Should I avoid a Wealth Management Advisor?

[OldShooter]

What I would do is say if I put $xxx,xxx with you today, what tickers would you put me in an how much in each? If they won't tell you then walk. If they do tell you, then run a Portolio Visualizer run of their portfolio vs yours and look at things like volatility, return, drawdown, etc. and make an informed decision. Or you could give them a small amount invest and then put in more if you are happy with their results.

Sorry. I disagree. This allows the FA to simply follow Will Rogers' investing advice: "If it don't go up, don't buy it." Building a portfolio that backtests well is trivially easy.

The OP knows what works. He has been doing it. We also know, from 50+ years of data, what doesn't work. Stock picking. @firewhen, if you want to reinforce that you are doing the right thing, I recommend "Winning the Loser's Game" by Charles Ellis https://www.amazon.com/Winning-Losers-Game-Strategies-Successful-dp-1264258461/dp/1264258461 (latest edition, May 2021) It's a random world out there.

Can you share a bit of your thinking in choosing Schwab Trust for this job? Nothing too specific or personal.

It wasn't real complex. I've been with Schwab for 20 or 30 years and am comfortable with them as a brokerage house. I think I can trust them to run the money in a very conservative buy & hold passive fashion. I also think that their corporate culture will probably give us trust managers who are quality people in dealing with DS and the grands. Finally, and not the least consideration, their fee was IIRC 60 or 70bps. DW retired as an SVP with a megabank investments and trust department where the fees started at 150bps. She also did not feel that a bank trust officer would pay much attention to trusts that were only six and low seven figures. I wish I could say that we did extensive interviewing, etc., but we did not. One of the grands' trusts is special needs and we may do some investigating of some of the nonprofits that specialize in running these. But the child is a teen right now and we are sort of waiting to see what happens as he enters adulthood.

 

[pb4uski]

Sorry. I disagree. This allows the FA to simply follow Will Rogers' investing advice: "If it don't go up, don't buy it." Building a portfolio that backtests well is trivially easy. ....

So we, yet again, agree to disagree.

True that it is easy to construct a portfolio that backtests well, but the FA isn't going to know what I'm going to do with the information or that I'm going to backtest it. I just want to know what they will be investing my money in.

Worst case, if they do game it and I decide to go with them and it underperforms after a year or two then I pull the money out and go elsewhere.

 

[ERD50]

So we, yet again, agree to disagree.

True that it is easy to construct a portfolio that backtests well, but the FA isn't going to know what I'm going to do with the information or that I'm going to backtest it. I just want to know what they will be investing my money in.

Worst case, if they do game it and I decide to go with them and it underperforms after a year or two then I pull the money out and go elsewhere.

I have to agree with OldShooter, what's the point?

If it back-tests well (and probably will, they aren't likely to pick losers), that proves nothing. If they under-perform (history says this is likely), you've missed out and might create taxable events to unwind it. If they do out-perform, it's likely only temporary, and then you're back to taking control again.

-ERD50

 

[OldShooter]

I have to agree with OldShooter, what's the point?

If it back-tests well (and probably will, they aren't likely to pick losers), that proves nothing. If they under-perform (history says this is likely), you've missed out and might create taxable events to unwind it. If they do out-perform, it's likely only temporary, and then you're back to taking control again.

-ERD50

Exactly. If a statistically significant test is run, we know what the answer will be.

 

[cyber888]

what's your allocation ratio 60/40 ?

 

[pb4uski]

Exactly. If a statistically significant test is run, we know what the answer will be.

WADR, nobody knows nothing, you included. I don't know why you automatically jump to the conclusion that the FA firm is gaming the system other than your well known biases, especially when it is so easy to ask for references of current clients and find out how their performance has been.

We have a number of posters here who use FAs and are very happy with their FA managed portfolio performance... BTD Robbie comes to mind.

I would be the first to agree that a healthy dose of skeptism is prudent when considering an FA, but you are totally closed minded to the possibility that there might well be some good FAs out there.

 

[RobbieB]

Yeah Baby!

