Hired a FA

[Nature Lover]

Seems to be a good deal of piling on here related to the math associated with an AUM approach to financial help. Not arguing the point that with some assumptions, one can do without an RIA or FA (even if a CFP). On the other hand, it does require some assumptions - the most important one being that you don't need the assistance. (And yes, I understand the argument of some who say no one needs the assistance.....but on that I disagree: I think some can benefit from it).

I know plenty of people who are not like most of us, and who benefit greatly, or could benefit greatly from having an advisor. The real question is "does the Advisor add value commensurate with the cost"? For many here, the answer is obviously no (or H##L no). For others, it might be yes...or yes, for a time...or yes, for a partner...or yes, until a partner is gone... or yes, for certain services... (you get the idea ).

Before we can say if it's a good deal (or even a good deal for the moment), we need to understand both the cost and value offered. If hiring someone to "beat the markets", then look to the math. If wanting guidance in other areas, added discipline, less stress about the markets, less or at least appropriate portfolio risk, just a 2nd opinion on critical aspects of financial affairs (insurance, retirement, cash flow analysis and planning, tax planning, etc...). Value can be added in many ways. Many FA's emphasize/sell market beating returns, and I think most of us agree that long-term that's likely not going to happen, simply from the fees drag. But many FA's offer more than investment advice, and/or more in their investment advice. And each of us have different needs.

For that reason, I wanted to simply add this to the comments; as the OP started this saying he'd probably get flogged a bit for bringing up the topic... and the comments, although meaningfully educational, have gotten a bit less even handed of late.

 

[travelover]

.......... Anyway why save for retirement when you can just be a FA and have 3-4 clients with the account balance you should have saved yourself? LOL

I had a neighbor like that - had a bunch of high roller clients and he lived in a million dollar plus house (this was Michigan, so nice). He spent money like water, so I assume he made it like that, too. Think about it - get 20 doctors with $5 million each and only charge them a paltry 1% to work your magic. The hard part is mailing out those birthday cards.

 

[deserat]

To the OP - I went through a similar situation earlier this year, but I did not post publicly, just a private message to some of the old timers here. My main concern was Roth conversions and laziness, i.e., I wanted to have someone give me options, I could decide and then they would just do it

In the end, I was convinced by said people to keep DIY and that my situation could be simplified based on what I had been doing all along. The hardest part (/sarc) was to build a spreadsheet of the different tax brackets and track my income to determine how much tax I would pay for Roth conversions in each bracket. As for AA, etc, I'm lazy and use Target based funds that have cliffs far into the future.

I am in a gap situation and hope to use this time to convert most of my IRAs to Roths so that I won't have to deal with RMDs. I am taking the risk that a consumption tax, outside of local sales taxes, i.e., VAT, will not be implemented.

Interestingly, I did talk with several wealth managers during this process. One of them told me that I was one of the few candidates they had met that was able to manage it by myself. He said that my discipline with regard to managing my spending was amazing and that that was what their biggest issue was with their clients. They did recommend a little bit of a different AA, but then they said I had done very well with what I had already.

So, in effect, he told me they couldn't do much more for me than I had already done outside of just having them manage it, send me reports and pay them a percentage.

In any case, as you say you can see how this works and if you are happy, then fine. if not, you can end the relationship and chalk it up to a lesson learned. My point in writing is I can understand your desire to not have to deal with it and pay someone to do that for you, especially if you want to get on with doing other things with your time.

 

[Rianne]

VG charged .3%. That's $4500/yr on 1.5M. You can talk to them anytime as often as you like. If we had a VG MM in 2008, we'd be twice as rich because we feared the market for too many years after that. We haven't pulled the plug yet, but probably will this week.

 

[Jerry1]

VG charged .3%. That's $4500/yr on 1.5M. You can talk to them anytime as often as you like. If we had a VG MM in 2008, we'd be twice as rich because we feared the market for too many years after that. We haven't pulled the plug yet, but probably will this week.

This is one of the points that keeps hitting home to me. The FA doesn’t have to do better than the market, he just has to do better than me. Now, I understand that I can match the market on my own through low cost index funds, but that assumes that I will actually do that. I’m sure every alcoholic thinks they’re never going to have another drink, but then something happens and they fall off the wagon. I’ve never been one to hold firm. You don’t know how bad I want to jump out of the market right now.

I need to lose weight. Stop eating and exercise. No personal trainer necessary.

I need to stop drinking. Don’t buy beer. No 12 steps needed.

I need to stop smoking. Don’t light up. No nicotine patch needed.

I need to make better use of my time. Get off the couch and do something. No organizational coach needed.

