Hiring a Financial Advisor

[ProGolferWannabe]

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.

I recently talked to a financial advisor who I liked very much. I like the idea of being able to hand off our assets and not have to worry about managing our investment portfolio, though like in the accumulation stage, I don’t think it is going to be a very heavy lift for me to do it myself. The advisor would be a source for me to turn to for guidance on ad hoc issues...should I drop my term life insurance, when should we take social security, should I do some Roth conversions. Again, I think I can make reasonably informed decisions about this stuff myself, but I do think he would add some value. 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.

[Whisper66]

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.

[SmallCityDave]

We hired a FA a lot of people on this forum aren't big fans but for us it was the right move. 1.1% sounds like a lot if you have millions that he will manage but not enough if he'll be taking care of $50k.


We decided that we needed/wanted a FA but not necessarily to manage our investments with Vanguard but setup a smaller account the he would manage. It was a win for us and I hope it's a win for him. They've been great with helping us shelter some money so for that alone it was worth it.

[rt-texas]

Quote:

Originally Posted by ProGolferWannabe 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. I recently talked to a financial advisor who I liked very much. I like the idea of being able to hand off our assets and not have to worry about managing our investment portfolio, though like in the accumulation stage, I don’t think it is going to be a very heavy lift for me to do it myself. The advisor would be a source for me to turn to for guidance on ad hoc issues...should I drop my term life insurance, when should we take social security, should I do some Roth conversions. Again, I think I can make reasonably informed decisions about this stuff myself, but I do think he would add some value. 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.

Just my 2 cents worth...

1.1% AUM on lets say 2.5M is $27,500 per year. You can hire someone by the hour to complete a plan for you that addresses all you questions and gives you good roadmap for a whole lot less. A 1.1% drag on my portfolio is not something I would want to voluntarily initiate. You can revisit as needed and pay for updates and you won't be seeing thousands coming out of your portfolio every quarter.

https://www.napfa.org/

Also, if I were to hire someone, for me, they would need to be a fiduciary.

I know Fidelity has some kind of advisors service available. As well, when I had some health issues, I turned over our portfolio to Vanguards PAS for a year at a cost of .3 of AUM while I focused on my health. This is what my wife will do when I shuffle off permanently.

If you can run FireCalc you can use Open Social Security and get a real good idea which way to go with that. https://opensocialsecurity.com/

Last, but not least; I can invest in a lot of education on retirement and finance for $10k plus a year.

Just my opinion.

[MichaelB]

Quote:

Originally Posted by ProGolferWannabe I like the idea of being able to hand off our assets and not have to worry about managing our investment portfolio, though like in the accumulation stage, I don’t think it is going to be a very heavy lift for me to do it myself.

While you may not worry about managing the portfolio, are you certain you won’t now worry about how the portfolio is managed?

Quote:

The advisor would be a source for me to turn to for guidance on ad hoc issues...should I drop my term life insurance, when should we take social security, should I do some Roth conversions. Again, I think I can make reasonably informed decisions about this stuff myself, but I do think he would add some value.

Ad hoc issues can be dealt with on a per-case fee basis that is much less costly than yearly % of AUM

Quote:

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.

That’s a real potential positive for an advisor.

Quote:

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.

That’s expensive. If the total rate of return of your portfolio averages 5.5% over the next decade, you’re giving the advisor 1/5 of the total,return.

Quote:

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

Listen to your gut. If you think the advisor is something needed as part of your estate plan should your spouse outlive you, you might consider an advisor that is less expensive and possibly more tax efficient, such as Vanguard. Or, just leave instructions to have the entire portfolio invested in a couple of Vanguard balanced funds, such as Wellington and Wellesley.

[disneysteve]

Quote:

Originally Posted by rt-texas You can hire someone by the hour to complete a plan for you that addresses all you questions and gives you good roadmap for a whole lot less... You can revisit as needed and pay for updates and you won't be seeing thousands coming out of your portfolio every quarter.

This.


Get a good fiduciary fee-only CFP. Meet with them for a couple of hours to set up a plan and answer questions. Then have a one-hour update once or twice a year going forward.


I have no idea what they charge, but let's say it's $250/hr. That would be $500 to get started and $250 every 6 months, or even every quarter which would only be $500-1,000/year.

