One more reminder to stay clear from financial advisers

[Markola]

^^^^^^ Ouch. In the context of a rough 4% Rule that 1.25% fee is over a quarter of one’s retirement income. Good thing you fired them. We happily pay Vanguard .3% and I think Schwab and Fidelity’s similar AUM services are in the .5% range but double check.

[RetiredAt49]

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Originally Posted by Markola ^^^^^^ Ouch. In the context of a rough 4% Rule that 1.25% fee is over a quarter of one’s retirement income. Good thing you fired them. We happily pay Vanguard .3% and I think Schwab and Fidelity’s similar AUM services are in the .5% range but double check.

Yeah that 1.25% AUM fee was a huge part as to why we fired them… and they had underperformed… and they called us nonstop… and the list goes on. I’ve moved most of their 80+ individual stocks into a few very low cost index funds (like VOO, VTI) and don’t see any value in another advisor including Vanguard/Schwab/etc.

[TripleLindy]

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Originally Posted by Markola “Underperform what?” would be my question. A 2 year time sample proves nothing; and it’s not possible to compare one’s VPAS portfolio with a self-managed one in which one did/almost did this and that change and this and that panic move or “optimization”, all amounting to active trading…. Besides, as I said, we enjoy other tangible benefits from VPAS that are hard to put a value on. Good luck!

I hear you, but they’ve underperformed a very simple Couch Potato portfolio of 50/50 VTI and TIP (or BND), and not just short-term. Change the allocation to 60/40 and it’s even worse. And sure it’s possible to compare VPAS performance to a self-managed one. Either use an actual account, like a self-managed 401k, or something like Portfolio Visualizer.

I’ve used VPAS for 6 years, but still have a 401k that I manage on my own. The 401k is also with Vanguard. My simple 401k portfolio has outperformed VPAS over every period I look at, within the 6 years I’ve used them. There’s no active trading going on with either account - just rebalancing once a year, which is the cornerstone of Couch Potato investing.

I agree that there are additional benefits, and that’s why I’m still with them. My advisor talked me off the ledge during the COVID crash, and I’ve walked through some large purchase scenarios with him to verify that we’d be ok. But I expect at least equal performance when compared to a model that takes all of 5 minutes a year to manage, especially when fees exceed $10k per year.

[wdberry62]

Self-managing your money does not require any type of genius or super intelligence, given the vast inventory of information available online. You just have to be willing to do the study time to increase your knowledge base and confidence. No one will manage your money more effectively than you will. Use 3rd parties (FA, CPA, etc.) for very specific projects or questions and be willing to pay for that advice. I'm happy to pay for tax advice, but I'll likely never pay anyone for investment advice. Just my philosophy and it's worked well for 20 years for me.

[Markola]

^^^^^ And the other thing one needs is a cast iron constitution to do nothing when markets tank. That’s when mistakes are made and one of the big reasons why I’m willing to pay the 30 basis point VPAS fee. YMMV.

[NanoSour]

For giggles, and to check on a potential job opportunity for a friend, I stopped by unannounced at a independent FA office yesterday. This was a 5 person operation, 3 IAs and 2 admin folks. I got the business owner to disclose his AUM as approximately $200M and 700 clients; mostly teachers in a MCOL city. He showed me lots of different software that he uses to select investments for his clients. I asked about how many different assets would he put into my accounts and he said 20-24 stock/funds distributed equally based on their research. He had a recent college graduate as his research analyst...omg. His AUM fee was 1.25% for assets under $250K and 1% for above $250K. He tries to keep total account costs including fund/trading fees to 1.5% or less. On a $1M account invested 60/40 with a real rate of return of 3-4% you are looking at giving away roughly 25% of your return. I used Personal Capital Fee Analyzer for this number. This is over $16,000/year, or a check every month for $1,333 to your coveted, very friendly, and wealthy FA.

According to Kitces, an independent FA will pocket between 45-65% of AUM revenue. Given, that smaller accounts (less than $250K) pay a 1.25% AUM fee and most of his accounts at at that level, let's assumes all in he at 1.1% of AUM of $200M. That's $2.2M revenue and him making somewhere between $990K and $1.43M...honestly, as a christian, how does he sleep at night?

