Hiring a Financial Advisor

[Dtail]

The expenses of 1.1% reflect the advisor’s fees plus the estimated underlying expenses of the funds in the portfolio. This advisor does not invest in individual stocks, but uses, mostly, mutual funds. I do agree it is a lot of money, and your response as well as that of others makes me more certain to go with my gut and take a pass on this opportunity. The 1.1% fees doesn’t bother me too much....what really bothers me is the 1.1% fee every year. I was not aware their were advisors who charged flat fees for portfolio management....I should probably look more closely at that sort of arrangement.

Why not ask him for a history of outperformance of his choice of mutual funds over index funds with all costs included?
No chance I would pay 1.1% in total fees. Underlying fees in index funds can be zero.

 

[DrRoy]

I looked at doing the same and decided the value wasn’t there.

+1. If you have a typical 4% WR and the FA charges 1.1%, then that costs 27.5% of your cash flow. That is outrageous to me. What you did before worked well.

 

[ProGolferWannabe]

You guys are making me feel pretty foolish for even considering this lol. I really don’t mean that in a bad way...it is exactly why I come here from time-to-time. Get an unbiased take on my thinking before I make any decisions I may come to regret. Thanks.

 

[mystang52]

I’ve managed my and my wife’s investment portfolio for our entire working lives. I suppose “managed” is somewhat of a generous characterization of my skill...we just relied on living below our means, dollar cost averaging into low-cost index funds, and a long period of time to accumulate (to us) a decent nest egg that, along with our pensions and social security, should allow us to have sufficient funds to retire.

...... One big plus is that assuming I leave planet earth before DW, I would feel confident that this advisor would serve her well...my DW is much brighter than I am, but just never had an interest in managing our money. She’s met with the advisor as well, and said if I were not around, she would be comfortable working with him.

The big issue for me is cost...he charges about 1.1% of AUM...way, way, way more than I have ever paid. I ran firecalc adjusting for the higher expenses in figuring out the impact on my spending. The reality is that even with the higher expenses, we would still be unlikely to spend what firecalc says we can.

Has anybody done something similar? Any thoughts on taking this approach? Any advantages to using an advisor I may not be considering? My gut is telling me this is not a very good use of money...not because I don’t think he won’t do a decent job, but just because the value isn’t there.

Appreciate any perspective you might want to share.

Majority here, including me, would counsel against an FA. Take another look at your own words, here. You've done perfectly well so far, and based on FireCalc you're set for life. So why get an FA now? As to concern for your DW if you predecease her, you can leave her the link to this site, or bogleheads, for any general advice. Or, just move everything to Vanguard, or Fidelity, or similar with a conservative mix of just a couple of Index funds.

 

[Jerry1]

You guys are making me feel pretty foolish for even considering this lol. I really don’t mean that in a bad way...it is exactly why I come here from time-to-time. Get an unbiased take on my thinking before I make any decisions I may come to regret. Thanks.

There’s no need to feel foolish. This forum is heavily weighted to the diy group but there are also many here who use an advisor. It’s a journey with many different paths. Take your time and figure out which one works best for you.

 

[ProGolferWannabe]

There’s no need to feel foolish. This forum is heavily weighted to the diy group but there are also many here who use an advisor. It’s a journey with many different paths. Take your time and figure out which one works best for you.

Thanks. And “foolish” was probably the wrong word. I think, for the most part, people are just reinforcing what I already know, and directing me on a path that I am already inclined to take.

 

[EastWest Gal]

We have a full service advisor at 0.37% AUM. I could probably manage on my own, but not as well. DH couldn't manage the portfolio at all. It's worth it to me, does not impact my lifestyle, and probably impacts what DS will eventually inherit a little. And I sleep at night.

 

[ProGolferWannabe]

We have a full service advisor at 0.37% AUM. I could probably manage on my own, but not as well. DH couldn't manage the portfolio at all. It's worth it to me, does not impact my lifestyle, and probably impacts what DS will eventually inherit a little. And I sleep at night.

I think if I were being quoted a rate of 0.37% I’d be far more inclined to take your path. Like I said earlier, I need to look around a bit more at other options.

 

[mrfeh]

The big issue for me is cost...he charges about 1.1% of AUM...way, way, way more than I have ever paid. I ran firecalc adjusting for the higher expenses in figuring out the impact on my spending. The reality is that even with the higher expenses, we would still be unlikely to spend what firecalc says we can.

Has anybody done something similar? Any thoughts on taking this approach? Any advantages to using an advisor I may not be considering? My gut is telling me this is not a very good use of money...not because I don’t think he won’t do a decent job, but just because the value isn’t there.

If you want somebody to discuss options/strategy with, find somebody that charges hourly.

Paying somebody 4 or 5 figures, every year, to do something you can do? Absolutely not.