[braumeister]

Quote:

Originally Posted by ProGolferWannabe DW is much brighter than I am, but just never had an interest in managing our money.

Same situation here, but whenever the topic has come up, she has always told me not to worry about it because she's confident she could pick it up very quickly, based on the notes I left behind.

That ongoing percentage draw from total assets has always seemed overly expensive. But some have decided on a middle ground where they only turn over a small part of their portfolio to the FA to manage. That keeps the cost down, and they can, if they choose, mimic the FA's management in all or part of the remainder, which they control completely.

[Ready]

The skill sets of financial advisors can vary tremendously. The problem is, the only way to evaluate how knowledgeable they are is to be more knowledgeable than them. And of course if this were the case you would not need them in the first place.

If you are already investing in index funds I would ask this advisor what plans they have for your investments. Will they keep you in index funds or do they think they can beat the market? That will tell you a lot about where they are coming from.

As far as asking them questions about social security planning, Roth conversions, and other tax related questions, I doubt they will have anything more than a surface level knowledge of these issues. Financial advisors mainly focus on investments, not tax planning. There may be some that can handle both, but my guess is they are few and far between.

[Jerry1]

Quote:

Originally Posted by Ready Financial advisors mainly focus on investments, not tax planning. There may be some that can handle both, but my guess is they are few and far between.

This is not really true. A financial advisor should be a certified financial planner (CFP). An investment advisor is the typical description of one who mainly focuses on investments. A CFP should have a very high level of understanding of all things financial. They certainly focus on your portfolio and thus are investment advisors, but they should be estate planners, understand insurance and be able to work out a tax strategy, which is very important when taking money out of a tax deferred account. They should also be able to advise on things like SS and healthcare. There may be those that are lacking, but a good CFP should be able to advise on your entire plan. Further, they should be a fiduciary.

For the record, I do use a FA. It was a big decision to get involved with one. I’ve been very happy about everything he has done for me except the fee. There is no doubt that a percentage of AUM generates a significant cost. I’m below 1% on my total, but it’s still too much. I think now that I’m three years in and I understand my plan better, I’m about ready to consider other options, like doing it myself. The one challenge, as has been mentioned, is what will DW do if I pass first along with how to handle diminished capacity in later years of life.

[urn2bfree]

Anybody who charges you based on AUM is using a traditional method that has worn out its usefulness. If the advisor really had to do work proportional to your portfolio it would make sense, but they do not. The simple mental exercise of imagining paying him 1.1% of a portfolio and you are about to be assessed the fee when you (win the lottery, get an inheritance, find a bag of money) suddenly are twice as wealthy. The advisor has already assigned an asset allocation that will be the same as it was before your windfall, but his fee just doubled. Ridiculous. And unnecessary. Find a flat rate advisor. There are many good ones.

[Ready]

Quote:

Originally Posted by urn2bfree Anybody who charges you based on AUM is using a traditional method that has worn out its usefulness. If the advisor really had to do work proportional to your portfolio it would make sense, but they do not. The simple mental exercise of imagining paying him 1.1% of a portfolio and you are about to be assessed the fee when you (win the lottery, get an inheritance, find a bag of money) suddenly are twice as wealthy. The advisor has already assigned an asset allocation that will be the same as it was before your windfall, but his fee just doubled. Ridiculous. And unnecessary. Find a flat rate advisor. There are many good ones.

This is the same argument I’ve made for using realtors. It’s not ten times the work to sell a $3M home as a $300K home.

[Jerry1]

Quote:

Originally Posted by Ready This is the same argument I’ve made for using realtors. It’s not ten times the work to sell a $3M home as a $300K home.

It doesn’t materially change the argument, but at least an FA will generally decrease the percentage as the portfolio increases. Given the OP is being quoted 1.1%, I suspect the portfolio is under $1M. Generally, over $1M will not pay over 1%. Still, it’s a lot of money.

[GoodLife59]

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.

