Hiring a Financial Advisor

[SecondCor521]

I'd add:

5. Probably higher income taxes due to loss of qualified dividends and loss of compounding of capital gains taxes paid.
6. Probably lower wealth due to lower investment performance.
7. Other loss of wealth due to a lack of financial understanding means you're probably misunderstanding other things and making other mistakes.

 

[ProGolferWannabe]

I'd add:

5. Probably higher income taxes due to loss of qualified dividends and loss of compounding of capital gains taxes paid.
6. Probably lower wealth due to lower investment performance.
7. Other loss of wealth due to a lack of financial understanding means you're probably misunderstanding other things and making other mistakes.

Hi,
I just wanted to chime in here. The FA I was talking to was a decent guy....he showed me the funds he was going to invest in...most of which were low cost index type funds that captured the world equities and bond markets. He also had maybe 5-10% of the portfolio in higher expense alternative investments funds designed (theoretically) to have no correlation to the stock and bond markets. In short, I think he was genuinely trying to provide an investment strategy that was consistent with what I have been trying to do most of my life (low cost indexed based), and maximizing my returns. Obviously, he wanted to be compensated for that, and his mechanism to generate fees was thru an AUM billing structure. He would have tweaked the portfolio from time to time based upon market conditions (not big changes in allocations, but maybe shifts of 5% - 10%), also done some tax loss harvesting, rebalancing, etc. My point is that I think the service he offered was a good one, and his investment performance would have been as good if not better than mine, but for me, it was just too much money in fees.

 

[braumeister]

It's worth remembering that the average financial advisor has a considerable outlay for expenses. AFAIK the typical budget looks something like this:

 

[SecondCor521]

Hi,
I just wanted to chime in here. The FA I was talking to was a decent guy....he showed me the funds he was going to invest in...most of which were low cost index type funds that captured the world equities and bond markets. He also had maybe 5-10% of the portfolio in higher expense alternative investments funds designed (theoretically) to have no correlation to the stock and bond markets. In short, I think he was genuinely trying to provide an investment strategy that was consistent with what I have been trying to do most of my life (low cost indexed based), and maximizing my returns. Obviously, he wanted to be compensated for that, and his mechanism to generate fees was thru an AUM billing structure. He would have tweaked the portfolio from time to time based upon market conditions (not big changes in allocations, but maybe shifts of 5% - 10%), also done some tax loss harvesting, rebalancing, etc. My point is that I think the service he offered was a good one, and his investment performance would have been as good if not better than mine, but for me, it was just too much money in fees.

They all try to appear decent and genuine and rational. The ones that act otherwise don't last long in the marketplace.

Whether they actually *are* is a separate question. I think some are and a lot aren't.

Whether they actually deliver on higher performance after the seven different categories of expenses is yet a third question. I don't think they can.

 

[ProGolferWannabe]

They all try to appear decent and genuine and rational. The ones that act otherwise don't last long in the marketplace.



Whether they actually *are* is a separate question. I think some are and a lot aren't.



Whether they actually deliver on higher performance after the seven different categories of expenses is yet a third question. I don't think they can.

I don’t disagree in that my total return would likely be less after he takes his “cut”, but (1) in my case, he used projected returns that were consistent with what one would reasonably expect LESS his fees; and (2) I think his breadth of financial knowledge was more comfortable more than mine, so on the margin, he would have added some value. I am pretty certain that value was going to be less than his fees. No disrespect intended, but you have a cynical approach which may be justified based on your experiences. I can only say that unless this guy was lying to me (unlikely in my opinion given how long the firm has been around and given the folks involved), his approach to investing was not markedly different than what many folks are doing here...he just wants to be compensated for doing it on his clients’ behalf.

 

[travelover]

It's worth remembering that the average financial advisor has a considerable outlay for expenses. AFAIK the typical budget looks something like this:

Yeah, birthday cards are a big part of it. I've got millions with Vanguard and Fidelity and never one damn birthday card.