 

[OldShooter]

OP: It's pretty common here and seems to be happening in this thread: Conflating "investment Advisor" with "Financial Advisor." A true financial advisor has a much broader scope than a mere investment advisor: tax strategies, social security strategies, savings and withdrawal strategies, best ways to pay for college, badgering you to have an estate plan, health care and durable powers of attorney, etc. This is all hard stuff and the tax landscape in particular is constantly changing. You may not need an Investment Advisor, in fact you probably don't, but getting occasional consultations on all that other stuff is probably not DIY.

I'll concur though with the advice that you pay your Financial Advisor by the hour or by the job. I don't have any direct experience, but people around here have recommended the Garrett Planning Network, www.xyplanningnetwork.com, and napfa.org. Be aware, too, that "fee only" just means that the advisor doesn't get paid commissions on the products he recommends. Thus "fee only" includes AUM-paid advisors. So you have to ask the question carefully.

 

[Mauser]

I have worked with several advisors, and been mostly disappointed. One of 'em was a true borderline shyster (silver tongue and only out for his own gain). That toad suckered me into lining his pockets more than my own (and I thought I was well-educated and understood the business enough to be immune to that!). While I am sure there are some great FAs that are not CFPs, I have concluded they are few and far between. And unfortunately, if you choose to live in a lot of places where you can stay away from the great unwashed masses, there just ain't no CFPs around even if you want to pay for one. Of course, the phone removes all distances, but I cannot stand to do anything important over the phone.

My solution - I remain invested almost totally in a portfolio of Mutual Funds, where I get the diversity of each fund along with the added diversity of my choices of fund allocation percentages, and I do all of this now through one of the main management firms where my $1M+ investments give me a total break form all front-end and back-end fees while still giving me access to some basic levels of FA and account management. When I want to do something outside of the families of funds that I use, I do that on my own through a $0 fee broker such as Ally Invest.

 

[garyt]

What I don't like about a FA that charges a % is the more money you have the more you pay for the same info. His investment advice isn't going to change much if at all from a guy who has $1 million to invest and a guy who has $1.5 million yet the fee is $5K more a year, assuming 1% fee.

 

[OldShooter]

Just a comment on CFPs: I think a CFP is a basic qualification for an FA, but they are somewhat overrated. The CFP is a certificate issued by a private company to someone who has run through a series of classes and exams. The guy that runs the CFP Board makes north of $1M/year, drawn from the fees that CFPs pay. So there is a moral hazard there; more CFPs mean more money, but getting more CFPs is limited if the standards are too high. That's just logic, not to impugn the CFP Board or the CFPs.

A critical thing is that CFPs are not governed by any government or quasi-government body and, despite what some will tell you, a person holding the certificate is NOT automatically a fiduciary. They have their own code of conduct which was tightened up in October of 2019 to look like fiduciary rules, but all the CFP board can do is to revoke a certificate. The code also says: “ … the Rules are not designed to be a basis for legal liability to any third party. “ IOW, "good luck suing us."

https://brokercheck.finra.org/ is the place to get the real scoop on a rep. Most FAs will show passing Series 65 or Series 66 tests and will be fiduciaries by virtue of being Registered Investment Advisors or RIA Representatives. CFP has nothing to do with any of this. I run a brokercheck any time a rep name comes up. Most are clean, but I checked one of the "free dinner" guys once and he had 21 customer disputes -- most settled in favor of the customer and many in six figures.

 

[Scrapr]

OP mentioned upthread that the 1.1% fee includes fund expenses. This is not the norm (IME) & I would drill down into that pretty aggressively & see if the fee is hidden somewhere else. My MIL pays 1.3% plus fund fees (Fast Eddie Jones)

 

[harley]

You guys are making me feel pretty foolish for even considering this lol. I really don’t mean that in a bad way...it is exactly why I come here from time-to-time. Get an unbiased take on my thinking before I make any decisions I may come to regret. Thanks.

Hahaha! Yeah, we're unbiased.

 

[DektolMan]

I looked at doing the same and decided the value wasn’t there. My wife has been learning what I do and why but finances isn’t really her interest. So if I die first and she doesn’t want to manage the portfolio, she will pay the 0.3% AUM to the Vanguard folks to manage it.

This is my plan as well. Vanguard for it's 0.3% fee.

 

[LarryMelman]

people around here have recommended the Garrett Planning Network, www.xyplanningnetwork.com

That's the advisor I mentioned that said he had so much AUM business that he could not in good faith take on any non-AUM clients, as he just didn't have the time. He should not be in the XY network at all.

 

[Markola]

I did much the same until about 4.5 years ago. Our Vanguard accounts qualified us to get the services of a senior advisor at a lowered rate. He helped us refine the plan and was a huge help when I got serious about retirement. That was critical due to me pushing the timeline up 2 years.

+1. Our assigned Vanguard CFP only costs thirty basis points for their AUM program, though I am not sure if that’s what you chose, too. I’d be looking at several more years of w*rk rather than RE last July if I was relying on one of the endless variations of the 4% Rule. Vanguard’s spending recommendations are surgically targeted to our specific goals and finances. I could go on about the many other benefits of the Vanguard Personal Advisor Services program for my DW and me, as I have on other strings, but it would probably convince no one to give it a look, so their MMV.

