Whether to stay with Advisor or DIY...

[mikes425]

Hi, been awhile since I've dropped in here but always value the perspective . By most standards I'm good to retire.

I went rather conservative in my allocation rather early when I lost confidence in markets after the '2008-'09 crash and wound up staying at about 38-40% equity allocation pretty much ever since.

My risk tolerance has actually gotten better with age. My port. is moderate-conservative. With input from an hourly 'as-needed' FA, the total asset value hit just over 2M prior to this year's crash; dipped to 1.6M, and climbed back to about 1.9M as of the last month. The portfolio value basically doubled in ten years, from 2009 to 2019. That could've been a much larger gain but not complaining; it was throttled by my own risk aversion and I accept that.

I'm 62 and feel confident of retirement needs being met, having modest spending habits, no debt, own a home in low COLA midwest/great lakes area. As a Sole proprietor, I've been working much less, mostly by choice, since I've done what i do for 40 years. Dividend income is now abt. 55-60k/year.

That's some long-winded background. My FA has worked with me on an hourly-rate basis which is not the 'norm' in the advisory game. It has, arguably saved me thousands of dollars a year. That said, at the outset of the COVID crisis, I made a rather impulsive decision to switch this arrangement to an AUM basis with him, at a negotiated/discount rate of .055%/year. This was somewhat out of convenience because things were looking extraordinarily scary again (like, worse than '08) and i felt i might need more 'hands on' oversight, particularly at this stage. I'm already kinda regretting that decision.

The bottom line for me is, will the FA get me at least the same or better annual return 'AFTER' fees? I'm often told I could've gotten as good or better results the past ten years using a handful of good funds. Probably true.

I'm questioning the value of the AUM arrangement because i don't suspect he's going to do anything radically different than in the past - when we would review things a few times a year. Only difference now is, I can call and chat about things whenever I have a question or want on an unlimited basis.
There's also some added value in things such as tax loss harvesting and rebalancing - tho he doesn't include tax preparation/advice per se.
I like the guy, but I don't know that he'll want to return to the hourly fee model if I tell him i want to switch back. If not, I do feel more confident in the idea of going it alone, but would need some guidance to downsize and revamp the portfolio for a simpler mix of fewer funds to at least match or better the FA's performance (roughly 5-6%) and make any wholesale changes in the most tax-efficient way possible. Vanguard comes to mind, with a good balanced fund like VWELX as a core holding, and building around that; although I've gotten pretty comfortable with the Schwab interface over the years and feel it's way more user-friendly than VG -unless things have changed there.

In any event, thanks for any thoughts. Appreciate you taking the time to read through all of this and wish everyone all the best!

Mike in Mich

[pb4uski]

$1,900,000 * .055% = $1,045/year. Seems really low... if that is really your deal then I would stay with him.

[WhenIsItTime]

0.055% is really low. IMHO advisors for that asset balance try to be in the .5-1% range.

In regards to market beating returns or hitting certain ROI %, seems your asset allocation desire likely to have biggest impact. If equity is limited to something like 40%, that will minimize options.

Why not use something like eTrade and a total stock fund and bond fund at your desired allocation?

Picking several funds is an attempt to identify market beating returns, which happens less then 25% of time.

[mikes425]

Hi, sorry for the typo... the advisor fee is in fact, .55 percent as in one half of one percent! (I WISH IT WERE .05% : )

Perhaps that changes your opinions??

[Aerides]

i was afraid of that. yes, dump the FA, or convert back to your prior arrangement.

Quote:

Originally Posted by mikes425 I like the guy, but I don't know that he'll want to return to the hourly fee model if I tell him i want to switch back. If not, I do feel more confident in the idea of going it alone...

Liking him should be irrelevant in your decision. If he won't go back to the old way, cut ties, the gang here can help you with pointers to self-manage.

[pb4uski]

Quote:

Originally Posted by mikes425 Hi, sorry for the typo... the advisor fee is in fact, .55 percent as in one half of one percent! (I WISH IT WERE .05% : ) Perhaps that changes your opinions??

Yes. If something seems too good to be true then it is.

I would tell him that you have had second throughts and would like to revert to the previous arrangement. Good luck.

[VanWinkle]

For 10k a year, you could get a lot of hourly advice including tax prep, rebalancing, and estate planning. I would check out Vanguard Personal Advisor Service at .30, or just do a 3 fund portfolio with vanguard, fidelity, or schwab. Then hire a cpa/estate attorney to handle the rest.

Good luck and best to you,

VW

[mrfeh]

Hand somebody $10K per year to do something you can do in a few hours? Hell, no.

https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

[Markola]

Quote:

Originally Posted by VanWinkle For 10k a year, you could get a lot of hourly advice including tax prep, rebalancing, and estate planning. I would check out Vanguard Personal Advisor Service at .30, or just do a 3 fund portfolio with vanguard, fidelity, or schwab. Then hire a cpa/estate attorney to handle the rest. Good luck and best to you, VW

+1.

I think you also need to view the AUM arrangement as your “mistake prevention insurance policy,” i.e. someone knowledgeable whom you pay to get your emotions out of the picture and to dispassionately rebalance when you need to and to keep your sweaty, panicky fingers off the trigger when the stock market inevitably goes volatile. That’s worth a lot to some people, including me. You already expressed slight regret at your past conservative DIY decisions so you are probably a good candidate to let someone else drive.