Sometimes you need help. For those of you who don’t, I commend and admire you. For me, with a FA, I’m trying to see if he can help. A friend of mine at work used to call me itchy and scratchy because I was moving money around in my 401K so often. DW would put all her money in CD’s if it weren’t for her realization of inflation. Even then she’d still feel like “at least I didn’t lose money”. Like all programs, if I follow it and learn from it then it could be money well spent. We’ll see. I am going to give him a minimum of one year. I sincerely appreciate the discussion as it gives me a lot to think about and different ways to analyze this. You guys are one of the twelve steps. Thank you.

 

[Scamp]

I’ll flog you but only because I made the same mistake and have whipped myself plenty in the past. Leaving Morgan Stanley was the best move I ever made.

Here was my experience. I was a super busy business owner with my focus there. I figured a “trained expert” would do a better job. I really liked and trusted the advisor recommended to me by a friend I knew had more money than I did (coincidentally that same friend now asks me for advice and had also left Morgan). I bought into the “really great proprietary tools.”

Here is what I came to believe. The organization has two motivations. One they need to make everything appear complicated to build the perception of value. Two they pushed things that made nice commissions on top of the 1% AUM. I also believe the biggest sucker in the scheme wasn’t me it was the advisor and the team around her. They bought into the koolaide being sold to them from in high and she believed she was doing the best for me.

Yes there was advice along the way on how to navigate different retirement plans etc. But I always underperformed and was told that was because of my adjusted risk profile but all things taken into account it was hogwash. The final straw was loosing 40k on supposedly safe bond in another country while the money awaited use for taxes. The currency moved badly in just the day the short bond ended and are it. The next week it swung back but it was too late. The advisor could not anticipate this!? I calculated that my three year experience with Morgan Stanley lost me well over 100,000 through the bond mistake, AUM , and under index performing vehicles.

It’s not that hard for them to get the CFP and other designations and the low training to high salary ratio is great for a lucrative career but the customers pay the price.

I’m now early retired and find it’s easy to keep up with things myself but I fully understand the need for help. Just find a highly qualified and high hourly FA and pay it greatfully.

I just came back from the Bogleheads conference last month for the second time. I’ve met guys like Alan Roth and Rick Ferri both doing hourly consultation and planning. Reach out to one of those guys and you won’t go wrong and you’ll ultimately save a ton of money.

You’ll do whatever you think is right for you but I wish someone had “flogged” me a little before I went down that road.

PS - want to know if you can trust your FA team? Ask if they sell Whole Life. If it’s even an option and their eyes light up run don’t walk.

 

[PointBreeze]

This is why the OP said he'd get flogged. I'm of the mind that if you don't have something nice to say, don't say it.

+1

 

[Rianne]

I started a similar thread about VG FA. The frustration is immeasurable. The only conclusion I can muster is I understand when I hear "hedge fund manager" has made $$MM. VG fund managers earn a salary, not a commission. But the success of VG makes them a very nice salary and the managers may earn more because of the fee attached. Is it a benefit to the investor? A chicken and the egg question. IMHO feel comfortable with your decision. It's good to get opinions, but sleep better at night with your decision. Silly analogy: When I met my DH, literally everyone except my sweet cousin tried to talk me out of the relationship. My mom threw all my clothes on the front porch, signaling her dismay. We've been married 34 years, are FIRE, love each other. I'm dumb at some things (maybe investing) he's dumb at keeping track of our spending and computer technology. Go figure.

 

[Scuba]

Seems to be a good deal of piling on here related to the math associated with an AUM approach to financial help. Not arguing the point that with some assumptions, one can do without an RIA or FA (even if a CFP). On the other hand, it does require some assumptions - the most important one being that you don't need the assistance. (And yes, I understand the argument of some who say no one needs the assistance.....but on that I disagree: I think some can benefit from it).



I know plenty of people who are not like most of us, and who benefit greatly, or could benefit greatly from having an advisor. The real question is "does the Advisor add value commensurate with the cost"? For many here, the answer is obviously no (or H##L no). For others, it might be yes...or yes, for a time...or yes, for a partner...or yes, until a partner is gone... or yes, for certain services... (you get the idea ).



Before we can say if it's a good deal (or even a good deal for the moment), we need to understand both the cost and value offered. If hiring someone to "beat the markets", then look to the math. If wanting guidance in other areas, added discipline, less stress about the markets, less or at least appropriate portfolio risk, just a 2nd opinion on critical aspects of financial affairs (insurance, retirement, cash flow analysis and planning, tax planning, etc...). Value can be added in many ways. Many FA's emphasize/sell market beating returns, and I think most of us agree that long-term that's likely not going to happen, simply from the fees drag. But many FA's offer more than investment advice, and/or more in their investment advice. And each of us have different needs.



For that reason, I wanted to simply add this to the comments; as the OP started this saying he'd probably get flogged a bit for bringing up the topic... and the comments, although meaningfully educational, have gotten a bit less even handed of late.

