FA tries to justify 2% fees.

[Mulligan]

Quote:

Originally Posted by 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.

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.


Sent from my iPad using Tapatalk

[Helen]

Quote:

Originally Posted by Rustward 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]

Quote:

Originally Posted by travelover 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.


Sent from my iPhone using Early Retirement Forum

[samclem]

Quote:

Originally Posted by clifp 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]

Quote:

Originally Posted by 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.

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

[MRG]

Quote:

Originally Posted by 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. Sent from my iPhone using Early Retirement Forum

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.

Sent from my SAMSUNG-SGH-I337 using Early Retirement Forum mobile app

[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]

Quote:

Originally Posted by 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. Sent from my iPhone using Early Retirement Forum

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.

Quote:

Originally Posted by 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

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.

[MichaelB]

I think one reason abusive or unscrupulous FAs exist is because too many people have unrealistic expectations regarding investment returns. In addition to hand holding, an important function of the professional FA is to help the investor set realistic goals.

Quote:

Originally Posted by 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.

Those good people exist but the threads about them don't go anywhere, it's no fun dumping on them.

[MichaelB]

I think one reason abusive or unscrupulous FAs exist is because too many people have unrealistic expectations regarding investment returns. In addition to hand holding, an important function of the professional FA is to help the investor set realistic goals, and this drives some into the open arms of the snake oil peddlers.

Quote:

Originally Posted by 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.

Those good people exist but the threads about them don't go anywhere, it's no fun dumping on them.

[2B]

Quote:

Originally Posted by target2019 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.

Was it a mistake to get out of the relationship or to begin it? I've not regretted getting out of every relationship I've ever had with brokers/FAs. I've minimized my relationships with insurance companies as much as practical. Every day I delayed moving everything to Vanguard are my biggest (investing) mistakes.

[2B]

Quote:

Originally Posted by MichaelB I think one reason abusive or unscrupulous FAs exist is because too many people have unrealistic expectations regarding investment returns. In addition to hand holding, an important function of the professional FA is to help the investor set realistic goals, and this drives some into the open arms of the snake oil peddlers. Those good people exist but the threads about them don't go anywhere, it's no fun dumping on them.

This is such a good comment it deserves repeating.

[travelover]

Quote:

Originally Posted by 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

I think it is an easy trap to fall into thinking that the rest of the world is pretty much an extension of ourselves. The truth is that those that post here regularly (and those that are financially successful in general) are a tiny tail of the total distribution curve. I abhor anyone being taken advantage of, but I understand how it happens.

[Sarah in SC]

And make no mistake, I abhor the salesmen that many of you have discussed. There are some truly terrible products out there, and some truly terrible people shilling them. I myself got tangled up with a Smith Barney rep in my early 20s, and she happily took my tiny nest egg and halved it before I wised up.

Michael's comment is spot-on. Creating realistic expectations is the hardest part of real financial planning.

[HFWR]

Quote:

Originally Posted by 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. Sent from my iPhone using Early Retirement Forum

You could always get a respectable j*b, like mob boss, dope dealer, or piano player in a house of ill repute...

[REWahoo]

Quote:

Originally Posted by Sarah in SC Creating realistic expectations is the hardest part of real financial planning.

After reading this forum for 10+ years I would have bet it was remembering to send a birthday card...

(Poor Sarah. She's the forum equivalent of Rodney Dangerfield.)

[fidler4]

Quote:

Originally Posted by HFWR You could always get a respectable j*b, like mob boss, dope dealer, or piano player in a house of ill repute...

HFWR I take personal offense to your inclusion of "piano player" in this group. Where's a moderator when you need one.


Sent from my iPad using Early Retirement Forum

[Midpack]

Who are we to argue with Bogle, Bernstein and others?

That said, there are undoubtedly financial advisors who provide great value to any investor. But we're led to believe they are harder to find.

And unfortunately we, self included, lose sight of the sad fact that even a financial advisor charging 1-2% annually might do better for a client than most of the mainstream population could do for themselves. Financial literacy is low for most people, and those folks can do greater damage to their portfolios if they take the DIY route. I watched too many of my employees make all the wrong decisions with their 401k's for decades...even though we tried to coach them.