FA tries to justify 2% fees.

[Midpack]

Oh well, all the back and forth drove me to watch the video. Not much there. The guy seemed reasonable enough and I suspect that he is basically a 1%er for sizable accounts. But how the heck can anyone decide if this guy or any other FA will actually help you avoid screwing up your financial life? It seems to me that doing the due diligence needed to pick an FA is more difficult than learning the basics needed to DIY.

I am sure you remember the adage 'by the time you know enough to choose a financial advisor, you don't need one.'

 

[Rustward]

Similarly, if a FA wants to charge 2% (or even 1%), and the client has a significant amount in an tIRA he can't touch right away because he is under ~59.5, the FA's fee would have to come solely from the non-IRA portion of the overall portfolio.

While this is a popular thing to say in these forums, it is absolutely incorrect!

Sometimes it is amazing how much people think they know about things with which they have never dealt.

Can we at least be objective about this stuff?

 

[haha]

Maybe 2% to set-up an allocation, describing why and what. It's that ongoing 2% that gets you...


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Can they Shanghai you into staying? I've no experience, but I would doubt it.

Ha

 

[HFWR]

Can they Shanghai you into staying? I've no experience, but I would doubt it.

Ha

I'm the only FA that I've used, so no experience either, though I'd venture a guess that psychological "Shanghai-ing" is practiced.


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[clifp]

Very good points. I have never spent even 10 cents for financial advice, other than accounting and legal. However frequently people show up right here at this DIY site who have an FA, or are planning to consult one. So somebody wants this service. All I am saying, is that if I were in this business, I would want at least $2000 to think about this client. I think a lot of people here have never been close to the sales function in their careers. And many have never been close to any profit driven position at all. I think we once had a survey that showed that somewhere around 20-25% of members are or were public sector workers.


Ha

I guess I don't understand why financial adviser pay model should be any different than lawyers. I've meet probably 1/2 dozen times with my mom lawyer in the last decade or so. She charges about $200 hour and the issues always involve money, a house agreement between her and SO, changes to the trust, structuring a house loan for my niece. I don't think it was until a few years ago when talked about estate taxes that she realize that mom's estate was a million dollars or so. I think she charged $700 or $800 for the initial trust and I doubt we've spent more than $2,000 since then.

Independent lawyers (and CPA) also spend a lot of their finding new clients, and give away a lot 30 minute free consultation sessions also.

I am sure there are FA out there who are worth more than $200/hour I just don't believe there virtually any who are worth $2,000/hour. If they are getting 1+% on $1-$5 million and spending 1-2 hours meeting with a client once or twice a year, and twice that in prep work they easily can get away with spending less than 10 hours a year on client, and generating more than $10,000 in fees.

 

[MRG]

I'm the only FA that I've used, so no experience either, though I'd venture a guess that psychological "Shanghai-ing" is practiced.


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Or put you in something with a 6% deffered sales fee, it goes down 1% per year. Personally I've never seen one that high, but it's legal.

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[Hermit]

I watched the video. There is not much substance there. I can't help but notice whenever a good question is asked it is never answered directly. It is always responded with some drivel that is unrelated to the original question. The interviewer never calls him on it. Makes me wonder who is working for whom.

Gee, I just thought he learned that from some of our past and present politicians!

 

[scrabbler1]

While this is a popular thing to say in these forums, it is absolutely incorrect!

Sometimes it is amazing how much people think they know about things with which they have never dealt.

Can we at least be objective about this stuff?

Were you referring to the 72t option for an IRA? I know about that. If not, what is incorrect about what I wrote? I'm not going to simply accept what you wrote because "you said so." No source or link? Your tone was a little insulting.

 

[clifp]

I believe fees can be deducted from IRAs without tax consequences. Although I have no ideas about the rules, and of course doing so you lose the benefits of tax deferred compounding. A do agree with scrabbler a link showing why he is wrong, is way better than just saying you are wrong.

 

[nun]

Are they going to hold your hand so you don't sell out when the market drops 50%?
.

