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FA After One Year - 2019 Update
Old 02-16-2020, 11:26 AM   #1
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FA After One Year - 2019 Update

A bit more than a year ago I signed up with an FA. Long thread on that here:

https://www.early-retirement.org/for...-fa-94626.html

As I indicated in that thread, I am updating the group on my experience after one year. 2019 was my first complete year so that is the period Iíll be referencing 1/1/2019 - 12/31/2019. The update is twofold. First, the main thing anyone asks - did I do better under an FA. Short answer is that I donít think I did any better or worse, but of course thereís that 1% fee. Second, howís the service. In that respect, Iím pretty happy with the service. All told, it has been a good experience, but that fee is hard to get over.

I started the year at just under $1M. I earned 13.67% for an increase of about $135K. The portfolio started out the year at 40/60 but in August I met with the FA and we agreed that 60/40 would be better and that I was comfortable with that. The portfolio went to 60/40 early August and was there at year end. Of course the change midyear makes comparison a little difficult, but I was happy with the outcome. The 13.67% is net of any fees. Any feedback on the financial results is welcome. Since I didnít track exact balances and exact dates and am not really willing to go back and reconstruct such, some blending and estimating would have to be done and is acceptable.

The service was very good and Iím satisfied with it. Unfortunately, I did not get a Christmas card, but all else was fine. The FA is very professional and our year end budgeting meeting (late 2018) and the midyear meeting were very helpful. Thereís no doubt itís nice to have a knowledgeable professional to discuss financials with. We discussed taxes, which is heavily focused on ROTH conversions, we discussed my spending targets, we continue to evaluate SS since DW is over 62 but weíre not ready to do that yet and we discussed one of my retirement goals which involves a large purchase ($150K) and how to best cash flow that. Weíve also been discussing some level of payment for future educational expenses for the three grandchildren. His responses are always well thought out and well supported and presented very professionally. Bottom line is that the FA is part of a higher end team and thereís not much to be critical about - except. The one thing I do not like is that they operate through Raymond James. Everything is held by RJ. When FA does something (makes a trade), I get notified directly from RJ. That separation is a good thing. But Iíd rather they used Fidelity. Pet peeve of the moment is that I still donít have my 1099-R for the ROTH conversions. Itís a highly subjective thing, but I just donít like RJ. I feel like Fidelity is more my style (almost blue collar) whereas RJ tries to be something else. Subjective.

My conclusion is that Iíll be giving the FA another year, but I do not see me sticking around for much longer. Iím happy enough with the experience and will miss it at some point, but the fee is just too much to get over. So in case you didnít calculate it already, the fee for 2019 was $10K. In a good year like we had for 2019, itís possible to stomach it. Especially since Iím early on in this retirement thing and itís nice to have a crutch. In a bad year, that $10K would still come out and unless the FA did a lot better than the market, Iíd be upset. Itís kind of a one sided situation with me. Iím fine with taking less on the upside but Iíd be more satisfied to lose less in the bad years. Not that I want a bad year to come, but a bad year would be very helpful in evaluating the FAís performance.
So there it is. Nothing earth shattering and nothing that hasnít already been discussed on this board. I guess my year confirms that itís probably nothing one couldnít do for themselves but to do so would take a good deal of self educating. This board is a great resource for the feedback loop that is needed however; I would highly recommend a trip to a good FA early on in the process. The idea of a fee only initial evaluation and recommendation probably makes the most sense but one would have to find a good one (get a personal recommendation). Even with this board as a support group, you donít know what you donít know and therefore, you may not ask the questions that you need answered. Everyoneís situation is different and itís hard to share that over the internet. Not impossible, but more difficult.

The one thing Iíll struggle with without an FA is making sure everything is set up so that if I pass or if me and DW become unable to manage our finances there is someone to rely on. It was nice as we finished up our will and TRUST documents to be able to tell our children that if anything happens, call Matt (the FA). Thatís kind of another topic, but it is a factor that many cite as reason for using professional services.

Thanks for reading. Comments welcome, questions attempted to be answered.
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Old 02-16-2020, 11:38 AM   #2
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I left my FA and have been managing myself at Fidelity for six years. My wife stayed with the FA. Every years my amount pulls away from my wife's amount. Not that I am doing so well, but 1% adds up and compounds as well.
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Old 02-16-2020, 11:38 AM   #3
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Thanks for following up and taking the time to share your experience after a year. IMO detailed sharing by smart people is what makes ER.org unique and special - “pay it forward” sorta.

Without asking you to share specifics, did the FA put you in holdings you wouldn’t have considered yourself? Any timing or tax suggestions that helped? Was the AA change something you wouldn’t have done on your own?

Looks like your returns were in the same range as Wellesley (40:60ish) and Wellington (65:35ish) and other similar AA balanced funds as you know, but you got other services with your FA.

I’m still good with my reaction on your late 2018 thread.
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You won’t be flogged here, ER.org is largely a community of DIY investors that’s all. You’ve chosen to own a Ford and post on a GM forum, both fine, many things in common, just different. If an FA is worth it to you, that’s fine. Lots of people would be better off with an FA, but not all FA’s are created equal (there may be more bad than good) - sounds like you’ve found one you have confidence in.
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Old 02-16-2020, 11:40 AM   #4
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Thank you for sharing your experience! It sounds like you have a well suited plan going forward.

