2%+ premium for having a FA!

[TheWizard]

This article describes how some/most folks get a premium for having an AUM Financial Advisor, from 2% to 2.7% extra every year, compared to doing it alone!
So we've had it wrong all along!

The Value of a Financial Advisor: What's It Really Worth?

This model aims to quantify the value of a financial advisor by using assumptions that most accurately reflect reality for the majority of

smartasset.com

This article was linked to from a weekly Kitces newsletter that I receive...

 

[braumeister]

I'll bet the folks in his office spend a lot of time playing Buzzword Bingo.

A financial advisor strategizes both offensively to grow wealth and defensively to protect it, navigating through external factors such as market dynamics, regulatory policies and technological innovation, as well as internal factors such as psychological, emotional and circumstantial nuances that could derail financial success for a client. Such obstacles, often unrecognizable by the layperson, can cost individuals hundreds of thousands of dollars over their lifetime – or more.
While clients are each unique and the breadth of an advisor’s scope is wide, most of the main areas of value-add can be bucketed into an investment (inflows) or tax (outflows) bucket.
To maximize a client’s financial potential, an advisor fields complications posed by the interacting dynamics of behavioral and technical finance components with the goal of maximizing inflows and minimizing outflows.

 

[Car-Guy]

 

[Koolau]

I didn't get through the whole article, but I'd need a lot more independently developed data to buy into the premise.

 

[aja8888]

I love these articles written in a rising market. Do they write these when things go into the tank for a few years?

 

[MichaelB]

I'll bet the folks in his office spend a lot of time playing Buzzword Bingo.

Great catch!

To maximize a client’s financial potential, an advisor fields complications posed by the interacting dynamics of behavioral and technical finance components with the goal of maximizing inflows and minimizing outflows.

Wow, pure marketing doubletalk. Still, they’re not very good IMO. They forgot Juxtaposition, growth hacking, personal ROI, conversion rate optimization, omnichannel, asset granularity, and most importantly, AI. How can this be a 2025 marketing pitch without mentioning AGI or AI?

 

[Koolau]

Great catch!
Wow, pure marketing doubletalk. Still, they’re not very good IMO. They forgot Juxtaposition, growth hacking, personal ROI, conversion rate optimization, omnichannel, asset granularity, and most importantly, AI. How can this be a 2025 marketing pitch without mentioning AGI or AI?

AI? It was probably WRITTEN by AI. They didn't want anyone to notice so didn't mention AI.

 

[RunningBum]

In the blizzard of confusing mathematical equations, I notice they don't subtract advisor fees, but rather include them in the denominator if I read this correctly. That doesn't seem right, but I only had 23 hours of college math, and that doesn't include a business math course. Maybe maths have changed in the 40 years since I finished college?

 

[Diogenes]

I'll bet the folks in his office spend a lot of time playing Buzzword Bingo.

That's their core competency. If they're not all on the same page, then somebody would get thrown under the bus. They can't afford to table that. That's why they have to circle back, to grab the low-hanging fruit.

 

[Exchme]

I'm certain I've read a similar spiel years ago with almost exactly the same % advantage claims. All they lack is data to back it up.

 

[Koolau]

In the blizzard of confusing mathematical equations, I notice they don't subtract advisor fees, but rather include them in the denominator if I read this correctly. That doesn't seem right, but I only had 23 hours of college math, and that doesn't include a business math course. Maybe maths have changed in the 40 years since I finished college?

Figures don't lie.


But liars figure.


I'm sure your math skills are more than adequate to evaluate the situation. Thanks for the entry.

 

[SnowballCamper]

Because Neither of these two things could happen without an advisor:

But opportunities to grow a client’s net worth can also arise in more obscure ways.
Consider the following scenarios:

• Alex, a 35-year-old self-employed individual, has found recent success with his income doubling in a matter of months. He wants to save more for retirement. His advisor recommends shifting from a Roth IRA, which was limited to $7,000 in contributions annually, to a Solo 401(k). This plan lets Alex contribute up to $23,000 as an employee plus up to 25% of his net business income as an employer in 2024, maximizing his tax-advantaged savings – up to $69,000 in total contributions annually – and better leveraging compound growth for retirement.
• Karen, 54, wishes to retire early but most of her savings are locked in her 401(k). Her financial advisor introduces her to the Rule of 55, explaining that since she’s leaving her job in the year she turns 55, she can start taking penalty-free withdrawals from her current employer’s 401(k) plan. Additionally, the advisor sets up a series of Substantially Equal Periodic Payments (SEPPs) for her IRA under Rule 72(t), allowing her to access funds from there without the 10% early withdrawal penalty. This strategy provides Karen with immediate income while preserving her investments by avoiding penalties, setting her on a path to enjoy an early retirement.

 

[jazz4cash]

They don’t compare performance with an FA vs. any Index. They compare performance with an advisor to performance without an advisor. I am sure much of the difference is due to behavior (e.g. staying invested). That is a legitimate benefit for some investors but it is misleading to market themselves this way.

