Finding a new financial advisor

[pb4uski]

I decided to tag on to the post instead of stating anew one since I m looking for similar answers.

My wife and I went to a retirement seminar last night. It is a small independent (2 person) office. They did the typical "what happens when the market turns". They feel they have an algorithm that allows them to move in and out of the market before large losses (They agree no one has a crystal ball). We are meeting with them on Monday. If we do decide to use them, it will only be for. portion of our accounts. This portion would normally be 100% in stocks. One question I have for him is When he thinks money needs to come out, where does he put it? I will also find out about fees. Any other questions?

Hopefully not for taxable accounts where their movements in and out might result in bad tax implications or wash sales. I seem to remember a poster using an FA that flipped their taxable portfolio and they ended up with a very nasty tax surprise.

If they really have the magic sauce why do they need to continue to work for fees?

I love the old Fischer Investments addage of "we do better when you do better" referring to AUM fees. What they fail to mention is that " and we do ok even if you lose money".

 

[TripleLindy]

I love the old Fischer Investments addage of "we do better when you do better" referring to AUM fees. What they fail to mention is that " and we do ok even if you lose money".

Yes, I chuckle every time I see that ad. It’s no wonder that there’s not a firm out there that will only make money when we make money.

 

[Stormy Kromer]

My FA had me blindfolded, my fault, and put my taxable account in 20th Century Funds. With a 5% front end load. I just nodded and went along investing for years. Never came close to matching the SP 500 index.

Later on I told him I wasn't going to keep contributing new money to that fund, he suddenly had a better plan. Invest it in another group of mixed up mutual funds. With an AUM of 1.5%. So get this, I already gave up 5% on the way in and as soon as I couldn't send them any new money they started making 1.5% on the same money that they already took 5% off the top of. I got taxed on the way too. Plus these new funds had an internal expense of another 1% or so.


I moved 90% of it to Vanguard a few years ago, put it in a simple index fund (capital appreciation fund) and have absolutely whoooped the FA.

I am a simple dirt farmer and kicked the pants off of an FA. This FA has his own radio show and has written 3 books.

I won't start about the annuities and VUL's he got me in. That is a whole nother thread (or two).

People should learn how to handle their own investments the same day that they learn how to put their own gas in their car.

 

[TickTock]

I won't start about the annuities and VUL's he got me in. That is a whole nother thread (or two).

Sounds like someone in the David McKnight advisor network. Except that now they'd likely recommend large Roth conversions as well.

 

[Buckeye]

I decided to tag on to the post instead of stating anew one since I m looking for similar answers.

My wife and I went to a retirement seminar last night. It is a small independent (2 person) office. They did the typical "what happens when the market turns". They feel they have an algorithm that allows them to move in and out of the market before large losses (They agree no one has a crystal ball). We are meeting with them on Monday. If we do decide to use them, it will only be for. portion of our accounts. This portion would normally be 100% in stocks. One question I have for him is When he thinks money needs to come out, where does he put it? I will also find out about fees. Any other questions?

Run away...quickly!

 

[Sunrise_Ray]

There is a lot of details here about Flat Fee Advisor vs AUM based Advisor. It is clear that %AUM based advisor in a world of AI, Automation, RoboAdvisor, API based automation with Dashboards/Software just does not make sense. There is so much standardization and automation that can be applied, that individualized optimization and automation does not justify the delta in the pricing between Flat Fee $500 per year to $15K per year (regardless of asset size) and then the %AUM based which would start with $5000 per year for a $500K account to $50K for a $5M portfolio, and then keep on growing. By the time year 2 or 3 comes around the %AUM based are just raking in commissions which is how these firms have gotten huge, and the industry has gotten fat with lots of partners / directors / managers / commission-earners.

I have cruised about 60-70 firms to learn the business a bit more since I have been DIY all my life, and now want to get it all organized under a single firm.

Can anyone share if they have just selected a Flat Fee Firm in the last 5 years and are thrilled with them, esp doing Investment Management, Tax Planning/Filing, Estate Planning, Retirement Planning, Roth/MegaRoth Conversion/Subscription, LT Care/Insurance/Medicare, and even Alternative Investing?

