How much would you have to have to pay an FA

[Happyras]

I don't disagree with your argument, but I think it's fair to point out that it's based on IMO a false premise.

Again, IMO, only a chump would pay 1% on $5M. RIA sticker prices I have seen are more like 50bps on $5M and prices can be negotiable depending on what the client wants from the advisor. If you are high maintenance or need extensive support doing planning that's one thing. If you just want general support for an AA and a fairly passive investment strategy I would go for lower than 50bps. To your point, it's still a lot of money and maybe not worthwhile, but it shouldn't ever be 1% on $5M.

For a very short time in 2015 we used an RIA who charged us 45 bp for AUM. I quickly realized, thanks to this forum, that many funds were providing the RIA at XX Trust Bank a kick back of 25 to 75 bp, and the stocks they bought mirrored some fund holdings by VG VWENX. The bond funds did poorly, due to the high fees. Their "short fund" lost a lot. In short, I continue to track what was held there against our current non-managed low cost portfolios and we are far ahead of that advisers "balanced blend" using MPT. The cost point was you get a low RIA fee for millions under management (family deal), but they make that all up in funds that pay them to sell.

When I used Schwab to hold my money, I also learned they recommended funds that provided similar kick backs, its in the details of the fund fees. Some VG funds could not be held there, In all, VG is a slug but it is very transparent, so a majority is now held there.

 

[kcowan]

I would think around $100 million. But not sure. I don't see any problem managing up to $25-50million myself. I'm an unusual case though since I am better qualified and interested than most to self manage (MBA, CPA, CFA). I enjoy managing my portfolio. The thought of paying some guy $500,000-$1,000,000 every year kind of puts me off. But everybody is different.

I think the issue is that scale can create problems. I can sell 100 shares no problem but I cannot sell 500k shares without impacting the market, requiring multiple trades et al.

Well, I could manage $10-$20MM (or more) on my own, too, but when the nest egg gets to be that large, it becomes a simple matter of freeing up more of your time. When your passive income gets to be so high (say, $35,000/month from a $12 million portfolio) that you have, essentially, unlimited discretionary money to spend on whatever you want, wouldn't it make sense to pay someone to manage your money and free up some of the time and "brain space" being devoted to personal financial management? IOW, you use a little bit of something you have an excessive amount of (money) to free up a little bit of something you have a very limited amount of (time).

Using the exact same reasoning, if I had a $12 million net worth, I would hire a maid to come in and clean my house, wash my clothes, do the dishes, etc. several times a week instead of spending time doing those kinds of drudgeries myself.

We outsource much more than we used to. Will we reach the stage when outsourcing asset management will make sense? It depends. We hire a property manager when we are away. Trying to manage remotely is too much trouble. But I can manage our assets from anywhere. We have over 100 holdings. Would that become 1000 if we had 10x the portfolio. I doubt it. It might be 150 but with higher amounts. I know the super rich have multiple non-income producing properties. They probably employ FAs.

I don't disagree with your argument, but I think it's fair to point out that it's based on IMO a false premise.

Again, IMO, only a chump would pay 1% on $5M. RIA sticker prices I have seen are more like 50bps on $5M and prices can be negotiable depending on what the client wants from the advisor. If you are high maintenance or need extensive support doing planning that's one thing. If you just want general support for an AA and a fairly passive investment strategy I would go for lower than 50bps. To your point, it's still a lot of money and maybe not worthwhile, but it shouldn't ever be 1% on $5M.

An extreme example: I wanted to try some DFA funds, which are only sold through RIAs. Zero maintenance client; just buy and hold $100K worth for a couple of years and see how they do. I managed to negotiate a 50bps fee for this. The RIA is of course hoping that if they do well we will put some serious money with them. Interestingly, the RIA told me that he felt bad charging me just because he is a gatekeeper for DFA and he asked if there was anything else in our planning he could help with to better earn even this fee.

