Should We?

[Musica40]

We have an acquaintance who gives us financial advice. He has a degree in finance and manages a small group of clients. We started utilizing him in March and he charged $500 to look over our account and to consider rolling over my old 401k to Schwab. He also introduced us to dividends and how they work. He has no access to our accounts and there is no magic to what he does but rightfully so, he feels he should get paid for his services. Today I received this email where he is notifying us that he will be increasing his fees:


Account value less than $100k will be $350 per year
Account value greater than $100k will be $750 per year
The fee covers up to 2 accounts. Any additional accounts will be $350 per account.

Our dividends are not reinvested. They are placed in a cash account.

Should we just accept this or does the rate increase seem steep? 5-10% annual increase would seem fair, but I am having an issue with this increase on principal. Going from $500 to $750 is a lot. Am I wrong?

 

[OldShooter]

I would say that's a deal. In our market, AUM on $1M is 1%, $10K/year. Advisors won't even take $100K accounts, yours is offering 3/4 of 1% or less.

Physically managing accounts is probably the least valuable thing an FA does. Teaching and hand-holding are the most valuable and it sounds like you are happy with what he is doing for you.

$500 one-time is also a bargain. The FAs I know first do not really want to do one-time consults but when they do the price starts at $1K and goes up quickly.

At some point you may have learned enough that this FA is less value to you. But it's always nice to have someone to discuss questions with. So I wouldn't cut him loose too quickly.

 

[jazz4cash]

Its a little unclear what you are asking. Is the rate increase from $500 to $750? That is a steep increase but the cost seems very reasonable compared to most advisors that charge a percentage of assets in the account which ranges from 0.35% at Vanguard to ~1% at most advisors. You left out a lot of details but if you found their explanation of dividends helpful you might benefit from at least putting enough to get the lower tier service fee. Would the funds be held at a low cost custodian like Vanguard, Fidelity, or Schwab?

Edit: Reread your post and it almost reads like this is a side hustle for your acquaintance. I think I’d stay away altogether but I am personally very comfortable to DIY

 

[sengsational]

... and to consider rolling over my old 401k to Schwab ...

If the advisor was looking out for you, and if you have access to a guaranteed income fund in your 401k, there should have been a discussion that included the possible down-side of leaving your 401k. Some 401k's are certainly worth bailing from, if they have high expense ratios. If your advisor didn't ask for the specs on your 401k choices or he did, but you didn't talk about expense ratios, I'd wonder how much of your interests were being considered.

 

[Jerry1]

$500 or $750 seem like a good deal, but I can’t be sure. What exactly does he do for you? Do you just sit down and chat for an hour once a year? Does he gather all your financial information and formally advise you (drafts a letter/plan for you to follow)? Please elaborate a bit.

 

[Musica40]

$500 or $750 seem like a good deal, but I can’t be sure. What exactly does he do for you? Do you just sit down and chat for an hour once a year? Does he gather all your financial information and formally advise you (drafts a letter/plan for you to follow)? Please elaborate a bit.

It's all new to us. He has a small group of people that he shares financial advice with. His fee when we started in March was $500. He reviewed my 401k and had me do a rollover to Schwab. He reviewed our accounts and then sent me an email advising me where to invest my money. All investments minus Tesla are dividend accounts. I have very little contact with him. An occasional email here and there.

 

[pb4uski]

What do you mean by "dividend accounts"? Are they exchange-traded funds, mutual funds, individual stocks, or something else? How many tickers did he recommend? Can you provide the 5 biggest tickers and the % of total for each?

His fees seem pretty reasonable but it depends on how much money you have at play. If the total is $10k then the fees are high, but if $1m then the fees are very reasonable.

You might keep him for a couple years and then evaluate whether you need him and he is worth the cost to you.

 

[Musica40]

What do you mean by "dividend accounts"? Are they exchange-traded funds, mutual funds, individual stocks, or something else? How many tickers did he recommend? Can you provide the 5 biggest tickers and the % of total for each?

His fees seem pretty reasonable but it depends on how much money you have at play. If the total is $10k then the fees are high, but if $1m then the fees are very reasonable.

