FA - The Exception That Proves the Rule

[youbet]

I recognize the criticality of good portfolio management but what about other aspects of financial advice and information including LTCI, taxes, SS and pension claiming, Roth conversions, insurance, estate planning, healthcare, annuities/QLACs, how much cash to keep and where etc.? Does everybody here DIY those bits too?

It's going to be a mixed bag. Since NO FA is going to be a top notch expert in all of those areas, you'd have to seek out several different "advisors" to cover them all. A number of posters here have mentioned using a pro advisor for portfolio management, taxes or focused advise on one of the other areas you mentioned. But I haven't heard of anyone using advisors for all of those areas. And I imagine there are a few who DIY for everything, especially while younger.

Personally, I'm currently 100% DIY but looking/interviewing for future help in the areas of estate planning / elder law and also taxes.

LTCI - DIY although may use some elder law help in checking out Life Care CCRC's.

Taxes - DIY but considering finding a "tax guy" in the future.

SS and pension claiming - DIY and done

Roth conversions - DIY and done

Insurance - DIY

Estate planning - currently looking for pro help

Healthcare - DIY

Annuities/QLAC - DIY and have neither

Cash management - DIY

 

[Red Badger]

First post here so hopefully I don't go outside the guardrails. This thread interested me because I too am content with my FA, who is a retirement planning specialist. I consider the cost of my guy fair but rather than discuss why that is and the details thereof (or investment strategy/AA), I would like to understand how the members here think about the scope of services provided by a FA. I found it interesting that a number of commenters have discussed investment advice and markets but really not that much else. I recognize the criticality of good portfolio management but what about other aspects of financial advice and information including LTCI, taxes, SS and pension claiming, Roth conversions, insurance, estate planning, healthcare, annuities/QLACs, how much cash to keep and where etc.? Does everybody here DIY those bits too?

We've got a couple pensions, SSI next year, and a modest portfolio, so our plan is simplified. We've concluded that LTC insurance is akin to an extended warranty, so nope. I am way too lazy to do what it takes to itemize and just take std ded. It may cost me but don't care. Couch potato 70/30 investor, so that's done. With the new tax rates we may look at a Roth conversions in 2019, but Fido guy can walk me through that for zero cost.

Like others have mentioned, one has to grasp the fundamentals (+) to know if an FA/IA is any good. But by then, there may not be much they can offer. That said, if we were more reliant on our egg, my response might be quite different.

When I was seeking to learn about FI and retirement, Google happily steered me to AARP, WSJ, Edward Jones, et al. All were digital fish wrap. This site, and a small few other blogs provided me the education I was seeking.

So, again, thanks. Thanks much.

I disparage FA's from time to time, but the choice to use one is like when to take SSI - very personal and some mildly contested viewpoints on this forum.

 

[travelover]

The portfolio management is very simple to DIY, I really haven't seen a case for paying for advice there, once one realizes how simple it is.

As far as the other stuff you list, if you can't get info here, or find other good sources for decision making, I'd hire a pro by the hour/job for each of these. They are mostly one time things, maybe occasional review. I can't see paying a % of AUM every year for that - and doubt that many AUM type advisors are fluent in all those areas. And again, how do you know if their advice is sound if you haven't done some pre-study?

-ERD50

+1. Therein is the catch - they want to provide what should be onetime or very occasional advice and have you pay continuously for it. Ten thousand dollars a year or more per million. Given the actual number of hours they'd work to provide that advice, it is a helluva an hourly rate.

 

[sengsational]

If a FA was really taking on the responsibility (like a pilot takes on the responsibility) then an AUM fee might be reasonable. But alas, if your plan crashes and burns, the FA shrugs and finds another customer. The pilot, not so much.

 

[ERD50]

If a FA was really taking on the responsibility (like a pilot takes on the responsibility) then an AUM fee might be reasonable. But alas, if your plan crashes and burns, the FA shrugs and finds another customer. The pilot, not so much.

Ain't that the truth!

Got me to thinking - what if I really wanted to pay for protection? Consider a 50/50 portfolio of $1M, and I use the 1% for protection, that's $10,000. With $500,000 of SPY @ 266, I'd have ~ 1900 shares, so $10,000/1900 means I could spend $5.26 per share per year on downside protection insurance (buy puts).

