Another Financial Advisor Question

[DanP]

Well, FWIW:

I have a little under 50% of my investments with one of the bigger FAs.

Another little under 50% is self-managed with Vanguard, or auto'd with Schwab etc.

The remainder is play/reserve accounts.

After a couple of years of this net is that my FA is well under the "1%", but the real thinking is that I expect that account to do better in a crappy economy so its a hedge.

Else lately yes we are all winners on index funds.

And I do get some comfort from having a specific relationship person that I meet with physically on a regular basis and also call or email whenever. Now if that person should leave the firm I may reconsider the firm.

So end message is that FA's can be of value but yes, hard sorting out the valuable ones.

Edit: also looking at the FA for guidance on tax minding in the context of ER withdrawals. In my experience FAs will consider the entire picture here, not just their managed part.

[OldShooter]

Quote:

Originally Posted by DanP ... the real thinking is that I expect that account to do better in a crappy economy so its a hedge. ...

That is one of the selling claims from the stock pickers, that they will do better in down markets because of the stocks they select. S&P did an extensive study to test this claim and found it to be bogus. There is a video but sorry to say I don't have the link and don't have time to look for it tonight. The video summary was on one the S&P video links pages last year IIRC.

Another claim, probably valid, is that a professional FA will keep his/her clients from bailing in a bad market. I talked to one guy who said that if he did that for clients once or twice he would have justified his AUM fee for the rest of their lives. Probably true.

[CoolRich59]

Sorry. I did not see your post earlier.

Quote:

Originally Posted by Sunset So that does not look good, unless it's simply a bad choice for bullet points

Oops. Definitely should not have used hyphens. While modest, the returns are all in positive territory.

Quote:

Originally Posted by Sunset These numbers don't really mean much since I cannot tell if they are per fund, or per quarter, or if they are even positive ?

The numbers are for 4 of the 5 accounts the FA manages. So, e.g., for the first account, the rate of return was 7.41% over the last year, and 4.73% from the time I transferred the accounts to the FA in July, 2015.

Quote:

Originally Posted by Sunset Did your statement also detail the fee they charge you, it's often buried many pages inside.

Yes. The fees they charge are included in their statement. I haven't mentioned them because I would be even more embarrassed to disclose just how much I've paid for these mediocre results than I am now.

[DanP]

Quote:

Originally Posted by OldShooter That is one of the selling claims from the stock pickers, that they will do better in down markets because of the stocks they select. S&P did an extensive study to test this claim and found it to be bogus. There is a video but sorry to say I don't have the link and don't have time to look for it tonight. The video summary was on one the S&P video links pages last year IIRC.

Thanks for the post OldShooter, your insight is always welcome.

I edited the original reply - having a percentage of our assets managed by a specific human that is aware of our specific ER goals, tax situation and concerns has value to us.

But yes, the ability to react more nimbly than Vanguard/Fidelity based on market conditions (or bad sentence because of the word react, they dont do that) does have some merit.

Still, no single answer and situations are unique that is why we love the interaction on this forum.

[RobbieB]

I will agree that you have to search to find the right firm to do the FA thing. I tried 3 (with equities) and kept the winner.

I have a question for all you low fee Vanguard, Fidelity, Schwab couch potato index guys.

Given that I get the same returns even including the 1% I pay as the low fee index funds and I also get;

1) A free line of credit backed by my securities
2) A physical place to visit
3) A team that knows my face and voice when I call and actually picks up the phone
4) Christmas presents

Why would anyone choose a lower level of service?

[DanP]

...the holiday basket is a treat, I will admit.

[aja8888]

I get Christmas presents and I don't have an FA!

[RobbieB]

I would certainly hope so. Everyone should get Christmas presents. Even if you have to buy them yourself -

Tis the season!

[Another Reader]

Quote:

Originally Posted by RobbieB I will agree that you have to search to find the right firm to do the FA thing. I tried 3 (with equities) and kept the winner. I have a question for all you low fee Vanguard, Fidelity, Schwab couch potato index guys. Given that I get the same returns even including the 1% I pay as the low fee index funds and I also get; 1) A free line of credit backed by my securities 2) A physical place to visit 3) A team that knows my face and voice when I call and actually picks up the phone 4) Christmas presents Why would anyone choose a lower level of service?

Well, I have #2 and 3 with Fidelity...

I have a HELOC and a ton of unsecured and unused credit on credit cards.

I don't like unwanted presents...

I agree you have done well with your stock guy so far. If he saves your butt when the market tanks, he will have earned his fee and then some.