 

[Stormy Kromer]

28 years ago I hired a FA. At the time I had more money than he did (he told me so) I followed his advice, paid 1.5% AUM plus the absurd internal costs of managed funds that couldn't keep their benchmark's in sight. Today he has a lot more money than me.

I shouldn't even mention the VUL's and Annuities he sold me. There is no doubt in my mind that I'd have two to three times the net worth today, 28 years later than if I had put everything into a VG index fund.

Reminds me of the old Disney movie where the monkey could pick the best TV show better than the media experts. The Barefoot Executive. I'd bet on the monkey.

 

[Jerry1]

They don’t compare performance with an FA vs. any Index. They compare performance with an advisor to performance without an advisor. I am sure much of the difference is due to behavior (e.g. staying invested). That is a legitimate benefit for some investors but it is misleading to market themselves this way.

I didn’t read it but this is exactly what I was thinking - compared to what. Compare an advisor to someone off the street who tries to time the market and I’m sure the FA would look like a star.

My experience with an FA was that he kept me invested, even in bonds during 2022. Heck I didn’t need someone to keep me invested. I can do that all on my own - for free. So I left him.

 

[Stormy Kromer]

Folks, a 1.5% AUM plus the fees their funds charge is an absolute boat anchor. Run, don't walk.

It is so darn simple it HURTS. Go to VG and buy either the SP 500, or Total Stock Index and see you in 30 years.

 

[jazz4cash]

I was never very tempted to hire an AUM advisor but being here and getting a grip on 4% SWR that only leaves 2.5-3% to spend after advisor fees. Most advisors now days use funds that also have fees.

 

[Koolau]

Folks, a 1.5% AUM plus the fees their funds charge is an absolute boat anchor. Run, don't walk.

It is so darn simple it HURTS. Go to VG and buy either the SP 500, or Total Stock Index and see you in 30 years.

Yes, and then if you insist on wasting some money, go out and buy the best steak in town in celebration of your new-found financial acumen!!

 

[Stormy Kromer]

My long term goal of return is 7%. That means if I have $1,000,000 invested I expect a long term return of $70,000 a year.

If I put it with a FA who gets the same 7% return, less their 2% AUM fee I end up with $50,000 a year.

2% of 7% is HUGE everyone....

30 years do the math and it is crazy.

I'll even tell you the investment that will do it. VG SP 500, or anything similar.

I invite anyone to any managed fund to invest the same amount (after tax and expenses)and meet me in 10 years.

Can anybody here dispute this. And please don't tell me your FA held your hand to keep you panicking when it was turbulent. It takes guts to be alive.

 

[Stormy Kromer]

Yes, and then if you insist on wasting some money, go out and buy the best steak in town in celebration of your new-found financial acumen!!

A good steak sounds good.

My long term goal of return is 7%. That means if I have $1,000,000 invested I expect a long term return of $70,000 a year.

If I put it with a FA who gets the same 7% return, less their 2% AUM fee I end up with $50,000 a year.

2% of 7% is HUGE everyone....

2% is really 2/7 of your average return.

30 years do the math and it is crazy.

I'll even tell you the investment that will do it. VG SP 500, or anything similar.

I invite anyone to any managed fund to invest the same amount (after tax and expenses)and meet me in 10 years.

Can anybody here dispute this. And please don't tell me your FA held your hand to keep you panicking when it was turbulent. It takes guts to be alive.

Folks, can it get simpler?

 

[Stormy Kromer]

Strop drinking the kool aid. 2% of your AUM is huger than you think. much larger than 2% of your return.

Wake up America !

AUM is a rip off.

I'll bet my high school B average diploma that I am wrong. I'll challenge any PHD head to head that I can match your portfolio with a VG EFT 500 index net of fees.

See you in 10 years.

 

[Stormy Kromer]

Yes, and then if you insist on wasting some money, go out and buy the best steak in town in celebration of your new-found financial acumen!!

Hell, I'll buy you a yard full of steers. At their all time price.

 

[Al18]

In my opinion, have a FA is a learning process. Not necessarily a bad thing when you are young and helps you manage your money. Think of a FA as a financial tutor. If you've been paying attention, it's time to graduate and fire your FA and do it on your own.

 

[pjigar]

As Warren would say:
"It’s harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen."

This one looks like a combination of both self-delusional AND snake-oil salesmen kind. A super organism. Run.

 

[pjigar]

In my opinion, have a FA is a learning process. Not necessarily a bad thing when you are young and helps you manage your money. Think of a FA as a financial tutor. If you've been paying attention, it's time to graduate and fire your FA and do it on your own.

For me, good books and experiences from early financial mistakes were the best tutors. But then again, everyone learns differently. I think the biggest problem for most people is that they don't WANT to learn, ostrich effect.