Your Thoughts On Financial Advisors?

[Marcretire]

Hi, hope everyone has a nice Thanksgiving. I'm following an index fund approach to investing and have my money in a Vanguard Target Retirement fund, so I'm well diversified. I heard a radio program with Ric Edelman, a well-known financal advisor, and began wondering if just being on auto-pilot in the Vanguard Target funds is adequate. Edelman spoke about how they put their clients into 10 or 12 different asset classes, from small value to large growth, as well as REITS, commodities and other assets classes, to provide maximum diversity. He also talked about special opportunities with convertible bonds and other more sophisticated investments. So, I began thinking that maybe I'd be better off with an advisor like Edelman or someone else who is thinking more specifically about my situaton. I'd appreciate your thoughts.

[dex]

What would he have to talk about if he said just put you money in a Vanguard Target fund?

[limpid lizard]

I think the FA's are getting hungry. I had one walk through the neighborhood last week. He was banging on doors trying to drum up business. His hot tip was tax free munis.

[FinanceDude]

Quote:

Originally Posted by limpid lizard I think the FA's are getting hungry. I had one walk through the neighborhood last week. He was banging on doors trying to drum up business. His hot tip was tax free munis.

He no doubt was an Ed Jones rep. New reps have to bang on 1000 doors and log the person's name and address or corporate takes away his Ed Jones office........

[limpid lizard]

Sorry Finance Dude. Wrong guess.

[CaseInPoint]

For many people, it's vital to have a financial advisor who can analyze their overall assets and needs. The less financially savvy someone is, the more they need good advice. Many people don't necessarily need advice for individual stock picks, but they do need advice for a diversified strategy that goes beyond a single Vanguard account.

We've seen from this ongoing economic disaster that no investments are really safe, and that paying for advice to eventually lose money, is very annoying. I personally absolutely hate paying management fees for a portfolio that is losing big-time.

My lesson is that despite anything that is said and promised by even the best FAs, we'll all make money when the market is up, and we'll all lose money when the market is down in times like these. It shows that financial advice is worth a lot less than we previously thought.

Still, getting to the point of not needing a FA at all, takes investing a lot of time in financial self-education. Not everyone has the time or inclination to do so. So, for many, there still is a benefit to having a FA. Just don't count on your FA to outsmart the market.

[FinanceDude]

Quote:

Originally Posted by limpid lizard Sorry Finance Dude. Wrong guess.

Hmm........Merrill Lynch or Smith Barney??

[limpid lizard]

D.A. Davidson

[FIREd]

Quote:

Originally Posted by Marcretire Hi, hope everyone has a nice Thanksgiving. I'm following an index fund approach to investing and have my money in a Vanguard Target Retirement fund, so I'm well diversified. I heard a radio program with Ric Edelman, a well-known financal advisor, and began wondering if just being on auto-pilot in the Vanguard Target funds is adequate. Edelman spoke about how they put their clients into 10 or 12 different asset classes, from small value to large growth, as well as REITS, commodities and other assets classes, to provide maximum diversity. He also talked about special opportunities with convertible bonds and other more sophisticated investments. So, I began thinking that maybe I'd be better off with an advisor like Edelman or someone else who is thinking more specifically about my situaton. I'd appreciate your thoughts.

You can definitely create your own slice and dice portfolio at Vanguard. All the asset classes you mentioned are available as stand alone funds there or you can buy No Trading Fee (NTF) funds via a Vanguard Brokerage account. But with a target retirement fund, don't forget that your already own the entire stock market universe: small cap, large cap, value, growth, domestic, international, etc... You also own the entire bond market universe: treasuries, agency, corporate, high yields, various maturities, etc.... So right now you are only missing just a few "specialty" asset classes: REITs, commodities, international bonds, small caps foreign... And before doing anything, I think you should do some reading first to find out which specialty asset classes are worth adding to your portfolio and which are questionable. You can find good discussions here and on the boglehead board on the subject: for example some people don't like adding stand alone commodity funds to their portfolio because a good chunk of the S&P is already exposed to the commodity market (via the stock of oil and natural resources companies). Some argue that foreign bonds should be avoided because the bond portion of your portfolio should have as little risk as possible and therefore adding currency risk to your bond holdings doesn't make any sense. Even the necessity of REITs is being questioned.

What I do is pick a core holding (in your case it would be the target retirement fund), and I spice it up lightly with a few specialty funds (no more than 5% of my portfolio each).

And don't forget that, despite all those talks about diversification, in this latest downturn, REITs and commodity funds have fallen far more than the overall stock market and international bonds have also suffered far more than the overall bond market. So this is one instance where owning specialty funds would have hurt rather than protected you.

[FinanceDude]

Quote:

Originally Posted by limpid lizard D.A. Davidson

Heard of them, a small regional based out West I believe. He must not have a referral network,or he's new and doesn't know anybody. Sounds like a rough way to meet potential investors........

[haha]

I've never had an FA, but one benefit that I think should not be under-appreciated is handholding. For many people the biggest single risk to their portfolio returns is bailing after a big loss, when clearly the risk reward has improved from prior to the loss.

So if the investor is well diversified, an FA who can soothe his/her panic can be worth a lot. Also, the FA can try to be sure that the portfolio is in fact well diversified, so that when adversity comes it is easier to resist the "Oh crap, this could go to zero!" fears.

ha

[jazz4cash]

Speaking directly to Ric Edelman, he is based in DC and very highly regarded. He has a weekly radio program which I think extends to various stations around the country.

