Edelman vs Do It Alone

[travelover]

..........The fee is based on the value of your account. So the more you invest, and the higher your account value grows, the lower your rate – potentially providing valuable savings to you.

Amounts above $25 million are negotiable

LMFAO

 

[rodi]

Yes, there's definitely a DIY bias amongst the people here. But we're not talking about whether to change your oil in the driveway or take it to Jiffy Lube. This is your money and your future. You're not only going to save a small fortune by avoiding Edelman, but you'll do a better job than they ever would.

For me it comes down to - *I* care more about *my* money than any FA does. If a FA makes a bad choice - they might feel a little bad - but it's not *their* money... it's mine.

And as Walt said - once you get your investments set up - rebalancing takes all of 20 minutes... if you rebalance once a year - that's 20 minutes per year. Even if you don't like it - it's not a bit imposition.

 

[Walt34]

For me it comes down to - *I* care more about *my* money than any FA does. If a FA makes a bad choice - they might feel a little bad - but it's not *their* money... it's mine.

Y'know the part that irritates me so much? If the investments that they pick to put my money in tanked they still get paid and I don't. Their job is to make money for me and even if they don't do it they still got paid. I just hate that.

I don't know why so many people put up with that.

 

[MRG]

......snip, good stuff I agree with.....
Want to focus here......

I've known several people who were financial advisors and it is 90% a sales career. Most of them have limited knowledge of actually managing a portfolio and just parrot advice that is fed to them by their research departments or whatever Barron's is saying. Buy they are really good at wining and dining potential clients because that is what makes them more money.

I've known 2 guys that 'retired' from Megacorp to use their financial knowledge to manage their money and some family members.

Well today they're back working, both their families are ticked off. I don't know why anyone would give $.10 to either of them. The one guy had to use a map to find his cube, the other was even slower. They both could entertain.

It doesn't take much to get the needed certification.


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[bmcgonig]

+1 on what everyone said here. If you are the type that doesn't want to do it themselves, then there are lots of cheap ones out there that will do the selection, rebalancing and tax harvesting for under 40 basis points. Vanguard I think has one for .30%. Rick Ferri is about the same. There are also the robo advisors that will do it as well like Betterment or Wealthfront.

However in my opinion the only reason to use any of these is so that u can set it and forget and not get emotional in a bear market. If u feel like u may be one to sell at the bottom, then u may need some handholding. Nothing wrong with that


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[purplesky]

If investing and saving for retirement is so easy you really have to wonder why so many Americans cannot save enough(or anything) for retirement.

DIY investing is now easier than ever. Schwab,Vanguard,Fidelity,Scott trade give people the tools for DIY. At a super low cost.

So maybe some people do need their handheld. Better to save something than nothing.

I know several married couples that stress over saving and investing because they dont agree on how to invest it. So they use a FA at Fidelity.

 

[brewer12345]

This is a (nominally) free country. People are free to do what they wish with their after tax money. SS is a compulsory saving arrangement already. After that, you may do as you wish. I think that is a good thing.

 

[ERD50]

If investing and saving for retirement is so easy you really have to wonder why so many Americans cannot save enough(or anything) for retirement.

DIY investing is now easier than ever. Schwab,Vanguard,Fidelity,Scott trade give people the tools for DIY. At a super low cost.

So maybe some people do need their handheld. Better to save something than nothing.

I'll substitute 'simple' for 'easy' in the above.

Sure, it is as simple as I stated. Whether people follow up and do it is another matter. I could say that losing weight is as simple as eat less, exercise more. But that doesn't mean it is 'easy' for everyone, and some will want to hire a dietitian and personal trainer. But there is a cost.

I know several married couples that stress over saving and investing because they dont agree on how to invest it. So they use a FA at Fidelity.

They are still making the financial decisions - this is a shell game/illusion. If they can't agree on how to invest, how the heck can they agree on an FA (who is going to invest their money in a specific way)? There is an old saying 'not to decide is to decide', IOW, you are deciding to accept something - in this case the FA's plan.

If someone really wants to spend years to build up their nest egg to 25%-33% more than they would need if they went DIY, and probably spend more time with the FA each year than if they just went DIY, that's their business. I'm just outlining the consequences. It isn't rocket science, and it's not like performing an appendectomy on yourself. That's what the industry wants you to believe.

-ERD50

 

[purplesky]

I'll substitute 'simple' for 'easy' in the above.