Yes I am pretty sure that you are paying too much when your guy admits it!

I had a FA 10 years ago covering half of my assets, I kept the rest. Over 8 years I generally had a higher return (before fees) than he did, so I fired him and now handle it all myself. My minimum desired WR is only 1.5%, so at 1% fee, a FA would be taking 2/3 of what I need. Not a good deal.

I always want fees expressed in $ rather than %. Then I can compare its value to other fee for service alternatives. This is how I convinced MIL to leave her portfolio manager.

 

[Fedup]

On second thought, maybe buying Berkshire shares would be good enough.

 

[Sojourner]

The part that gets me on a FA is why should I have someone who can't amass the amount in the first place, have control of my money? In other words, if the FA isn't smart enough to have an equal amount or more, why should I hand over the keys to someone who can't afford a car? That's the part that gets me. I know for some people a FA is a necessary thing. But unless someone knows more than me, they are not getting control. You can apply that statement to any amount of money you wish. IOW if they are so smart, what are they doing still working?

Hmm, I think this analogy doesn't quite hold up. Let me preface this to say that I do not employ an FA to manage my assets and generally don't believe they are needed in the vast majority of cases. But saying that someone with a $50 million portfolio (for example) shouldn't retain a trained, qualified FA to help manage their vast fortune just because that FA isn't himself/herself a multimillionaire is kind of like saying you shouldn't take advice from your doctor because he's overweight and has high blood pressure. It could be that his medical knowledge and skills are unparalleled but he simply lacks self-control and discipline with his own personal habits. That doesn't mean he can't diagnose and treat your medical condition with his extensive knowledge and expertise. Same goes for an FA in many cases. I consulted with a fee-only FA for a few hours several years ago, and he freely admitted his net worth was far less than mine at the time. Yet I received excellent advice from him which has worked out exceedingly well for me. The fact that he wasn't a millionaire could be easily explained by things like his being much younger than me, having multiple children still in school, going through a costly divorce, having a significantly lower salary than me, and so on.

 

[Texas Proud]

Hmm, I think this analogy doesn't quite hold up. Let me preface this to say that I do not employ an FA to manage my assets and generally don't believe they are needed in the vast majority of cases. But saying that someone with a $50 million portfolio (for example) shouldn't retain a trained, qualified FA to help manage their vast fortune just because that FA isn't himself/herself a multimillionaire is kind of like saying you shouldn't take advice from your doctor because he's overweight and has high blood pressure. It could be that his medical knowledge and skills are unparalleled but he simply lacks self-control and discipline with his own personal habits. That doesn't mean he can't diagnose and treat your medical condition with his extensive knowledge and expertise. Same goes for an FA in many cases. I consulted with a fee-only FA for a few hours several years ago, and he freely admitted his net worth was far less than mine at the time. Yet I received excellent advice from him which has worked out exceedingly well for me. The fact that he wasn't a millionaire could be easily explained by things like his being much younger than me, having multiple children still in school, going through a costly divorce, having a significantly lower salary than me, and so on.

I agree with this... I will give another example that happened to me... my son's soccer coach decided to quit and I said I would volunteer... my son hated the idea... I pressed him on it and he said 'you do not look like a coach'... well, I have the knowledge needed to coach and I can show you many professional coaches that are much fatter than me...

The team was 17-3 and scored many more goals than the previous year even though we played teams that were up to 3 years older than mine... DS never came back to say he was wrong

 

[GravitySucks]

Nephew had a job with two other lawyer / CPAs managing one mans (one family?) money.
I'd like to have that much.[emoji39]

 

[UnrealizedPotential]