If people were aware of how little time they spends on your account (1 of 700), and how much money they are taking off your table, they would find a better way. For me, even the .3 VFAS is not worth it as personal investing for retirement is just so simple.

[braumeister]

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Originally Posted by NanoSour If people were aware of how little time they spends on your account (1 of 700), and how much money they are taking off your table, they would find a better way. For me, even the .3 VFAS is not worth it as personal investing for retirement is just so simple.

I'm not sure you're being entirely fair. You have to look at the FA's entire budget.

[youbet]

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Originally Posted by NanoSour as a christian, how does he sleep at night?

Can you expand on this?

[NanoSour]

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Originally Posted by youbet Can you expand on this?

I should try better to not get personal, so it's best not to comment further on this. I will say I think we're all aware that many people in sales use the church as a pool of potential clients. Same goes for most other social clubs; i.e. Rotary, Lion, R&G, etc, etc.


BTW, a CKA certification was a new one on me.

[sparky08]

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Originally Posted by pacergal All financial advisors are not bad. If one chooses to use one, it is in your best interest to vet them well, make sure they are certified, are a fiduciary, check references. A one time fee only check can often ease someones mind.

This is what we did. One time fee ( 1/2 up front, and 1/2 after the work/presentation). Included in the fee was 30 days of followup meetings as we digested the material.

He walked us through the findings on software (think FireCalc on major steroids) and then gave us an account to use it ourselves.

No pressure to buy anything.


Followup meetings are hourly and we will probably checkin once a year or so.

[Rianne]

We are going to meet with an accountant to discuss strategy, tax implications, best WD method. It will be one meeting, fee-based. I figure @ $400. There will be no discussion about our AA or where we have our funds etc. We will discuss treasury notes and how they work for future cash flow and how interest, CG, and tIRA withdrawals are taxed for the best strategy going forward.

[Which Roger]

Yes, managing one's investments is relatively straightforward once everything is set up. But it takes a decent grasp of mathematical concepts to be able to convince oneself that DIY is better paying big $ to an advisor, and then to set up a DIY portfolio. The vast majority of us on this forum have a solid grasp of concepts like percentages and compounding and risk and whatnot, but that's far from true for the general population. Furthermore, most of us actually things that topics like this are interesting, but most people are not wired the way we are.

[SecondAttempt]

So what does one do?

When I first got together with my ex-wife in the late 80s she was pretty good with money and had a modest portfolio of funds with a full service brokradge most from an inheritance. I knew essentially nothing. But I had a good job and made lots of money so it was time to start investing. I talked to xDWs broker a few times and, in retrospect she gave me good advice.

But xDW encouraged me to read and learn. I have been reading and learning since then, got an MBA in finance along the way, have dabbled in options, paper portfolios of financial derivatives (turns out my PhD in engineering involved learneing a lot about Ito calculus which is used to value derivatives and in the late 90s you could make about half a milion a year doing this kind of thing though I never did.)

Anyway, I now think I know a lot. Keep it simple, keep expenses low, etc. Things I think most people here would agree with. I do believe in market timing to some extent but we are talking maybe 1-2 major moves per decade and I have done quite well on most of them. I got out before the tech crash. I got out in September 2008 and went back in in February 2009. So no apologies there.

But my dilemma is that my new partner has no interest in money management or investing. She was raised by a step father who was very successful, attorney-general for a country, supreme court justice for an American territory. But he never owned any stocks and taught her not to. She is not stupid, just has no interest or experience. She has a fair bit of money of her own but all in a bank. It's enough that I constantly sure she is not over FDIC limits. She also has a generous state pension.

So as I contemplate retirement and a time when she might inherit my money and have to make decisions, I'd like to have a trusted adviser to help her. So while I agree with the general sentiment toward advisers expressed here, I personally would like to find one to be there when the time comes. Fortunately, at 57 and in generally good health, it is not an urgent problem.

[DrRoy]

I had one for a while but fired him. That was 10 years ago.

[athena53]

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Originally Posted by NanoSour I should try better to not get personal, so it's best not to comment further on this. I will say I think we're all aware that many people in sales use the church as a pool of potential clients. Same goes for most other social clubs; i.e. Rotary, Lion, R&G, etc, etc.