Dec 20, 2019 puts at strike of $210 are going for ~ $5.10 as I type, close enough. Your market loss would be limited to ~ 21%, and assuming the fixed half stays about flat, you'd have no more than a 10% drop in your portfolio.

Could any FA give you that much protection, and still leave you completely open to the upside? They sure would not sign a contract to that - they'd need to buy that put to be able to guarantee it, leaving nothing for them.

-ERD50

 

[samclem]

Ain't that the truth!

Got me to thinking - what if I really wanted to pay for protection? Consider a 50/50 portfolio of $1M, and I use the 1% for protection, that's $10,000. With $500,000 of SPY @ 266, I'd have ~ 1900 shares, so $10,000/1900 means I could spend $5.26 per share per year on downside protection insurance (buy puts).

Dec 20, 2019 puts at strike of $210 are going for ~ $5.10 as I type, close enough. Your market loss would be limited to ~ 21%, and assuming the fixed half stays about flat, you'd have no more than a 10% drop in your portfolio.

Could any FA give you that much protection, and still leave you completely open to the upside? They sure would not sign a contract to that - they'd need to buy that put to be able to guarantee it, leaving nothing for them.

-ERD50

Well, the FA does get to pocket the 16 cents per share difference between the cost of the puts and his 1% AUM fee. That's $360 for less than 1 hour of work.

Probably better to market it as an exclusive package of other "tailored" products (to obfuscate the cost of each), offered only by his firm, and sell it as an add-on package to "selected clients'--who are already paying the 1% AUM. If the insurance pays off, be sure to let the client know how smart he was to buy it, and that your office is the only place where he can get this valuable basket of synergistic services. Don't forget to say "synergistic."

 

[Dtail]

Perhaps sometimes the reluctance to DIY is that one can't fathom being able to match a "professional" in their acumen. For example, one can read up all they can, but still can't perform a gallbladder removal for example like a Doctor can.

However, that is just not the case in DIY one's own investments.

 

[OldShooter]

Perhaps sometimes the reluctance to DIY is that one can't fathom being able to match a "professional" in their acumen. For example, one can read up all they can, but still can't perform a gallbladder removal for example like a Doctor can.

However, that is just not the case in DIY one's own investments.

Yes. Many, maybe most people, are afraid to work on their home's electricity, like adding an outlet or a circuit. Others would probably call a plumber rather than re-soldering a leaky joint. Others might not want to repair damaged sheetrock.

I think of these decisions as a tradeoff between learning and possibly struggling versus remaining helpless. Personally, I would rather buy a tool and learn to use it even if my first attempts produce poor results because in the end I will have a new capability that I can use for the rest of my life. For example, we had a clogged drain in the basement and I bought a drain machine on CraigsList for $100 rather than pay the drain cleaning company the $150 that a service call would have cost. A professional would have laughed at my initial attempts to use the thing, but I prevailed and now can easily handle the next time we have a clogged drain.

IMO investing is not much different. One can take the time to learn the DIY skills necessary or one can remain helpless. ("Helpless" is maybe not the right word because it sort of implies criticism, but I'm not sure what a better word might be.)

 

[ERD50]

Yes. Many, maybe most people, are afraid to work on their home's electricity, like adding an outlet or a circuit. Others would probably call a plumber rather than re-soldering a leaky joint. Others might not want to repair damaged sheetrock. ....

IMO investing is not much different. One can take the time to learn the DIY skills necessary or one can remain helpless. ("Helpless" is maybe not the right word because it sort of implies criticism, but I'm not sure what a better word might be.)

And objectively, not just IMO, these things are very different.

Once you've been shown the light that a couch potato style approach is all you need, it is simple, easy, takes almost no time, and is not risky.

Wiring a circuit in a house? Very dangerous if you do it wrong, and many ways to do it wrong. It takes special tools. You probably need/should get a permit and an inspection.

Re-solder a leaky joint? It takes special tools and some skills and practice. Might burn down your house. Might have the leak come back and do lots of damage.

Repair damaged sheetrock. OK, not dangerous, but it takes tools and some skills and patience. I'm terrible at it, and hate it, even though I am a DIY guy.

