JustCurious
Thinks s/he gets paid by the post
- Joined
- Sep 20, 2006
- Messages
- 1,396
No, you should not move forward.Should I move forward and negotiate them down to at least one percent?
No, you should not move forward.Should I move forward and negotiate them down to at least one percent?
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.
Correction is mine. They will get your $ whether your account is up or down. It could be worse than the 1.55% if they start to convince you to buy funds that pay them $ on the side.. They say they’re a fiduciary company and that the percentage based fee give them incentive for [-]my[/-] their accounts to grow.
I hope this 1.5% advisor at least invites his clients to a yearly cruse on his yacht.
One last small point, if the market makes a big move so that you are more than 5% absolute or 25% relative from the stock/bond allocation you wanted, then rebalance, buying the one that has too much and selling the one with too little.
How would he get the 1.55% if that is based on earnings in my account and the account loses money?
Run away from that advisor. ]
You FA is taking you to the proverbial cleaners.
Dump him. Fast.
The line about incentive for them to do better is complete bs. .
The lowest cost place to invest is Vanguard.
One last small point, if the market makes a big move so that you are more than 5% absolute or 25% relative from the stock/bond allocation you wanted, then rebalance, buying the one that has too much and selling the one with too little.
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.
Reminds me of my neighbor touting how nice his FA was. FA gave nice gifts on neighbor's kids' birthdays. I tried to explain that the gifts were paid for by his money but he couldn't understand my logic.
Not to start a tangent, but I don't think this statement is true.
Vanguard is still excellent, but if somebody were looking for a broker to begin their investing journey, they wouldn't be my first choice.
I guess it would be helpful if you were to explain why Vanguard wouldn't be your first choice.
I have accounts at Vanguard, Fido and Schwab... these days they are all good and all cheap (mostly free). I think Vanguard is a fine choice.
This is what I meant about a 1% fee actually equating to at least a 25% loss in your spending money each year in retirement. If you plan to withdraw 4% of your assets each year in retirement, you've got to account for that 1.55% fee from your advisor. So if you've saved $1,000,000 to live off, the 4% rule says you could withdraw $40,000 each year. But with your FA dipping into 1.55% of that 1 million each year, your cut of the 4% drops to 2.45%...meaning your $40,000 income drops to $24,500. Eeek.
While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.
Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.
Again the math is correct but the premise is not. The difference between FA-managed investments and intelligently self-managed investments is a net loss, not a 1% gain.While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.
Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.
Some more analysis wil help you decide how much risk to take with your 200K.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.
Again the math is correct but the premise is not. The difference between FA-managed investments and intelligently self-managed investments is a net loss, not a 1% gain.
Over the last decade I have monitored FA-managed equity results for several non-profit organizations, benchmarking them against a simple set-and-forget two fund index portfolio. In no case have the "professionals" beat the index portfolio. Shortfalls have ranged from maybe 1.5% to almost 20%. The professional portfolios have ranged from complex to hideously complex, the result of their need to make investing look difficult and hence intimidate their customer into staying and paying the fees.
Yes, IF.
This is a broad stroke of the brush with no specifics. No two invididuals or FA-firm manage funds in the same way. Individuals can make a ton more than the market or lose a ton of their money, depending on what they choose to invest.
Similarly, FA firms can perform differently.
The big advantage to having FA manage investments is to avoid the knee jerk reactions of the individual in selling low and buying high. If you are disciplined investors, then doing it yourself is a no-brainer.
As an example, my husband was a very good self-managed investor. He no longer has the stomach for stock market roller coaster as he has gotten older. Last March when the market was down he was anxious but I was not. Our FA called us to find out how we were doing emotionally, and I said that we were fine and not at all concerned because when we retired we had turned about 15% of our portfolio into deferred income annuities so that we did not need to rely on the stock market for a good retirement. My husband would have been tempted to sell off in March if not for our funds being managed by a third party.
In your post, the FA can potentially stop, or at least coach a client from doing knee jerk reactions. I agree, IF that client actually follows the FA's advice. IF that person is not feeling the knee jerk reactions to fluctuations in the market, such as yourself last March, then the FA didn't really add value in that instance.
Since we are talking examples I had one FA review my financials/ He was wanting to handle my account and gave me some advice. He told me that the market is changing and will not continue to go up, There will soon be a correction. I should reduce my equity holdings to reduce my impact from that downturn. He could manage that for me. That was about 5 years ago. The downturn never really happened So much for this FA's expert advice.
I do agree that not all FA's are like that. But I will add that each and every one of them cannot predict the future. They do not know with certainty what will happen tomorrow, let alone next month or next year. I will ask this: If a person or their FA compares their personal annual performance against some index, like DJI or SPX for how they did good or bad, why not just buy that index fund(s) and let the anxiety stop?