Embarrassing question

[Chuckanut]

I hope this 1.5% advisor at least invites his clients to a yearly cruse on his yacht.

They probably will never have one of their own with this guy managing their money.

Where are the customer's yachts?

The title of this 1955 book refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, he asked where all the customers' yachts were. Of course, none of the customers could afford yachts, even though they dutifully followed the advice of their bankers and brokers.

 

[Kayzmum]

As has been said, stay away. 1.55% AUM (assets under management) is too high. BTW if I understand correctly, you have to only count the money under his management. You need to subtract the house and cars from that 500K.
Consider if an account has ~250k, and assuming annual returns around 7.5%, he gets paid 1.55/7.5, or ~20%, of your annual earnings. Putting it another way, a year's 7.5% return on 250K is 18.75K and he'll get 20% of that for his "service" leaving you with only 15k earnings. Worse yet, he'll get paid his 1.55% even when your account looses money. Not a fair deal for no risk on his part IMO.

I find the bolded part above to be contradictory. He can't be a fiduciary if he stated his incentive is being paid more. I know it is always in the back of a fiduciary's mind, but the fact that he actually came out and said that, would make me wonder what his primary goal really is.

Please don’t get me wrong, I’m going to run away from this deal. I’m only asking this next question to learn. How would he get the 1.55% if that is based on earnings in my account and the account loses money?

 

[RetiredHappy]

Please don’t get me wrong, I’m going to run away from this deal. I’m only asking this next question to learn. How would he get the 1.55% if that is based on earnings in my account and the account loses money?

He gets 1.55% regardless of how your portfolio performs. That is the beauty of the fee commission. You lose money and they still get their money. It is 1.55% of your portfolio, not of the gains.

 

[deserat]

Thank you everyone so much! I made a new member post, and I'll email the financial guys right now. They let me put all my info on their eMoney site. I spent a lot of time doing that and should have checked their fees before I did! Should I delete it all before I tell them forget it -- no deal?

I love the statement 'going rate' - yeah, uh-huh.....flashing red light for me as they can't justify their 'rate.'

Lots of good advice here - I used/use a fee only planner, PlanVision, for a chec before I retire (https://planvisionmn.com/who-we-are/) - it is $189 to begin with and then you can pay monthly after that if you wish. He uses eMoney as his financial database and management platform - you could probably port it over somehow if you decide to use his services. He does not charge a percentage of your portfolio amount...just the flat fee.

The document "If You Can" by Bernstein is good.

Head over to Bogleland to see other options - 3 fund, 2 fund, 1 fund portfolios that are DIY, tax strategies, humongous spreadsheets to calculate anything, arguments over the cheapest or best car, coffee, clothes, houses, place to live, all mainly focused on LBYM and/or best value for the dollar, arguments over Vanguard, Fidelity or Schwab...etc. Lots of info that can counter your guy with the 'going rate.' https://www.bogleheads.org/index.php

The Forums have a lot of info (like here, but a little different). The Wiki has excellent information on all things financial. They even have ExPat and foreign info/advice.

Welcome to this part of the world - enjoy!

 

[brett]

You are definitely not a noob.

A noob would agree to and continue to pay those fees without ever making the effort to see if they competitive. Let alone whether the results merit any fee.

 

[easysurfer]

He gets 1.55% regardless of how your portfolio performs. That is the beauty of the fee commission. You lose money and they still get their money. It is 1.55% of your portfolio, not of the gains.

Yes. 1.55% may not feel that bad when investments are rolling. But you socked the 1.55% regardless in good times and bad.

Hopefully, the next question from the OP is something like "What is index and passive investing?" .

 

[skipro33]

Please don’t get me wrong, I’m going to run away from this deal. I’m only asking this next question to learn. How would he get the 1.55% if that is based on earnings in my account and the account loses money?

You assume wrong that your FA is collecting 1.55% on the growth of your account. The 1.55% is on the whole value of the account. For every $100,000 the account is worth, he will withdrawal $1,550 every year. If the account earned 5%, then he would withdrawal $1,550 plus 5% for a total of $1,627.50 for the year. If you account lost 5%, then his fee would be $1,472.50.

This does not include any fees for fund buy and sell costs. I'm sure he makes a commission on those as well.

 

[Kayzmum]

FP Percentage earnings even if losses

As has been said, stay away. 1.55% AUM (assets under management) is too high. BTW if I understand correctly, you have to only count the money under his management. You need to subtract the house and cars from that 500K.
Consider if an account has ~250k, and assuming annual returns around 7.5%, he gets paid 1.55/7.5, or ~20%, of your annual earnings. Putting it another way, a year's 7.5% return on 250K is 18.75K and he'll get 20% of that for his "service" leaving you with only 15k earnings. Worse yet, he'll get paid his 1.55% even when your account looses money. Not a fair deal for no risk on his part IMO.

