Paying an advisor - young vs old - time horizon

[joesxm3]

I know that paying an advisor 2% every year is a disaster due to the compounded value of a 2% CAGR over a lifetime. But suppose you are older and find an advisor that you feel is really good. Would paying the advisor for your last 15 or 20 years not be as bad as over your lifetime starting at 25?

Maybe also a benefit to the advisor taking over as you decline. I guess that might mean a younger advisor which might go against the idea of having found a good advisor.

 

[RetireBy90]

I struggled with that as I don’t want or need advisor but wanted someone DW could go if I go first. I didn’t want to have DW get comfortable with someone that was within 15-20 years to retire just when she needed them.
I found a no cost from Fido that is younger and DW is comfortable with. Seems like it will work well. YMMV

 

[Al18]

At 2% of assets is HALF of your typical 4% withdrawal rate per year for retirees. Your spouse is collecting the same amount every year. Are you comfortable with that?

 

[engineernerd]

Of course it's not as bad to pay an advisor for 15 or 20 years as it is to pay one for 40-50 years

I'm not sure it's in a financial advisor's job description to "take over" for someone in decline or with dementia, though. I'd think you'd want someone more personally invested in you, such as an adult child or perhaps a niece or nephew, who isn't going to disappear on you even if they physically move away. Someone you've known long enough to be pretty sure about his or her integrity. Even if it's someone your age, I'd say that's better than someone you only recently met and only know professionally.

One of my uncles had a very nice financial advisor managing his portfolio for him, but that guy's mom had an expensive ongoing illness, and we found out when uncle died that he'd been churning the portfolio quite a lot. Uncle still did OK financially (I think the guy didn't want to hurt him), but the 1099 we got from him for the estate was like a book!

 

[target2019]

I know that paying an advisor 2% every year is a disaster due to the compounded value of a 2% CAGR over a lifetime. But suppose you are older and find an advisor that you feel is really good. Would paying the advisor for your last 15 or 20 years not be as bad as over your lifetime starting at 25?

Maybe also a benefit to the advisor taking over as you decline. I guess that might mean a younger advisor which might go against the idea of having found a good advisor.

There are benefits as you point out. What of the disadvantages?
- Ending balance is substantially reduced
- Compounding of the fee hurts you just as compounding of interest helps you
- Higher costs of the investments
- Limited selection of investments

I'm sure I've missed other points. A generalized question without details is an interesting diversion. But when numbers are plugged in to the analysis it probably feels different for you and I.

The advantages are not something to ignore, neither are the disadvantages. I involve my spouse and adult children (40 and 35) in many things. In fact we talk about legacy and what is required now to make sure we've covered the plan execution. That has been slowly evolving for at least 10 years.

In the near future we're meeting up with a sister-in-law, at her request. It's interesting that she wants to talk investments, even in the case of having a paid financial advisor. I mention this all the time in social media replies. How do you know that FA is someone you can trust now, and into the future. Their business and/or employer may change. Where does that leave you?

 

[Koolau]

I know that paying an advisor 2% every year is a disaster due to the compounded value of a 2% CAGR over a lifetime. But suppose you are older and find an advisor that you feel is really good. Would paying the advisor for your last 15 or 20 years not be as bad as over your lifetime starting at 25?

Maybe also a benefit to the advisor taking over as you decline. I guess that might mean a younger advisor which might go against the idea of having found a good advisor.

Instead of trusting an advisor to make you the most on your investments, why not simplify your investments to the point that they more or less take care of themselves.

The so-called Couch Potato portfolio comes to mind where you only own two or perhaps three mutual funds that you balance once a year. You might not make as much, but you wouldn't have the churning costs you would likely have with an advisor either. Nor would you pay someone 2% for the privilege of managing your money.

I think it's important to start with your financial goals and then devise a plan that helps you meet them.

Are you needing money to live on as you age? Is your main goal simply to pass a nice legacy to the kids? Do you want to leave money to charities? Are you already set covering your monthly expenses or do you see a time when you will need to draw down your investments to live.

Answer such questions and then you may find that you don't need an advisor to "look after you."

Best luck in whatever you decide.

 

[Sunset]

Wow.... I consider 1% pretty high for an advisor, but 2% !
Might as well cut off my arm and leg as well.