Excellent post. I agree completely. We are DIY now, but had an FA pre-ER and for the first 18 months post-ER. We did not expect the FA to beat the market regularly, and she didn’t, but we did get value from lots of analysis she helped us with. We’re comfortable DIY now, and don’t think we would continue to get enough value to justify the cost, which is why we went DIY when we did.

 

[Scuba]

This is one of the points that keeps hitting home to me. The FA doesn’t have to do better than the market, he just has to do better than me. Now, I understand that I can match the market on my own through low cost index funds, but that assumes that I will actually do that. I’m sure every alcoholic thinks they’re never going to have another drink, but then something happens and they fall off the wagon. I’ve never been one to hold firm. You don’t know how bad I want to jump out of the market right now.

I need to lose weight. Stop eating and exercise. No personal trainer necessary.

I need to stop drinking. Don’t buy beer. No 12 steps needed.

I need to stop smoking. Don’t light up. No nicotine patch needed.

I need to make better use of my time. Get off the couch and do something. No organizational coach needed.

Sometimes you need help. For those of you who don’t, I commend and admire you. For me, with a FA, I’m trying to see if he can help. A friend of mine at work used to call me itchy and scratchy because I was moving money around in my 401K so often. DW would put all her money in CD’s if it weren’t for her realization of inflation. Even then she’d still feel like “at least I didn’t lose money”. Like all programs, if I follow it and learn from it then it could be money well spent. We’ll see. I am going to give him a minimum of one year. I sincerely appreciate the discussion as it gives me a lot to think about and different ways to analyze this. You guys are one of the twelve steps. Thank you.

Good for you to try the relationship and see if it helps you. I think at least a year is good. You can re-evaluate after that and decide if the $ cost is worth the value you’re getting.

 

[ERD50]

Not flogging, just genuinely curious how this works:

This is one of the points that keeps hitting home to me. ... Now, I understand that I can match the market on my own through low cost index funds, but that assumes that I will actually do that. .... I’ve never been one to hold firm. You don’t know how bad I want to jump out of the market right now.

....

Sometimes you need help. ... We’ll see. I am going to give him a minimum of one year. I sincerely appreciate the discussion as it gives me a lot to think about and different ways to analyze this. You guys are one of the twelve steps. Thank you.

For the 2nd part I bolded, it seems you need to give yourself one year. Because to match the market, which is all you are expecting (good), and realizing it can be done with buy and hold index funds (good), the FA should literally be doing nothing. Will you let him? You are still the boss, it is your money. Unless you use an irrevocable trust, you really have not delegated this.

To the 1st bolded part, if you really want to bail now, what is your FA doing to stop you? And if the market tanks next year (it might), will you feel he failed you?

I 'get' your analogies about needing help. I guess I just wonder, if all the information and discussion here won't keep you from jumping in and out of the market, will an FA manage to do that? I suppose if they have the right calming words to give you, and that is the difference, then you may just get value from it. I admit I have trouble understanding it - to me it sounds like putting the cookie jar on the top shelf, but I can still reach it. Will it stop me from taking another cookie? Maybe. Or I just grab the step stool and take 3 while I'm up there?

At any rate, I hope it works for you. Being that jumpy about the markets is not a good thing.

-ERD50

 

[Jerry1]

One trait that served me well in my career was that I’ve never had issues delegating or giving people the space they needed to succeed. Of course, with a watchful eye. So this takes a strength of mine to help deal with a weakness. There’s a plan in place and we have met enough to have a understanding of what I expect. He has full authority to move money and I get an email when he does. So, yes, I’m going to give him a year. This is consistent with behavior I’ve held for many years. We’ll see how it melds with my internal nature.

 

[stedmakr]

The AUM Fee Structure

My shoulders dropped when I read the original email, but clearly everyone can spend their own money as they see fit.

The AUM structure needs to go. If a person has $2 million in assets under management and is paying a 1% fee, they are paying $20,000 per year. If through additional contributions and market appreciation the portfolio jumps to $3 million per year the fee jumps to $30K. What does the client get for the extra $10k per year, better advice or improved investment alternatives. I don't think so. Estimate the number of hours the adviser is spending on your account. My guess is that in the scenario above if the client has a buy and hold strategy, he is paying well over $1000 per hour.

Let's say that your portfolio is $3 million (not unreasonable for someone in their 50s or early 60s) which is $30K per year for the adviser. Over 5 years (assuming a long term commitment) you are paying the adviser $150K and then there is the opportunity cost for not investing those dollars.

These type of fees are totally inappropriate for a buy and hold investor, especially if the investor uses index funds/etfs. The adviser isn't making you money it's the market.

The other point of course is that you don't have to use the AUM structure. Find an adviser (fiduciary, flat fee or fee for hours allocated to your account).
You can also use alternatives like betterment and pay separately for advice on individual finance questions you may have.