And if anyone asks where my yacht is (broker customers are not supposed to have them)

It's in Alameda getting new heads fitted -

 

[trumpeting_angel]

I wonder what prompted you to go to those seminars in the first place. Two thoughts - was it because you have amassed far more than you ever imagined? Or because you're not sure you are as good at managing all this yourself as you used to be?


I inherited money years ago, and made the mistake of thinking I should do something more fancy with it than the Vanguard funds I was already invested in. Big mistake. I would have been so much better off without that idea.


I do worry about the day when I get confused and start doing dumb things with my money. I plan to have my daughter have some oversight, before that day. We can manage it jointly and when the time comes, she will have POA, perhaps with a fee-only planner's help.


But don't turn your assets over to an AUM advisor/salesperson. You know better. Salespeople are trained in special techniques to break down your resistance. Change your phone number if you need to! (Just kidding. You can block the number if they keep calling.)

 

[HarryHawk]

I am curious because, in general, investment advisors are a drag on portfolios. Can you say a little more about what your expectations are and how you have measured whether your advisor(s) have done well for you?

I have consistently better returns for the past 15 years since using my advisor than I had for the 20 years managing my assets myself, that includes both up and down markets.

If using the advisors expertise can increase my returns and limit my losses by even a couple of percentage points, I am happy to pay a fraction of a percent for that boost.

I don't really care about how the average financial advisor does or doesn't perform. I only care how the financial advisor I am currently using performs. I don't have any long term contractual obligation, I am free to walk away tomorrow if I am disappointed with the service.

 

[rk911]

Not even sure why I am at this juncture. After a lifetime of LBYM, prudent money management and sticking with index funds at Vanguard and Fidelity, we have amassed a portfolio far in excess of what I imagined or need. Fast forward to today and after attending some seminars (probably a mistake) some guys at Merrill are trying to get me to invest with them (lower risk, better return, more diversification--we can do things the discount guys cant).
I REALLY DONT WANT TO DO THIS. I guess that says it all? But I am asking the community if I am being close minded and should be more open? On the other hand what I have done for decades has served us well, is simple and I have lived through the downdrafts of 2000 and 2008 and can take it. I guess it comes down to an active versus passive mentality. BTW I have not even asked about the fees yet though I know it won't be .04% of 1% like the index funds.

we just hired a wealth mgmt firm for a very specific reason. odds are good that my wife will outlive me and at this point in her life she has no accumen for managing our portfolio. we have no kids and she has no close living relatives. i'm getting this set up to have it in place now rather than wait until after i'm gone. this will be a seemless transition. i've managed our portfolio for the past 40-yrs and, IMHO, we've done very, very well. but i sleep a bit better now knowing that what we've built and accumulated will be properly managed for her when I'm gone.

 

[firewhen]

I wonder what prompted you to go to those seminars in the first place. Two thoughts - was it because you have amassed far more than you ever imagined? Or because you're not sure you are as good at managing all this yourself as you used to be?
-------------
tbh the free meal (please dont yell anyone But I have always had this nagging thought of whether I could be better diversified. The FAs talk about alternative investments, things that are up when the market is down, real estate and commodities, etc. But yes that will be much more costly and complicated, and I do wonder how easily these guys are going to beat the s&p especially after costs. The majority of our money is in total stock market portfolio and there really is no work involved, just collect and live off the dividends.

THANK YOU EVERYONE FOR YOUR HELP AND FOR LISTENING. I kind of knew what the reaction would be and it is always helpful to have the reinforcement.

 

[Luvtoride]

Reading all the responses here, the discussion of Wealth Management Advisors or Financial Advisors only seems to focus on someone who manages investments.

We use a FA for all aspects of our retirement planning including:
- pension planning
- social security draw strategy (at what age we do start)
-Medicare and health insurance needs in retirement
- tax planning
- estate planning
- liquidity timing (matching assets with spend needs)

I’m not retired yet but DW retired 3 years ago. We are fortunate to both have pensions and health care coverage from our companies in retirement (if we choose these health plans). I view the decisions we make on these things listed as even more important to our retirement financial success than what investments we have and who is managing them.


