Franklin Muni Bond Funds).

I might do a one time visit but have feeling I'd learn more from this site than anyone else ;)
 
samclem said:
Some recent threads (within the last week) that might be useful to you.

Do you use a Financial Planner?
Financial Planner or Do It Yourself?

1.25% is about 1/3rd of the amount you'll probably be withdrawing from your accounts in retirement. Is it worth it to you to reduce your available income by 33%? Probably not, if you can do this yourself.

Paying by the hour makes more sense than paying as a % of assets.

I'd bet the Merril Lynch guy is making money on commissions or fees. He wouldnt be able to live on $125 per client. You'd likely end up paying >much< more in these fees and costs (some of which may not be very obvious) than simply paying a fee-only planner by the hour. But you probably don't need to do that, either. See all the posts at the above two links.

Good luck
Click to expand...

___

And oh, thanks for the links!
 
I might do a one time visit but have feeling I'd learn more from this site than anyone else
Click to expand...
Why? Guys who work for big brokerages and charge $125/yr are definitely making their money some other way. So if you spend a couple of hours with him, he will be selling you (soft sell or hard sell, one of the two) on a high-fee approach to money management. Why not just decide to pay yourself to learn about money management?
 
I don't think $550 for piece of mind is an outrageous sum, especially if he is familiar with the business you are retiring from. $1.25% of your $750K retirement for a management fee is outrageous.
 
Like 82.13% ** of the members here, I don't use a financial planner. But lots of people choose to use FPs. If you don't know what you're doing, a good FP can net you a better return than you can on your own - and 'protect you from yourself.'

You see 1% of assets/year written about as a norm often, so 1.25% is on the high side. And as samclem pointed out, you're not sacrificing 1.25%, you're sacrificing 33%± of your return!

That's absurd IMO - and all the incentive I'd need to learn how to DIY invest. It's not rocket science, that's just what the financial community wants you to think. The methodology is pretty simple, having the discipline to stick with the methods when the market is volatile is the harder aspect to learn IMO.

Unless you really want someone local, your choices may be limited. I'm not in the habit of making recommendations, but the national CFA I'd send my wife to charges 0.37% on the first $3M.

** http://www.early-retirement.org/for...al-advisor-definitions-in-post-1-a-60948.html
 
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supernova72 said:
His full service fee is 1.25%.
Click to expand...

Midpack said:
the national CFA I'd send my wife to charges 0.37% on the first $3M.
Click to expand...

I'm curious how the percentage fees are typically paid and how that relates to an exit strategy if one chooses to sign up and pay $3700 - $12,500 per year in fees on a $1 million portfolio.

Is it in advance or in arrears? Monthly? Like the bank or a credit card, taking the fee out of an account balance? Or is it a bill that arrives every January 1st?

Why I ask...If one had a a smaller balance and a somewhat complicated situation that takes an advisor extra time to consider in developing a plan - say disabled adult children - signing up with Midpack's CFA and bailing out after a year or two might actually be a bit cheaper than paying someone by the hour.
 
Htown Harry said:
I'm curious how the percentage fees are typically paid and how that relates to an exit strategy
Click to expand...

When I've considered using an FA with a "percent of assets" fee structure, it has generally been quarterly, in advance, based on the current account balance.

Some of them also insist on using your total assets, not just the accounts they are managing.

These are among the reasons I've never used one; I'm just going by their published information.
 
The OP (original poster) could use the FP to evaluate his situation and develop a starting asset allocation in the first year. In that period he could easily learn enough to manage his finances himself going forward. OP - if you do this I strongly recommend that you negotiate a better deal than 1.25% and that you insist that the FP helps you to select a balanced set of index funds. If you do that it will be a no-brainer to learn to manage your portfolio going forward.

The only problem I see is that to counter the arguments your FP may provide against index funds you would need to read enough to understand and articulate the evidence that demonstrates that index funds beat 70-80% of active funds and the active funds that are better almost invariably fall back in the long run. Once you have read enough to really understand and internalize that information you will probably be ready to skip the FI anyway.

Good luck.
 
1.25% would be way too rich for me. My long term investment return assumption is 5.5% so I would be giving up over 20% of the return on my investments to someone for a few hours worth of work that I can easily do myself.

As others have suggested, if you do some reading and educate yourself so you can DIY, your return per hour is very high.

If I were the OP I would consider talking with Vanguard and having their financial planning service do an evaluation of your situation.
 
pb4uski said:
If I were the OP I would consider talking with Vanguard and having their financial planning service do an evaluation of your situation.
Click to expand...
Yes, that would be a far better approach than my suggestion to give the recommended FP a one year shot. Vanguard will come up with a plain vanilla, simple AA that should do fine until the OP comes up to speed.
 