Any help or pointers would be appreciated (I have read this entire thread).

Thanks.

SR

 

[racy]

The original post re: Wells Fargo brought back memories of their 2016 scandal where they were opening customer accounts without the knowledge of the clients then charging service and overdraft fees.
Upon hearing this, a guy said, "I don't have to worry; I don't have an account with them". to which a wag replied, "How do you know?"

 

[Lorenzo]

. . . and then the %AUM based which would start with $5000 per year for a $500K account to $50K for a $5M portfolio, and then keep on growing.

Just a nitpick, but some FAs use a graduated scale for their AUM-based fees. For example, a balance up to the first million is charged a 1% fee, then the next 500k is charged .75%, then .5%, etc. It's still a lot of money.

 

[rjsos5]

I am with those who feel do not need advisor. But would here simply caution against advisors or any guru anywhere who likes to churn your portfolio based on their crystal ball on how markets, bond or equity, may move in short to near term.

 

[RxMan]

I thought I would reply to this thread because my wife and I are about to meet with a financial advisor for the first time for an initial consultation.

There are several reasons why we’re considering hiring an advisor at this point. We’re wanting to have a professional look at our assets and develop a feasibility analysis regarding retiring soon (say within the next few years).

I also wanted to get tax planning information related to details such as tax loss harvesting, Roth conversions, social security timing etc.

I want a plan that out lives me. My wife is over a decade younger and on average will have several years to fund after I’m gone.

I filled out a form last night and the financial advisor called and spoke with me for a good 30 minutes today. This is a small firm and the CFP I spoke with is the founder of the firm.

He briefly explained his fee structure but we’ll get more details in our free initial consultation meeting. He is a fee only advisor and has two options:

1. Flat fee rate. This is per consultation and not hourly. He told me most of his clients that choose this option are business owners who can deduct the fees as part of their business expenses. I don’t know what our flat fee rate would be but based on the number of meetings per year it might not make much of a difference.

2. AUM. His fee is 1% up to $2 million and 0.75% for any AUM above $2 million. 401k balances are not charged under AUM fees. That’s actually a big deal because approximately 50% of our assets are in 401k plans right now. Those 401k funds could fall under management in the future if say my 401k was converted into an IRA.

He said he typically likes to meet with his clients on average 4 times per year (3-5 times depending on need). We discussed things like buying ETFs, Roth conversions, social security modeling, and other tax strategies.

I have to say, I’m a bit surprised by my own willingness to consider hiring someone. I was firmly in the not worth it or I can do it myself camp for the longest time.

I guess there is more at stake now and mistakes will be more costly going forward. I also now recognize that a good financial advisor is more than a professional investment advisor.

I know that there is an overall negative view of AUM financial advisors on this forum. However, I am starting to see areas where one might be worth their fees.

I agree that if all they are doing is picking stocks or funds for you that it isn’t worth the money. Depending on the time horizon, 80-90% of advisors can’t beat the S&P 500 index.

That comparison assumes that the only value an advisor brings is their investment returns. What if your advisor saves you thousands in taxes and/or penalties? What if they ensure you have a proper will and trust in place before you pass away? What if they give you peace of mind?

One word that came up in my conversation with this advisor on the phone at least six times: conservative. He said he likes to be really conservative because nobody wants to go back to work after being retired for a decade. No advisor is going to face legal action if their client dies with millions.

I’m not sure what we’ll do. Our meeting with this advisor is at the end of next week. This was not a referral. I just found him on my own online.

I do wonder: what questions should I ask during this initial consultation?

One thing is clear, if our conversation is any indication of his services to his clients, he might very well be worth his fees and he’ll definitely do more than simply pick investment choices.

 

[RetiredHappy]

I thought I would reply to this thread because my wife and I are about to meet with a financial advisor for the first time for an initial consultation.

There are several reasons why we’re considering hiring an advisor at this point. We’re wanting to have a professional look at our assets and develop a feasibility analysis regarding retiring soon (say within the next few years).