I don't believe advisers earn their keep by making investment decisions anymore. There are too many mechanical ways to get to 70/30 or 60/40. Advisers make a difference by moderating investor behavior that leads to buying high and selling low behavior. You don't have to pay what over time becomes a kings ransom for someone to tell you to, "stay the course."

Sorry for the rant. It's not aimed at the OP but at the AUM fee structure that dominates the financial adviser industry.

 

[GravitySucks]

Good luck Jerry1. Hope it works out for you.
As an aside, I just hired someone to pull two broken fence posts and replace them. A job I could do, but didn't want to. Probably would have been good exercise for me, or I might have hurt myself, but I didn't want to do it. Jerry1 doesn't want to do it and feels he may hurt himself. Why would he need a better reason to chose what he is spending his money on?

 

[ERD50]

Good luck Jerry1. Hope it works out for you.
As an aside, I just hired someone to pull two broken fence posts and replace them. A job I could do, but didn't want to. Probably would have been good exercise for me, or I might have hurt myself, but I didn't want to do it. Jerry1 doesn't want to do it and feels he may hurt himself. Why would he need a better reason to chose what he is spending his money on?

Of course, the decision rests with you and Jerry1.

But if you had started a thread about it, I'm sure there would have been discussion of the pros and cons of DIY fence repair. If you don't want discussion, why start a thread? So what's wrong with that?


-ERD50

 

[jazz4cash]

Good luck Jerry1. Hope it works out for you.
As an aside, I just hired someone to pull two broken fence posts and replace them. A job I could do, but didn't want to. Probably would have been good exercise for me, or I might have hurt myself, but I didn't want to do it. Jerry1 doesn't want to do it and feels he may hurt himself. Why would he need a better reason to chose what he is spending his money on?

Your chances of getting a satisfactory FPP (fence post puller) are probably higher than OPs chances of finding a good FA. You will know pretty quickly if your FPP is good but OP will have to wait a year. Getting a good FA seems like rolling the dice, although you can improve your odds with due diligence ( but that is what many hope to avoid by using FA). If I ever choose to use an FA, I’ll get a referral to RobbieB’s FA. Good Luck Jerry1, let us know how it goes. Thanks for sharing your decision process.

 

[audreyh1]

Your chances of getting a satisfactory FPP (fence post puller) are probably higher than OPs chances of finding a good FA. You will know pretty quickly if your FPP is good but OP will have to wait a year. Getting a good FA seems like rolling the dice, although you can improve your odds with due diligence ( but that is what many hope to avoid by using FA). If I ever choose to use an FA, I’ll get a referral to RobbieB’s FA. Good Luck Jerry1, let us know how it goes. Thanks for sharing your decision process.

The analogy didn't work for me either. FAs are way way way more expensive then fence pullers and it's a continuous expense, not a one time job.

 

[Bestwifeever]

I don’t think your professional fence puller is going to send you a nice Christmas card with photos of the fam like DH just got from the Edward Jones FA who handles his $68K account in his small home town that he inherited from his mom (I wonder if the VG FAs send them). Sorry but I laughed when he got it and told him about the discussions re FAs here and how someone always mentions the cards. He laughed too and said he doesn’t care, he likes it.

 

[travelover]

.........(I wonder if the VG FAs send them)...........

Maybe the real Vanguard FAs send them, but neither Vanguard nor Fidelity has ever sent me a card despite having 7 figures with both of them. Just super low expenses and good service.

 

[target2019]

Maybe the real Vanguard FAs send them, but neither Vanguard nor Fidelity has ever sent me a card despite having 7 figures with both of them. Just super low expenses and good service.

Perhaps you switched to the e-delivery option for holiday cards?

 

[Bestwifeever]

Maybe the real Vanguard FAs send them, but neither Vanguard nor Fidelity has ever sent me a card despite having 7 figures with both of them. Just super low expenses and good service.

Me neither but there’s no AUM fee—that would buy a lot of greeting cards.

 

[audreyh1]

Maybe the real Vanguard FAs send them, but neither Vanguard nor Fidelity has ever sent me a card despite having 7 figures with both of them. Just super low expenses and good service.

I do get thank you letters when we move more funds in. I think I’ve occasionally gotten something for the holidays.

 

[ERD50]

No joking about birthday/holiday cards allowed! A certain poster gets very upset with that talk, and equates it to a flogging.

-ERD50

 

[Rustward]

Me neither but there’s no AUM fee—that would buy a lot of greeting cards.

Another inappropriate and uncalled for comment. The forum rules say to be nice. Is this a nice comment? And coming from a "moderator emeritus"!


1.7% WR and would .2 % if we started SS which we have not yet. We can afford to do whatever we want to do. You spend yours however you want to, and we will do the same.

 

[REWahoo]

You spend yours however you want to, and we will do the same.

I'm confused. Are you saying you will or will not be buying greeting cards?