With your conservative lifestyle and strong financial position, plus SS and Medicare not even online for you yet, there’s really nothing to worry about, so why fiddle with your portfolio yourself, which is the main reason investors lose money vs. the indexes?

We are happy with Vanguard Personal Advisor Services at 30 basis points plus the low Vanguard index funds’ expense ratios but if all your combined fees are also quite low and you’re happy with your diversification, etc., I wouldn’t change. Enjoy the ride.

[savory]

I wrestled with the same question and last November I moved away from my long term FAs. I had a couple. I was totally hands-off. Similar to the deal you are on now. I hired them about 2010 so the results were good as the market was good. But, the costs were high.

You are ahead of me when it comes to management of funds as you were interacting directly with your funds before your current deal. It is getting easier everyday for me. I am almost sorted out with my accounts and have received some advice from the brokerage rep but do not count on them, as you may already know. They are advisers and sales people. I have also received some good advice from forum participants.

My FAs dealt in individual stocks and bonds so I needed to convert the ones I did not want to keep into broad ETF & mutual funds. If I did not need to make these conversions, it would have been fairly easy to take over the management.

A warning provided above suggesting you will need to manage your emotions yourself is a fair comment. I needed to check myself a few times over the last few months.

If I elect to have my money managed again, I think I would choose a robo-adviser.

[mikes425]

Hi and thanks for your perspectives. I just re-read a research report by Vanguard where they address the question, “Why on Earth hire an advisor when I can manage my own money?" It concludes that there is a quanitifiable increase in return which VG called 'the Advisor's Alpha' - that is, a good FA can increase investor returns by 3-4%. More important, the single largest way an advisor can add value - up to 1.5% per year of increased returns - is 'behavioral coaching." i.e., the best advisors are those who can keep their clients’ fears and emotions in check by providing steady, fact-based advice and reassurance when the markets get wobbly or crazy.

This change from hourly to AUM for me has only been in place since April; almost 4 months. I don't see how anyone could argue that we're experiencing the most extraordinary and unpredictable market conditions in a lifetime.
As such I'm pretty much settled on looking at this as a "trial run." I figure I'll give it another 6-8 months, and revert to an hourly or, self-managed approach in early 2021.

I figure that with as much as I have at stake, in the name of principal preservation the trade-off for having someone else's active oversight - even if only during a period of continued volatilty and uncertainty, isn't all that much for some degree of peace of mind in the grand scheme of things.

[braumeister]

Quote:

Originally Posted by mikes425 I figure that with as much as I have at stake, in the name of safety and principal preservation, the trade-off for having someone else's active oversight-even if only during what's likely going to be sustained volatilty and uncertaint- isn't all that much in the grand scheme of things.

As many will tell you, it's really all about helping you sleep soundly at night, isn't it?

[mikes425]

Quote:

Originally Posted by mrfeh Hand somebody $10K per year to do something you can do in a few hours? Hell, no. https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

Totally get that sentiment. Sometimes tho it takes a bit of a mental adjustment for some to make what you consider a simple decision.

[pb4uski]

Quote:

Originally Posted by mikes425 ....It concludes that there is a quanitifiable increase in return which VG called 'the Advisor's Alpha' - that is, a good FA can increase investor returns by 3-4%. More important, the single largest way an advisor can add value - up to 1.5% per year of increased returns - is 'behavioral coaching." i.e., the best advisors are those who can keep their clients’ fears and emotions in check by providing steady, fact-based advice and reassurance when the markets get wobbly or crazy. ...

Do you have a link? I recall a Vanguard paper on that topic and while there were differences there were a lot more modest. 3-4% seems outrageous... especially for similar AAs.

[mikes425]

Hi, actually a few links. Turns out Vanguard invests quite a bit in promotional support material specifically targeting the "advisor market" - this is a report that they came up with in 2001. I didn't know that they've updated it many times since. It may be a tad biased but the research appears legit. First link is to the article I mentioned.. If you want much more detail, the other links are from Vanguard's Advisor site.

https://www.thebalance.com/should-yo...hareurlbuttons

https://www.vanguard.com/pdf/ISGAA.pdf

https://www.vanguard.com/pdf/ISGQVAA.pdf

[travelover]

If it makes you feel better, go ahead and pay the ten grand a year.

[Markola]

A little more from that first article.

“Vanguard says there are several ways in which a financial advisor can add value to your investment efforts. Among these benefits are guidance on developing an overall investment strategy, asset allocation, minimizing taxes, rebalancing, and how to structure/time withdrawals from your retirement accounts. Each of these services can incrementally boost a client’s returns—sometimes steadily, sometimes sporadically.”

One benefit the article didn’t mention is having a knowledgeable and neutral third party to help with couple dynamics, so that each best gets what they want. This has been invaluable for us and I think I’d pay the fee for that service alone, LOL. I don’t think the OP needs this one though.

[mikes425]

Quote:

Originally Posted by travelover If it makes you feel better, go ahead and pay the ten grand a year.

[tdv2]

Quote:

Originally Posted by pb4uski Do you have a link? I recall a Vanguard paper on that topic and while there were differences there were a lot more modest. 3-4% seems outrageous... especially for similar AAs.

Agree 100%. The only way to obtain those out-sized returns is to take on more risk. I would be skeptical and want to see what's under the hood.

[target2019]

Quote:

Originally Posted by mrfeh Hand somebody $10K per year to do something you can do in a few hours? Hell, no. https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

The best advice given, in a nutshell.