36 Billions per year loss

[ut2sua]

I have just looked up the total net asset for 2 Vanguard popular ETF's (VOO) and (VTI).
The values were 1.5T and 2.1T for a total of 3.6T for both of them. Without the creation of these low cost index funds/etf's, one can imagine most of this $ will probably be invested by the FAs of various companies. Assuming a 1% per year fee, that would be a 36-Billions-per-year-in-pure-profit business for the FA community.
The above figures were just for Vanguard's 2 ETF's, not counting low cost index funds from Fido, Schwab, Invesco, Franklin etc. (and also other funds within Vanguard). We can all thanks Jack Bogle for this. Yet, as of today, we still have lots of folks choosing to be with a FA (for a very modest fee of ~1% or so).

 

[jazz4cash]

Yeah, i hate how so many FAs charge ~1% and basically just dump the money in MFs that carry additional fees, in many cases higher fees than VG charges. I get some folks need hand holding but what are folks paying FAs for if they don’t offer more services?

 

[Route246]

A family member who believes she is always right told me straight to my face that they have done very well with Edward Jones when I told her I usually dump all spare cash into a 500-index fund due to the microscopic expense ratio. She said she has "also" done very well with EJ. I don't think she realizes how much 1.6% AUM is costing her, she just continues through life believing she has done very well because the EJ sales lady has been telling her that for 20+ years. I didn't continue. Even if I showed her a comparison she wouldn't believe it. These AUM FA are really good at flattery and positivity and prey on vulnerable people suffering from the finance version of Dunning Kruger. Me, I'm really good at being humble about using 500-index funds for the past 35+ years but there have been stretches where this approach has lost net asset value.

 

[Dtail]

My dad was paying an FA at Schwab. When I took over the accounts, the choices of investments were okay and no obvious churning. My dad said he has done well since Mar 2009, which I told him was the beginning of the bull market.
Needless to say, I convinced him otherwise.

 

[Flyfish1]

This was drilled into my head: fees matter.
Here's a fun calculator to share with FA minded people.

Investment Fee Calculator - Calculate the True Cost of Investment Fees

See how investment fees compound over time and impact your wealth. Compare low-cost vs high-fee investments.

www.moneyonfire.com

 

[COcheesehead]

Don’t forget the placement where the fee is charged matters too.
A fund with a 1% expense fee and a 10% return means you still gained 10% because the return must be quoted after expenses.
A FA charging you 1% and putting you in the same fund means you only made 9% because they take it after returns.

 

[ut2sua]

A 1% FA annual fee is actually 25%. So,
1% = 25%
Here is the math:
A person with a $3M portfolio with a SWR of 4% has $120k of spending $ per year.
A 1% annual FA fee is $30k per year. So the person's annual spending is reduced to $90k (120k - 30k = 90k). It is a 25% reduction in annual spending.
Doing a similar math, a Vanguard ETF annual fee of 0.03%->0.04% is really that 1% of annual spending that we all thought we could afford.
Hope the math helps those still struggling with it.

 

[PhrugalPhan]

I started helping my (then 67 y.o.) mother invest her Roth & brokerage accts. 15 years ago. I taught her how stocks work, then ETFs. A few years in she went to an investment luncheon by a FA. She didn't sign up but wanted me to go over the paperwork she received to see if it was a good idea.

The fees were a yearly 4% off the top. If he makes 10% you get 6%, if he loses 2% you lose 6%, and so on. I made it real simple for her. "If you think he can magically make 4% more than you have with your ETFs year after year, then go with him. Otherwise stick with what you're doing." I also added "The biggest benefit with him is he most likely won't do anything rash, like sell when prices drop for no good reason. So far you have not done anything bad like that. Can you continue to be calm during price swings?".

That was the last time she questioned how we were doing things. Her accounts have pretty much tripled since then and has been extremely happy.

As an aside, she is not a very sophisticated investor yet I think her accounts have gone up more, percentage wise, than mine during these years. It's a little embarrassing at times tbh.

 

[engineernerd]

This was drilled into my head: fees matter.
Here's a fun calculator to share with FA minded people.

Investment Fee Calculator - Calculate the True Cost of Investment Fees

See how investment fees compound over time and impact your wealth. Compare low-cost vs high-fee investments.

www.moneyonfire.com

Only thing I don't care for is it doesn't state its underlying assumption about investment rate of return. Which matters, since the higher your portfolio's returns are, the less drag there is from a given fee level. Maybe such completeness would confuse the unsophisticated, who knows, just rubs me wrong.

 

[Diogenes]

As an aside, she is not a very sophisticated investor yet I think her accounts have gone up more, percentage wise, than mine during these years. It's a little embarrassing at times tbh.

