Trust Me I'm Not a Financial Adviser

[elroy]

Ok. I see a lot of negative comments on boards, blogs, and by finacial collumists about advisors. Maybe because I have never used one I'm a bit more open to there usefulness. Does anyone think a lot of this negativity comes for 50 somthings who have done nothing to save for retiement going to an advisor and are not happy with the answers they get. Lets face it, those on this board are so far ahead of the curve finaically we can get a bit particualr about advice an advisor, who will profit from any service, might give. But many people have unrealistic expectaitons and have put little thought or savings into retirement. Does anyone know people who have gone to a finacial advisor or planner at a young age 20s - 30s followed a a plan over the years and have not been happy with the results? This is not to say they would have been better off going on there own with say Vanguard index funds.

Elroy

[BigMoneyJim]

The core problem, as with brokers, is that the interests of the client and the interest of the FP are not aligned; in fact there are strong incentives for the FP to recommend higher cost investments. Throw in the complexity of it all with the inability to relate past performance to future expected results and it's worse than a crapshoot IMO.

[REWahoo]

Elroy, check out this thread:

http://early-retirement.org/forums/i...p?topic=4902.0

[poboy]

Quote:

*Lets face it, those on this board are so far ahead of the curve finaically we can get a bit particualr about advice an advisor, who will profit from any service, might give.

I agree with your statement above. *I have a family member who uses an advisor and really feel it is the right thing for him to do. He made good money but did not have the financial aptitude nor willingness to pursue his financial management. *I would get him in front of the computer and show him the vanguard site, funds I hold , fees, ease of useage, long term results, etc. *His mindset -he heard a guy at work talk about money to be in commodities, or short selling or some top of the bubble company. *Had all his 401k in company stock. *I realized that there are those who enjoy self managed investing and those who hate *or fear such. *He found an advisor who has spread out his rollover into mutual funds and is happy . *He can flat out wire a house, put in plumbing and rebuild a car engine. *I hire an electrician and take my car to the shop. *I know my comfort level and he knows his.

[youbet]

Quote:

Originally Posted by elroy Does anyone know people who have gone to a finacial advisor or planner at a young age 20s - 30s followed a a plan over the years and have not been happy with the results?*

Sadly, yes.*

It is certainly possible to find a competent, honest FA, but it's not easy.* And even if you do, they ain't cheap.

[Rich_by_the_Bay]

You know, I wonder if there isn't a distinction between a financial advisor and an investment advisor, at least in real world terms. The former is for telling you what to do with your money, how to allocate and balance, how much insurance you need, etc. I have found them to be of little help and truly obnoxious about recommending things like variable annuities, etc. Foul.

But maybe there is a place for investment advisors. I have such a guy, and I trust to him the investment of equities only and, soon, perhaps my value equities only. The firm really does its research and so far has beaten what I would have done by a point, net of fees. We are on a percent-of-holdings basis. Maybe a managed mutual would have done better, but I enjoy talking to him about planning, investing and so on. Kind of a sanity check, but he is clearly dispensible some day.

The rest of my holdings - mostly bonds - are safely ensconced in my own mutual funds, plus a small stock piece for me to play with and learn from.

Just a thought. Financial advisor, no. Investment advisor for the piece I am not at ease with, maybe. Maybe someday I'll go it alone 100%. For now, got too much else to focus on.

[treypar]

My experience with financial advisors has not been positive. I have lost money every time that I have used one. Since going to VG and handling my own investing, I have made a profit. I will never go back. In my case I think that all they were after was that commission.

[JonnyM]

We went to see a Financial Advisor as part of our final FIRE prep, this was just a couple of months ago. It was a free service offered by our local Credit Union. She made it clear that she was employed by an external entity, but effectively housed within our CU building. We answered all her questions...

We passed with flying colors. She only suggested we might want to rebalance our 457 plan monies a touch, but left if totally up to us exactly how to accomplish this task. It was actually very enlightening, and comforting for us to be told by a professional that we had done everything right and there was nothing she could do for us. She just said carry on with what your doing, and call me if you ever have any questions down the road.