I'd much rather pay Vanguard 0.3% for the autobot, at least I believe it won't be greedy and churn to burn the portfolio to pay off a sailboat/car or whatever else the FA wants.

 

[Gallaher]

Started using one a couple of years ago for my wife, cost .5%.
Until recently I was always DIY for last 40 years.
My darling wife has a graduate degree in accounting and zero interest/awareness of investing. She’d put it all in her checking account and forget it. A perfect example: as I type this I am asking her about her (very nominal) pension. The is the same conversation we’ve had for five years. “No, I still haven’t done that and I’ll give some lame reason for not”.
It’s a good thing she is a good spouse. It’s worth the cost to the advisor to make sure she is okay if I proceed her.
If I pass first she only needs to make one phone call.

 

[Koolau]

Started using one a couple of years ago for my wife, cost .5%.
Until recently I was always DIY for last 40 years.
My darling wife has a graduate degree in accounting and zero interest/awareness of investing. She’d put it all in her checking account and forget it. A perfect example: as I type this I am asking her about her (very nominal) pension. The is the same conversation we’ve had for five years. “No, I still haven’t done that and I’ll give some lame reason for not”.
It’s a good thing she is a good spouse. It’s worth the cost to the advisor to make sure she is okay if I proceed her.
If I pass first she only needs to make one phone call.

But that means you need to have near perfect trust in the advisor. I barely trust myself to handle my own finances. How would I trust someone who only looks at my finances as a chance to make more money?

 

[jazz4cash]

I struggled with that as I don’t want or need advisor but wanted someone DW could go if I go first. I didn’t want to have DW get comfortable with someone that was within 15-20 years to retire just when she needed them.
I found a no cost from Fido that is younger and DW is comfortable with. Seems like it will work well. YMMV

Pretty much the same here. Execellent point about the advisor’s age. Applies to doctor’s too! I don’t need an advisor but DW might if I’m gone. I have a free Fido advisor now that DW has met. Eventually we may move her assets to Fido too. I don’t doubt he may upsell her to an advisory service. That’s OK and I trust that he would not exploit (i.e. sell her a crappy annuity or some other scheme).

 

[Gallaher]

But that means you need to have near perfect trust in the advisor. I barely trust myself to handle my own finances. How would I trust someone who only looks at my finances as a chance to make more money?

Well you know there are laws in place that offer some protection and I’m confident my estate attorney would be up their a$$ like a bulldog if they got shady.
Of course that brings up another point….i pay an estate attorney because the estate is too complicated for me to manage. Disabled son and all.

 

[Jerry1]

Instead of trusting an advisor to make you the most on your investments, why not simplify your investments to the point that they more or less take care of themselves.

This ^^
In your later years, put whatever your equity allocation is into a total stock etf/index fund and the rest in a money market fund. As said, for basic questions like moving money when needed, Fidelity and the others all have staff that will help you for free. Just tell DW not to let them put her into any other products.

If DW needs help beyond that for things like paying bills and basic money management, you need a different type of professional for that.

 

[Koolau]

Well you know there are laws in place that offer some protection and I’m confident my estate attorney would be up their a$$ like a bulldog if they got shady.
Of course that brings up another point….i pay an estate attorney because the estate is too complicated for me to manage. Disabled son and all.

Yes, there are legal remedies for shady business practices. Unfortunately, they rarely make you whole and they are always stressful. Most shady people know how to run or declare bankruptcy or wiggle out of such things.

If I had enough money and wanted to make certain it would be there for DW, I'd be tempted to simply buy annuities that would kick in at various times and that would certainly cover her expenses. I don't particularly like annuities, but they are seamless to the person receiving the payments and would take away the need to "manage" anything.

 

[engineernerd]

I struggled with that as I don’t want or need advisor but wanted someone DW could go if I go first. I didn’t want to have DW get comfortable with someone that was within 15-20 years to retire just when she needed them.
I found a no cost from Fido that is younger and DW is comfortable with. Seems like it will work well. YMMV

Are you SURE you can't persuade DW to learn how to handle finances herself? Tell her there are so many sharks out there these days...

 

[OldShooter]

Unless the AUM is quite small, demanding a 2% fee is prima facie evidence that the FA is not "really good" and is not to be trusted. Keep shopping.