 

[Dtail]

Yeah, birthday cards are a big part of it. I've got millions with Vanguard and Fidelity and never one damn birthday card.

Fidelity sends me a bd card. Maybe your jokes are too sophisticated for them.

 

[travelover]

Fidelity sends me a bd card. Maybe your jokes are too sophisticated for them.

What? Now I'm jealous.

 

[target2019]

How long a firm has been around is not necessarily a good indicator of the salesman you meet with. I once ate dinner with a Merril Lynch salesman FA in a nice neighborhood steak house. It was 7/8/2009 and he was out about $75 for the meal, I guess. He rambled the entire time, spoke of the many mistakes of the president, and told me about his portfolio that protected him from these mistakes.

In the 90 minutes I was able to ask one question, "What do you think of Cisco." His answer was that they were a good company, and paid a 3% dividend." Now that I look back, I realize he was a genius, knowing about Cisco's first dividend to be paid on Mar 29, 2011.

He admitted he was forced out of a local bank before ML. I also learned later he owned the local strip mall video store.

I'm sure your FA is much better, but had to tell of one experience I had.

 

[OldShooter]

How long a firm has been around is not necessarily a good indicator of the salesman you meet with. ... I'm sure your FA is much better, but had to tell of one experience I had.

Again I'll recommend https://brokercheck.finra.org/ as an imperative first step. You'll get employment history, licensing, customer complaints, etc. One important check box is whether the individual is licensed to sell securities or is just insurance licensed.

 

[target2019]

Yes indeed, he was in the FINRA site in 2009 when I checked him out for AARP. And then there's the rest of the story...

 

[ProGolferWannabe]

He admitted he was forced out of a local bank before ML. I also learned later he owned the local strip mall video store.

I'm sure your FA is much better, but had to tell of one experience I had.

Yeah, the guy I spoke to did not own a video store.

 

[Ncc1701]

Former FA here. I've worked for ML, Smith Barney, Fidelity, Schwab over a 25 year career.

IMHO, if you need advice and someone to talk to, stick to Vanguard PAS or Schwab Intelligent Portfolios Premium.

Everything else, really is just smoke & mirrors.

 

[Markola]

Former FA here. I've worked for ML, Smith Barney, Fidelity, Schwab over a 25 year career.

IMHO, if you need advice and someone to talk to, stick to Vanguard PAS or Schwab Intelligent Portfolios Premium.

Everything else, really is just smoke & mirrors.

Thanks for adding to the discussion from your experienced perspective. There is clearly a market need for the service and it’s just a matter of keeping costs down, as these two programs you mentioned do well.

 

[jazz4cash]

I hate the guys that hide their AUM scheme by claiming “we do better when you do better”, which obscures the fact that
If your account loses money, they still get paid handsomely.

 

[travelover]

I hate the guys that hide their AUM scheme by claiming “we do better when you do better”, which obscures the fact that
If your account loses money, they still get paid handsomely.

They merely forgot to mention that "we do fine when you do worse, too."

 

[Dtail]

Former FA here. I've worked for ML, Smith Barney, Fidelity, Schwab over a 25 year career.

IMHO, if you need advice and someone to talk to, stick to Vanguard PAS or Schwab Intelligent Portfolios Premium.

Everything else, really is just smoke & mirrors.

And there you have it from the horse's mouth.

 

[flintnational]

Sure. Vanguard Personal Advisor Services (VPAS) has its own proprietary software,.......

Markola, nice summary. Thank you.

For those that might be interested, here is a link to the Vanguard white paper on their dynamic retirement spending model.

 

[bclover]

So I have a FA and have no problem with it. He is fee only.
So I hate managing money with the heat of 10 suns. my late husband handle all of it with my blessings. When he died we still had small children so I had to take over. Now imo I do not believe all the bogleheads that swear you could do it yourself with just reading a few books.
I brought every thing from the millionaire next door to rich dad poor whatever and every thing in between. lol, I probably could have retired early on all the books I brought and never finished.

