I’ve been using the same guy for >15 years. He’s not some kid.
As a long time skeptic I’m not looking for them to get me better gains. I’m wondering about what I don’t know about? I’d be looking for someone to understand that I have a high tolerance for volatility and to explain to me, given my specifics of current income, social security income to begin at age 70, specific business equity circumstances, other foreseeable financial changes in the next ten years, tax circumstances, etc., I should have what sort of portfolio and what sort of changes I should make as I pull things out. They would be expected to help me have enough in income and uncorrelated classes at any point that I can wait out major downturns, if not buy in during. How much can I afford to gift planning for one of us to potentially live exceptionally long and possibly eventually needing costly care? Is long term care insurance worth it?
I know enough to know that there is much I don’t know, and enough to know that not every salesman advisor knows more.
Upthread, @Munch provided another reason to use a paid financial advisor. And I remember @Jonathan_Chance (a now deceased former member and moderator), who was also a paid financial advisor, saying much the same thing. If the paid advisor talks you out of foolish decisions from time to time, it might be worth it.
Plenty of intelligent people make stupid financial decisions due to some well understood psychological biases. Convincing yourself that you are too smart to screw up is a recipe for disaster.
As for me, my investments have not beaten the market, but they aren’t intended to. They also don’t go down as much as the market when it tanks. Reading this thread, I think a lot of us are in the “the market has gone up for a long time, it will always go up” mindset.
My portfolios is above what it was when I retired 8 years ago thanks to it being structured to churning out income with less volatile equities. I have enough to last me my entire life, doing what I want. I’ve never missed a minute of sleep worrying about money. I probably pay my financial advisor too much, but it’s worth it. It doesn’t affect me, it affects how much money my kids and grandkids get, and they’re doing fine as it is.
Strongly agree with this. One of the best things we did for our kids was to pay for their college. That gave them a lot of freedom after they graduated, which they used wisely.
I only spent 6 short years in the industry, but I can assure you that I will never have to assume that reasonably intelligent people regularly make terrible financial decisions.
It wasn’t rigorous by any stretch - I had what was the equivalent of a 6 month internship where I worked with a team of established advisors (a very good friend of mine and his close-to-retirement father) while I worked on passing the Series 7 and 66. Those tests filter out a good portion of potential advisors, but I’d consider it more a test of basic intelligence rather than any specialization in finance.
The basics of finance and structuring a well-balanced portfolio are simple. Being aware of the host of potential investment ideas a client may come to you with takes up a good deal of time, but is necessary due diligence. Staying on top of the markets so as to stay informed and assure your clients you know what is going on is also a big component of the job.
The knowledge itself is no secret. But again, there is a very significant portion of the population that needs a firewall to protect themselves from themselves. Don’t believe me? Check out your state’s revenue from the lottery. Take a trip to Vegas some time. People want to buy at the top of the market and sell at the bottom every single market swing.
Of course. And smart people can be arrogant, and emotional. Both of which can lead to major errors. Let’s assume people who are willing to choose a reasonable portfolio allocation, based in part on understanding their own volatility tolerance, and who will indeed stay with the chosen plan through market swings. And who do not believe they are so smart as to likely to successfully time major market events or to come up with some creative new approach.
That’s more temperament than smarts. I hope that I am in that mix.
I am convinced that a quality advisor still will bring some value to me. But not by way of protecting me from myself.
We sort of have an advisor - a person at Fidelity who touches base with us a couple times a year. Mainly she’ll make suggestions for rejiggering our funds (e.g. suggesting we move more from REITs and so on, into index funds) but does not take any action on the accounts herself.
They did offer suggestions on how to move some inherited funds around a bit - which has proven to work out well enough (better growth). And I moved one rolled-over IRA to an actively-managed structure, where they move things around based on market conditions, with the aim of providing steadier returns. Dunno if I’ll stick with that once we go into retirement, or move it to set-and-forget mode.
