I was referring to the total cost of the FA and the high fee funds that I have typically seen in the portfolios of people that take their advice. The FA gets their 1 to 2%. The high fee funds just add to the misery.
FinanceDude, you may know. Does the typical FA or their firm get a kick back from the high fee funds they put their clients into?
I think we're all aware you are a FA but I believe that they average person is better served by doing it themselves. The typical small investor (<$2MM) is more than capable of doing it all by themselves. Above $2MM, more estate planning is required but that would be through a lawyer.
During my recent stint of underemployment, I was offerred a position as a FA. As I reflected on it, I couldn't stand the thought of taking people's money when they should be doing it themselves. I turned the job down.
The fact remains most FA's aren't making 2 or 3% net on each client.........
I think the ONLY thing that really matters is the individual's WILLINGNESS to take responsibility for their OWN financial future. The reason 95% or so of all folks don't retire financially independent is they won't take responsibility for making it happen, through LBYM, delaying consumption gratification, etc.
Investing has been commoditized, anybody can invest without an advisor. However, so far, ADVICE has not been commoditized, and probably won't be. When I sit down with a business owner whose looking to retire and sell out his percentage, and wants to know the effect it will have on his retirement, etc, he wants advice, not the 800 number to Vanguard.........
Nothing wrong with Vanguard, T Rowe FIDO, TIAA,or anyone else. I agree with you, most folks under $2 million can do it themselves, provided they are mentally prepared to do so.
This DIY's on this board are the exception rather than the norm. I STILL have conversations with wealthy small business owners who have NO retirement plan they are funding, and not a clue about why they need one................. Call it ignorance, a failure of the education system, or what have you, there's a real lack of knowledge out there........
After all, we live in America, the world expert in comsumption.......
I almost forgot, here's a little snippet of a typical mutual fund sale, and how the FA gets paid. One disclaimer, people have to quit thinking ALL fund sales are at 5.75%, there are breakpoints on sales above $25K for most companies. However, for the sake of realism, I'll use $10K.
A client gives the FA a check for $10K. The FA buys a mutual fund. The sales charge is $575, or 5.75%. American funds holdsback .75% from the 5.75%, and sends the FA's Broker-Dealer 5% or $500. Most FA's work on a grid system unless they are an independent advisor.
Most wirehouse guys get 40% or so on mutual fund sales. So, the FA's Broker Dealer keeps $300, and the rep gets a $200 commission as W-2 income before taxes. If the investment stays on the books, the rep gets 40% of the .25% 12B-1 fees (a whole different discussion) every quarter, or $25 a year on that investment.
Bottom line, the investment firms that hire brokers and the fund companies make the big bucks, which is little surprise...........