Hmm, I think this analogy doesn't quite hold up. Let me preface this to say that I do not employ an FA to manage my assets and generally don't believe they are needed in the vast majority of cases. But saying that someone with a $50 million portfolio (for example) shouldn't retain a trained, qualified FA to help manage their vast fortune just because that FA isn't himself/herself a multimillionaire is kind of like saying you shouldn't take advice from your doctor because he's overweight and has high blood pressure. It could be that his medical knowledge and skills are unparalleled but he simply lacks self-control and discipline with his own personal habits. That doesn't mean he can't diagnose and treat your medical condition with his extensive knowledge and expertise. Same goes for an FA in many cases. I consulted with a fee-only FA for a few hours several years ago, and he freely admitted his net worth was far less than mine at the time. Yet I received excellent advice from him which has worked out exceedingly well for me. The fact that he wasn't a millionaire could be easily explained by things like his being much younger than me, having multiple children still in school, going through a costly divorce, having a significantly lower salary than me, and so on.

Yes, I could see where the majority of people will feel like you. All I can say is it is a tough World. I trust my closest relatives and that's it. It doesn't mean I think you are wrong in your post. My life experiences make me feel the way I feel. I am only saying I would not trust a FA. What other people do with their money is their business and I do not pass judgement, nor do I have that right.

 

[Rustward]

I had a FA 10 years ago covering half of my assets, I kept the rest. Over 8 years I generally had a higher return (before fees) than he did, so I fired him and now handle it all myself. My minimum desired WR is only 1.5%, so at 1% fee, a FA would be taking 2/3 of what I need. Not a good deal.

Maybe it would have worked out better if you had negotiated a lower fee.

I usually pay $20 to $30 to change the oil in my car. I am sure they would gladly do it for $100 but I would not pay that much.

I pay waaay less than 1%. Who is at fault if you overpay?

 

[Texas Proud]

Nephew had a job with two other lawyer / CPAs managing one mans (one family?) money.
I'd like to have that much.[emoji39]

But if you have $100 mill that is kinda cheap... and if you have more it is basically a rounding error....


Back when I graduated from college I did taxes... one return we did would 'break' the computer program since it was so large... the guy would get about $10 mill a year in dividends and have 400 pages of stock trades on the return... this was before computer were becoming a thing... ALL of his stock trades were kept on index cards... from what I understand he did most of the trading, not a broker..


Once when talking to one of the guys he said that they had already 'retired' 3 brokers at Merrill Lynch...


OH... edit to add... a lot of these rich people also have money invested in other assets than stocks... someone has to keep track of all that... one client we had did not stay in hotels for at least 30 years from what I was told... he bought a condo or other place everywhere he wanted to go... he would rent them out when he was not there... this was all over the world and it took a good amount of time to just account for the real estate...

 

[Koolau]

+1

To answer the specific question, I would start thinking about retaining an FA if my net worth were to approach the $10-12 million mark. That's the point at which I'd have so much money to burn, I might as well outsource things like portfolio management to free up the 2-3 hours per month I would otherwise be spending to do it myself.

Funny you should mention this. I guess I take the apposite view (It's not YOU, it's ME): If I had $10-12 mil, I'd probably just put it all in Treasuries (or if I needed the exercise) 40 to 44 different FDIC insured bank accounts. Why take any risk if you have 5 or 10 times the most you would ever need? I use equities in my AA, NOT because I want to . I use them because I may not have enough money without them. Given enough money, why would I take any risk (beyond the full faith and credit clause.) YMMV

 

[Totoro]

A fiscal advisor would be useful pretty fast, I could use one today and I am below $1M. I am doing it DIY style but pretty sure I leave several 1000s on the table every year. And it will become more complex as time goes by.

An investment manager is only useful if you go active and broad (10+ investments which require attention) in my view - otherwise I don't see the point. Even at 100M, what would a FA do if you are in a few passive funds buying and holding?!

Last but not least, I can imagine an administrative burden starts to become pretty annoying if you go above several 10s of millions, just to keep up with anti-fraud and (inter)national regulations. Especially if you individual investments where you have more than 5% share. A nice accountant will do that for you.