I'm curious about the reasoning behind the shift in AA from 40:60 to 60:40 midyear. Of course, it turned out to be a good move. But I hope it was not based on the advisor trying to time the market. Was it a change in your risk tolerance? Other reasons?
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Old 02-16-2020, 11:48 AM   #5
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If the FA has charged an hourly rate of $200, that would have represented 50 hours of their time. How does that compare to the actual amount of time you think they spent on your account?
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Old 02-16-2020, 12:00 PM   #6
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We've used FA's for years. One through our DefComp program from work at no cost, have known and worked with her for a good 20 years. She has primarily helped with running calculators and looking at our retirement income. The other one was one my folks had. We stayed with her after she helped with inheritance portfolio. After a year, we did change to Fee Only, as I really did not like seeing the AUM fee.It wasn't a big amount, but still....
Plus, all of the info I gathered here and books I read made me confident I could manage pretty well. We see her once year at no cost just to check in. I don't have a problem keeping them both as someone to check in with. I am still in charge of our portfolio.

Glad your FA is working well for you. It is always a personal decision and no one else knows your full story.
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Old 02-16-2020, 12:08 PM   #7
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That switch from 40/60 to 60/40 almost certainly paid for the advisor and then some. The question becomes whether you need the guidance going forward.
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Old 02-16-2020, 12:31 PM   #8
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The switch from 40/60 to 60/40 was initiated by me. The FA helped in me getting comfortable with being less conservative but it was not his recommendation. He relies on me and DW to help him understand how risk sensitive we are. In this case, he was not the driving force as much as a second opinion. Frankly, I got less conservative as I read and engaged here on the discussion. I went from more of a overall conservative to a bucked approach where I realized that 40% in safer investments was enough to live on as the equity portion fluctuates.
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Old 02-16-2020, 12:31 PM   #9
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I will be the first one to say good financial advisors are well worth the money (even at high AUM model) if you are not interested to manage your own money or lack self confidence and discipline to handle in a downturn market. Most of us here we manage our own money here including me, but I have seen too many people buy high sell low, trying to beat the market or just can't stomach the market drops and therefore making bad decisions with their money.
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Old 02-16-2020, 12:33 PM   #10
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Thanks for the post. One thing implicit in your experience is the difference between an investment advisor and a financial advisor. I think those two get mixed up around here a lot. IAs are more or less what you get at a brokerage house, while FAs consult on a broader scope of issues. It's hard to put a dollar value on that but it's not zero.

Quote:
Originally Posted by Jerry1 View Post
... The portfolio started out the year at 40/60 but in August I met with the FA and we agreed that 60/40 would be better and that I was comfortable with that. The portfolio went to 60/40 early August and was there at year end. Of course the change midyear makes comparison a little difficult ...
Common problem. There's really no way to figure out whether your 13.67% is good, bad or indifferent because it includes both equity results and fixed income results. Pour some red Kool-Aid and some green Kool-Aid into a glass and you really can't tell the proportions from the resulting color.

I'm involved with a nonprofit's investment committee and what we have done is to require that the FA break out equity performance separately on each quarterly report. They basically have to figure this out manually but it only took a moderate amount of leaning on them to get them to agree. They then also report and compare against the performance of the ACWI (MSCI All Countries World Index), also quarterly. We can benchmark against other things as well once we have the equity numbers. You might try this with your FA. As @Ready implies, your fee should be paying for a significant number of professional hours plus staff hours.

Re custodian, using a custodian is A Good Thing. Madoff did not use a custodian, so he could make the customer statement say anything he wanted. I have experience with Fido as a custodian and also LPL financial. (https://www.lpl.com/about-Us.html) LPL only works with FAs but the reports are both adequate and readable. I would also be less happy with storefront brokers like RJ and (God forbid!) Eddie Jones.
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Old 02-16-2020, 12:36 PM   #11
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I will be the first one to say good financial advisors are well worth the money (even at high AUM model) if you are not interested to manage your own money or lack self confidence and discipline to handle in a downturn market. Most of us here we manage our own money here including me, but I have seen too many people buy high sell low, trying to beat the market or just can't stomach the market drops and therefore making bad decisions with their money.
I was talking to an FA one time about fees and he made an excellent point: "Look," he said, "If I keep a client from panic selling once or twice I will have earned every dollar in fees that he has ever paid me and all of the dollars that he will pay me in the future."
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Old 02-16-2020, 12:37 PM   #12
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Midpack, the FA has me in a bunch of stuff I wouldn't likely be in. I keep challenging him on that. It just seems if you buy 10 funds, how do you not basically own the market? Plus, I was a bit pissed that his large cap fund didn't do as well as the S&P. But, I need to look at overall. Nothing tax savvy about the recommendations since most of my portfolio is in tax deferred accounts. He did recommend the ROTH conversions. He wants us to do more (we're just over the 22% bracket), but it's hard for us to stomach the tax payment. We have a meeting scheduled where we want him to provide a more detailed schedule to show our cash flow once RMD's and SS kick in. I believe him that we'll be in the 22% bracket then (or whatever rate it is at that time), but I want to see it in better detail before I can convince myself to go deep into the 22% bracket for conversions.
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Old 02-16-2020, 12:45 PM   #13
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If the FA has charged an hourly rate of $200, that would have represented 50 hours of their time. How does that compare to the actual amount of time you think they spent on your account?
I doubt he put in 50 hours. Probably more like 10 plus some lower level staff time.