Couch potato portfolio? No special tools, no specials skills, no hard, messy work. Gee, maybe you chose a 50/50 AA for yourself, when 75/25 would have been better? Would a 'pro' have done different? What was the 'damage'? You didn't risk your home.

-ERD50

 

[OldShooter]

And objectively, not just IMO, these things are very different.

Once you've been shown the light that a couch potato style approach is all you need, it is simple, easy, takes almost no time, and is not risky.

Wiring a circuit in a house? Very dangerous if you do it wrong, and many ways to do it wrong. It takes special tools. You probably need/should get a permit and an inspection.

Re-solder a leaky joint? It takes special tools and some skills and practice. Might burn down your house. Might have the leak come back and do lots of damage.

Repair damaged sheetrock. OK, not dangerous, but it takes tools and some skills and patience. I'm terrible at it, and hate it, even though I am a DIY guy.

Couch potato portfolio? No special tools, no specials skills, no hard, messy work. Gee, maybe you chose a 50/50 AA for yourself, when 75/25 would have been better? Would a 'pro' have done different? What was the 'damage'? You didn't risk your home.

-ERD50

Quite funny, actually. I think you are making my point for me. You fear electrical work and soldering, though I do both routinely and have done so for many years. I also do some pistolsmithing on my target guns. Just a different viewpoint.

Re investing, someone could easily make the argument that DIY investing is much more dangerous than DIY electrical or plumbing work. Problems with electrical work are pretty immediately obvious and, worst case, can be fixed by bringing in a professional. Mistakes in investing may take years to see and might easily be non-fixable. So from that point of view a person might believe that it is the DIY investing that is the dangerous thing.

People fear different things. One benefit, though, that I hope some people get from participating on this forum is the understanding that, as you say, DIY investing is not something to be feared.

 

[Dtail]

And objectively, not just IMO, these things are very different.

Once you've been shown the light that a couch potato style approach is all you need, it is simple, easy, takes almost no time, and is not risky.

Wiring a circuit in a house? Very dangerous if you do it wrong, and many ways to do it wrong. It takes special tools. You probably need/should get a permit and an inspection.

Re-solder a leaky joint? It takes special tools and some skills and practice. Might burn down your house. Might have the leak come back and do lots of damage.

Repair damaged sheetrock. OK, not dangerous, but it takes tools and some skills and patience. I'm terrible at it, and hate it, even though I am a DIY guy.

Couch potato portfolio? No special tools, no specials skills, no hard, messy work. Gee, maybe you chose a 50/50 AA for yourself, when 75/25 would have been better? Would a 'pro' have done different? What was the 'damage'? You didn't risk your home.

-ERD50

Yeah, when one is comfortable enough to DIY investments, one typically would not cause financial ruin with the wrong choices, just not maximizing the results and who really knows that anyway ahead of time.

 

[ERD50]

Quite funny, actually. I think you are making my point for me. You fear electrical work and soldering, though I do both routinely and have done so for many years. ... .

No I don't think that is making your point for you. I don't fear electrical work or soldering, because I have done plenty of both. And because I have a good grasp of the potential dangers, and what it takes to do it right (tools, knowledge and some skills) and what can go wrong, I do fear people who do it that don't realize those dangers.

... Re investing, someone could easily make the argument that DIY investing is much more dangerous than DIY electrical or plumbing work. Problems with electrical work are pretty immediately obvious and, worst case, can be fixed by bringing in a professional. Mistakes in investing may take years to see and might easily be non-fixable. So from that point of view a person might believe that it is the DIY investing that is the dangerous thing. ... .

Not buying it. I've seen Hot & Neutral reversed on an outlet. Almost every appliance will work just fine pretty much forever. But some appliances have a Neutral somewhat exposed, to the point that someone could touch that Neutral (which is now HOT), while they are grounded, and get a lethal shock. No professional can raise the dead.

A slow leak in plumbing (or a big one while you are out) can go undetected long enough to do a lot of damage. Sure, bring in the pro to rip out drywall, replace rotted floorboards, etc - no problem!

A couch potato portfolio is so easy to do, what can really go wrong? What would a 'pro' do to improve it?