I'm reminded of the reasoning DFA gives for only offering their funds through financial advisors. They don't want people buying and selling too often so make you buy through an FA who will presumably stop you from doing stupid stuff. I'm sure DFA doesn't want massive redemptions, but I've always suspected that it's a nice cozy deal between the FAs and DFA that ends up inflating the overall expense to own the funds. Vanguard's lock out period is a far more honest (and cheaper) mechanism to limit selling.

 

[2B]

I'm reminded of the reasoning DFA gives for only offering their funds through financial advisors. They don't want people buying and selling too often so make you buy through an FA who will presumably stop you from doing stupid stuff. I'm sure DFA doesn't want massive redemptions, but I've always suspected that it's a nice cozy deal between the FAs and DFA that ends up inflating the overall expense to own the funds. Vanguard's lock out period is a far more honest (and cheaper) mechanism to limit selling.

I agree. If DFA were as transparent as Vanguard they would tempt me. I have seen them adjust their funds' composition and then include that reconstituted performance in their historical performance. The biggest incident was their inclusion of precious metals but there are others. The biggest negative is that their funds are only available through a FA that load fees on their not as low as Vanguard fees.

 

[Rustward]

Were you referring to the 72t option for an IRA? I know about that. If not, what is incorrect about what I wrote? I'm not going to simply accept what you wrote because "you said so." No source or link? Your tone was a little insulting.

I am telling you from experience, because I have some managed accounts. All fees are taken out of my accounts, even the tax deferred ones. It's pretax money in the tax deferred accounts. It is not considered a distribution.

I don't know if all brokerages are required to offer it, but some brokerages will bill fees separately. I imagine some brokerages don't want to add billing and collection activities that don't produce any revenue.

And no, I am not talking about 72T.

You asked for a reference, so here is one: The Rap On Wrap Fees For Retirement Accounts

Just beneath Table 1:
"If you nevertheless decide to pay wrap fees from your account balance, remember these payments are not treated as distributions and are therefore not added to your income. As such, be sure not to include these payments on your tax return."

There are lots of other references available but I won't bother with them.

You don't have to take my word for it, though, and you don't have to believe the internet or these forums. I would encourage you to call a brokerage that hosts managed accounts and ask them.

Are there some really bad money managers and wrap plans? There sure are. Our portfolio returned 8.9% net last year -- over five years of withdrawals for us at our current rate. Did it beat the S&P? No, and it is not supposed to, but it is working for us. Are they right for everybody? No. Could I do it all myself? Yes, I could. But it's my money and I get to choose. Everybody else gets to choose, also. Isn't that great?

Now I'm not picking on you individually, Scrabbler. Many posters here will take every opportunity to poo-poo managed accounts and money managers. Sometimes those posters are not so well informed.

I simply do not know why this topic becomes so heated so fast. There are a lot of people in the world doing things much worse than financial people managing other people's money for a fee.

From: http://www.early-retirement.org/forums/misc.php?do=sknetwork&page=rules

"Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable."

This question is not directed toward you, Scrabbler, but perhaps someone will answer it, or we can just file it under rhetoric: Where are these rules when there is a "Let's All Flame The FA" thread?

 

[audreyh1]

I can see someone paying $2000 on $100k for a plan and monitoring. That seems reasonable.

It's the $20,000+ on $1M+ that seems like highway robbery.

 

[Rustward]

I can see someone paying $2000 on $100k for a plan and monitoring. That seems reasonable.

It's the $20,000+ on $1M+ that seems like highway robbery.

For the record I think anything remotely close to even 1% is way too much. But people pay these fees voluntarily. I'm not going to criticize anyone too badly for this.

Sometimes what is a waste to one is a necessity to another.

I see people using the $450 service at Best Buy to reload Windows on their computers after they bugger it up. A teenager can do that in an hour. In fact it is usually teenagers that do it at Best Buy.

Some also waste money on other stuff. SIL eats out often and insists on appetizers, entree, drink, and desert. Less than half of it gets eaten and the rest is usually taken home. Once home she makes room in the fridge for the leftovers by throwing out the oldest leftovers. That stuff never gets eaten.