Yes, and they even manage our retirement portfolios. We pay a fee for AUM but no additional fees for the other services.

 

[levindb]

+1

When looking for a financial advisor, DW and I had a strange criteria. We wanted the FA to be able to finish our sentences. They had to understand us so well, that we could trust them with our funds and know they would be making choices that would meet our needs.

We have been with them for 16 years, the last 10 have been since we were both retired. We do not expect them to beat the market...we only expect our ROI to be 3% over inflation. While that is tougher lately, we have averaged 9.0% net after fees while inflation has averaged 2.2% over the same 10 years.

We do pay a fee of .85% AUM, but we do not focus on that money. A number of folks here talk about how much better our ROI would be if we had those funds working for us, and the FA is taking almost 25% of our annual withdrawals. I am not saying those statements are not true, but I do not focus on how much sales tax I pay at the grocery store. We look at what we are bringing home, and how much it cost us to make that purchase. However, we do look at how much we pay the IRS and State in taxes.

We seldom talk about what the FA's other values like helping us minimize taxes so that we can enjoy the returns we are getting. Our FA helped us average 1.3% effective tax rate for 5 years...which meant we are able to keep a lot more of OUR money than most other people do. As we entered into RMD's and SSA benefits, and our after tax account diminished, we have lost a lot of flexibility in how we meet our spending needs.

Our FA helped us with tax loss harvesting, covered calls on our megacorp stock concentration, short term borrowing from our IRA to avoid taxes, and a few other things along the way.

Net, I agree that using a FA to just handle investments may not be the best solution for many...but, one must look at the total value that is provided, and understand, and factor in, how one would get those other functions, other than using this forum.

 

[OldShooter]

WADR, nobody knows nothing, you included. ...

Well, I certainly have not done original research on the markets. I tried some Fourier transform work many years ago and of course it didn't work.

My "bias" is based on studying the "biases" of Nobel winners like Michael Jensen, Harry Markowitz, Eugene Fama (and his research partner Ken French), and William Sharpe. Also investment luminaries like Charles Ellis, Burton Malkiel, and David Swensen. You can check these guys out on Wikipedia. They re all there. In addition, for a couple of decades S&P has been publishing easily digestible studies; the SPIVA reports and the "Manager Persistence" reports.

The consensus result is that the equity market behavior is a very close fit to being a random process with a slight upward bias. Accepting this is a hard lift, at least it was for me. But once accepted it becomes easy to understand why buy and hold works, why stock picking doesn't, and why stock pickers' results are random. I can give you a reading list if you like.

I don't know why you automatically jump to the conclusion that the FA firm is gaming the system other than your well known biases, especially when it is so easy to ask for references of current clients and find out how their performance has been.

The problem is that past performance does not predict future results. This has been shown so many times that even to say it is boring. To predict the behavior of a random process is a fool's errand.

We have a number of posters here who use FAs and are very happy with their FA managed portfolio performance... BTD Robbie comes to mind.

Yes. I know many, too. Sometimes the clients don't really understand their performance and really don't want to be bothered with understanding. Another important reason is if the client has found a true Financial Advisor who helps them with their entire financial life, something the OP will not find at Merrill. I recommend to students in my investing class that they seek out the latter kind of FA, paying on a fee-for-services basis. There are some really good people out there.

I would be the first to agree that a healthy dose of skeptism is prudent when considering an FA, but you are totally closed minded to the possibility that there might well be some good FAs out there.

No, I agree that there might be some. You can't prove a negative. But I have found no one who has figured out how to identify them ahead of time. Again, this is consistent with the randomness of the equity market. Dr. French explains in this six-minute video: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

 

[1242Vintage]

Couple of decades ago i went through MBA school, focusing on Finance. Forged a strong bond with a classmate. After business school he went to Merrill (wealth mgmt/ private client group) and I went into the construction industry.

He handles a portion of Moms’ account (~ $ 1 mil) and is the only wealth mgmt guy that I would even consider. And yes his fees are a bit of an annoyance.

I keep my old schoolmate accountable for the performance of Mom’s portfolio by benchmarking against common indices and through active oversight. We connect every quarter in a conference call where he reports performance and we strategize on future actions.

