An organization I belong to was thinking of hiring a financial advisor. It was
Buy our funds
We will charge a management fee 10X greater than that of a solid ETF
I have a financial advisor because I am absolutely terrible at managing finance, even on a house-hold level. So I pay someone else to manage investments, RA etc.
I can handle being a bit wobbly on mere household expenses, but I do need to retire one day.
You might also cross check that with CFP.net, which has a database of CFPs that you can search by location.
Just want to say how much I appreciate the discussion here. Still not entirely sure what I’m going to do.
I respect those of you who don’t mind or actually enjoy managing finances. If that is your mindset, I’m not sure you can appreciate the distress such activities might cause other folk. For me it is compounded by the fact that so much of finances take place over computers - which is possibly the only thing I dislike as much as money managing.
Just this morning I needed to sign up for vision insurance for next year. You know the drill - the website had moved from the link I had in the favorites, I had to determine whether that was a legitimate message and if the site I was redirected to was legit, my password had to be changed, the site’s format had changed, clicking certain places didn’t seem to work… Sure, it was only 5-10 minutes, but during that 5-10 minutes, my wife and I could feel our blood pressure rising. And that was just over a piddly $300 expenditure.
My BIL was a software engineer. If he encounters something like that he thinks, “Cool! A puzzle for me to figure out!” So in that context, say all you want about working 4 more years, compound interest, etc; it is hard to put a price on my desire to avoid that kind of stress.
I’m also like LSL. No mandatory retirement for me, but I’m fortunate that my job pays well enough, and isn’t horrible enough, plus it is flexible enough in terms of work at home/schedule, that working a couple of years more or less really is not a big deal. I work 6 minutes from my office, I only go in parts of 2 days per week, I set my own schedule, I get generous leave which I can take pretty much whenever I want. I’m not sure I want to golf, travel, or play music more than I currently do. Sure, I get ZERO satisfaction or enjoyment from any aspect of my job, and much of it is frustrating. But it pays quite well. I’m sure I could retire tomorrow and not run out of $, but I set a date 3 years from now when I’m eligible for Medicare at 67. Who knows - if Trump and his minions demonize federal employees as they did in the past, I may leave earlier.
Another issue I’m not sure has been discussed much here is tax planning, Roth conversions, and RMDs. That makes planning at least somewhat more complicated than “slam everything into a couple of Vanguard funds.” If you enjoy trying to make such plans yourself, good for you. But the idea that I’m paying for someone to come up with a plan, revise it as necessary, and then in retirement they’ll basically be sending me a “paycheck” every month… Well, that has considerable appeal to me. Is it worth the time value of $xk/year? Maybe not. But I’m glad that whether I spend that $xk every year or not will not affect any aspect of my living one iota, whereas it gives me some peace of mind.
What I can imagine doing is keeping approx 1/2 my $ with an advisor - either our current guy or someone else, and either keeping my IRA (approx the same amount) where it is or converting it some other series of funds.
Again, thanks for the discussion.
The one bit of unsolicited advice I think we’ll all agree on is look out for the fees not from the FA, but from the funds you’re in. There are funds with literally no fees, and there are funds with fees in excess of one percent (probably some with two or three, but I can’t imagine who is buying those). If your FA is stupid, lazy, or corrupt that could add an additional 1% to what you’re paying him. By way of example, Fidelity’s S&P 500 mutual fund (FXAIX) has a fee of only 0.015%
Fed gov’t TSP - essent zero fees. Basically S/P500, small cap, and int’l stock funds, a bond fund, and fed securities. Able to transfer as frequently as desired.
No extra fees from anything our FA puts $ in.
One thing FAs consistently say is certain avenues “reduce the options/flexibility.” But I’m not convinced an average Joe NEEDS a whole bunch of options/flexibility.
I have been in the Finance/Budget/equivalent committee for a number of non profit or industry organizations. One of the responsibilities is to engage and oversee the wealth management firms who invest funds and endowments.
A recurring theme over the last 20 years has been that we will challenge any investments that have fees over 20-30 bps. Unless we have more than $5M in assets they will promptly fire us as clients. Basically the fees of $15-25k a year to “manage” $1.5M-$2.5M in funds under a fairly strict Investment Policy Statement (e.g. we specify 40%/30%/30% in Domestic Stock, International Stock and High Rated Bonds). All they need to do is rebalance once a year and review with us.
Basically any client that doesn’t yield $50K in fees is not worth the hassle.
Oh, I agree in theory. The problem with buying the house is that we’d be slammed with taxes if we didn’t reimburse the accounts within a certain amount of time (60 days, I think?). The advisor is aware of details that didn’t even cross my mind.
I’m 15 or 20 years from retirement, but I do think older people would benefit their kids/grandkids by giving them money to avoid debt/interest when possible.
Yeah I’m old enough that I can pull out of the funds as I like without penalty even though I am working and also still contributing!
ALL the things I outsource in a year rather than do myself:
Mowing, trimming hedges, raking, etc in my yard
Plumbing, electrical, painting, etc. on my house
Regular maintenance on my car
The cooking and service of food I eat in restaurants (over the amount I’d pay for ingredients)
Cost a fraction of what I would pay a financial advisor to manage my portfolio.