... People fear different things. One benefit, though, that I hope some people get from participating on this forum is the understanding that, as you say, DIY investing is not something to be feared.

We agree on that. But then why do you compare it to electrical work, which should be feared by an inexperienced DIY'er ('respected' is maybe a better word, but you know what I mean)?

-ERD50

 

[ERD50]

Let me put a finer point on that.

If someone said "I want to run power across the room and wire a couple outlets there, can you show me in 20 minutes what I need to know to do that job safely and with confidence? And can I do the job in another 20 minutes?"

The answer would most certainly be NO and NO.

If someone said "I want to manage my investments myself, can you show me in 20 minutes what I need to know to do that job safely and with confidence. And can I do the job in another 20 minutes?"


The answer would most certainly be YES and YES. And that's being generous.

-ERD50

 

[Dtail]

Let me put a finer point on that.

If someone said "I want to run power across the room and wire a couple outlets there, can you show me in 20 minutes what I need to know to do that job safely and with confidence? And can I do the job in another 20 minutes?"

The answer would most certainly be NO and NO.

If someone said "I want to manage my investments myself, can you show me in 20 minutes what I need to know to do that job safely and with confidence. And can I do the job in another 20 minutes?"


The answer would most certainly be YES and YES. And that's being generous.

-ERD50

Interesting point, but would that electrician learn to DIY investing in 20 minutes?

 

[ERD50]

Interesting point, but would that electrician learn to DIY investing in 20 minutes?

I'm confident I, or other basic B&H DIY index investor, could teach him/her in 20 minutes. Sure, why not?

-ERD50

 

[bada bing]

My mega-corp has a series of informational classes that they incentivize to get employee participation in. I have to get "points" every year to keep access to the HDHP/HSA + a company deposit into the HSA. I always choose to participate in "financial wellness" as one of my classes to get "points" because it is less onerous than a lot of options. "Financial wellness" entails a few computer based learning modules followed by a mandatory telephone financial check-up with a FA from Price-Waterhouse. The FA is a fiduciary, has no products to sell at all and has access to company benefit account balances and payroll records. The ones I've talked to have been pretty well trained and helpful. I have access to call with any issues that come up throughout the year, unlimited time. They have been very helpful regarding questions about SS, benefit claiming and 401K investing.

I have no idea how much mega-corp pays Price-waterhouse for the program. I'm sure it isn't super cheap, but there is no way it is anything like 1% AUM would be .

The points behind my anecdote are that "financial wellness" is something that can be picked up with a few hours a year of involved learning and that access to trained professionals shouldn't cost anywhere near $10k/yr.

 

[OldShooter]

Let me put a finer point on that. ...

I'm not sure why you are so steamed up about this.

For wiring the outlet, I would tell the person to pick up a copy of "Wiring Simplified" at his/her local Home Depot and read it carefully. 20 minutes? I don't know. Maybe. https://www.amazon.com/Wiring-Simplified-Based-National-Electrical/dp/099790531X

For investing, my adult ed class runs 3 x 2 hours and I conclude with a reading list. I don't think that a complete novice could understand what he/she needs to understand in 20 minutes. The first recommended book is "The Coffee House Investor" by Bill Schultheis/200 pages. 2 hours maybe? http://www.coffeehouseinvestor.com/

I think our main difference is that you are much less comfortable with electricity than I am.

 

[ERD50]

I'm not sure why you are so steamed up about this.

For wiring the outlet, I would tell the person to pick up a copy of "Wiring Simplified" at his/her local Home Depot and read it carefully. 20 minutes? I don't know. Maybe. https://www.amazon.com/Wiring-Simplified-Based-National-Electrical/dp/099790531X

...

I'm not steamed up, just trying to get my point across.

OK, I suppose a specific 'add an outlet' to an existing line, w/o any surprises might be learned in a short time. But there are often surprises (what is this other wire running through the box?). In 20 minutes, do they cover the max number of connections in a box, and all the other surprises you may run into, etc? Maybe.

But they are unlikely to get the job done in 20 minutes.