I also wanted to get tax planning information related to details such as tax loss harvesting, Roth conversions, social security timing etc.

I want a plan that out lives me. My wife is over a decade younger and on average will have several years to fund after I’m gone.

I filled out a form last night and the financial advisor called and spoke with me for a good 30 minutes today. This is a small firm and the CFP I spoke with is the founder of the firm.

He briefly explained his fee structure but we’ll get more details in our free initial consultation meeting. He is a fee only advisor and has two options:

1. Flat fee rate. This is per consultation and not hourly. He told me most of his clients that choose this option are business owners who can deduct the fees as part of their business expenses. I don’t know what our flat fee rate would be but based on the number of meetings per year it might not make much of a difference.

2. AUM. His fee is 1% up to $2 million and 0.75% for any AUM above $2 million. 401k balances are not charged under AUM fees. That’s actually a big deal because approximately 50% of our assets are in 401k plans right now. Those 401k funds could fall under management in the future if say my 401k was converted into an IRA.

He said he typically likes to meet with his clients on average 4 times per year (3-5 times depending on need). We discussed things like buying ETFs, Roth conversions, social security modeling, and other tax strategies.

I have to say, I’m a bit surprised by my own willingness to consider hiring someone. I was firmly in the not worth it or I can do it myself camp for the longest time.

I guess there is more at stake now and mistakes will be more costly going forward. I also now recognize that a good financial advisor is more than a professional investment advisor.

I know that there is an overall negative view of AUM financial advisors on this forum. However, I am starting to see areas where one might be worth their fees.

I agree that if all they are doing is picking stocks or funds for you that it isn’t worth the money. Depending on the time horizon, 80-90% of advisors can’t beat the S&P 500 index.

That comparison assumes that the only value an advisor brings is their investment returns. What if your advisor saves you thousands in taxes and/or penalties? What if they ensure you have a proper will and trust in place before you pass away? What if they give you peace of mind?

One word that came up in my conversation with this advisor on the phone at least six times: conservative. He said he likes to be really conservative because nobody wants to go back to work after being retired for a decade. No advisor is going to face legal action if their client dies with millions.

I’m not sure what we’ll do. Our meeting with this advisor is at the end of next week. This was not a referral. I just found him on my own online.

I do wonder: what questions should I ask during this initial consultation?

One thing is clear, if our conversation is any indication of his services to his clients, he might very well be worth his fees and he’ll definitely do more than simply pick investment choices.

What I can tell you is that we had AUM with Fidelity for 4 years and ML for 9 years is that they were nothing like what you are hoping for. They were the front person for backend folks who did the actual investments. We paid 1% to Fidelity and 0.8% to ML. I knew more about tax avoidance and SS benefits timing more than these folks. The ML guy was also the head of the ML wealth management branch.

 

[SecondCor521]

Most people here are against FA's. I have 2 humble suggestions to the OP: 1) Solely as a short term stop-gap measure, immediately move all your funds from this FA, 50% to an equities index fund and 50% to a conservative Index Bond fund (or cash). 2) Then look for a new FA at leisure, or decide to DIY. You are paying this FA for service, and you're not getting service.

Late rely, but the immediate move suggested above may create adverse tax effects if the account involved is a taxable account.

 

[SecondCor521]

There are several reasons why we’re considering hiring an advisor at this point. We’re wanting to have a professional look at our assets and develop a feasibility analysis regarding retiring soon (say within the next few years).

FIRECalc: A different kind of retirement calculator and several others like it, or the back of a napkin, can do an adequate to good job and are quicker, easier, cheaper than an advisor. It's not rocket science, honestly.

I also wanted to get tax planning information related to details such as tax loss harvesting, Roth conversions, social security timing etc.

Financial advisors mostly are not good at taxation and SS timing. Maybe CFPs are, I don't really know.

I DIY taxes. I use opensocialsecurity.com for SS timing.

I want a plan that out lives me. My wife is over a decade younger and on average will have several years to fund after I’m gone.