[FlaGator]

Quote:

Originally Posted by Scuba We use an FA. For years i was DIY, but a few years before ER, we hired an FA. For us, the benefits have been: 1. Helped us confirm we were financially ready to ER 2. Created a cash flow plan utilizing various investments both within and outside of FA's control 3. Thinks of things we wouldn't necessarily know (tax optimization, as one example) 4. Provides a seamless transition for DH if something happens to me. He would definitely need an FA without me. 5. Provides additional peace of mind for me as well as allows me to focus the time I used to spend on portfolio management elsewhere. So far, our FA's performance has been close to market returns net of fees. I don't expect them to beat market returns net of fees. Someday, we may decide to go back to DIY, but so far we've been happy with the relationship. When I did DIY, I used Fidelity. I like their website much better than Vanguard, and I believe their personalized service is better too. Vanguard's fees are ultra low for a reason. They don't provide much in the way of service. Note that you can still hold Vanguard funds within a Fidelity account. I don't think there is anything wrong with DIY for those who feel comfortable with that. I also don't think there is anything wrong with having an FA who is also a fiduciary. Just depends on your comfort level and whether you are a DIY person in general. I tend to be a "hire a professional" person whether that be an FA, a doctor, an auto mechanic, a plumber, a housekeeper, etc. YMMV

+1

Thanks for detailing your reasons. Related to your peace of mind comment, I like not having to monitor things on a regular basis while I'm getting the kids launched. May change that as time goes on and my responsibilities evolve.

My last engagement on this topic brought out the "you're too stupid/lazy to DIY" commenters. Glad we haven't devolved to that - yet

[RobbieB]

I like Fidelity, they are just over the hill and close to a really good pizza place. And they do answer the phone and they do make appointments. I have my bond funds with them and the cool 2% visa card.

No presents though.

The FA account used to send me this absolutely gorgeous Poinsettia that has pissed off a couple girlfriends....

But the basket of gourmet chocolates has charms to sooth the savage breast -

[Another Reader]

Gourmet chocolates? Sign me up! The Fido 2 percent Visa is a winner, though...

I tried the FA route. Took me too long to fire the guy for under performing and not doing much of a job on the planning (CFP) side. Cost me a lot of money when he did not come back strong after the 2008 crash. Never again!

[RobbieB]

Ah, c'est la vie!

[growing_older]

Quote:

Another claim, probably valid, is that a professional FA will keep his/her clients from bailing in a bad market. I talked to one guy who said that if he did that for clients once or twice he would have justified his AUM fee for the rest of their lives. Probably true.

If this is what actually happens, then the FA is worth the fee. But in actual practice, several friends with FA did panic and sell out, and in some cases it was the FA who instigated the "defensive" move of selling in hopes of buying later cheaper. They of course locked in losses and failed to buy back in until the market rose making those loses permanent. It's nice to promise that using a FA will be a cooler head, but it doesn't always happen that way.

[CoolRich59]

Quote:

Originally Posted by DanP Well, FWIW:

An excellent post, IMO, DanP. Thanks for taking the time to provide another perspective. I appreciate it.

[45th Birthday]

Quote:

Originally Posted by RobbieB I will agree that you have to search to find the right firm to do the FA thing. I tried 3 (with equities) and kept the winner. I have a question for all you low fee Vanguard, Fidelity, Schwab couch potato index guys. Given that I get the same returns even including the 1% I pay as the low fee index funds and I also get; 1) A free line of credit backed by my securities 2) A physical place to visit 3) A team that knows my face and voice when I call and actually picks up the phone 4) Christmas presents Why would anyone choose a lower level of service?

I'm curious especially since this is the second time you have mentioned a free line of credit. Do you mean you can borrow $500,000 with no interest charges? That would be impressive. Or do you mean that they don't charge you for maintaining the ability to borrow $500,000? That, not so much.

[ncbill]

Quote:

Originally Posted by 45th Birthday I'm curious especially since this is the second time you have mentioned a free line of credit. Do you mean you can borrow $500,000 with no interest charges? That would be impressive. Or do you mean that they don't charge you for maintaining the ability to borrow $500,000? That, not so much.

Doesn't he mean he can borrow up to that amount on margin, based on the value of his account?

Plus, as those over at bogleheads would note, there's no way someone paying a 1% AUM fee is going to beat the market over time.

[CaliKid]

A lot of people in this thread talk about returns when comparing how they did v. the financial advisor and other such comparisons. However, if you don't know your risk how can you really compare? Seems silly to me. I might have returned 30% this year on my investments... but that just means I have an inordinate amount of risk and might be down 70% next year. You can not focus on return alone as it's only half the equation.

Scuba's post about their financial advisor was really good and I agree. I have done DIY and I have hired a professional. It's all what you are comfortable with.

[Rustward]

Quote:

Originally Posted by Sunset Did your statement also detail the fee they charge you, it's often buried many pages inside.

Just curious: How do you know this? Personal experience? If so, how many different brokerages/managed accounts?

[Sunset]

Quote:

Originally Posted by Rustward Just curious: How do you know this? Personal experience? If so, how many different brokerages/managed accounts?

I saw the fees charged in statements while helping out a relative. He had 1 brokerage account with one of the big names.
They invested his money and sent him statements each year.

He showed me his annual statement, very thick and it showed they had put his money into approximately 30 different stocks/funds/etf's etc. The thickness is of course both a detailed view of what happened and a hindrance for anyone to actually read each page.

They had as part of the investment, put part of his money into Vanguard funds (so you have to ask yourself, why pay them a fee for that?).

He was pretty surprised, when I showed him in the statement, that they charged him a $2,000 fee per year. This is on top of the fees each fund/etf charges and of course the trading fees.

This was for a total of $100,000 so the fee was a whooping 2% of his account.
They will always make it sound like not much, but think that is $20,000 over 10 years even if the money doesn't grow.

I helped him move to Vanguard where there is no house fee, and helped him pick some broad etf/funds.