 

[Gallaher]

Are you SURE you can't persuade DW to learn how to handle finances herself? Tell her there are so many sharks out there these days...

Do you think I haven’t tried in 37 years of marriage?, repeatedly?
During those jovial spats all couples have she says “ I’d take you for everything in a divorce” of course she is kidding. My retort “you wouldn’t know where to look for anything!” And of course I’m kidding.
My relationship is more valuable than my money. She can have it all if she wants.
Bottom line, everyone’s situation is different and they should manage the way they choose. We have plenty and I’m going to go squander a bit, got an appointment to buy a boat in 30 minutes.

 

[aja8888]

Do you think I haven’t tried in 37 years of marriage?, repeatedly?
During those jovial spats all couples have she says “ I’d take you for everything in a divorce” of course she is kidding. My retort “you wouldn’t know where to look for anything!” And of course I’m kidding.
My relationship is more valuable than my money. She can have it all if she wants.
Bottom line, everyone’s situation is different and they should manage the way they choose. We have plenty and I’m going to go squander a bit, got an appointment to buy a boat in 30 minutes.

My DW didn't know or care about finances either (like you, I tried to educate her). She passed before me, but if she didn't, I'm sure she would have figured out something. Heck, I'd be dead and wouldn't know what happened!

I know several widows with more money and assets than me and they all seem to be doing OK. Some get New Husbands, some have family that helps them (and help spend it too!).

 

[RetireBy90]

My DW didn't know or care about finances either (like you, I tried to educate her). She passed before me, but if she didn't, I'm sure she would have figured out something. Heck, I'd be dead and wouldn't know what happened!

I know several widows with more money and assets than me and they all seem to be doing OK. Some get New Husbands, some have family that helps them (and help spend it too!).

And I didn’t marry a blond, but it doesn’t hurt anything to provide and plan for different outcomes. I plan to fight the dirt long enough to survive her but then sh#t happens.
Doesn’t cost me anything for our “ advisor” from Fido and the once or twice a year getting DW and advisor together has brought some familiarity with subject to DW.

 

[Aerides]

2% is always bad. Plenty of retail advisors out there for 1%.
I do think there are scenarios, and people, for whom an advisor is a good idea, or at least, not a bad one.

 

[Stormy Kromer]

I remember when I first started investing, around 1987. I had $10,000. I called a financial planner that had a radio show in a nearby city, told him I was interested in starting to invest. When I told him I had $10,000, he cut me off and said "call me back when you have some money kid".

I wish I had the internet and Vanguard and this forum at that time, I'd have at least twice what I have now.

 

[Stormy Kromer]

Unless the AUM is quite small, demanding a 2% fee is prima facie evidence that the FA is not "really good" and is not to be trusted. Keep shopping.

My FA had me at 1.5% AUM. After I FIRED I took the time to look up the funds he had me in. Thay had internal fees of around 1% or more. No wonder my accounts couldn't perform close to their benchmarks. When I questioned the FA why my funds never came close to their benchmarks he told me something like over time they will because the average investor panics and sells low....or some other bull story.

I fired him, went to VG index funds and sleep well. The savings from his fees cover our living expenses.

 

[mrfeh]

I know that paying an advisor 2% every year is a disaster due to the compounded value of a 2% CAGR over a lifetime. But suppose you are older and find an advisor that you feel is really good. Would paying the advisor for your last 15 or 20 years not be as bad as over your lifetime starting at 25?

Maybe also a benefit to the advisor taking over as you decline. I guess that might mean a younger advisor which might go against the idea of having found a good advisor.

Absolutely not.

Investing is not rocket science. Follow the boglehead philosophy and save yourself a boat load of money.

 

[DrRoy]

I would keep looking for a flat fee only advisor.

 

[joesxm3]

Just to clarify. I am not actively looking for an advisor. I was watching the Peak Investing podcast and find Paul Kiker seems sensible and similar to my thoughts. That got me thinking and I felt this would be an interesting topic to discuss.

I just picked 2% out of the air. Maybe I confused it with the 2% hedge fund fee.

I agree it would be best to have the trusted advisor be fee only.

I agree that a child or trusted younger friend would be better but I have neither. That is a bigger problem to work on.

 

[jazz4cash]

The recent volatility will send many unseasoned investors straight into the arms of AUM advisors and annuity sellers.