[Cool Dood]

Quote:

Originally Posted by elroy This is not to say they would have been better off going on there own with say Vanguard index funds.

Further to what some of the other posters have had to say, I think that this one line pretty much explains it all, on its own. If you're not even going to make the same amount of money, let alone more, why should you spend money on the service? Why on earth would you go any extra length, and spend more money, for a service that's supposed to provide you with money?

If a friend really doesn't know anything about money at all, tell him to buy a minimum amount of some index fund every month and be done with it. There's nothing a financial advisor can do that isn't taken care of by that one sentence -- which is actually a bit sad.

Really they should teach enough in elementary school that any kid can do at least that -- it's much simpler than most of what a kid has to learn, but most kids don't even know that, and as has been pointed out on these boards countless times there are grave consequences for millions of people who grow up not knowing about rudimentary personal finance.

But, about your original question, financial advisors are more useless than a telephone sanitizer -- and without the possibility of a deadly strain of telephone-borne virus -- and on top of that they can even prove dangerous to their customers' finances. I don't have any personal experience with them or any kind of animus whatsoever, I'm just pointing out something that exists but that has no logical or useful justification for existence. Would any actual financial advisors reading this please accept my humble apologies

HTH

[BigMoneyJim]

Come to think of it, I do sort of use an advisor. He works cheap but manages billions. (Wellington) Then there are the computer-managed funds that were set up for specific purposes. (LifeStrategy series and Target Retirement Series)

If someone needs advice, why not take it from someone managing billions they can get a piece of instead of someone managing a few million who's getting around 1% on top of the underlying expenses?

Some sample advice (LS Moderate Growth):

Who Should Invest

* Investors seeking both a reasonable level of income and long-term growth of capital and income.
* Investors seeking a simple way to achieve a very broadly diversified holding of stocks and bonds.
* Investors with a long-term investment horizon (at least five years).

Who Should Not Invest

* Investors unwilling to accept significant fluctuations in share price.
* Investors seeking maximum long-term growth of capital.
_________________________________________________
I've never used an advisor but for some reason I have a deep-seated dislike of them in concept. Does it show?

[ats5g]

Quote:

Originally Posted by Rich_in_Tampa You know, I wonder if there isn't a distinction between a financial advisor and an investment advisor, at least in real world terms. The former is for telling you what to do with your money, how to allocate and balance, how much insurance you need, etc. I have found them to be of little help and truly obnoxious about recommending things like variable annuities, etc. Foul. But maybe there is a place for investment advisors. I have such a guy, and I trust to him the investment of equities only and, soon, perhaps my value equities only. The firm really does its research and so far has beaten what I would have done by a point, net of fees. We are on a percent-of-holdings basis. Maybe a managed mutual would have done better, but I enjoy talking to him about planning, investing and so on. Kind of a sanity check, but he is clearly dispensible some day. The rest of my holdings - mostly bonds - are safely ensconced in my own mutual funds, plus a small stock piece for me to play with and learn from. Just a thought. Financial advisor, no. Investment advisor for the piece I am not at ease with, maybe. Maybe someday I'll go it alone 100%. For now, got too much else to focus on.

Rich and others,

You probably already know this, but there is a difference between financial advisors and investment advisors.

Commissions sales = BROKER
Assets under management = Investment advisor
Hourly fee, retainer, or project = Financial planner

There is certainly nothing wrong with investment advisors, especially in the terms you're talking about, as long as there is no/little conflict of interest.

I would venture a guess that most reputable investment advisors are registered with the SEC [Rick Ferri, William Bernstein, Wellington Management], and not the NASD [Edward Jones, etc.]. NASD registered persons generally have an exemption from the Investment Advisors Act of 1940 in that their "advice" can only be secondary to their selling of securities. So, as long as you're buying crap from them, they can give you all the crappy advice they want.