A reasonable idea. Or have your wife learn to DIY.

That comparison assumes that the only value an advisor brings is their investment returns. What if your advisor saves you thousands in taxes and/or penalties? What if they ensure you have a proper will and trust in place before you pass away? What if they give you peace of mind?

I'm better at taxes than most advisors. But I understand a lot of people don't want to learn about taxes. I view that as an expensive preference.

Wills and trusts are done by estate planning attornies, not financial advisors.

DIY and self reliance provide me with peace of mind, but reasonable people differ on this point.

One word that came up in my conversation with this advisor on the phone at least six times: conservative. He said he likes to be really conservative because nobody wants to go back to work after being retired for a decade. No advisor is going to face legal action if their client dies with millions.

How does one define "conservative"? Avoiding risk, maybe, but how much risk? Which risks, because there are many and several are orthogonal or opposing risks?

I do wonder: what questions should I ask during this initial consultation?

Ironically, if you don't know what questions to ask then maybe you do need an advisor.

One thing is clear, if our conversation is any indication of his services to his clients, he might very well be worth his fees and he’ll definitely do more than simply pick investment choices.

Most advisors who manage to stay in business are very good at marketing themselves.

 

[Koolau]

Yeah 1% of AUM just seems excessive. On "only" a million, that means you're paying $10K for "management." Anyone who has managed to put together a Mil or Two Mil probably can handle their own financial decisions. After all, just because you pay some FA to advise you doesn't mean the $10K or $20K you pay them is worth it. Only time will tell. If they are wrong, they still do quite well, even though you may not.

 

[big-papa]

Only advisors any normal person should use are hourly advisors that have no tie in to any of the financial transactions anyone does. They are there for advice, not to profit off ones portfolio.

100%
I have what I believe to be a fairly complete plan laid out, including a "one-pager" high level summary that can be used with anybody for the initial, free 30 minute consult that many give. After pre-vetting as much as I can based on their online presence, the idea is to take advantage of the free consult to further vet possible advisors that could advise my DW if ever needed.

So to that end, the goal is to always have a list of candidates at the ready. Keeping it up to date is an ongoing process as they're like the rest of us: Their businesses fail, they die unexpectedly, they retire, or they otherwise move on to something else.

Cheers.

 

[latexman]

I have to say, I’m a bit surprised by my own willingness to consider hiring someone. I was firmly in the not worth it or I can do it myself camp for the longest time.

Looking forward to retirement, if you’re paying the FA 1% AUM and you’re withdrawing 4% of your nest egg, the FA is getting 25% of your cash flow! THAT’s what convinced me to DIY.

If you’re going to use a FA, give them a scope, get an estimate, and pay by the job/hour.

 

[VanWinkle]

Here is a great list by Jason Zweig with 19 questions, and the answers you want to hear. I hope this
helps you in your advisor search.

The 19 Questions to Ask Your Financial Adviser

The burden of finding an adviser who will act in your best interest is on you.

jasonzweig.com

 

[target2019]

The 1% AUM fee may also be accompanied by high fee investment funds. So your actual all-in fees can be even more substantial. The fees really sting we are told when the markets declined, and the fees continue.

 

[athena53]

I am a simple dirt farmer and kicked the pants off of an FA. This FA has his own radio show and has written 3 books.

I won't start about the annuities and VUL's he got me in. That is a whole nother thread (or two).

People should learn how to handle their own investments the same day that they learn how to put their own gas in their car.

I know. I'm fortunate- Dad started investing in stocks in the late 1960s so I had a good example. When I started taking actuarial exams I learned compound interest calculations. Annuities and anything that combines investments and life insurance scare me. I never bought any.

On taxes: I really would like to get someone to tell me how to manage investments and withdrawals to optimize taxes but my brother the retired tax accountant (he dealt with corporate, not personal taxes) says that kind of specialized advice is hard to find and expensive. I once touched base with a friend who has his own CPA firm with this request and he planned to run all my data through a Monte Carlo simulation- and charge me $1,000 for it. Nope. I also watched a video by Craig Wear who advocates biting the bullet and doing a complete Roth conversion of all your pre-tax accounts over one or a few years. They'd develop a plan for me for "only" about $10,000.