I think you have received some great advice and would echo the strong sentiment that you can manage your 401k nest-egg completely by yourself after doing some more reading (refer to recommended reading list) and spending some time on the Boglehead forum. The good news is it sounds like you have about 2 years until any decisions have to be made. Before I would shell out the 500 plus bones to the financial planner, I would go to the company benefits department with a list of questions (I would take notes) such as is the defined benefit is COLA'd? Does thef 401k plan in fact have an age 55 withdrawal option (not all 401ks do), what are the fees of this 401k (ie, leave it in the plan or transfer to Vanguard IRA to decrease costs)?
You did not mention if you had any IRA monies. If not, you could contribute to IRAs your last two years.
Sounds to me like you have two good years to educate yourself and make the decision as whether you want to be fleeced by a financial advisor. Good luck.
 
clifp said:
I don't think $550 for piece of mind is an outrageous sum, especially if he is familiar with the business you are retiring from. $1.25% of your $750K retirement for a management fee is outrageous.
Click to expand...

There is something to be said for peace of mind indeed. Kind of like not having a mortgage! (a goal of mine).
 
As others have mentioned, the 1.25% fee is huge and roughly the equivalent of the SWR on 1/3 of your portfolio. Before going that route, I would at least spend a few hours and maybe $50 on a few books on the bogleheads recommended reading section and then see if you still see the need for a FP:

Books: Recommendations and Reviews - Bogleheads
 
Midpack said:
Like 82.13% ** of the members here, I don't use a financial planner. But lots of people choose to use FPs. If you don't know what you're doing, a good FP can net you a better return than you can on your own - and 'protect you from yourself.'

You see 1% of assets/year written about as a norm often, so 1.25% is on the high side. And as samclem pointed out, you're not sacrificing 1.25%, you're sacrificing 33%± of your return!

That's absurd IMO - and all the incentive I'd need to learn how to DIY invest. It's not rocket science, that's just what the financial community wants you to think. The methodology is pretty simple, having the discipline to stick with the methods when the market is volatile is the harder aspect to learn IMO.

Unless you really want someone local, your choices may be limited. I'm not in the habit of making recommendations, but the national CFA I'd send my wife to charges 0.37% on the first $3M.

** http://www.early-retirement.org/for...al-advisor-definitions-in-post-1-a-60948.html
Click to expand...

____
Thanks Midpack. I want to be part of the 82% actually but have much more to learn. If thruth were know being involved in my mom's finances has helped me learn quickly. She's a retiree beneficiary from the same megacorp I'm at...meaning my dad also retired from here.

The Merrill guy my dad used is very good but I was really visiting someone else as a "2nd opinion" of sorts.

My dads (now my moms) investments had an income stream of about 3.5% during the 2008-2011 timeframe. More now

Mostly blue chippers (10 stocks) and conservative mutual funds (several Franklin muni bond funds- tax free).

.37%, wow, that is low. Thanks again!
 
BigE said:
I think you have received some great advice and would echo the strong sentiment that you can manage your 401k nest-egg completely by yourself after doing some more reading (refer to recommended reading list) and spending some time on the Boglehead forum. The good news is it sounds like you have about 2 years until any decisions have to be made. Before I would shell out the 500 plus bones to the financial planner, I would go to the company benefits department with a list of questions (I would take notes) such as is the defined benefit is COLA'd? Does thef 401k plan in fact have an age 55 withdrawal option (not all 401ks do), what are the fees of this 401k (ie, leave it in the plan or transfer to Vanguard IRA to decrease costs)?
You did not mention if you had any IRA monies. If not, you could contribute to IRAs your last two years.
Sounds to me like you have two good years to educate yourself and make the decision as whether you want to be fleeced by a financial advisor. Good luck.
Click to expand...
____

Thanks BigE.

I have done some research on our bennies:

Pension- Non COLA (pension about $36K yr)
401K- can draw at 55 without 10% penalty, at 55). Can transfer some to IRA and leave some in plan- no penalty. Fee's seem low but I need to check that out (It's statestreet)
Retiree Medial until 65 medicare age (~ $100 a month)
I don't have IRA investments unfortunately

so essentially it's my pension and my 401K income stream I'm counting on. My expenses are estimated at $60K a year. I have no spouse that I know of :LOL:
 
If you have pension questions, you can hire an actuary from a pension firm on an hourly basis. If you need tax help you can hire a CPA or EA on an hourly basis. For trust and estate help you can hire an attorney by the hour. You can read a lot of investment books, hire a fee only financial planner or possibly get a free retirement plan from places like Vanguard or Fidelity for help. They'd all cost a lot less than 281K, and you'd be getting expert advice in each specific area for way less money.

The problem with the percent of assets people doesn't end with their fee. They could also put your assets into funds with loads or other fees. They could churn your account to generate commissions.

After load fees, sales fees, annual investment fees, taxes and inflation - what real return rate will be left for you?
 
On the aggregate the financial services industry is to the individual investor/saver what Bonnie and Clyde were to the banks.

Of course there are exceptions. Your challenge is figuring out how to vet candidates. IMHO one of the good guys is Bill Schultheis -> The Coffeehouse Investor. His office is across the lake from you.

Full disclosure: Have never met the man but do enjoy his philosophy on life and investing.

Zedd
 
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