 

[marko]

Know a guy who's a FA. His company only manages clients with over $100MM and his typical client is between $300MM and $600MM.

It is generally family money all pooled together and 3rd or 4th generation money.

His clients have no idea how to manage such amounts and he claims that their main concern is an extreme paranoia that it will all somehow disappear. They're highly skeptical of outside advice (other than his company) and strangers suddenly trying to become friendly.

He doesn't so much as tell them what to invest in but more to guide them on how to manage, spend and grow the resource.

Sometimes one of them will get a hair-brained idea and they'll run it by him for a second opinion; he won't tell them yes or no but offer a perspective.

 

[Sojourner]

If I had $10-12 mil, I'd probably just put it all in Treasuries (or if I needed the exercise) 40 to 44 different FDIC insured bank accounts. Why take any risk if you have 5 or 10 times the most you would ever need?

An investment manager is only useful if you go active and broad (10+ investments which require attention) in my view - otherwise I don't see the point. Even at 100M, what would a FA do if you are in a few passive funds buying and holding?!

Yeah, I think if I were to ever consider retaining an FA, it would be more about overall financial "optimization" than simply about which funds or specific investments to hold. I'd want someone who could manage my portfolio such that it was optimal from both a tax and long-term growth perspective while providing steady income in the most efficient, convenient way. Also would want to ensure everything was setup well in terms of estate planning. I think with a $12 million portfolio, for example, those kinds of considerations could be complex enough that I'd consider some sort of an arrangement with an FA worth the money.

 

[kcowan]

I had a Broker who only recommended buys this he had bought. I did pretty well with him, taking half his picks. When he retired, I stopped using a broker but I had gained much of his knowledge so I went discount DIY. I also have some managed funds with an insurance company to pay for their term insurance and an FA who manages 1/8 of our portfolio. We keep him to handle our finances when I die first. Is he overpaid. Yes. But it is cheap insurance.

 

[audreyh1]

Is there a size of portfolio that makes it sensible to employ a Financial Adviser? My response was always "NO"......but as I get older and my portfolio increases I can see asking for advice on estate planning....but not investing.

For us I imagine just simplifying investments as we get older, and even at some point not even bothering to rebalance, but just leave it alone in a collection of mutual funds. We don't own property besides our house and vehicles, and all our investments are in mutual funds, cash and a few stocks, so it's easy and scales easily.

As for other services - estate planning, we'll hire professionals, and maybe even a CPA/tax person at some point. We may decide to stop doing our own taxes.

But in terms of investment help I don't see beyond perhaps calling Fidelity to get more help as needed.

My portfolio is twice what I started, and it's not any more work to manage at all. I'm more concerned about simplifying things for when I'm in my 80s. I thing that's mostly a matter of shifting things to funds like balanced funds and/or funds that can be left on their own.

Before that - I think we'd have to get past $20-25M before I felt the need for investment help. Hard to imagine what would change. I've been doing this so long it's second nature.

 

[audreyh1]

I think the issue is that scale can create problems. I can sell 100 shares no problem but I cannot sell 500k shares without impacting the market, requiring multiple trades et al.

You can easily sell $500,000 from a large AUM mutual fund with no problem. So I don't get your thinking about scaling problems.

 

[mickeyd]

Since retiring 10+ years ago. my mantra has been simplicity. Adding a FP to my mix would just make the whole deal more complicated. Gonna keep it so that my hand alone is on the tiller.

 

[kcowan]

You can easily sell $500,000 from a large AUM mutual fund with no problem. So I don't get your thinking about scaling problems.

You are using $ and I was using number of shares. So try to sell 500,000 APPL shares in one transaction!

 

[Texas Proud]

You are using $ and I was using number of shares. So try to sell 500,000 APPL shares in one transaction!

Well that is approaching $75,000,000... and since you should not have over 5% in one stock that would suggest a portfolio of $1.5 BILLION....

