Do you have a financial planner?

[FinanceDude]

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Originally Posted by urn2bfree There are many who will,advise-as they should-on a per hour NOT a percent of assets basis.

The numbers are shrinking all the time. There are probably half the number there were 10 years ago........

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It takes no more effort to advise on a portfolio of $5million than it does $1million.

Really? How many portfolios of that size do you manage?

[urn2bfree]

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Originally Posted by FinanceDude The numbers are shrinking all the time. There are probably half the number there were 10 years ago........ Really? How many portfolios of that size do you manage?

Sorry I guess I should have put quotes on the statement as I heard it from someone who manages over $2 Billion in people's portfolios. If you are doing asset allocation and indexing, the amount of money is irrelevant in these ranges. Furthermore the costs of calculating these things is getting cheaper and cheaper with technology advances, but a percent of assets fee structure only gets more and more expensive or it should get more expensive or your assets are not growing. In short I stand by the statement that it costs no more to advise someone with $1 million or $5 million. WHY would it?

[FinanceDude]

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Originally Posted by urn2bfree Sorry I guess I should have put quotes on the statement as I heard it from someone who manages over $2 Billion in people's portfolios. If you are doing asset allocation and indexing, the amount of money is irrelevant in these ranges. Furthermore the costs of calculating these things is getting cheaper and cheaper with technology advances, but a percent of assets fee structure only gets more and more expensive or it should get more expensive or your assets are not growing. In short I stand by the statement that it costs no more to advise someone with $1 million or $5 million. WHY would it?

A person who manages over $2 billion IS charging a fee on those assets. While there are economies of scale when you manage large amounts of assets, there is also a cost structure of staff and technology to handle it. Do your eally think the guys who manage $2 billion or more are using Vanguard funds and not charging a fee? They would not be in business long if they were. Most of those firms of that size run MLPs and for a yearly fee and have CPAs, estate attorneys, and CFPs on staff.

[haha]

Like many here I have never used a financial planner. Here is what Bill Gross says about giving away 100 basis points or today's scanty yields.

BILL GROSS: If I Were An Individual Investor, This Is What I Would Do - Business Insider

[btbw2380]

I never could understand how someone could pay a fee based on a percentage of assets under management. I know the con artists "sell" it by explaining that it provides incentive for them to grow your portfolio - what a joke and a total rip off. If one needs some advice, paying for someone's time is the only way to go.

[urn2bfree]

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Originally Posted by FinanceDude A person who manages over $2 billion IS charging a fee on those assets. While there are economies of scale when you manage large amounts of assets, there is also a cost structure of staff and technology to handle it. Do your eally think the guys who manage $2 billion or more are using Vanguard funds and not charging a fee? They would not be in business long if they were. Most of those firms of that size run MLPs and for a yearly fee and have CPAs, estate attorneys, and CFPs on staff.

The point was not that NO FEE was being charged. It is of course being charged but at a flat hourly rate for time spent-not as a percent. The point was that charging people by a % of assets is bogus.

[braumeister]

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Originally Posted by urn2bfree charging people by a % of assets is bogus.

Agreed, but there are a lot of hedge funds charging "two and twenty" and people are still lining up to invest in them.

[MBAustin]

We engaged an advisor/planner several years ago for a fixed fee. The long-term plan he created was a major confidence builder to confirm that we were FI. I like his market perspective and general philosophy, so we put a small part of our investments under his management. For this he gets less in fees than we would pay for an annual consultation with a planner, and we get the opportunity to discuss things with a very smart and knowledgeable professional once or twice a year. And should something untimely happen to me, he has agreed to advise DH on an hourly fee basis to handle the bulk of our portfolio.

FWIW, he is seriously considering giving up his advisory business to become a fee-only planner due to the increasing regulatory burden.

Even being 95% DIY, I like having someone to talk things over with. For most of my life, it was my father. Since he passed in 2006, it's now our advisor. YMMV.