I’m a Financial professional. I’ve passed licensing exams (more than 30 years ago). I know how much I don’t know, particularly about taxes. I cannot find anyone who would charge me less than $25,000 a year (probably more like $50,000 a year by now) to manage my portfolio.
I could literally replace the roof on my house, paint it inside and out and redo the entire lawn and landscaping in one year and the savings would be less than what I’d be charged on an AUM basis to manage my portfolio.
Yes, it’s absolutely not a matter of “paying other people for services is always wrong” but rather “1% per year (which can add up to 20% of your portfolio balance at retirement) is highway robbery”.
We happily pay for a house cleaner, lawn service, etc. because they charge reasonable prices and they’re totally worth it for the amount of time they free up. We also pay for tax preparation software because the time savings justifies the fee. But in no universe is it worthwhile for us to pay tens of thousands of dollars per year to a 1%-fee financial adviser. Neither the benefits they can offer nor the hours they spend with us can come close to justifying that.
What makes it doubly bad is lots of the 1%-fee advisers aren’t even particularly good, and in fact are actively bad. There’s entirely too much recommending of products that are primarily good for them (high-expense ratio funds, crappy annuities, etc. that pay them commissions/kickbacks) and end up hurting the clients’ returns even more.
As I see it, folk w/ investments over $1 mill (most of whom we are talking about here) have cash they can spend how they wish - to give themselves pleasure, or to avoid displeasure. You think someone spending 15k/yr (money they can easily afford to spend) to avoid thinking about is a waste. That person might think someone else’s expensive car/vacation home/travel/first class airfare/fancy restaurants/jewelry/whatever - is a waste.
Not all expenditures have the same value to all people.
I don’t think anyone is disputing that. And I have to admit, prior to this thread I was unaware of the role of a FA as a brake on bad decisions.
I think what grates some of us is:
1% is a lot of money for the actual effort involved. Sure, when you’re starting out that might be just a few hundred bucks, but someone with a decent career and a working spouse can easily be paying $50k/year for what amounts to about 5 hours of work. Ouch.
And
The way it compounds over time, to where it really represents hundreds of thousands or even seven figures over the course of one (or two) 40 year careers.
That’s not meant to be a judgement statement, at least not by me. Just really rubs some of us wrong. But you are absolutely right that nobody else can set subjective values of things for you.
Yeah the lack of value annoys. The work is not significantly harder for a portfolio of five million than one of 50K. I’ll grant a few more options are available to choose between so the time discussing the pros and cons open up. But the work being worth 100,000 times as much? Even a hundred times more? Even ten times more?
I understand paying a neurosurgeon a very high hourly rate. When if I need their service it really is something I need them to do and theirs is a skill that both few could do and one that took many years to gain. Paying a financial advisor tens of thousands of dollars an hour on an ongoing basis for a service that is highly unlikely to add value over what I could do on my own in an hour invested to it per year? Adding it in is likely to on net cost significantly more than it gains? Of course everyone’s MMV but that does not bring me joy.
A few thousand annually to assuage me of anxiety that I am missing something out of ignorance? That I have become convinced is worth it. Especially if it comes with handling the taxes and tax planning considerations, which gives me great anxiety and which I know I currently way overpay for with little value received.
@Dinsdale approaching retirement someone using the standard 4% rule with over $3M saved, which is in a higher percentile, is going to start out pulling $120K a year to live off of, plus maybe $60 to 70K from SS if they’ve had years of high earnings, so $190K a year. Budgeting $30K of that, nearly 16% of the annual budget, to pay someone to do very little seems silly. Even $15 or 10K is a big ask.
this is interesting and I wish I knew someone who had tried it. I guess google for reviews is a step I could take. It might make sense for once I am set up with understanding the big picture and having implemented a plan.
thank you!
The Fiduciary I found online I almost hired based on how much I liked his website which might be dumb but the local Raymond James is who people have recommended to me but I hate their website. Plus, no mention of being a Fiduciary.
OH boy…so next week I have a conversation with the CFP I inherited along with money and who I am pretty sure I will be leaving very soon. As soon as I get a grip on The Big Picture.
I am making a list of questions for him since I know his goals for the phone call are not mine: he thinks he is my FA without even interviewing for the position!
so lists of ways I am being charged include or CAN include:
AUM (he’s hoping I’ve never heard of that which I hadn’t before this thread!)
Fees (he’s said “No Need To Worry since I am over $X”)
Fees for specific funds
if anyone wants to help me with this list good on ya!
Fiduciaries aren’t supposed to do this, but make sure you ask about commissions. Some high-fee investments pay a commission to the FA, which is an incentive for him to put you in those investments, even if they aren’t in your best interest. This is much less common than it used to be, but just make sure you ask.
The main question I am going to have is: what value do you offer over my putting these into a basic basket of a few low cost index funds and rebalancing to target allocations annually myself?
Or invites them to speak at a “conference” in Aruba every year.
This is EXACTLY what I’m going to ask my Fidelity account rep, who has offered a proposal to put all of our assets (a bit over 2M, including my IRAs) under his team’s management. Price is .88%. If my math is right, that’s $18k. Seems like a rather large fee to me, which is why I’m rethinking the proposal.
Please let us know what the response is.