One more reminder to stay clear from financial advisers

[NanoSour]

For giggles, and to check on a potential job opportunity for a friend, I stopped by unannounced at a independent FA office yesterday. This was a 5 person operation, 3 IAs and 2 admin folks. I got the business owner to disclose his AUM as approximately $200M and 700 clients; mostly teachers in a MCOL city. He showed me lots of different software that he uses to select investments for his clients. I asked about how many different assets would he put into my accounts and he said 20-24 stock/funds distributed equally based on their research. He had a recent college graduate as his research analyst...omg. His AUM fee was 1.25% for assets under $250K and 1% for above $250K. He tries to keep total account costs including fund/trading fees to 1.5% or less. On a $1M account invested 60/40 with a real rate of return of 3-4% you are looking at giving away roughly 25% of your return. I used Personal Capital Fee Analyzer for this number. This is over $16,000/year, or a check every month for $1,333 to your coveted, very friendly, and wealthy FA.

According to Kitces, an independent FA will pocket between 45-65% of AUM revenue. Given, that smaller accounts (less than $250K) pay a 1.25% AUM fee and most of his accounts at at that level, let's assumes all in he at 1.1% of AUM of $200M. That's $2.2M revenue and him making somewhere between $990K and $1.43M...honestly, as a christian, how does he sleep at night?

If people were aware of how little time they spends on your account (1 of 700), and how much money they are taking off your table, they would find a better way. For me, even the .3 VFAS is not worth it as personal investing for retirement is just so simple.

 

[braumeister]

If people were aware of how little time they spends on your account (1 of 700), and how much money they are taking off your table, they would find a better way. For me, even the .3 VFAS is not worth it as personal investing for retirement is just so simple.

I'm not sure you're being entirely fair. You have to look at the FA's entire budget.

 

[youbet]

as a christian, how does he sleep at night?

Can you expand on this?

 

[NanoSour]

Can you expand on this?

I should try better to not get personal, so it's best not to comment further on this. I will say I think we're all aware that many people in sales use the church as a pool of potential clients. Same goes for most other social clubs; i.e. Rotary, Lion, R&G, etc, etc.


BTW, a CKA certification was a new one on me.

 

[sparky08]

All financial advisors are not bad.
If one chooses to use one, it is in your best interest to vet them well, make sure they are certified, are a fiduciary, check references.
A one time fee only check can often ease someones mind.

This is what we did. One time fee ( 1/2 up front, and 1/2 after the work/presentation). Included in the fee was 30 days of followup meetings as we digested the material.

He walked us through the findings on software (think FireCalc on major steroids) and then gave us an account to use it ourselves.

No pressure to buy anything.


Followup meetings are hourly and we will probably checkin once a year or so.

 

[Rianne]

We are going to meet with an accountant to discuss strategy, tax implications, best WD method. It will be one meeting, fee-based. I figure @ $400. There will be no discussion about our AA or where we have our funds etc. We will discuss treasury notes and how they work for future cash flow and how interest, CG, and tIRA withdrawals are taxed for the best strategy going forward.

 

[Which Roger]

Yes, managing one's investments is relatively straightforward once everything is set up. But it takes a decent grasp of mathematical concepts to be able to convince oneself that DIY is better paying big $ to an advisor, and then to set up a DIY portfolio. The vast majority of us on this forum have a solid grasp of concepts like percentages and compounding and risk and whatnot, but that's far from true for the general population. Furthermore, most of us actually things that topics like this are interesting, but most people are not wired the way we are.

 

[SecondAttempt]

So what does one do?

When I first got together with my ex-wife in the late 80s she was pretty good with money and had a modest portfolio of funds with a full service brokradge most from an inheritance. I knew essentially nothing. But I had a good job and made lots of money so it was time to start investing. I talked to xDWs broker a few times and, in retrospect she gave me good advice.

But xDW encouraged me to read and learn. I have been reading and learning since then, got an MBA in finance along the way, have dabbled in options, paper portfolios of financial derivatives (turns out my PhD in engineering involved learneing a lot about Ito calculus which is used to value derivatives and in the late 90s you could make about half a milion a year doing this kind of thing though I never did.)

Anyway, I now think I know a lot. Keep it simple, keep expenses low, etc. Things I think most people here would agree with. I do believe in market timing to some extent but we are talking maybe 1-2 major moves per decade and I have done quite well on most of them. I got out before the tech crash. I got out in September 2008 and went back in in February 2009. So no apologies there.

But my dilemma is that my new partner has no interest in money management or investing. She was raised by a step father who was very successful, attorney-general for a country, supreme court justice for an American territory. But he never owned any stocks and taught her not to. She is not stupid, just has no interest or experience. She has a fair bit of money of her own but all in a bank. It's enough that I constantly sure she is not over FDIC limits. She also has a generous state pension.

So as I contemplate retirement and a time when she might inherit my money and have to make decisions, I'd like to have a trusted adviser to help her. So while I agree with the general sentiment toward advisers expressed here, I personally would like to find one to be there when the time comes. Fortunately, at 57 and in generally good health, it is not an urgent problem.