[brett]

I think one of the first steps is to understand exactly what you are paying in fees. And by that I mean any MERS, front end, back end loads, and/or a percentage or flat fee to your adviser.

We were not happy with our advisor-one of the bank specialists. It was fees plus MERS etc. Spent six months looking for the right advisor for us-pure fee for service based on percentage, and have been very happy with the move. And I believe that we are paying less and getting much better service.

If you don't know what you are paying, or don't thing that you are paying anything...then look very closely. There is a very good reason why some organizations like to mask the fees....its called a client who wants value for his/her money and wants to compare those costs.

[jerome len]

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Originally Posted by Rustward Is it possible to have enough "excess" CDs and muni bonds to overcome the long term risk? For example, would $15,000,000 in CDs and munis cover an inflation adjusted distribution of, say, $100,000/year over 35 or 40 years? This is kind of extreme, so pick your own numbers. It may not be optimal, but I might take that deal if I was worth $15,000,000. We don't know how much Obgyn has in CDs and munis, do we?

15m would probably earn you between 250k and 400k depending on how it was invested. You could easily take over $100,000, investing the remainder in more muni bonds and increase your distribution keeping up with inflation. To me a slightly better and very safe approach would be to replace the CDs with about 25% invested in REITS and dividend mutual funds......I use Vanguard low cost funds for both. It's safe, dividends and rents increase over the years and I believe I'll safely increase my distributions at least as much as inflation every year.

[SVHoper]

Hi,

Although I am primarily a fairly aggressive DIYer (bolgeheads, index funds, heavy small tilt, Bernstein, no bonds) my DH is not interested in $. So a couple of years ago, I yelped for a financial planner.

(1) His primary value to me is that he understands all the nuances of our situation and provides me a different financially educated perspective, a sounding board, a check of anything that is going on in our lives: for the other 97% of assets, house purchase, kid internship, wills, insurance, macroeconomic musings.

(2) Secondarily, he has less than 3% or our net worth under management and I treat him like an aggressive mutual fund [including silver, apple.... and fb :-(].

I feel that a single correction/improvement of for example, one house purchase decision would pay for many, many years of his fees. Overall he is doing OK on his assets under management... during a fairly difficult time: not the best mutual fund (REIT, Small Cap), but not the worst (EWX, DGS).

He costs a lot more than a book or bogleheads, but I am satisfied with the value so far.

[FinanceDude]

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Originally Posted by urn2bfree The point was not that NO FEE was being charged. It is of course being charged but at a flat hourly rate for time spent-not as a percent. The point was that charging people by a % of assets is bogus.

That business model doesn't work at even $250 an hour. Sorry, I don't buy it. Even a CFP with 25 years experience is not getting $250 an hour in the large metro area I live in. Maybe they are doing private placements or non-traded REITS or hedge funds, and then they say they don't charge "fees". A person like that probably has an average client of around $25 million or so. So let's say he has 80 clients like that, and he consults with them for 5 hours a year, at $200 an hour, that's $1000 X80 or $80,000 a year. He can't even pay his expenses out of that..............

[kumquat]

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Originally Posted by FinanceDude That business model doesn't work at even $250 an hour. Sorry, I don't buy it. Even a CFP with 25 years experience is not getting $250 an hour in the large metro area I live in. Maybe they are doing private placements or non-traded REITS or hedge funds, and then they say they don't charge "fees". A person like that probably has an average client of around $25 million or so. So let's say he has 80 clients like that, and he consults with them for 5 hours a year, at $200 an hour, that's $1000 X80 or $80,000 a year. He can't even pay his expenses out of that..............

Maybe the guy in your example is retired. After all he only works 400 hours a year. At 40 hours/week, that's darn near 3 months. Slave drivers.

WADR, what has a client's net worth got to do with how much a fee-for-service advisor charges. Would (s)he make the same if the average client had a negative net worth?

On a 1% of assetts model, 80 clients with $25M comes to, let's see, 80 X $25M X .01 = $2M. Yep, he certainly deserves that for 400 hour/yr. I bet (s)he would cover expenses if (s)he worked a typical 2,000 hour/yr.