In my case my school mate has a strong feeling of accountability to both Mom and I, and knows I’m holding him to a high standard. I have no problem moving her account if he falls short of our goals. Could I have managed her account as well? Probably. But that takes time and energy that up until my retirement I didn’t have.

 

[Exchme]

Well, I certainly have not done original research on the markets. I tried some Fourier transform work many years ago and of course it didn't work.

My "bias" is based on studying the "biases" of Nobel winners like Michael Jensen, Harry Markowitz, Eugene Fama (and his research partner Ken French), and William Sharpe. Also investment luminaries like Charles Ellis, Burton Malkiel, and David Swensen. You can check these guys out on Wikipedia. They re all there. In addition, for a couple of decades S&P has been publishing easily digestible studies; the SPIVA reports and the "Manager Persistence" reports.

The consensus result is that the equity market behavior is a very close fit to being a random process with a slight upward bias. Accepting this is a hard lift, at least it was for me. But once accepted it becomes easy to understand why buy and hold works, why stock picking doesn't, and why stock pickers' results are random. I can give you a reading list if you like.

The problem is that past performance does not predict future results. This has been shown so many times that even to say it is boring. To predict the behavior of a random process is a fool's errand.

Yes. I know many, too. Sometimes the clients don't really understand their performance and really don't want to be bothered with understanding. Another important reason is if the client has found a true Financial Advisor who helps them with their entire financial life, something the OP will not find at Merrill. I recommend to students in my investing class that they seek out the latter kind of FA, paying on a fee-for-services basis. There are some really good people out there.

No, I agree that there might be some. You can't prove a negative. But I have found no one who has figured out how to identify them ahead of time. Again, this is consistent with the randomness of the equity market. Dr. French explains in this six-minute video: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

Thanks, that video was great. If Fama & French couldn't find the superior manager, how is the retail investor going to do it? Plus Mr. French's point that if a superior manager existed, all the folks looking for an edge would flock in and overwhelm them, diluting the advantage to nothingness.

Let's say there is a truly superior manager, let's apply the "what is more likely?" test.

1. They faithfully manage your money,

or

2. manage their own money from their yacht.

Every company has a strategy that produced superior returns at some time in the past, yet they are all different and surely the sum of all those strategies has got to start approximating the total market performance. That takes us right back to the truism that your long term return is likely to be the market return minus your fees.

So how can all these companies claim their strategies are better than the market? Easy - creative lying. When we were in our peak earning years, we didn't have time to learn about money management, so we hired an AUM manager. We started pulling money back after a couple of years and fully fired him after four years. Once we fired him, he sent along literature "proving" their superiority. Except:
- they cherry picked the time frame for the comparison,
- they compared to the S&P, when their small cap/micro cap strategy had more risk than that,
- they ignored the dividends of the S&P but counted dividends on theirs,
- they ignored their difference in fees between theirs and a DIY index investor,
- they ignored the large stream of capital gains taxes on their approach.

Maybe there were other tricks too, those were just the ones I spotted, though by then we had wasted a big chunk of the bull market.

I agree that people need help planning at some point in time. The one-time fee for service model seems much more consumer friendly and easier to align the service providers' goals with the consumers' goals.

 

[Rainbowdash]

Ther are people who will benefit from a FA and they are those who won’t. Having a FA who can save you from the most common mistake which is human psychology, buy high and sell low would be more than worth it the high fees they usually charge. However personal finance is really simple, once you know the basics, your risk tolerance, you can easily outperform any FA out there after accounting the fees. If you like personal finance it will be your best paying hobby in your life, if you don’t it will be your best paying job in your life.

 

[OldShooter]

... Having a FA who can save you from the most common mistake which is human psychology, buy high and sell low would be more than worth it the high fees they usually charge. ...

Agree. I have an FA friend who says: "Look, if I keep a client from panic selling once or twice, I will have earned all the money he has ever paid me and all the money he will pay me in the future."

Getting back on topic, from the original post it does not appear that this OP needs that kind of help.