Sure, it is as simple as I stated. Whether people follow up and do it is another matter. I could say that losing weight is as simple as eat less, exercise more. But that doesn't mean it is 'easy' for everyone, and some will want to hire a dietitian and personal trainer. But there is a cost.




They are still making the financial decisions - this is a shell game/illusion. If they can't agree on how to invest, how the heck can they agree on an FA (who is going to invest their money in a specific way)? There is an old saying 'not to decide is to decide', IOW, you are deciding to accept something - in this case the FA's plan.

If someone really wants to spend years to build up their nest egg to 25%-33% more than they would need if they went DIY, and probably spend more time with the FA each year than if they just went DIY, that's their business. I'm just outlining the consequences. It isn't rocket science, and it's not like performing an appendectomy on yourself. That's what the industry wants you to believe.

-ERD50

The cool thing about Ric Edelman is that he agrees with you.

Edelman often reminds his listeners that investing is easy and he recommends people use low fee firms like Vanguard or a Schwab or a Fidelity.
But Edelman offers a service that some people prefer to use.
Maybe its a behavior thing. Some People just invest with real discipline when using a FA.

Kind of like people straightening up their house before the cleaning service arrives.

I listen to Edelman and yes he does encourage people to call his firm.
But he also tells many people that they don't necessarily need a FA if they feel comfortable DIY.

He just encourages people to save and invest anyway they want.


Thats why I enjoy his show.

 

[48Fire]

Many people don't understand the impacts of 1.4 vs. 0.4 percent fees. Sounds small. It took my dad two market crashes to get it.

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[kannon]

Thanks everyone for the responses. Learned a lot. Got the Four Pillars book and reading now.

More confident can do a DIY.

Still need to look at Vanguard or Schwabs or other websites which provide tools for developing a diversified portfolio.

I do like Edelman's multiple portfolios based on need, time, risk, ... Not sure if they are based on similar thinking as the Four Pillars. Reading Chapter 13 now.

 

[urn2bfree]

The fee is based on the value of your account. So the more you invest, and the higher your account value grows, the lower your rate – potentially providing valuable savings to you.

The fee schedule for Traditional EMAP is:

First $150,000 2.00%
Next $250,000 1.65%
Next $350,000 1.25%
Next $250,000 1.00%
Next $2 million 0.75%
Next $7 million 0.60%
Next $15 million 0.50%
Amounts above $25 million are negotiable

This tells you all you need to know---they are misleading or flat out liars.

If I invest $300,000 - they charge me $5475 every year
if I invest $3,000,000- they charge me $29000 every year
First of all if I pay $29000 instead of $5475 I have a hard time seeing where I am getting "valuable savings" when I hand over $23,525 more of MY MONEY to these jokers for doing how much more work?
You really think they are working 5x more to invest the bigger amount? Let's see we think your allocation should be 30% in US stock ETF, 15% International ETF, 5% Emerging markets ETF, etc..
So they have to calculate what percent of your portfolio goes in which ETF...the only difference between doing that for $3,000,000 vs $300,000 is the number they punch in the calculator may have another zero! Yeah, that earns them $23,525 a year more!!! The size of the portfolio has no bearing on how much effort it takes to invest with passive investing. ACTIVE MANAGEMENT FEES do legitimately go up with larger amounts because you have to find new places to invest, and re evaluate if the old investments still hold for your prior choices. The problem is that all that extra effort does not generally payoff enough to offset the cost...which is why investing passively works better.

If you want a financial advisor (and there are good reasons to have one for some people), use one that:
1) practices PASSIVE INVESTMENTS
2) charges a flat fee

If your portfolio is so small now that the flat fee is higher than the 0.37% or whatever the low cost good guys like Rick Ferri charge, then go with Rick or one of those until your portfolio grows to the point that you can switch to a cheaper flat fee guy.

My current flat fee amounts to less than 0.06% (yes that is 0.0006 x my large portfolio)-and it has been shrinking (percentage-wise) every year as my portfolio grows. He helps me keep things tax smart and gives me low cost access to DFA mutual funds which some (me, William Bernstein,etc...) believe are better run index funds....


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[pb4uski]

But isn't the 1.4% on top of fund level expenses? So if fund level expenses average .4% then the total ER is 1.8% rather than 1.4%?