I find the Kiplinger Tax letter a very good source of information and I think I make pretty good decisions by myself.

 

[Lorenzo]

The 1% AUM fee may also be accompanied by high fee investment funds. So your actual all-in fees can be even more substantial. The fees really sting we are told when the markets declined, and the fees continue.

They said “fee-only,” which is supposed to exclude the FA receiving commissions, etc. But it is important to get clarification.

My former FA whom I felt did fine for me while I was working was AUM fee-only, a fiduciary, used low-expense funds, and matched my conservatism. All great. My main complaint was realizing that he was “on the payroll” of my retirement for 25% of my retirement cash flow, i.e., 4% of AUM. I got paid the other 75%. Once I saw it in that light I knew DIY was what I wanted.

 

[The Cosmic Avenger]

There are several reasons why we’re considering hiring an advisor at this point. We’re wanting to have a professional look at our assets and develop a feasibility analysis regarding retiring soon (say within the next few years).

I also wanted to get tax planning information related to details such as tax loss harvesting, Roth conversions, social security timing etc.

I want a plan that out lives me. My wife is over a decade younger and on average will have several years to fund after I’m gone.

That comparison assumes that the only value an advisor brings is their investment returns. What if your advisor saves you thousands in taxes and/or penalties? What if they ensure you have a proper will and trust in place before you pass away? What if they give you peace of mind?

Edited down your post, because these are exactly what we're getting from our fee-only CFP, for $3K, less than 0.1% of what would be our AUM (so, not even including our 401ks, even though he offers advice on those, too). And he says annual updates (if we want them) will probably be a couple hundred dollars every year unless we do some major spending, like involving real estate.

If anyone is looking for someone online or in Columbia, MD, message me.

 

[TheWizard]

Looking forward to retirement, if you’re paying the FA 1% AUM and you’re withdrawing 4% of your nest egg, the FA is getting 25% of your cash flow! THAT’s what convinced me to DIY...

I totally agree with DIY when managing your portfolio.
But that 4%/1% thing completely ignores the change in value of your portfolio, which could be increasing by 10% per year on average...

 

[kgtest]

I'm in the belief that the best advisor is no advisor. Just saying .

Precisely. I would maybe pay for a consultation but have not needed to when I gut-checked my ER approved plan against an EJ advisor way back in 2013. He told me to be ready to cover health care expenses especially if health concerns arise. Called it the x-factor to my plan. Well, stacking $1mm extra on-top of that original plan when we met, should help eliminate SOME of not most of that x-factor, alongside maintaining as healthy a lifestyle as possible.


The hardest part for me was busting down my asset allocation and annual returns, once I collected all the data which I would have needed to do for the EJ guy, I didn't really need his help.

 

[TripleLindy]

Precisely. I would maybe pay for a consultation but have not needed to when I gut-checked my ER approved plan against an EJ advisor way back in 2013. He told me to be ready to cover health care expenses especially if health concerns arise. Called it the x-factor to my plan. Well, stacking $1mm extra on-top of that original plan when we met, should help eliminate SOME of not most of that x-factor, alongside maintaining as healthy a lifestyle as possible.


The hardest part for me was busting down my asset allocation and annual returns, once I collected all the data which I would have needed to do for the EJ guy, I didn't really need his help.

I’ve been very satisfied with Vanguard’s wealth management. I still manage my 401k on my own and compare returns every year. Vanguard’s service usually outperforms me fractionally, and that performance is minus the fee. So until I see a gap in performance tilted in my favor, I’ll stick with them. And that’s not to mention the avoidance of what could have been a disaster during the pandemic had I not had an advisor.

 

[jazz4cash]

I totally agree with DIY when managing your portfolio.
But that 4%/1% thing completely ignores the change in value of your portfolio, which could be increasing by 10% per year on average...

Not sure I follow you there. I think you are saying the AUM fee is increasing primarily due to the market and not because of the advisors input.