@Exchme, if you liked that Ken French clip, there is a treasure trove here: https://famafrench.dimensional.com/videos.aspx My favorite is "Q&A with Fama at the Fiduciary Investors Symposium" but it takes an investment of 37 minutes of your time. Every time I review it I learn something new and Fama's comment at about 2:30 still makes me laugh.

 

[LarryMelman]

We use a FA for all aspects of our retirement planning including:
- pension planning
- social security draw strategy (at what age we do start)
-Medicare and health insurance needs in retirement
- tax planning
- estate planning
- liquidity timing (matching assets with spend needs)

Before my aborted retirement in 2019, I started to build a relationship with a FA for exactly those reasons. He invested several hours meeting with me to understand my investing style, he analyzed my portfolio, he knew I was not interested in putting AUM. At our last meeting, we agreed that he would give me a quote for an ongoing advisory relationship of perhaps 4 quarterly one-hour meetings in the first year of retirement, and as-needed after that. He could propose new ideas or point out things I was neglecting, and I would gladly listen.

Then he ghosted me and I never heard from him again. I let his firm know that and they didn't seem to care.

 

[travelover]

.........Then he ghosted me and I never heard from him again. I let his firm know that and they didn't seem to care.

Why waste his time on you when he can make $10,000 a year for a couple hours work for a widow with a million dollar portfolio?

 

[youbet]

Couple of decades ago i went through MBA school, focusing on Finance. Forged a strong bond with a classmate. After business school he went to Merrill (wealth mgmt/ private client group) and I went into the construction industry.

He handles a portion of Moms’ account (~ $ 1 mil) and is the only wealth mgmt guy that I would even consider. And yes his fees are a bit of an annoyance.

I keep my old schoolmate accountable for the performance of Mom’s portfolio by benchmarking against common indices and through active oversight. We connect every quarter in a conference call where he reports performance and we strategize on future actions.

In my case my school mate has a strong feeling of accountability to both Mom and I, and knows I’m holding him to a high standard. I have no problem moving her account if he falls short of our goals. Could I have managed her account as well? Probably. But that takes time and energy that up until my retirement I didn’t have.

What is your schoolmate doing with your mom's money that is significantly different than investing in the the common indices you're using as benchmarks? Individual issues of stocks and bonds? Something more complicated? How much more aggressive are your goals than the performance of the commonly used benchmarking indexes?

 

[splitwdw]

What I would do is say if I put $xxx,xxx with you today, what tickers would you put me in an how much in each? If they won't tell you then walk. If they do tell you, then run a Portolio Visualizer run of their portfolio vs yours and look at things like volatility, return, drawdown, etc. and make an informed decision. Or you could give them a small amount invest and then put in more if you are happy with their results.

Would the FA tell you the tickers if you weren't committed? You don't have to pay up front, right?
OP, There is always the great debate on this forum to FA or not to FA. You do what makes you comfortable.

As far as the talk about losing your marbles, you won't know when it's happening unless you really go off the deep end. Only those that see you every day will realize something is wrong. My aunt and uncle are like that, she noticed that he wasn't paying attention to details like he use to and he was having "old man angry outbursts" on occasion but only to her. When she brought it up to family members no one else saw that there was anything wrong. If you have a SO, how would you know if you were both going off the rails. lol

I paid an hourly rate to have a FA look at what I had my accounts invested in. He only had one suggestion.
By the way, RobbieB has the only perfect FA in the world so you will have to settle for second, third or fourth best.

 

[youbet]

Ther are people who will benefit from a FA and they are those who won’t. Having a FA who can save you from the most common mistake which is human psychology, buy high and sell low would be more than worth it the high fees they usually charge.

But, but, but....... while some FA's are legit and likely worth the cost to an uninterested and panic-prone investor, others actually present a risk. Shark attacks are common and real, especially for the folks who really try hard to avoid involvement and just want someone else to do "it."

 

[Rustward]

Circular conversation . . .

 

[braumeister]

This may have been mentioned already in this thread, but I've always been impressed by the statement that by the time you learn enough to know if an FA is actually worth his pay, you know enough to do his job yourself.