 

[DrRoy]

I had one for a while but fired him. That was 10 years ago.

 

[athena53]

I should try better to not get personal, so it's best not to comment further on this. I will say I think we're all aware that many people in sales use the church as a pool of potential clients. Same goes for most other social clubs; i.e. Rotary, Lion, R&G, etc, etc.

I agree. I heard a sadder story. DH's church in NJ had a "financial planner" on their vestry (governing board). She talked them into investing part of their spare cash in a mutual fund. It was just before the dot-com crash. Fortunately it was only a portion of their assets- I'd say the loss was 20% of their assets- but I bet the account was opened through her. Clear conflict of interest.

We did have one financial planner in my church. I was Financial Secretary at the time so I had access to this information, but there were a couple of years when they gave $80,000 so I think he did pretty well. He was very low-key- never tried to get anyone's business AFAIK.

 

[pb4uski]

Some people are better off with a financial advisor. I know someone who got pulled into the hype around crypto currency, sunk a large chunk of her savings into it, and is now looking at a huge loss and spoiled hopes of retirement. ...

I'm not sure why you are assuming that an FA would have kept that person from sinking a large chunk of her savings into crypto. If the client was insistent on crypto and there was comp for the FA...

 

[NanoSour]

So what does one do?

So as I contemplate retirement and a time when she might inherit my money and have to make decisions, I'd like to have a trusted adviser to help her. So while I agree with the general sentiment toward advisers expressed here, I personally would like to find one to be there when the time comes. Fortunately, at 57 and in generally good health, it is not an urgent problem.

Here is something to contemplate and the actionable item that I implemented. I had all my accounts with Vanguard until last year when I moved them to Schwab for a sizeable transfer bonus. I worked with a local Schwab office financial consultant that had a CFP certification. I kept all my assets in VG mutual funds and negotiated commission free VG trades. Honestly I don't trade but for div/gain reinvestments which unbelievably trigger a fee at our friend Eddy. I did put a small amount into Schwab's Intelligent Portfolio to keep the consultant available. I explained that the main purpose for moving to Schwab was so that DW had access to a financial advisor should something happen to me. DW is well award of my low-cost index method of investing and should be able to work with him should something happen.



Schwab Intelligent Portfolios are not perfect as they keep a minimum of 6% in cash, but they are fee-free and keep a financial advisor on the hook in case we need one. Certainly beats an annual 1% AUM drag on a portfolio.

 

[kgtest]

It was a bit intimidating trying to retire so early, but I knew that no one would care as much about our nest egg as we did, so I worked hard to educate myself. Probably 2 years before retiring and 1 year afterwards I spent a lot of time reading, forums, etc. after that it was just occasional continuing education.

The best part is DH thinks I’m brilliant! But I did at least get him to shut up about me to friends finally convincing him that helping anyone else was waaaaaay too hard.

Heh, I went down that rabbit hole of trying to help others. It was amazing how far someone would deviate from my "advice". At the end of the day, people will do what people want to do lol.

My DBIL complained that I lost him money even though the entire market was down more than what his folio was doing. My DF constantly wants to try and time the market, even though I tell him not to. My Neighbor got into investing and I warned him about steering clear of day trading pitfalls...but he didn't listen and lost most of his investment. I told my friends to start DCA'ing into the market to grow their portfolio every paycheck...instead they kept BTD. Co-workers asked for advice and I told them they needed to move away from such conservative investments since they were so young, and they just kept holding onto their bonds.

 

[natetheb]

Earlier this year I finally removed all of our assets out from a FA. The first straw was when we opened up a $5k IRA under their management for my wife. After a few years of pitiful returns (<$400 total) when I was experiencing >10% returns per year on everything else, I decided to do a little digging. Our FA was charging >1% for AUM AND the Mutual Fund was charging >1% for AUM. I snatched that out and am happily managing the money myself knowing I don't have any hidden fees out there.

The last thing we did was close the Index Universal Life Insurance Policy (IUL) on myself. We ended up taking a <$5k hit, but I did the math and it worked out to be equivalent to something like $56/month insurance...so not a crazy hard hit. I am happy with my $360/year term life insurance policy and am diligently utilizing the IUL premiums to further grow our networth.

 

[F.I.R.E User]

I left EJ.

 

[rrs26ja]

I managed our investments for 38 years while I was working. After retirement my wife and I had a conversation. She expressed that she was nervous that if something happen to me she wouldn't know what to do about our investments. She has no interest in this. It was then that I decided to look around. I wanted a small firm, not Vanguard , Fidelity, Fisher. I looked for months until I found E3 Wealth. I met with them 3 times before signing on. They spent a lot of time understanding what the purpose of our money was going to be used for. I have one son and 3 grandchildren. I also wanted to make sure that my son would pay little to no taxes on the money he inherited. They developed a plan that included alternative investments, Roth conversion strategy and protection for most of my assets. Their theory was preservation of capital. I have with them since 2020 and couldn't be happier. For 2022 I am down 5.85% how many of you can say that.