Yes, I would say that if you happened to own 500,000 share of APPL you might need a FA....

BUT, I will also say that it is pretty liquid and you could sell those shares without much fuss... it is less than 2% of the avg daily volume... so now you are back to NOT needing a FA....

 

[Totoro]

You might need a pre-emptive lawyer though - in case the stock moves down right after and people start coming after you for perceived insider trading ..

 

[Danmar]

You are using $ and I was using number of shares. So try to sell 500,000 APPL shares in one transaction!

Keith, you raise a good point but your example is a little exaggerated as Texas pointed out. I have found it's sometimes a little difficult to sell much smaller lots without moving the market but it's generally only a cent or two and not much of an issue if you are careful and use limit orders.

 

[kcowan]

Well that is approaching $75,000,000... and since you should not have over 5% in one stock that would suggest a portfolio of $1.5 BILLION....

Yes, I would say that if you happened to own 500,000 share of AAPL (fify) you might need a FA....

BUT, I will also say that it is pretty liquid and you could sell those shares without much fuss... it is less than 2% of the avg daily volume... so now you are back to NOT needing a FA....

The only reason I mentioned it is that when we were raising money for a venture, the guy we were dealing with at Bear Stearns on Park Avenue was occupied with selling 1,000,000 shares of amazon for his client and he had to keep ducking out to make sure they were not driving the market down before making the next trade...

(I think I can manage a cottage but would require help with a 100 room lodge even though it is doing all the same stuff. Similarly scale also applies to trading.)

On a smaller scale, I trade convertible debentures, and they suffer from lack of liquidity, so the same issues arise at much lower $ values!

 

[Texas Proud]

The only reason I mentioned it is that when we were raising money for a venture, the guy we were dealing with at Bear Stearns on Park Avenue was occupied with selling 1,000,000 shares of amazon for his client and he had to keep ducking out to make sure they were not driving the market down before making the next trade...

(I think I can manage a cottage but would require help with a 100 room lodge even though it is doing all the same stuff. Similarly scale also applies to trading.)

On a smaller scale, I trade convertible debentures, and they suffer from lack of liquidity, so the same issues arise at much lower $ values!

I understand what you were saying... but I also think that there are not a lot of 1 million share trades going on by individuals...

If you have $100 mill, then you are going to (more than likely) buy some market ETFs and hold... I doubt anybody here at least would invest it all in individual stocks... but even if they did they would hold and not trade huge amounts at a time...


Also, if you do have a lot of money to invest you will get the phone number of the head of your favorite funds... when I was a trustee I would get some big chunks of cash in every month... sometimes north of $200 mill... I would call the head of the MM fund I was going to invest into and let him know a few days prior to getting the money so he knew it was coming... he was appreciative of the heads up...


I also think that whichever brokerage firm you were with they would assign people to cater to you and do this kinda work for free.. no need for a FA to help you sell your million shares...

 

[audreyh1]

Yeah, I figure I could get Fidelity to help me gradually sell a very large position. But I can't imagine needing to sell 500K shares of some stock all at once. This is not something I'm going to have to worry about anyway.

We own few stocks. Most of our positions are mutual funds. These scale easily. Most funds have over a billion in AUM. The largest funds are over $100B AUM. I figure the strategy is to simplify and own highly liquid investments - something I am doing already, because it makes things easier!!!

So, if you own primarily stocks, I can see how managing a portfolio of $20M in stocks might be harder than $2M, if you increase the number of stocks you own. But if you keep the same number of stocks, and trade infrequently, what is the practical difference? If you put in a limit order to sell 1000 shares of something rather than 100 shares, the brokerage will break it up into smaller share amounts unless you tell them not to.

 

[kcowan]

I also think that whichever brokerage firm you were with they would assign people to cater to you and do this kinda work for free.. no need for a FA to help you sell your million shares...

Well the guy doing the selling was pretty negative on the trade so you might be right! Not acting like an FA at all.