I remember a similar confession in an article some 30 years ago. The author was a professional financial advisor. His elderly mother came to him for advice, and he put her into Microsoft, Cisco, Dell, Intel and some such. Himself? Most of his stuff was in the then-early form of index funds, some US and some ex-US. He was lamenting that for all of his vaunted professionalism, his mother - a naif with minimal experience or education - was handily beating him, year after year.

 

[engineernerd]

Ha, ha, sounds to me like both PhrugalPhan and the article author Diogenes describes are grading their performance against their OWN performance on behalf of their moms!

 

[FREE866]

Which is why a popular theme with advisors/money managers is often "this year will be a stock pickers market". Which really means " hire us--we are good stock pickers and you shouldn't just buy the index".

I firmly believe that if you don't have a complex estate simply buying equity index ETFs ( and fixed income if you want less volatility) is the way to go. Hiring a financial advisor is a complete waste of money for most people.

 

[PhrugalPhan]

Ha, ha, sounds to me like both PhrugalPhan and the article author Diogenes describes are grading their performance against their OWN performance on behalf of their moms!

I would like to take credit for my mom, but I've mostly participated as backstop, making sure she doesn't do anything crazy. Yes I taught her stocks / dividends/ ETFs and so on, but I wanted her to be "invested" in the choices. Over time she has migrated to ETFs but still has individual stocks. Her last individual stock picks were late 2024/early 2025 and were NVDA & CAT. Take a look at those two charts and I think you can see why she is doing so well.

 

[Sunset]

Only thing I don't care for is it doesn't state its underlying assumption about investment rate of return. Which matters, since the higher your portfolio's returns are, the less drag there is from a given fee level. Maybe such completeness would confuse the unsophisticated, who knows, just rubs me wrong.

Since it shows the dollar value paid out, a higher rate of return would show a high amount of dollars paid in fees.

But, It would be nice if it had a selection choice of return rates for fun including a -1 % just so folks could see if they lost money over the 40 years , that they would also pay for that privilege.

I'd also like it to split out a fund fee, plus a FA fee which often varies 1% -> 2% by itself.

 

[Flyfish1]

Since it shows the dollar value paid out, a higher rate of return would show a high amount of dollars paid in fees.

But, It would be nice if it had a selection choice of return rates for fun including a -1 % just so folks could see if they lost money over the 40 years , that they would also pay for that privilege.

I'd also like it to split out a fund fee, plus a FA fee which often varies 1% -> 2% by itself.

Sorry everyone - I didn't build the website.
Here is another one: https://www.schwabmoneywise.com/investment-fees-calculator

 

[Lorenzo]

A 1% FA annual fee is actually 25%. So,
1% = 25%
Here is the math:
A person with a $3M portfolio with a SWR of 4% has $120k of spending $ per year.
A 1% annual FA fee is $30k per year. So the person's annual spending is reduced to $90k (120k - 30k = 90k). It is a 25% reduction in annual spending.
Doing a similar math, a Vanguard ETF annual fee of 0.03%->0.04% is really that 1% of annual spending that we all thought we could afford.
Hope the math helps those still struggling with it.

This was exactly the epiphany I had after I broached the subject of retiring with my FA. I realized he was going to be on "my payroll" for 25 percent of "my take-home pay." I found this forum and parted ways with the FA.

 

[Theophrastus Bombastus]

After being a 'patsy' to 'financial advisors' for decades, I took a leap of faith and took over more than a decade ago by concentrating on low expense ratio index funds.

By taking over, my net worth is more than half a million dollars better than what these salespeople would have done for me in actively managed 12b-1 funds and, of course, after their 1% cut. Mind you, they were lazy, dropping the money in a confusing mix of actively (mis)managed funds with high ER. Then they sat back and collected their kickback and 1% fee without changing anything year after year.

Best of all, I did it with LESS risk and I sleep better at night. These phonies always push to have a higher equity exposure. I cut my equity exposure by 20% and still did better than they did.

 

[Cerys]

Well -- my friend got her hands on her husband's 401k funds and put almost everything into annuities. While it's not something I would've done, the fact that he wanted to get his hands on it and start spending... she may have had a point, locking it up with the way she did.

 

[FREE866]

After being a 'patsy' to 'financial advisors' for decades, I took a leap of faith and took over more than a decade ago by concentrating on low expense ratio index funds.

By taking over, my net worth is more than half a million dollars better than what these salespeople would have done for me in actively managed 12b-1 funds and, of course, after their 1% cut. Mind you, they were lazy, dropping the money in a confusing mix of actively (mis)managed funds with high ER. Then they sat back and collected their kickback and 1% fee without changing anything year after year.