I'm happy although now that I'm retiring and probably simplifying I'll probably cut down on the number of times I call him up.

 

[braumeister]

now that I'm retiring and probably simplifying I'll probably cut down on the number of times I call him up.

That's the key point. Simpler is just ... easier. Not to mention more understandable and less tricky to manage.

 

[OldShooter]

So I have a FA and have no problem with it. ....

There is always a lot of FA bashing here, and IMO many of them deserve it. But there are good FAs and there are clients that need FAs. Here's a story:

DS has a (platonic) woman friend, call her Emily, whose mother died last year. Emily is in her 50s. For at least ten years prior, Emily lived in the basement apartment of mom's house and took care of mom 24x7. Prior to that she had worked as an aide in a nursing home. From time to time mom would give Emily money for groceries, for Emily's clothes, etc. but Emily never had any understanding about her mom's money. Emily typically shopped for clothes at Goodwill.

When mom died and the estate got sorted out there was stock portfolio that included $3/4M of 3M stock plus a rental house in LA. We don't know exactly but the total probably pushes $2M. Emily has no clue what to do with this money or with her formerly penurious lifestyle. She would be a juicy target for charlatans and hucksters.

Fortunately, DW and I were able to refer Emily to an FA firm that we know. The owner of that firm, an experience mom, has taken Emily's life under her wing, managing the money and coaching Emily on her financial and personal future. This is not a situation for a DIY or Boglehead scenario. The FA is providing huge value to Emily's life.

 

[Ncc1701]

There is always a lot of FA bashing here, and IMO many of them deserve it. But there are good FAs and there are clients that need FAs. Here's a story:

DS has a (platonic) woman friend, call her Emily, whose mother died last year. Emily is in her 50s. For at least ten years prior, Emily lived in the basement apartment of mom's house and took care of mom 24x7. Prior to that she had worked as an aide in a nursing home. From time to time mom would give Emily money for groceries, for Emily's clothes, etc. but Emily never had any understanding about her mom's money. Emily typically shopped for clothes at Goodwill.

When mom died and the estate got sorted out there was stock portfolio that included $3/4M of 3M stock plus a rental house in LA. We don't know exactly but the total probably pushes $2M. Emily has no clue what to do with this money or with her formerly penurious lifestyle. She would be a juicy target for charlatans and hucksters.

Fortunately, DW and I were able to refer Emily to an FA firm that we know. The owner of that firm, an experience mom, has taken Emily's life under her wing, managing the money and coaching Emily on her financial and personal future. This is not a situation for a DIY or Boglehead scenario. The FA is providing huge value to Emily's life.

Not minimizing what the FA does for Emily, as I stated, I used to provide those services myself but my point is Emily can have the same level of hand holding with a CFP and an index fund portfolio for a total cost of around 40bps using VPAS or SIP Premium. The only difference is that Schwab or Vanguard would meet virtually rather than in person with those lower cost services. To me, it's not a huge sacrifice given that Emily is probably paying the FA 150% more than those services.

 

[Ready]

Emily was lucky to have the help of someone who could guide her to a financial advisor that was vetted by someone who knows what they are doing. What would have happened if you were not there to guide her and she ended up with some random person at Edward Jones?

 

[target2019]

Yeah, the guy I spoke to did not own a video store.

Ok. We're at the anecdote level of thread development. Most responses prove nothing, but steam gets let off.

The FINRA site does have data points, but a clean sheet there does not guarantee anything.

 

[ncbill]

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.

One financial blogger offers a "find me a fee-only advisor" service:

https://adviceonlyfinancial.com/how-to-find-advice-only? utm_source=thefinancebuff.com&utm_medium=referral&utm_campaign=post

I used the above service a few years ago when I found myself facing a particular financial quandary...was happy with the recommendations...all were ~$2000 for a one-off plan, IIRC.

My situation resolved itself before I needed to choose one, however, so I ended up not employing any of them.