One thing I place a high value on is getting to make my own choices.

 

[travelover]

........
From: http://www.early-retirement.org/forums/misc.php?do=sknetwork&page=rules

"Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable."...........

I think that you may be taking this too personally. Criticism of excessive fees on the part of some FAs does not quite fall into the hate speech arena.

 

[Mulligan]

I can see someone paying $2000 on $100k for a plan and monitoring. That seems reasonable.

It's the $20,000+ on $1M+ that seems like highway robbery.

Hey Audrey I'm closer to the former than the latter, so I am not going to agree with you. In fact if he did nothing I would only have $98k left and you would still have $980,000.
But seriously, in today's low rate environment that kind of fee is ridiculous if a classic investment model is used. It's one thing to say upfront that "my charge is a 2% annual fee". But it sounds completely different if he said "I am going to have 40% of your money in a safe bond fund that probably if lucky, will barely cover my fee. If it doesn't just assume even less returns on the other 60%."
I understand Rustward's view, however. If you have sufficient assets, want to pay for the convenience, or no interest in managing a portfolio why not. Many well off people do this in other aspects of their life.


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[Helen]

Are there some really bad money managers and wrap plans? There sure are. Our portfolio returned 8.9% net last year -- over five years of withdrawals for us at our current rate. Did it beat the S&P? No, and it is not supposed to, but it is working for us. Are they right for everybody? No. Could I do it all myself? Yes, I could. But it's my money and I get to choose. Everybody else gets to choose, also. Isn't that great?

Rustward, with all due respect, you could choose to skip posts with 'FA' in the title. I seriously doubt you are going to change the opinions of those of us who think a lot of FAs are slimy salespeople who prey on uneducated investors.

 

[clifp]

I think that you may be taking this too personally. Criticism of excessive fees on the part of some FAs does not quite fall into the hate speech arena.

+1

But let me take this opportunity to explain the general knock on FA in this forum.

FA perform two roles a coaching role, and money management role.

I think the coaching role can be quite valuable, and by this I mean sitting down with client, understanding their financial needs and develop a plan for paying for college, saving for retirement, and then spending retirement. Plus, doing so while understanding their risk tolerance. This is great stuff and I have no problem, in fact encourage most people to spend $500 to $2,000 to have one of these done.

The coaching role also just as importantly extends to talking the client out of selling of their stock in Jan 2009, right after they get their annual statement, and convincing them pot to but 1/2 their savings into Netflix just cause they think it is a terrific service.

Unfortunately people tend to balk out forking over this kind of money for a 20 page report.

So most FA make their money by "managing their money", by putting 20% in this large cap growth fund, 15% in this red hot small cap fun, 15% in this special situation bonds fund etc. The individual funds generally pay the FA a commission for moving money into them, plus their is generally a fairly high wrap fee.

As Warren Buffett explained so eloquently in one of his fairly recent annual letters. Collective these FA (or "helpers" as Warren called them) on aggregate provide no value and fact subtract value that is equal to their collective fees. If FA Joe beat the appropriate index by 2%, the Sue and Mark had to miss it by 1%.

The problem is figuring out what the appropriate index is requires a significance amount of financial sophistication. Time weighted returns, sharpe ratio, standard deviation,alpha, beta, R^2. Plus stuff that even I with an MBA, 30+ years of investing, and a solid math background don't get.

8.9% sounds like a reasonable return, but it would probably take me a full days work looking at all the paper work to reach a conclusion if your FA is doing a good job or not. If you are happy with him that's all that matters. But in general, FA don't provide good value for the money people pay for them.

 

[Sarah in SC]

Just for the record, I appreciate those forum members who take the time to imagine a world where decent, valued, and non-slimy financial service professionals exist.

I am grateful to each of you for leaving me a small space for me to feel welcome when these threads come to their obvious and all too often vitriolic conclusions.


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[samclem]

If you are happy with him that's all that matters..

If people understand what they are getting and they are still happy with their purchase. But if they have been mislead or are buying a service out of ignorance and it leads to a later reduction in their long-term overall happiness (because, due to fees, they are forced to live on 25% less money every year), then I don't think their present happiness/satisfaction is a very good way of measuring "what matters".