Best of all, I did it with LESS risk and I sleep better at night. These phonies always push to have a higher equity exposure. I cut my equity exposure by 20% and still did better than they did.

There is nothing wrong with a high equity exposure if you want or need growth. Nothing at all. Whats not good is paying an advisor to "manage" funds. Simple equity ETFs with very small expense ratios are cost effective and tax efficient which yes can save you serious $$$$ over the long term.

 

[ILikeStarTrek]

I agree with what everyone else has said about "1% = 25%" and so on. However, I'm going to be a little bit of a contrarian in this thread.

I talked to an FA several years ago who I think did a good service for his clients. He did charge the 1%, but in addition to getting his clients into investments, he also helped them in other ways, especially in 2 areas:

1) He worked with them to come up with and try to hold to an annual spending plan. Some clients, though he let them know what they could afford to withdraw from their portfolio, they would want to withdraw more. He would warn them that if they overspent, they would likely run out of money eventually and then be forced to live on far less. It was the clients' money, so if they insisted on too-high withdrawals, he had to give it to them, and he said there were a couple of them over the years where they did spend down their portfolios and basically were down to only SS to live on. But most of the time, he was successful in helping them to stay on track. This was especially important if one spouse was the main finance person, and that person died, leaving the surviving spouse feeling very lost financially.

2) When the stock market dropped, other times as well but especially in 2008-9, he contacted all his clients and gave the ones who needed it some hand-holding to convince them *not* to pull all their money out of stocks when the market was at its lowest and move it over to money markets (or similar). He said he was successful with all his clients except one; that client wouldn't even talk to him on the phone, but just sent him repeated emails telling him to get all his money out of stocks (this was in March 2009). Of course he had to do what the client wanted; then the client dropped him. But he found out in about 2017, through a mutual friend, that this guy STILL had all his money invested in money markets and had missed out on all the stock gains from 2009 until that time (at least, probably longer). But with all his other clients, he convinced them to stay the course and that the market would go back up.

A few of you even in this thread have shared how you helped your moms get up to speed with managing their money. But not every mom has children who can give them that kind of help. And some elderly folk either have no desire to learn the basics of how to invest, or don't have the emotional makeup to stay in a down market, or don't have good sense to stick to a spending plan. So while probably everyone on this forum (including me) sees an FA as a waste of money for us, I believe there are people out there who get their money's worth in terms of these other services.

 

[Stormy Kromer]

After being a 'patsy' to 'financial advisors' for decades, I took a leap of faith and took over more than a decade ago by concentrating on low expense ratio index funds.

By taking over, my net worth is more than half a million dollars better than what these salespeople would have done for me in actively managed 12b-1 funds and, of course, after their 1% cut. Mind you, they were lazy, dropping the money in a confusing mix of actively (mis)managed funds with high ER. Then they sat back and collected their kickback and 1% fee without changing anything year after year.

Best of all, I did it with LESS risk and I sleep better at night. These phonies always push to have a higher equity exposure. I cut my equity exposure by 20% and still did better than they did.

You sound like me. When I FIRED in 2016 I pulled my investments from our so called FA. I put it 90% in VG Index Funds and left the rest there with them. 10 years later I know we beat them handily. I have saved over $60,000 a year by avoiding their mixed up heavily fee, asset managed charged, underperforming, over diversified investments by simply using one VG Index fund. VG Totl Stock Inex Fund. Best job I ever had.

I leave the 10% with the FA just to prove to myself that I am right every year.

 

[davidfin]

Yeah, i hate how so many FAs charge ~1% and basically just dump the money in MFs that carry additional fees, in many cases higher fees than VG charges. I get some folks need hand holding but what are folks paying FAs for if they don’t offer more services?

Early in my retirement I moved my 401k to Fido and Schwab. Fido was self directed and I hired a FA with a 1% AUM fee. Over 9 years that decision cost about $100k. Returns between self directed and FA directed accounts were approximately the same. That was an expensive lesson.

 

[Koolau]

Yeah, I've stated several times here that I can lose money all on my own and save the 1%.

 

[frank05]

Remember watching The Retirement Gamble on PBS while I was still working. Checked the expenses of some of the funds I was using in my 401k. Was amazed that some had expenses more than 1.5%.

 

[lem1955]

I just went through my list of investments in my tIRA and jotted down expense ratios, checked Morningstar stars, amount invested, and whether I have unrealized gains or losses. I sold ISHG .34% exp ratio and PYLD .55% exp ratio and invested the proceeds in a Morgan Stanley CD at 3.8% maturing in March 2029. More boring, less potential gain, but fewer lines in my Trad IRA and guaranteed 3.8%. It also dropped my average expense ratio to .09%