 

[24601NoMore]

I have friends and family who have no interest in managing their portfolios. For those folks, or for those who are concerned about spouse's ability to manage after their death, a FA makes sense. That said, I absolutely cringe at how much they are getting financially soaked - especially by FA's that only do AUM. The only good alternative I'm aware of is Vanguard PAS at 0.3 AUM. Rick Ferri also used to do AUM at .25%, but his firm got bought out and he's now doing only hourly at $400/hr.

For all others, it's hard to fathom how an AUM FA charging 1+% is worth the $$. That's $10K EVERY. YEAR, year in, year out on every million invested, or $100K over ten years on every million. No thanks!

There appear to be very few true "fee-only" FAs. I've seen many that claim to be fee-only, but then also charge AUM on top of (!) their fee. To me, that's not "fee only"..it's AUM PLUS a fee..

It's gotta be tough to be a true fee-only FA..even if you charge $250 / hr (or, like Ferri, $400+/hr), there's just not enough revenue flow to make a business out of it. (Let's say the average plan takes someone - being generous..10 hours. That's only $2,500 per client. Plus an hour here and there throughout the year. It'd take at least 40 new clients every year to bring in even $100K gross).

Since there's very little money to be made in the "true" fee-only FA business, it's not surprising that there continue to be so few that are actually fee-only and that do not charge AUM..

 

[SecondCor521]

We recently sat down for about an hour with a partner at a local CPA firm. In that hour (@ $250), he answered pretty much all of the questions I had about taxes and estate planning. I've read a lot already as an amateur, and thought carefully about our family's situation, so it was easy to go fast. The benefit was worth far more than the cost, but the additional value of another hour would be pretty marginal.

His main business is tax prep and bookkeeping I think, but helping us out in that way is a good additional line of business.

We're probably good for at least another year or two. $250 every year or every other year is a lot less than 1.1% of AUM.

Even Vanguard's 0.3% fee is probably high. Their advice will probably be 60/40 stocks/bonds, and 70/30 domestic/international. If you want to follow that advice and can operate a four-function calculator, you can do it yourself for pretty much free.

...

True story:

My Dad used to have his money with a local stock broker, who was series 6x licensed and worked for a major brokerage firm at first but then opened his own local office as a branch of a smaller brokerage firm.

Probably 15 years ago now, there was a young lady in our valley who won one of the lotteries (Powerball?) to the tune of $200M+, and she ends up choosing my Dad's broker as her financial guy. Said financial guy decides about that same time to switch to an AUM fee arrangement. My Dad declines to accept the changing fee schedule and moves his money elsewhere, and financial guy pretty much doesn't return his phone calls any more.

It's what I probably would have done too, but it was a little sad to see the way things happened. My Dad's done fine doing pretty much nothing but LTBH since then, although he does like to occasionally do contrarian buys of good stocks that are temporarily down on their luck, which has probably helped a bit.

 

[MarieIG]

+1. If you have a typical 4% WR and the FA charges 1.1%, then that costs 27.5% of your cash flow. That is outrageous to me. What you did before worked well.

+1 This is how I explained it to DH.

 

[Ready]

+1 This is how I explained it to DH.

Agreed! Giving away 27.5% of your income to an advisor is absolutely ridiculous. I don’t understand how people don’t see that.

 

[Jerry1]

For all others, it's hard to fathom how an AUM FA charging 1+% is worth the $$. That's $10K EVERY. YEAR, year in, year out on every million invested, or $100K over ten years on every million. No thanks!

I'm not going to defend FA's or AUM fees, but the above is not typical at all. I suppose anything is possible, but anyone I've ever talked to gets a much reduced rate after the first million. There's no way someone with a $10M portfolio is paying 1% unless they've totally given up on trying to limit their expenses or just don't care. The funds I have with my FA are just under $1M and I pay about 3/4 of a percent (.0075). Not saying I don't feel pain from that, but it's not 1% and I'm sure it would be a significantly lower if I had a few more million.

 

[SecondCor521]

I'm not going to defend FA's or AUM fees, but the above is not typical at all. I suppose anything is possible, but anyone I've ever talked to gets a much reduced rate after the first million. There's no way someone with a $10M portfolio is paying 1% unless they've totally given up on trying to limit their expenses or just don't care. The funds I have with my FA are just under $1M and I pay about 3/4 of a percent (.0075). Not saying I don't feel pain from that, but it's not 1% and I'm sure it would be a significantly lower if I had a few more million.

I agree with you in general, but I do think that AUM fees sort of work like tax brackets - if you have $3M, you may only pay, say, 0.25% on that third million, but you're still paying 1% on the first $1M (or whatever). It's not as though they say, oh, for $3M we only charge 0.25% on everything.

 

[Jerry1]

I agree with you in general, but I do think that AUM fees sort of work like tax brackets - if you have $3M, you may only pay, say, 0.25% on that third million, but you're still paying 1% on the first $1M (or whatever). It's not as though they say, oh, for $3M we only charge 0.25% on everything.

Agree. Not sure of the math, but I'm sure total fees increase as AUM increase.