And if FA's as a whole want to improve the public perception of their craft, they'll take a leading role in weeding out the most abusive members and the most outrageous sales practices and compensation schemes.

 

[Helen]

Just for the record, I appreciate those forum members who take the time to imagine a world where decent, valued, and non-slimy financial service professionals exist.

I am grateful to each of you for leaving me a small space for me to feel welcome when these threads come to their obvious and all too often vitriolic conclusions.

Please notice I said, "a lot" of financial advisors and not "all".

 

[MRG]

Just for the record, I appreciate those forum members who take the time to imagine a world where decent, valued, and non-slimy financial service professionals exist.

I am grateful to each of you for leaving me a small space for me to feel welcome when these threads come to their obvious and all too often vitriolic conclusions.


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There are good and bad folks in any position.

The scum that tried to win my 94 yo demented fathers business back with a 3% fee is one example.

The company that eventually ended up managing his entire estate, great folks. They went far out of their way for DF and the family. Their .5% was well worth it.

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[DROPOUT]

Watching made me cringe.

IMO ~ we live in an incredibly LAZY day in age. How hard is it to do 30 minutes of googling, a week or so worth of reading, and grabbing a pen and putting it to paper to develop a strategy.

Its really sad to see many people in 6 and 7 figure income/nw ranges seeking the advice of FA when all the info they will ever need is spelled out for you in black and white and you don't even have to search for it.

My parents fell for this crap ~ I didn't thankfully

 

[2B]

Just for the record, I appreciate those forum members who take the time to imagine a world where decent, valued, and non-slimy financial service professionals exist.

I am grateful to each of you for leaving me a small space for me to feel welcome when these threads come to their obvious and all too often vitriolic conclusions.


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If my memory is correct, you are a fee only planner which is usually not lumped into the slimy discussion. If I'm wrong, there can be decent and well meaning wrap account advisers. Unfortunately, my experiences say they're rare if for no other reason than a major part of a wrap advisers day is dedicated to finding more accounts to manage and not in the "care and feeding" of their existing clients' accounts. From what I've seen, people are put into cookie cutter asset allocations not much different than what someone could come up with after reading a couple of Scott Burns' columns. Of course, the lowest level of Hades is hopefully reserved for the wrap FAs that have as their highest goal pushing clients in VAs.

A good financial plan with periodic reviews by a fee only FA makes a lot of sense for people uncomfortable doing things themselves. Paying a wrap fee on a sizable portfolio is totally unnecessary and horribly wasteful (IMHO). Of course there is at least one forum member that is proud of their FA wrap account.

Watching made me cringe.

IMO ~ we live in an incredibly LAZY day in age. How hard is it to do 30 minutes of googling, a week or so worth of reading, and grabbing a pen and putting it to paper to develop a strategy.

Its really sad to see many people in 6 and 7 figure income/nw ranges seeking the advice of FA when all the info they will ever need is spelled out for you in black and white and you don't even have to search for it.

My parents fell for this crap ~ I didn't thankfully

That's what this forum can help people learn to do. It really is incredibly easy for most (but not all) people.

I've been doing it myself for several decades now. I will admit that I could have moved from individual stocks to index funds sooner but I doubt most FAs at the time would have recommended them since they were also making money pushing people into managed funds. The advisers that now push people into index funds while still charging a wrap fee of 1+% fill me with wonder that people buy that. They usually link all this to some [-]magic[/-] proprietary AA or market timing program. Research has shown that these don't ever work for long.

 

[target2019]

We might keep in mind that many have been in a relationship with a financial advisor at one time or another. I myself severed one relationship in my twenties, and it brought out the worst in the advisor. She really burned me in a letter which I never forgot. Later in life I had to ditch a well-known and respected insurance company. Both mistakes on my part, and I chose to get out of the relationship.

In a general sense, I'd like to believe that most can manage their investments. But I know otherwise. People who post here and in similar forums are certainly capable. For the rest, there is a free marketplace. Those who advertise will never run out of clients.