A friend has made a lot more “active” use of her investment advisor. They did stuff like planning for retirement (e.g. giving her the sense that she really could afford to retire a little early). I haven’t asked what kind of fees are involved in hers; we don’t pay Fidelity anything aside from the basic fees on the various mutual funds, and a quarterly fee on the one actively-managed account.
Anyway: For me, an advisor needs to be able to, well, advise me on market conditions and how to avoid major mistakes in the long run. And some specific set-and-forget investments - e.g. don’t leave that in a money market fund, put it in this mutual fund that will likely perform better.
+1 on this. My brothers and I all graduated college debt-free, because our parents were able to put aside money for our education (not all parents have the means, and we did NOT go to Ivy League schools). My son graduated college debt free. Our daughter would have too, but she had other issues, and her college fund went to pay for residential treatment… back when she was talking about college, she wanted to go to an art school. We happen to have a very good art program at a public university in our state (the top public art program in the country), and I told her that if she went elsewhere, she’d need to find ways of making up the difference in cost.
Our families did not provide much financial assistance beyond college - but we didn’t expect them to - we had jobs.
You’ll be hard-pressed to find anywhere I said you should. As I said, I worked on a team - they had a combined 55 years of experience and both were CFPs, which is a much more rigorous certification with extensive continued education requirements, a strict fiduciary standard and ethical guidelines. If someone were looking for an advisor, my team would have been an excellent one to work with, your seal of approval being the one thing we lacked to really rake in the dough.
I consider myself to be incredibly good at brushing my teeth. I even floss regularly! I still think visiting an expert a couple times a year to be a good use of my time and money.
True, but I suspect that you pay your dentist only for the services he actually provides, rather than a yearly lump sum regardless of the work he actually provides to you.
It’s clear that some people can benefit from advice from a financial advisor. But looking at it from a value perspective, many of those might be better served by paying for it on an hourly basis. Such advisors do exist if you look for them. Much better, in my opinion, than paying a 1% AUM fee which is a huge drag on your returns.
Before we retired we met with a CFP who was paid based on Assets Under Management, fee would have been .65% vs the more typical 1%. Her firm was recommended by my wife’s employer and they paid for a two hour initial consultation.
This planner asserted that her expertise was worth the fee and that she had access to better funds with better performance that we could get ourselves. Being a Boglehead, I was not impressed with this assertion, although I expect the planner was sincere but wrong. Also, I was leery of getting advice over 401K to IRA conversion from someone who would start getting .65% of anything taken out of an employer plan.
I did not like the idea of paying a fixed percentage of assets, and I looked hard for a CFP who charged by the hour. We found one with excellent references, and paid for an initial 10 hours of planning, which included three 2 hour meetings in person and 4 hours of planning work to evaluate our investments and make recommendations for changes (and balancing). We went with low cost index funds and 50/50 balance of bonds and equities.
She provides a financial dashboard (Moneyguide Pro) that interfaces with our banks and financial institutions and shows our investments in a single dashboard, allows “what if” experimentation, and has a Monte-Carlo based “success-o-meter” that shows how likely we are to not run out of money.
Since then we have met about once per year for 1 - 2 hours for rebalancing and general advice. Hourly rate from her firm is $350 - $400 depending on the planner and whether it is over Zoom or in the office. I can also email or call her for advice and that results in a charge for whatever time is needed.
Most of the people we have talked with use AUM fee based planners and seem happy with them, but for us doing that would be about 30-50x more expensive.
Yeah, that’s a tough one. There are some fund families that are exclusive to some platforms, but it’s pretty hard to argue the “better performance” side.
This is all awesome. We had a similar service, and it’s a real selling point. I think your experience with a few-based planner is amazing - that’s the absolute ideal.
I don’t think anyone is arguing for nothing vs a AUM advisor, they’re arguing for a fixed fee planner.
AUM planners rely on people’s ignorance of how compound growth works to make their services seem cheap.
If you take a very toy model of having $1M available in year 0 and a 7% CAGR:
a pure 7% growth would $2.76M after 15 years
A 7% growth with 1% fee would be $2.40M
A 7% growth and spending $5000 on FAs every year would be $2.63M.