 

[HaveEnough]

A little out of band...

Consider your nest egg, what the annual return is and since it is realistically on par with your salary at a J-O-B why not have the same or MORE training. No one will invest your money as carefully as you. AND as Buffet says, invest in what you know.

From my 30's I was considered a HCE (Highly compensated Employee). Many tax deductions reduced or eliminated (yea marginal vs effective, look it up). I got tired of the stock market and the not controllable.

My parents, blue collar, me white collar (engineer). They knew real estate, I was "forced" into it, drywall, electrical, plumbing, trash removal, the only words today are "thank you dad"

Majority of my assets are in Real Estate notes. I have some $ at Fidelity but, candidly, it's under $100K so, meh.

During this entire stock volatility, nothing but growth for me, not bragging. Invest in what you know.

No one will care more about your money that you. Isn't it worth a little time?

 

[audreyh1]

I should try better to not get personal, so it's best not to comment further on this. I will say I think we're all aware that many people in sales use the church as a pool of potential clients. Same goes for most other social clubs; i.e. Rotary, Lion, R&G, etc, etc.


BTW, a CKA certification was a new one on me.

Affinity fraud is a frequent story on American Greed.

 

[jazz4cash]

Anybody else get a super corny “survey” from Vanguard designed to convince you the world would be a better place if you only had an FP? At the end it asks how many correct answers you’d get on a 10 question quiz. I said 9 but the questions were ridiculously easy. Then it asks how many you got correct but it never gives results. At 3 points im the survey its says “this question is to see if you are focused. Select choice ‘X’. Never seen that. Crazy.

 

[athena53]

Sigh.

My church is investing $100K in CDs at EJ. It's through the office in City A (where the church is located). I have the grandkids' 529s at an office in City B and I live in City C. I'll be an authorized user on the church account.

Broker in City C calls me. No, they can't use my info from the account in City B. I can go to an office in City C, show my ID, sign papers, provide SSN and DOB. OK. Two minutes later she calls again. Sorry- she needs my DOB and SSN now. I provide it. I call the office in City C and set up an appointment for 10 this morning. At 9, broker in City A calls me. Am I planning to sign papers in City C today? Yes, I thought I had an appointment. Oh. Five minutes later she calls back. I must have talked with someone else in that office but now they're expecting me.

I got there and the papers were ready except she needed my DOB and SSN.

I can't wait till our Treasurer sends the check to fund the account and I need to get them to invest it.

By contrast- I'm about to hop over to the Fidelity sit and do a Roth conversion. All by myself on-line.

 

[Davis65]

Fee-based advisors?

A friend in Los Angeles desperately needs advice on his portfolio of 20 different index funds, ETFs and funds of funds. It's a mess. Understandably, he doesn't want to pay 1-1.25% a year. I want to suggest a fee-based advisor, but it would be useful to give him a price range so he knows what to expect. How much do fee-based advisors charge in the U.S.?

 

[mickeyd]

Jack Bogle figured this all out years ago. Many of us have used his ideas as a guide for our long-term investing. Nothing in investing is new. Just recycled.

 

[VanWinkle]

A friend in Los Angeles desperately needs advice on his portfolio of 20 different index funds, ETFs and funds of funds. It's a mess. Understandably, he doesn't want to pay 1-1.25% a year. I want to suggest a fee-based advisor, but it would be useful to give him a price range so he knows what to expect. How much do fee-based advisors charge in the U.S.?

Hourly advisor/planner would be 2000 to 3000 for a comprehensive retirement plan. Garrett is one to check out for hourly advisors. No ongoing expense.

 

[bclover]

Not all financial advisors are crooks

Listen, I used a financial advisor for 7 years after my husband died and I'm extremely glad I did and recommend him to my friends. I totally admit for 30 years my husband did the heavy lifting in investing, now don't get me wrong I saved like crazy in my 401k but basically I did the targeted funds based on my age. Easy with nothing to understand

First, all those wonderful "resources " are not always wonderful. I've spent many a boring hour trying to slog through them and many simple made me more confused.
Everyone raves about Bogle and boglheads...I should have save the money I wasted on his books and invested that . Didn't finish one

Now I know everyone here are financial geniuses but I'm not and never will be. I hate figuring out half the stuff vanguard sends to me.

Truthfully now that I have managed my money independently I really couldn't tell you if I'm better off and I know if I hadn't utilized a fa services after losing the love of my life, it would have ended badly

 

[athena53]

Listen, I used a financial advisor for 7 years after my husband died and I'm extremely glad I did and recommend him to my friends. I totally admit for 30 years my husband did the heavy lifting in investing, now don't get me wrong I saved like crazy in my 401k but basically I did the targeted funds based on my age. Easy with nothing to understand

I'm glad you found an honest and competent FA. They do exist. I know plenty of smart people who have zero interest in investing and they're better off with a simple plan such as yours.