... For investing, my adult ed class runs 3 x 2 hours and I conclude with a reading list. I don't think that a complete novice could understand what he/she needs to understand in 20 minutes. The first recommended book is "The Coffee House Investor" by Bill Schultheis/200 pages. 2 hours maybe? http://www.coffeehouseinvestor.com/ ...

But I could explain it in 20 minutes easy. That's one reason I'm not such a big fan of people recommending a bunch of books to a novice to get started. It's overkill.

To keep the electrical analogy alive, it's the difference between teaching someone how to plug something in and turn the switch on, versus how to wire an outlet extension.

... I think our main difference is that you are much less comfortable with electricity than I am.

Like I said before, I'm very comfortable with electricity, done a bunch of it for decades, both fairly high power stuff (3 phase 208) and micro-electronic level, and everything in between.

I'm comfortable with it. I'm not comfortable with novices doing it.

But I'm plenty comfortable with someone with 20 minutes of tutoring, setting up a 2 fund portfolio of broad-based stock and bond funds with any AA from 40/60 to 90/10, even further if they understand the consequences.

-ERD50

 

[target2019]

For investing, my adult ed class runs 3 x 2 hours and I conclude with a reading list. I don't think that a complete novice could understand what he/she needs to understand in 20 minutes. The first recommended book is "The Coffee House Investor" by Bill Schultheis/200 pages. 2 hours maybe? http://www.coffeehouseinvestor.com/

Some forget how much reading and questioning went into their own education.

What I learned many years ago was how difficult it was to illustrate what appeared to be a simple machine. The essence was that I had to understand the entire system before breaking down the complexity into simple pieces which could be drawn with a minimum of detail and lines. When I did that, a novice could begin to understand the point.

Investing is like that. There are levels of understanding one goes through. WItness your course, or the modules at Morningstar. For an adult learner, you layer it on. It's not one cue card or 20 minutes of dictation.

Since investing is a noisy topic, you must spend time on what sources to avoid, what signals to ignore.

 

[steelyman]

These recent posts all make sense. One other thing I think is that it’s important how motivated the learner is in really grasping the topic.I’ve spent time with a few people explaining stocks, funds, bonds, etc., but in the end what they really wanted was “tell me what to do”. Really, that’s the two fund or target date solution, which is at least a start.

 

[travelover]

These recent posts all make sense. One other thing I think is that it’s important how motivated the learner is in really grasping the topic.I’ve spent time with a few people explaining stocks, funds, bonds, etc., but in the end what they really wanted was “tell me what to do”. Really, that’s the two fund or target date solution, which is at least a start.

I've had similar experiences, though their real question was "tell me what to do to get rich quick, forget this LBYM stuff".

 

[steelyman]

I've had similar experiences, though their real question was "tell me what to do to get rich quick, forget this LBYM stuff".

I bet a lot of people have heard that song before. Maybe a first step is LWYM (live within your means) and then onward?

 

[sengsational]

In 20 minutes, you could certainly could give a financial neophyte enough "cookbook" knowledge to get going. But without having the principles, or a heck of a lot of trust in their "chef", they're not likely to keep it up for multiple decades.


Six months down the road, the neophyte is thinking "I know I did what that guy told me to do, and I know I trusted him at the time, but my account is down by half...I think I'll sell and get into something safe, like a bank account".

 

[audreyh1]

We’re both engineers, I’m an EE, and we do certain home electrical work ourselves, but call an electrician for other jobs. Same with plumbing.

I never thought of investing as potentially dangerous as electrical work.

But I guess if someone gets into quick market timing, goes on margin, starts shorting stocks, etc, it could wipe them out. They’d still be alive though.

Those aren’t the guys going for the FA though.

I do think there are plenty of neophytes convinced investing has got to be hard and requires a lot of work and tons of monitoring. There is a bit of a learning curve before you figure out how simple it can be and very low maintenance.

I always felt that a financial advisor would never be as careful a steward of my money as I was. So I had to learn enough.

I’m fine with hiring handymen with good references. Never felt compelled to master those kinds of skills although there is plenty of stuff we end up doing ourselves anyway for various reasons.

 

[kcowan]

I like the electrical analogy. However it is fraught with assumptions. I was an accomplished electrician when I took on wiring an N-Way light switch. That required extra study! Like any skill, it is layered with nuances. So is investing.