I find the bolded part above to be contradictory. He can't be a fiduciary if he stated his incentive is being paid more. I know it is always in the back of a fiduciary's mind, but the fact that he actually came out and said that, would make me wonder what his primary goal really is.

Don’t get me wrong. I’m going to run from this deal. I’m only asking to learn but how would they make a percentage if it’s only based on growth and the account is losing money? Is it from previous cruise?

 

[iloveyoga]

Never.

 

[Dtail]

You did well in asking this forum.
As you can see, even if one does not DIY, they can pay much less than 1.55%.
However, there are books one can read to educate themselves on DIY investing and it truly isn't hard. There could years where you don't even have to trade in the account.

For example, you can read all you want about removing a gallbladder, but in the end only a doctor can perform the operation.
With investing, many years ago it used to be this way, but investment advisors don't wish to admit that DIY investors can actually manage their own portfolios for no fees and select funds which also have no fees or less than 0.10%.

 

[frayne]

I'd be really interested in seeing what kind of investments he would recommend for your IRA/401K. 1.5% fee is not the going rate as it is more like 1% of AUM.

 

[Kayzmum]

How to fire FA

They already have my Social Security number and account numbers and everything. Do I need to send them a certified letter or will an email and a phone call suffice?

 

[SecondCor521]

Don’t get me wrong. I’m going to run from this deal. I’m only asking to learn but how would they make a percentage if it’s only based on growth and the account is losing money? Is it from previous cruise?

As others have said, that 1.55% is charged based on the amount of money in your account. It is charged regardless of whether your account gains money or loses money.

Yes, technically speaking, they'd be happy if your money doubled, because then their 1.55% is multiplied by twice as much, so they make twice as much. That's how they can claim that your interests are aligned.

But this is barely true. Note: (a) it's much harder to double your money when they're taking 1.55% of the balance (which is about 20% of your gains, and between a third to a half of what you can spend), and (b) they don't care that much - they get the 1.55% regardless.

Oh, and the underlying funds they put you in will possibly charge annual fees as well approaching or more than 1%. And those funds will buy and sell stuff, resulting in higher taxes to you. And they might churn your account by buying and selling investments, which will also increase your tax bill and reduce your returns. And there are even possibly front end loads, which means for every dollar you put into an investment, they take 5% off the top and invest the remaining 95 cents.

 

[walkinwood]

I’m such a noob. I have a financial advisor now and he says 1.55% is the going rate and that’s what their fee would be for handling our IRA and 401K. Is this true.

Any advice/comments are appreciated.

If you have index mutual fund options in your IRA/401k, you can do this yourself.


My suggestion - don't do anything right away. zero out all the information you've entered into the advisers website. If you're very uncomfortable with your portfolio, move it all to very safe investments for a couple of months while you investigate options.


Spend some time reading a book or two on index fund investments and see if you feel you can do it yourself. I'm no rocket scientist but have been managing my own money without it being too much of a burden on my time.

Good luck.


Your "location" confused me. For a while I thought you were in the UK. But then you wouldn't have a 401k.

 

[CoolRich59]

I have a financial advisor now and he says 1.55% is the going rate ...

That is the "going" rate - as in when you go out the door and don't look back.

They already have my Social Security number and account numbers and everything. Do I need to send them a certified letter or will an email and a phone call suffice?

Just send them an email. If they get you on the phone, they will try to try to talk you out of dumping them, because, despite their fancy titles, they are first and foremost, slick salesmen.

 

[Dtail]

As others have said, that 1.55% is charged based on the amount of money in your account. It is charged regardless of whether your account gains money or loses money.

Yes, technically speaking, they'd be happy if your money doubled, because then their 1.55% is multiplied by twice as much, so they make twice as much. That's how they can claim that your interests are aligned.

But this is barely true. Note: (a) it's much harder to double your money when they're taking 1.55% of the balance (which is about 20% of your gains, and between a third to a half of what you can spend), and (b) they don't care that much - they get the 1.55% regardless.

Oh, and the underlying funds they put you in will possibly charge annual fees as well approaching or more than 1%. And those funds will buy and sell stuff, resulting in higher taxes to you. And they might churn your account by buying and selling investments, which will also increase your tax bill and reduce your returns. And there are even possibly front end loads, which means for every dollar you put into an investment, they take 5% off the top and invest the remaining 95 cents.

Very good post.
OP please read this post for a detailed explanation of just how many different ways you can fall behind in using this FA.

 

[Koolau]

I tried all kinds of ways to invest (mostly brokers "selling" me stuff.) I found out that they were the only ones getting "rich." SO, since I was totally responsible for the RESULTS of my investments, I decided to DO the investing myself. That way, I had no one to blame but myself if I didn't make money. Guess what? I did a lot better, not having sales fees (or management fees). I use low-cost index funds almost exclusively (for my bonds/stocks). The exception is psssst. Wellesley fund (through Vanguard.)