I personally never cared too much for Ric as he has "NOBODY ELSE is as good as we are" approach. He spends alot of time selling his firm's services and his books, etc. OTOH I do agree with much of the advice, its just that he seems to argue that only Edelman Advisors has the magic formula.

I believe you could go to his website and get a complimentary asset allocation.

I would suggest getting one of his books to get a feel for his style.

I heard an interesting diaglogue on the radio where a customer complained that an Edelman Advisor would not take a 'trial' investment of $50k.....they wanted all or nothing! Ric defended that position, but I don't recall the details.

[LOL!]

You can figure out everything that someone like Edelman is going to do to you, so you can do it yourself. Here's a tutorial on how: http://www.early-retirement.org/foru...tml#post578722

[Marcretire]

Thanks for everyone's responses. If I wanted to be n a couple actively managed funds in the Vanguard family, what are your thoughts on Wellington and Wellesley? I'm thinking that having a manager at the helm might be an idea worth considering as opposed to a strictly passive approach. Thanks.

[Gotadimple]

Quote:

Originally Posted by Marcretire Thanks for everyone's responses. If I wanted to be n a couple actively managed funds in the Vanguard family, what are your thoughts on Wellington and Wellesley? I'm thinking that having a manager at the helm might be an idea worth considering as opposed to a strictly passive approach. Thanks.

Both are good funds and perform well. There are studies that have shown passive management to best active management by several points.

As others have said, you can do this yourself if you want to spend time understanding the fine points of asset allocation (its really not that difficult, look how many people here do it). For a start try "All About Asset Allocation" by Rick Ferri (and there are others).

But, if what you are looking for is overall financial advice, starting with budgeting through life insurance, etc., Vanguard may be able to help you with that as well, or refer you to a fee-based financial planner (not a financial advisor) who will look at your entire financial picture with you and make suggestions for a flat fee.

From there you can decide if you are interested in managing your own money or want someone to do it for you (figure 1% of your assets as the fee for management on top of the operating expense fees you pay to own the mutual funds).

-- Rita

[FinanceDude]

Quote:

Originally Posted by jazz4cash I heard an interesting diaglogue on the radio where a customer complained that an Edelman Advisor would not take a 'trial' investment of $50k.....they wanted all or nothing! Ric defended that position, but I don't recall the details.

Guys like Edelman don't need $50K investments, he can stick to an "all-or nothing" approach, like ken Fisher and others do......

[samclem]

Quote:

Originally Posted by CaseInPoint Still, getting to the point of not needing a FA at all, takes investing a lot of time in financial self-education. Not everyone has the time or inclination to do so. So, for many, there still is a benefit to having a FA. Just don't count on your FA to outsmart the market.

I agree with your post 99%. The only problem is in implementing the ideas in the section above. There are bad FAs out there--ones who will push high load funds, inappropriate investments, annuities inside IRAs, etc. It takes a smart consumer to figure out if the FA is truly working for the client's best interest. By the time a person has that level of knowledge, he/she is 75% of the way toward being able to do things without the handholding.

I wonder if there's hope of some meaningful certification/rating of FAs/FPs. FA's who truly put the client first and who would take small accounts can definitely be worth the money for individuals who are disinclined to do these things themselves.

[FIREd]

Quote:

Originally Posted by Marcretire Thanks for everyone's responses. If I wanted to be n a couple actively managed funds in the Vanguard family, what are your thoughts on Wellington and Wellesley? I'm thinking that having a manager at the helm might be an idea worth considering as opposed to a strictly passive approach. Thanks.

Well, as it were, Wellington and Wellesley happen to be my two core funds in retirement accounts (they balance out passive index funds in my taxable account) and I have only good things to say about them. On the plus side, they have a long, favorable track record. And in shaky markets they provide much needed income and relative stability (very relative! both are still down substantially YTD). But they invest in only 2 asset classes: large value stocks and investment-grade corporate bonds (which they supplement with government bonds from time to time). So they sometimes can underperform the market quite substantially especially when the market is on a tear and growth stocks are in favor like in the late 1990's.

[jIMOh]

If the only thing the advisor is doing is recomending investments, then you can probably get by with minimal use of an advisor.

If advisor is making commissions off each of your transactions, be weary of any advice regardless. If advisor is paid a fee each time you need advice, then that system is better for you (the investor).

If advisor can help with taxes, tax planning, short term savings goals, budgeting and financial decisions (in addition to investment suggestions), then I think there is significant value to having an advisor. Fee only is the best way to go.

[kyounge1956]

Quote:

Originally Posted by LOL! You can figure out everything that someone like Edelman is going to do to you, so you can do it yourself. Here's a tutorial on how: http://www.early-retirement.org/foru...tml#post578722

I'm frustrated with my experience so far with FAs. First I fell into the clutches of Am*riprise and got sold a VA in my Roth IRA, and I still haven't figured out what to do with it...then I went to a Fee Only planner, and due to a peculiarity of my pension (see my intro post for the details), she gave me what IMO is a gross overestimate of the "magic number" (how much I need in my nest egg to retire). So I am out quite a bit of money and still don't know what I was trying to find out.

I've read and followed the Asset Allocation tutorial, but ran into a snag with determining what allocation I want to use. I asked on that thread and didn't get any replies, so I'll try it again here. The piece of the puzzle I am missing is info on what return and standard deviation I can reasonably expect from a given asset allocation, based on historical data. I might be able to get this info from the fee-only planner, but it will cost me every time I want to do a "what if" scenario. Can anyone tell me a website or computer program I can use to figure this out? I've found a website that does Monte Carlo simulations and can more accurately model my pension than the software my FA was using, so once I have some return/std dev data I will finally be able to figure out my "magic number".