You might keep him for a couple years and then evaluate whether you need him and he is worth the cost to you.

Upwards of $650K. All stocks. 15 tickers.

Here is a screen shot along with share numbers.

 

[PaunchyPirate]

A $750/yr flat rate fee to advise on a $650,000 portfolio seems very,very fair to me. If he’s providing good advice.

However, I would not want to follow his advice having you invested in a bunch of individual stocks. I prefer highly diversified mutual funds that consist of hundreds/thousands of underlying stocks. Only you can decide if individual stocks is an approach you wish to use. You might consider researching the difference between these two approaches and make your decision. Perhaps you already have done that.

 

[Time2]

Upwards of $650K. All stocks. 15 tickers.

Here is a screen shot along with share numbers.

I don't know if you are retired, or if the accounts are taxable or tax deferred. But the average divided on that portfolio is 3.45%. That's $22,400 on $650,000, I tried to avoid dividends in favor of growth during accumulation.
Again, I don't know your station in life or what type of accounts you have.
Can you tell us that info?


PS, I did not break it down to see how the money is split.

 

[OldShooter]

...However, I would not want to follow his advice having you invested in a bunch of individual stocks. I prefer highly diversified mutual funds that consist of hundreds/thousands of underlying stocks. Only you can decide if individual stocks is an approach you wish to use. You might consider researching the difference between these two approaches and make your decision. Perhaps you already have done that.

@Musica40, I agree with @PaunchyPirate on this, as I think will others who have posted to your thread. My impression is that you are at the beginning learning phase of investing. We all were there at one point. My standard recommendation for people just getting going:

"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

"The Simple Path to Wealth" by JL Collins: https://www.amazon.com/Simple-Path-Wealth-financial-independence/dp/1533667926​

 

[Letj]

This is a steal! I didn’t know even think rates that low existed for managing investments accounts.

 

[jazz4cash]

The fee is reasonable and perhaps there is an educational benefit to his advice but it sounds more and mire like this is a hobby for him….anybody else getting this vibe?

 

[Dash man]

Does he have the appropriate certifications and licenses for your state to charge you fees?

 

[Ronstar]

I would ask for references - maybe his small group of clients. Can you talk with some of this small group to see if they are satisfied of the FA's performance?

 

[pb4uski]

I don't have any concerns with individual stocks and some of those tickers are on my list of stocks that I wouldn't mind owning. I'd give it a try for a couple years and compare results an play it by ear from there.

 

[Al18]

SCHD is a very popular dividend ETF from Schwab. It has a 3.35% dividend, a .06% expense ratio, 11.0% dividend growth and comprises 100 stocks.

 

[Montecfo]

It seems quite reasonable to me. Stock ideas, some education and hand holding. Very fair price.

 

[RetMD21]

People pay more for what I think are worse stock collections. OTOH, you could do some reading and manage your investments yourself.

 

[Aerides]

Is the friend a fiduciary? The fee is in line with that.

 

[pacergal]

I would never be comfortable engaging a friend or acquaintance as a financial person, I prefer to keep my finances private and on a business level.
Make sure this friend is licensed and a fiduciary!

 

[ivinsfan]

I would never be comfortable engaging a friend or acquaintance as a financial person, I prefer to keep my finances private and on a business level.
Make sure this friend is licensed and a fiduciary!

Well it doesn't sound as though the friend has any direct access to the money...so maybe that isn't as important.

 

[Gallaher]

Sounds like a great deal until you loose 20%-30%. Then it’s not such a good deal.
You’ll need to have realistic expectations

 

[pb4uski]

Sounds like a great deal until you loose 20%-30%. Then it’s not such a good deal.
You’ll need to have realistic expectations

But the OP could lose 20-30% in equities whether he is in funds or ETFs or in individual stocks. Anyone in equities is taking that risk.

 

[MrEd]

.However, I would not want to follow his advice having you invested in a bunch of individual stocks. I prefer highly diversified mutual funds that consist of hundreds/thousands of underlying stocks.

650,000$
15 stocks

you have too many individual stocks invest in a mutual fund. the above advice is spot on.