I agree. I heard a sadder story. DH's church in NJ had a "financial planner" on their vestry (governing board). She talked them into investing part of their spare cash in a mutual fund. It was just before the dot-com crash. Fortunately it was only a portion of their assets- I'd say the loss was 20% of their assets- but I bet the account was opened through her. Clear conflict of interest.

We did have one financial planner in my church. I was Financial Secretary at the time so I had access to this information, but there were a couple of years when they gave $80,000 so I think he did pretty well. He was very low-key- never tried to get anyone's business AFAIK.

[pb4uski]

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Originally Posted by ER Eddie Some people are better off with a financial advisor. I know someone who got pulled into the hype around crypto currency, sunk a large chunk of her savings into it, and is now looking at a huge loss and spoiled hopes of retirement. ...

I'm not sure why you are assuming that an FA would have kept that person from sinking a large chunk of her savings into crypto. If the client was insistent on crypto and there was comp for the FA...

[NanoSour]

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Originally Posted by SecondAttempt So what does one do? So as I contemplate retirement and a time when she might inherit my money and have to make decisions, I'd like to have a trusted adviser to help her. So while I agree with the general sentiment toward advisers expressed here, I personally would like to find one to be there when the time comes. Fortunately, at 57 and in generally good health, it is not an urgent problem.

Here is something to contemplate and the actionable item that I implemented. I had all my accounts with Vanguard until last year when I moved them to Schwab for a sizeable transfer bonus. I worked with a local Schwab office financial consultant that had a CFP certification. I kept all my assets in VG mutual funds and negotiated commission free VG trades. Honestly I don't trade but for div/gain reinvestments which unbelievably trigger a fee at our friend Eddy. I did put a small amount into Schwab's Intelligent Portfolio to keep the consultant available. I explained that the main purpose for moving to Schwab was so that DW had access to a financial advisor should something happen to me. DW is well award of my low-cost index method of investing and should be able to work with him should something happen.



Schwab Intelligent Portfolios are not perfect as they keep a minimum of 6% in cash, but they are fee-free and keep a financial advisor on the hook in case we need one. Certainly beats an annual 1% AUM drag on a portfolio.

[kgtest]

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Originally Posted by audreyh1 It was a bit intimidating trying to retire so early, but I knew that no one would care as much about our nest egg as we did, so I worked hard to educate myself. Probably 2 years before retiring and 1 year afterwards I spent a lot of time reading, forums, etc. after that it was just occasional continuing education. The best part is DH thinks I’m brilliant! But I did at least get him to shut up about me to friends finally convincing him that helping anyone else was waaaaaay too hard.

Heh, I went down that rabbit hole of trying to help others. It was amazing how far someone would deviate from my "advice". At the end of the day, people will do what people want to do lol.

My DBIL complained that I lost him money even though the entire market was down more than what his folio was doing. My DF constantly wants to try and time the market, even though I tell him not to. My Neighbor got into investing and I warned him about steering clear of day trading pitfalls...but he didn't listen and lost most of his investment. I told my friends to start DCA'ing into the market to grow their portfolio every paycheck...instead they kept BTD. Co-workers asked for advice and I told them they needed to move away from such conservative investments since they were so young, and they just kept holding onto their bonds.

[natetheb]

Earlier this year I finally removed all of our assets out from a FA. The first straw was when we opened up a $5k IRA under their management for my wife. After a few years of pitiful returns (<$400 total) when I was experiencing >10% returns per year on everything else, I decided to do a little digging. Our FA was charging >1% for AUM AND the Mutual Fund was charging >1% for AUM. I snatched that out and am happily managing the money myself knowing I don't have any hidden fees out there.

The last thing we did was close the Index Universal Life Insurance Policy (IUL) on myself. We ended up taking a <$5k hit, but I did the math and it worked out to be equivalent to something like $56/month insurance...so not a crazy hard hit. I am happy with my $360/year term life insurance policy and am diligently utilizing the IUL premiums to further grow our networth.

[F.I.R.E User]

I left EJ.