The historical return of a 60/40 portfolio is 8.9%. Let's say that prospectively it is 75% of that, or 6.7%. My DIY portfolio has a 0.2% ER, so my take would be 6.5%. If I used Edelman, my take would be 4.9%. On $1 million portfolio that's $16k a year so if i even spend an hour a week learning and managing that portfolio that's $300/hour!!

Another interesting way to think of it - if a $1 million investment portfolio at retirement declines to zero over a 40 year retirement then the average balance is $500k and if the leakage is 1.675% a year (1.475% FA fee based on the fee schedule above and 0.2% fund expense difference) then over that 40 years one will have paid $335k more in expenses than necessary. That's real money and well worth learning and DIY.

 

[World Traveler]

Great thread. I 've been reading books and will pick up on the suggestions here. When I was working I didn't have time or just wasn't focused on the fees. I have an Edward Jones advisor but was thinking about doing it myself.

 

[MRG]

But isn't the 1.4% on top of fund level expenses? So if fund level expenses average .4% then the total ER is 1.8% rather than 1.4%?

OMG, I think that's correct based on the disclosure above, I thought the 1.4 was outrageous. Add in fund management fees, wow.

I would run away, only stop if you can pickup something to throw at them.

 

[target2019]

My question is - can a normal FIRE'er accomplish somewhat similar diversification using Vanguard mutual funds in the different classes or worth the 1.4% (approx) fee (ouch).

Keep digging for more information, so that you can approach this challenge armed with facts. At the bottom is a table I keep handy in a spreadsheet where I monitor various aspects of our investments.

Here is an article which explains the issue in more depth.

The Erosive Effect of Expenses on a Portfolio’s Value

Many sites, including Vanguard, have enough resources to completely answer your question.

 

[Animorph]

Good Morning FIRE's. Always look forward to discussions and very much value people's feedback.

Planning on retiring 31 Dec 14. Somewhat scarey. High paying job, won't get back. Enjoy people, but not the stress, hrs. Impacting health. Take too much time from enjoying life. Think I can RE.

Met with Edelman associate yesterday. Actually thought our pension and SS could handle basic expenses. Their numbers not so rosey. I was counting on BIG reduction in taxes, no more retirement savings. Today re-calculating, just my post retirement living expenses not matching theirs. Hmm.

Anyway - real question here is. I l liked what I heard with regards to establishing a strategy and sticking the course thru rebalancing. We got a free copy of Lies about Money and had good portfolio guidance and how to allocate based on needs, timeline, risk amongst US Stocks, International Stocks, Bonds, and Hedge Positions.

They pushed for further diversification using large number of ETFs in different sub classes like Large Cap Value, Large Cap Growth, Small Cap, ... within US Stocks. Similar for International Stocks, Bonds, and Hedge Positions.

My question is - can a normal FIRE'er accomplish somewhat similar diversification using Vanguard mutual funds in the different classes or worth the 1.4% (approx) fee (ouch).

Appreciate anyone who has used/heard of Edelman or doing just that on their own. And did your taxes/expenses go down after retiring? Still can't figure their numbers.

Thank you FIRE'ers.

Kannon

1.4% is theft. Don't do that.

I do the "slice and dice" thing with lots of funds, growth/value/small/large plus REIT and Energy. It doesn't necessarily give you more diversification, but instead more chances to rebalance and a different weighting of each category than the market.

Here's what I did for my Mom. I expect to rebalance once a year, when I have to take her RMD's. Other than that it just sits there, no work at all.

25% S&P 500 index
25% Total US ex-S&P 500 index
25% Global ex-US index
25% Bond index

(Edited to add: this portfolio owns nearly every stock in the world, so diversification isn't a problem.)

I use Fidelity, but Vanguard has the same indexes. They all cost less than 0.10% I think. 25% bonds is lower than average for a retiree, but she doesn't make any withdrawals normally.

As a DIY'er, you hardest decision is probably what you want your portfolio asset allocation to look like. After that the mechanics of maintaining it are not hard. However, there is more to retirement than just investing. Tax strategies are something you also need to pay attention too.

I didn't see that anyone mentioned FIRECalc (have you tried it?) I'd trust your expense projections (don't forget healthcare, non-recurring expenses, and what happens if one spouse dies if that applies), but make sure you aren't planning on 10% growth each year from stocks. FIRECalc will help with that.