See also Understanding Professional Designations

- Alec

[elroy]

I dont have any experience with finacial planners or investment advisors. Like my slice and dice index portfolio with value and small cap tilt. However there is a comfort level with going it on our own out there that we all seem to share. I also must admit that a good deal of the knowledge I have gained came form web sites and books of advisors / planners (Bill Schultheis, William Bernstein, Paul Merriman). They basically tell you what to do and where to do it. Without them I probably would not be able to sucessfully invest on my own . Like some of you say there not all bad.

[Nords]

Quote:

Originally Posted by poboy I hire an electrician and take my car to the shop.

When they screw up we expect them to repair the damage under warranty.

I haven't met a financial advisor or investment manager who does that...

[dusk_to_dawn]

It's funny that when you come to message boards that deal with financial independence and early retirement, you rarely have the contributor that boasts about how well his financial advisor did. You rarely have the poster that says he would not be retiring at 50 had he not gotten in touch with a broker at _______. Coincidence? I think not!

[Gumby]

..

*

[BigMoneyJim]

At the risk of spamming the thread with my third reply, I'd like to add another thought: For people who have the forethought and discipline to spend less than they earn and have enough to worry about investing, I think by default that person can manage his or her finances as well or better than an adviser. On the other hand, somebody who lives paycheck-to-paycheck or uses credit to pay other credit payments that receives a windfall may not have the discipline to invest it to suit their needs.

[NinjaPigeon]

I'm with BigMoneyJim on this one. A few years ago, very shortly after I started reading boards like this one, my mother recommended I go to her financial advisor. The guy wanted $500 to give me the "basic" services of examining my bills and my income, looking at my current investments, and establishing goals for me. I told him I'd think about it and quickly threw away his number.

If I was lucky, he'd just confirm what I was already doing. But I'm more of the opinion he'd have tried to score commission by putting me into crappy investment vehicles. No thanks.

[frayne]

The reason there are FAs and FPs is because there is a need. Many people do not want to take personal responsibility for managing thier finances/financial future and in turn want to trust it to someone else.

[brewer12345]

Would most people be better off just investing in index funds? Obviously. But there are an awful lot of people out there who are not financially educated and are terrified at the thought of taking responsibility for this stuff. I personally think there is a crying need for ethical, reasonably-priced advice that is not driven by commissions. There are already plenty of advisors out there who probably dispense reasonable advice, but many of them are quite expensive and they tend to suggest hgh cost investment options.

[yakers]

IMO there is a place for a decent FA/FP. I was 30 yrs old in 1980 and returning from the UK to the US to a new job in California. I connected with a FA in Monterey recommended by one of the sharper Navy officers I worked with. For all of $250 at the time I was provided with advice for life. They provided advice about levels of car insurance, set up life insurance better than that offered by my employer, told me to get some real estate, set up some mutual funds and later my IRAs, UGTMAs and were recommending REITs when I became more independent of any advice. They were right about REITs and I regret not getting some at the time they recommended them. They did chose Oppenheimer and later American Funds which did have a load. It would have been possible for someone to beat their advice; but I would not have. They knew govt retirements and benifits, lots of advisors do not. They always suggested living below my means and investing the next raise/promotion. While maybe not the fund I would now choose, they never put me in an inappropriate fund.

I still recommend them sometimes when I know someone has assets and no idea or interest in managing their own financial life. There are a lot of people in that category. I was 30 and fairly business savvy and I barely knew a thing about my own financial life. I was one of those guys who could balance $1M contract funds but not his own checking account.

My wife is a teacher and the FAs (scum sucking sales agents) provided by the insurance companies under her 403b plan amaze me. Must be a lot of these types in the industry. But I was "lucky" to have found a decent FA and I wish there were a way to identify the good from the bad. I relied on word of mouth and was lucky, I would just guess a lot of referrals would be useless as the person making the referral obviously doesn't manage their own portfolio so how would they know how good their FA is?