[Ready]

Quote:

Originally Posted by Jerry1 This is not really true. A financial advisor should be a certified financial planner (CFP). An investment advisor is the typical description of one who mainly focuses on investments. A CFP should have a very high level of understanding of all things financial. They certainly focus on your portfolio and thus are investment advisors, but they should be estate planners, understand insurance and be able to work out a tax strategy, which is very important when taking money out of a tax deferred account. They should also be able to advise on things like SS and healthcare. There may be those that are lacking, but a good CFP should be able to advise on your entire plan. Further, they should be a fiduciary. For the record, I do use a FA. It was a big decision to get involved with one. I’ve been very happy about everything he has done for me except the fee. There is no doubt that a percentage of AUM generates a significant cost. I’m below 1% on my total, but it’s still too much. I think now that I’m three years in and I understand my plan better, I’m about ready to consider other options, like doing it myself. The one challenge, as has been mentioned, is what will DW do if I pass first along with how to handle diminished capacity in later years of life.

I am skeptical that the majority of CFP’s have a strong knowledge in all of these areas. The schools that prep you for the CFP exam offer one class in tax preparation and estate planning. This gives the CFP a cursory knowledge of these areas. But if you were to ask them a very complicated question, and ask the same question to the members of this forum, I would be far more comfortable taking the advice of the collective wisdom of our forum members over the advice of a single CFP. And the advice would be free.

[Jerry1]

Quote:

Originally Posted by Ready I am skeptical that the majority of CFP’s have a strong knowledge in all of these areas. The schools that prep you for the CFP exam offer one class in tax preparation and estate planning. This gives the CFP a cursory knowledge of these areas. But if you were to ask them a very complicated question, and ask the same question to the members of this forum, I would be far more comfortable taking the advice of the collective wisdom of our forum members over the advice of a single CFP. And the advice would be free.

I guess I could have got lucky in my selection of the FA. Mine is professional and the team at the firm is top notch. I’m a CPA and they are every bit as professional as the firm I worked with. Any question I’ve asked them has been supported with high quality modeling and been right on target. Not to mention, that they have never contradicted the prevailing wisdom of this board. It’s true that there is a wealth of knowledge on this board.

[savory]

For many years, I had two advisors. My goal was to select one but their performance would be about the same each year with one edging out the other. Just recently I decided to go on my own.

My advisors did not provide a great deal of advice about financial matters outside of the account. But, they both purchased mostly stocks (5% funds). and created their own portfolio. I would not use an advisor that purchased a majority of the portfolio in funds. I feel like I am paying twice.

When I lost the tax deduction, and after reading many of the discussions on this forum, I decided to manage myself and invest in ETFs. I think there are enough tools for me to manage funds. I am still in many stocks but slowly moving them to funds.

[Exchme]

You do not need an advisor.

It is super simple to do yourself. Set up your accounts at Vanguard (Fidelity or Schwab are other popular choices), put the stock portion in the Total Market ETF and the Bond portion in the Total Bond ETF. Done.

Be aware that the advisor will likely put you in funds that are run by his company and those will have very high fees, perhaps even loads. The only one that will retire comfortably is the advisor.

[LarryMelman]

You certainly don't need the kind of advisor that charges 1%+ AUM. You don't really need to put AUM at all.

Before my brief ER, I tried to find a fee-only planner to meet with once or twice a year about any questions that may come up.

I talked to one that was part of a network of planners endorsed by Kitces. He flat out told me that he didn't have the bandwidth for "non AUM" clients. He was already turning away AUM business.

I met with another 3 or 4 times and we clicked very very well. He listened to my plan and understood where I wanted guidance. I let him demonstrate what he could do for me. He never proposed taking any AUM or any commissioned products. He tossed out a ballpark number of $1K/year to meet periodically and I said sure, send me a quote. Never heard from him again. I almost want to contact the firm to see if he left or died or something.

[LarryMelman]

Quote:

Originally Posted by savory I decided to manage myself and invest in ETFs. I think there are enough tools for me to manage funds. I am still in many stocks but slowly moving them to funds.

Why? You're already in the stocks.

I used funds exclusively for my first 15-20 years of investing. I eventually discovered that stock investing is not hard at all. I still hold my old funds but all new (non-401k) investing in the last 10 years has been in stocks. I have diversification, and I have predictable dividend income.

[jazz4cash]

I’d pay ~1% for full service FA to include guidance on taxes, insurance, estate planning etc. Having someone around to advise DW if I predecease her is a primary concern. I get hung up on paying that much for an advisor that is using mutual funds that already have professional management and their own fees.