You would have to be spending $13,500 a year on financial advisors before they cost you more than a 1% AUM advisor. Across a 30 year horizon, this difference becomes even more stark ($18,500).
If you believe that your AUM planner can get you above market returns, then their services are justified but we’ve gone over at length in this thread why that’s probably not the case. If you want to have a mostly boring portfolio and for someone to smack your hand away before you do something stupid, there’s plenty of great FAs you can hire for a 5 hour consultation to set everything up, an hour to check in every year and maybe 3 - 4 hours if you have any major life changes. And unless those FAs are charging $2000 an hour, you’re going to be substantially better off paying a fixed fee rather than AUM.
Has anyone here actually found a fee-only financial planner, who is actually a fee-only financial planner?
And I do wonder- for a boring middle class investor, even one who’s managed to save 4 or 5 million, how much do they really have to do? It’s near impossible to beat index funds, so I would argue the only things the FA needs to do is identify a few funds at the beginning, and rebalance once a year. Hell, that could EASILY be automated.
That is exactly what the so-called robo-advisors do. They’re features of each of the major consumer finance brokerage websites.
FA’s are valuable for people who know they get emotional about booms and busts. Or who can’t say “no” to their kids or to charities. FAs are valuable for people who know nothing of wills and trusts and inheritance and charity and taxation. Who don’t know the difference between an IRA and a HDHP. Or for folks whose eyes just glaze over at the thought of making an informed decision about anything money-related and as a result rather than guessing they simply don’t decide anything and 25 years later all the money they ever saved is still going into the passbook savings account where they kept their spare $50 back in college.
The idea that a retail FA selling to schlubs like us, IOW people who don’t already own multiple yachts, can beat the market is nonsense. Anyone telling you they’ll do that is somebody not to hire. But somebody saying “I can help you avoid all the common mistakes and I can teach you things you don’t know that you don’t know and I can talk you off the ledge. All so that your actual returns won’t be worse, maybe far worse, than the market”? Now that’s valuable.
But not 2 or even 1% of AUM (unless your account is real small) valuable.
Yes, that’s robo-advisory. It’s the “match the market” without the “stop you from doing something stupid” part of financial planning.
I had a classmate who was a very successful financial advisor. Many of my classmates swore by him. Claimed that with him managing their money they had beaten the market by over 300 bps per years for 15 years. I figured it was a Ponzi scheme.
He fled the country soon after. The gains were real. So was the insider trading and front running. He would have gotten away with it if he had restricted himself to benefitting personally (or his immediate family). But he wanted to be a big shot among his friends.
Pilots are often people with more income than financial sense or financial education. So “experts” pop up amongst your co-workers peddling advice on how to trade your 401k or peddling exotic investments, etc. And some few become licensed legit FA’s and build a decent practice among their well-heeled co-workers likely to trust them more than some other random FA schlub w a website or storefront.
When I first started in the biz there was a guy in mid career at my company who was running an investment scheme on the side. Ostensibly he was funding loans to a legit but niche industry that had a hard time getting bank credit for working capital so they’d pay a huge interest rate for working capital from non-traditional sources. Which you would receive in a lump at the end of the 1-3 year loan. So like a zero-coupon bond: e.g. buy in now for $1000, receive nothing for 2 years, then your investment would be redeemed for $2000. He was selling new tranches of this stuff every 3 months or so, so it was easy to get in, whether for a small amount or for many multiples of $10K. The biggest single buy-in I ever heard of was $500K. His tranches were usually oversubscribed by a bunch. Or so the scuttlebutt had it.
Lotta pilots made a lotta money with this dude. Sang his praises to the heavens. Then the fact it was a pyramid scheme came to light. More like came crashing down in a very impressive fireball in the center of our pilot corps. He went to jail and a lot of other pilots lost a big chunk of money. Oops.
It seems to me that rather than charging one percent of assets under management, the advisor might charge some percent of annual investment gains. Why don’t they do that?
I mean, normally someone only starts working with such an advisor once they’ve accumulated a bunch of money on their own, so why should the advisor be entitled to any of that? They didn’t help with any of that.