Google the Scott Burns "Couch Potato" portfolio and see if that doesn't at least get you started on an independent approach to investing. I won't say there is never the need for a Financial Advisor. I'd just suggest you pay one by the hour and NEVER use one that sells you anything. YMMV so be certain you understand everything you get yourself into. If need be, you can invest in one of the Target Year type funds (self balancing - a bit of a fee, but not ridiculous.)

Again, the watch word is YMMV.

 

[Kayzmum]

I will. I’m at work now and I have company this weekend from out State, but trust me, I absolutely will be reading that and this whole thread very very carefully. There’s so much great information everyone is shared and I can’t begin to express how much I appreciate it.

 

[OldShooter]

I will. I’m at work now and I have company this weekend from out State, but trust me, I absolutely will be reading that and this whole thread very very carefully. There’s so much great information everyone is shared and I can’t begin to express how much I appreciate it.

You're getting solid information here. Well worth looking at.

Suggestion: Don't do anything for a while except, if necessary, fire this FA. If you spend two or three months learning and thinking and then come up with a good plan you will never remember the two or three month pause. But if you hurry and make a big mistake you will remember that for the rest of your life.

Here is a fun video from Nobel Prize winner and investing guru Dr. William Sharpe:

and here is a slide I use in my Adult-Ed investing class:

​

The "If You Can" paper mentioned previously is a good start for your studies. Pay special attention to Bernstein's discussion of the financial services industry. (https://www.etf.com/docs/IfYouCan.pdf -- free 16 page download)

Read these two books and you will know all you need to know to be a very successful investor:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

 

[38Chevy454]

They already have my Social Security number and account numbers and everything. Do I need to send them a certified letter or will an email and a phone call suffice?

You can just email them and say you want to cancel. You can also phone them, but having it in email is better traceability. Formal mail letter is not required. Or better yet, if you have not signed anything, *Do Not* sign anything going forward. The FA can't do anything to your account if you have not signed an authorization for them to make changes on your behalf.


If you have signed an authorization for them, state explicitly that you are revoking that and do not want them to have access to your account(s). Hopefully you have logged on here and we have answered your questions while you are still in the beginning discussions with the FA.


You really can self-manage your account. Just read a lot on here, go back and read all you can. Write down any terms or questions and make new post with those. Some key search terms might be self directed, asset allocation, risk tolerance, three fund portfolio, couch potato portfolio, low fee index funds. Some of these terms will get hundreds of hits. But the key here is to read up and start to educate yourself. Reading books is also a good idea. But I think you can learn a lot just on the forum here.

As self managed, or self directed, on your retirement accounts you are putting that 1.55% (or 1%, or whatever fees) into your pocket - not the FA's pocket! Your self education is the best thing you can do for your financial future success.

 

[Surewhitey]

Regarding fees, I can speak to Vanguard. I opened a SEP 401k last year and they said that they would not have fees if I had $50k in any other account or in the single account. Then the standard fees for mutual funds would be the only other. Pretty sure all of them are less than .13%.

 

[olyveoil]

Thank you so much for your reply! My balance is about 500,000 including assets like paid off house (Worth at least 250,000, it hasn’t been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say they’re a fiduciary company and that the percentage based fee give them incentive for my accounts to grow. Should I move forward and negotiate them down to at least one percent?

This doesn’t seem like a lot, but my husband is already retired has pensions and annuities coming in that aren’t included in this. I have some survivor benefits they come along with this.

1.55% of net worth? = obscene
1.55% of assets under management (AUM)? = expensive
1.55% of earnings = never heard of such.

 

[pb4uski]

.... Should I delete it all before I tell them forget it -- no deal?

Yes.

 

[pb4uski]

Please don’t get me wrong, I’m going to run away from this deal. I’m only asking this next question to learn. How would he get the 1.55% if that is based on earnings in my account and the account loses money?

The 1.55% fee typically is based on the assets under management (aka AUM). So if you have $250k that they are managing then they would take $968.75 each quarter... but the fee will fluctuate based on your portfolio balance.

Or put another way... if you earn 8% for the year, the first 1.55% goes to the FA and the remaining 6.45% goes to you.

 

[CRLLS]

Others have covered the 1.55% is on the amount in your account with him, not your gains each year or on your entire net worth. I will add that IF he puts you into "managed" mutual funds, you are paying for him to manage something that is already managed. There is no upside for you to pay twice. If you need hand holding when the market has corrections a fee only (hourly) is the best bang for your buck IMO. If you've already been thru a correction or two, or thru the 2008 fiasco without changing horses, I don't think you need handholding.