 

[MRG]

Great thread. I 've been reading books and will pick up on the suggestions here. When I was working I didn't have time or just wasn't focused on the fees. I have an Edward Jones advisor but was thinking about doing it myself.

Great idea, ED will charge you alot. Front end loads, 12b-1 fees, deferred sales fees, don't know if they charge wrap fees. They also make investing look very difficult, so you feel very confused and need their help. Same advise, you're educating yourself(great job), get the running shoes out and run away.

Don't get me wrong, there was a time when some advisors helped some folks, who's only alternative was a savings account or bonds. That was when DIY was difficult, pre-index funds, pre-internet, basically last century.

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[cooch96]

It isn't rocket science, and it's not like performing an appendectomy on yourself. That's what the industry wants you to believe.



-ERD50

When I pulled my funds from Ameriprise, my FA kept trying to scare me asking, "do you really think you're ready to perform open heart surgery on yourself?" The more he talked, the more full of rubbish I realized he was.

I'm very grateful to this forum for encouraging me to gain more financial control of my future. Four months ago I started reading and although my eyes glazed and the higher math (calculating risk, P/E, futures, hedged bets) didn't sink in, I became convinced that all I needed was to select an Asset Allocation of lowest cost funds and rebalance once a year. I was frustrated selecting my AA at first because I couldn't find a great explanation of how to derive one's ideal mix (e.g. Bogleheads suggested no more than 10% in REIT funds, but why?). But I kept reading and asking and reading (turns out other index funds already have good REIT exposure) and finally accepted that there is a bit of art to it and everyone will have different risk and performance.

So if I can manage my own funds efficiently, so can most any strong saver. And at the very least, one should know the criteria for evaluating ethical and competent Financial Advisors.

 

[Animorph]

FIRECalc shows that a wide range of stock/bond ratios can be successfully employed. Financial advisors can claim it is hard to pick exactly the right AA, but I think the truth is that there are many AA's that will do just fine and you can probably find an FA that would recommend any of them. So there is no one perfect answer, but if you are somewhere near the norm and stick with you AA you should be OK.

The last thing my Mom's FA asked me was to give me the symbols of the funds I was going to use for her so he could look up total fund expenses, including trading costs. Sorry, broad index funds also have very low trading costs, they weren't going to exceed his fees alone.

 

[harley]

I used to talk to Ric on a pre-internet Bulletin Board, back when his business was basically just him and his wife. He seemed pretty smart, but even back then I didn't buy into his methods. He's gotten incredibly rich since then, to the extent that he's got a minor league baseball stadium with his name on it. I can guarantee he didn't get all that money from investing his own money in mutual funds. I also know a few people who invested with him. I haven't seen their stadiums.

 

[Lakewood90712]

Most of the fee based on acct. size advisers use no-load funds, and adsorb trading cost / fees on stocks, that being said, the fees most charge including Edelman start at 2 % for the smaller accounts, and drop for larger accounts.

I would not call it theft , but that is a lot of $ to pay . Do they add value above the fee ? You would need a rear view miror and 20 year time line to see the results.

It would be hard to beat an s and p or dow index fund over a 20 year time frame.

Can these advisers pull your financial boat out of the water to avoid the occasional huge damaging financial waves ? If not , what good are they.

 

[World Traveler]

One thing that is obvious to me is that I know several EDJ advisors a neighbor, colleague and college classmate. If they can do it with other people's money why can't I do it with my own. I just have to get smart and do my due diligence.

 

[purplesky]

I used to talk to Ric on a pre-internet Bulletin Board, back when his business was basically just him and his wife. He seemed pretty smart, but even back then I didn't buy into his methods. He's gotten incredibly rich since then, to the extent that he's got a minor league baseball stadium with his name on it. I can guarantee he didn't get all that money from investing his own money in mutual funds. I also know a few people who invested with him. I haven't seen their stadiums.

He manages over $13.5 billion in assets and sells millions of books.

Yes Ric is doing well after 25 years.

With 25,000 clients you would think he must be doing something right. Or thats a lot of really dumb people using Edelman financial to build wealth.

It would be interesting to have Edelman himself justify his high management fee
in this thread. Or one of his many advisers.

 

[travelover]

..............With 25,000 clients you would think he must be doing something right. Or thats a lot of really dumb people using Edelman financial to build wealth. ..........

Good point. Think how many heroin addicts there are. Must be a good product.