Doesn't make it that much better, but I would put him closer to $400 per hour. I used to work at a CPA firm and the partners billed out much higher than that so maybe I'm a bit bias, but he and his organization are worth more than $200 per hour. Heck, I billed out at $80 as a rookie and that was in the early 90's. But those fees cover a lot of overhead and in this case, a team of investment managers that don't bill out, the advise the FA's.

I'm a bottom line guy. No way to sugar coat it, $10K imho, is expensive. I choke every quarter when I see the bill.
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Old 02-16-2020, 12:48 PM   #14
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If the FA has charged an hourly rate of $200, that would have represented 50 hours of their time. How does that compare to the actual amount of time you think they spent on your account?
This. It's not just comparing the 1% vs. what you could do on your own, because sometimes it does help to be able to issue instructions and have someone carry them out, and maybe point out ways of optimizing certain things. But there are different ways to do that; AUM, fee for service, or you might qualify for a "free" advisor with over $1M at some brokerages.
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Old 02-16-2020, 01:01 PM   #15
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... It just seems if you buy 10 funds, how do you not basically own the market? ...
Of course, unless they are really goofy funds. When the "stock picking" mutual funds do this, it is called "closet indexing." The manager will never excel, but he will never look too bad either and he continues to collect his big expense ratio.

FAs have kind of a problem: We all know and almost all of them probably know, too, that investing is really simple. But if an FA bought a Bogleheads two- or three-fund portfolio, then just let it ride year after year (which would be good) the customer is going to wonder what he's paying that AUM fee for. So the FA has to make it look a bit like voodoo.
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Old 02-16-2020, 01:04 PM   #16
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I just don't think figuring the hourly rate is a worthwhile measure. If a guy spends 15 minutes and saves or makes you $100K over what you'd do on your own, he's worth it, even at $40,000 an hour. If another guy spends 200 hours and just churns your account or otherwise does very little, he's not worth $50/hr.
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Old 02-16-2020, 01:06 PM   #17
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The switch from 40/60 to 60/40 was initiated by me. The FA helped in me getting comfortable with being less conservative but it was not his recommendation. He relies on me and DW to help him understand how risk sensitive we are. In this case, he was not the driving force as much as a second opinion. Frankly, I got less conservative as I read and engaged here on the discussion. I went from more of a overall conservative to a bucked approach where I realized that 40% in safer investments was enough to live on as the equity portion fluctuates.
Thanks for the follow up. BTW I'm also at 60/40. Half the days I wake up I think I should be at 70:30. The other days I think 50/50. So 60:40 is probably right for me.

FWIW I think your advisor is getting more than he deserves, but you also got good value for your money so far. It's not always a zero sum game. I think your plan to get a divorce from your advisor in a bit when you are comfortable is good too and hope you get there on schedule.

Best wishes.
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Old 02-16-2020, 01:29 PM   #18
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Midpack, the FA has me in a bunch of stuff I wouldn't likely be in. I keep challenging him on that. It just seems if you buy 10 funds, how do you not basically own the market? Plus, I was a bit pissed that his large cap fund didn't do as well as the S&P. But, I need to look at overall. Nothing tax savvy about the recommendations since most of my portfolio is in tax deferred accounts. He did recommend the ROTH conversions. He wants us to do more (we're just over the 22% bracket), but it's hard for us to stomach the tax payment. We have a meeting scheduled where we want him to provide a more detailed schedule to show our cash flow once RMD's and SS kick in. I believe him that we'll be in the 22% bracket then (or whatever rate it is at that time), but I want to see it in better detail before I can convince myself to go deep into the 22% bracket for conversions.
Smart move IMO. It wasn’t until I saw that kind of detail side by side (comparing no conversions to 22% and 24% for every single year), that I could “stomach the tax payments” but I’m all in topping up to 22% for the next 6-7 years. Right there with you.
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Old 02-16-2020, 01:41 PM   #19
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FAs have kind of a problem: We all know and almost all of them probably know, too, that investing is really simple. But if an FA bought a Bogleheads two- or three-fund portfolio, then just let it ride year after year (which would be good) the customer is going to wonder what he's paying that AUM fee for. So the FA has to make it look a bit like voodoo.
A sad truth more often than not, and an issue with many professions, not just the financial sector. Most people would be shocked at how much they could do for themselves as well or better if they did a little research, and itís even easier today with all thatís online. Of course you have to be honest with yourself and be willing to admit early when youíre over your head - pros are money very well spent some times too...
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Old 02-16-2020, 03:44 PM   #20
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Thanks for posting. I'm always curious how I'm doing as my own advisor.
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