[FinanceDude]

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Originally Posted by kumquat Maybe the guy in your example is retired. After all he only works 400 hours a year. At 40 hours/week, that's darn near 3 months. Slave drivers. WADR, what has a client's net worth got to do with how much a fee-for-service advisor charges. Would (s)he make the same if the average client had a negative net worth? On a 1% of assetts model, 80 clients with $25M comes to, let's see, 80 X $25M X .01 = $2M. Yep, he certainly deserves that for 400 hour/yr. I bet (s)he would cover expenses if (s)he worked a typical 2,000 hour/yr.

I'm going off OP's original anonymous person, and the information provided, not sure who he is speaking of. Those FAs managing a couple billion dollars are not doing it for free is my point. A lot of folks think that hourly fee CFPs grow on trees, but they don't. The guy managing $2 billion may be doing it for 30-50 bp, but is not doing it at $1000 a year. Maybe OP can idenitfy the person or his firm and I can research it a little.

Someone with $500K generally has a less complex situation than the person with $25 million. Most people with $500K are not looking into multi-generational wealth transfer, ILIT trusts, MLP's, etc.

[kumquat]

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Originally Posted by FinanceDude A lot of folks think that hourly fee CFPs grow on trees, but they don't.

That's the reason most of use here are DIY. When we hire professionals to help us (think doctors, lawyers or even plumbers) we expect to pay them based on what they do, not what we have.

[teejayevans]

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Originally Posted by kumquat That's the reason most of use here are DIY. When we hire professionals to help us (think doctors, lawyers or even plumbers) we expect to pay them based on what they do, not what we have.

The standard response you will get from a FA is that you don't do surgery on yourself...I respond with yes, but I don't call the doctor just because I have a splinter or a cold, and financial knowledge you acquired in a 12 week course cannot be equated with a doctor who went to 4 years of medical school and 3 years or residency.
TJ

[FinanceDude]

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Originally Posted by teejayevans The standard response you will get from a FA is that you don't do surgery on yourself...I respond with yes, but I don't call the doctor just because I have a splinter or a cold, and financial knowledge you acquired in a 12 week course cannot be equated with a doctor who went to 4 years of medical school and 3 years or residency. TJ

All it takes is 12 weeks to be an FA? Dang, I got screwed, I had to have college degree just to be considered........

[EvrClrx311]

Here is a great way to find out just how in tune your financial planner is with your financial well being. Ask him/her if they'd be willing to adopt the following payment structure:

In years when your investment advice beats the market index it is categorized with, you keep commissions plus I'll pay you 0.1% of every percentage point over the market you get, but in years when you trail the index, you must forfeit your commission for whatever products you sold me to be added to my account.

I still have yet to find a planner willing to go for it. Seems if they are all above average they'd all be jumping at the opportunity. If they just beat the average market return of an index 6 out of 10 years they'd be ahead by my model... so I wonder why they run from it

[teejayevans]

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Originally Posted by FinanceDude All it takes is 12 weeks to be an FA? Dang, I got screwed, I had to have college degree just to be considered........

That was assumed....
ok, college degree, and 12 week class for FA
Back to my original point on equating a Dr with FA, a doctor has
college degree + 4 years of medical school, and 3+ years residency
TJ

[brewer12345]

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Originally Posted by EvrClrx311 Here is a great way to find out just how in tune your financial planner is with your financial well being. Ask him/her if they'd be willing to adopt the following payment structure: In years when your investment advice beats the market index it is categorized with, you keep commissions plus I'll pay you 0.1% of every percentage point over the market you get, but in years when you trail the index, you must forfeit your commission for whatever products you sold me to be added to my account. I still have yet to find a planner willing to go for it. Seems if they are all above average they'd all be jumping at the opportunity. If they just beat the average market return of an index 6 out of 10 years they'd be ahead by my model... so I wonder why they run from it

I'd much rather work for 1 and 20.