I found this discussion enlightening. I don’t use a FA, but have been getting repeated calls for a free evaluation and financial planning with an advisor from Fido. The calls started almost to the day when the Fido accounts passed $1M. DW would never let me use a fee paid FA nor am I interested in one. But I will meet with Fido sometime, as a learning experience.
Like most here, we got to where we are without a FA, and tracking my spreadsheet performance over the last 12 years shows I did quite well enough, but definitely underperformed the indexes CUMULATIVELY over that 12 year period, typically by 2-4%. Since there were years I trounced it, there obviously WERE years I lacked. But I know what I did, and learned, and each year my performance improved.
Compared to peers that I have discussed this with, I have outperformed them, because in general, they are both afraid to make moves, and definitely lack any confidence in their ability or perhaps have a total lack of interest in learning or accepting any responsibility. As has been mentioned, most people are way more loss adverse than underperformance adverse. I am more accepting of my mistakes (or miscues) than I would be of paying someone to underperform. Half the time, I can’t follow some of the discussions here, so I am definitely no finance expert, but as mentioned, most of it is not rocket science.
Yet I know 3 peers with similar sized portfolios that use FAs, and all are fairly uninformed and uninterested in following market performance. They would rather pay someone that “knows what they are doing”. One told me he told his “guy” that as long as he made 5% each year, he would be happy, and so far, so good. Yikes! Another had set them up in some bizarre individual stock selections in 2013, hadn’t done anything at all besides collect their fee for years and actually lost money in 2017, and was doing so bad in early 2018, they finally asked me what I would do. So they let them go and put everything in index funds on my advice. And were shocked that their “guy” didn’t even ask why or try to explain anything.
In the community I live in, there are a lot of wealthy widows and divorcees. They all love to talk about their money managers and how they ask them to help them buy a car, fund a grandkids college, take $30k vacations etc. It is almost a measure of success that they don’t have to dirty their hands doing “money stuff” and as long as they have plenty, when they want it, performance is irrelevant.
There are PLENTY of people that want hand holding, and I really think the fees are geared towards that segment. So even if you are investing savvy, you’re going to pay the same as if you aren’t.
About 8 years ago, DWs father passed away and left equal relatively small amounts to 5 siblings, (like $12k) as inherited IRAs with Morgan Stanley. MS had liquidated the holdings, and they each got the IRA as a cash MM making about 1%. To date, 8 years later, one of them still has it left the same account with MS, still in a MM. & sees the RMDs as free money to spend on vacations, “until the money runs out”!!. The amount is roughly 3/4’s the amount it was when they got it. One cashed it in, and being under 59.5, paid the penalties and taxes and blew it. In her mind, it was free money too, and they basically bought a used car with it, which is now long gone. I moved DWs to Fido, where I put it in an equity index fund. She told her siblings (that asked her) that still had any left about its performance, and they said they would do the same thing. One did move it to Fido, in to a bond fund, and is satisfied. Another one planned on doing it, but MS told them it would be “easier” to just keep it with MS and put it in a “stock fund” so they did. We don’t know what it’s in, but DW mentioned that her sisters RMD was way less then what she just got.
I think any of them should have/would have benefited from ANY FA practically, simply because they all either can’t handle finances through either inaction or laziness, or mental incomprehension that money is fungible.
DW would have no idea what to do. DW is more risk adverse now and also “fungible comprehension limited”, so once I retired I converted her IRA to bond funds as part of our AA.
