Wealth Management

[CurtC]

@ReticulatingSplines

Eh, I don’t think this is that important; everyone’s sort of in their jobs for themselves. What is a financial planner supposed to say? “It would be in your best interests to not pay me and invest in a low-fee index fund, and here’s a Motley Fool webpage with everything I would have told you”? They’re not charities. Honestly, the upshot of the fiduciary rule might be that people with less money don’t even have access to any financial advice.

Now would conflicted financial advice be better than no advice? I guess that’s the question.

In my observations of the industry, no advice at all is way better than the conflicted advice offered by brokerage houses.

A financial planner should be able to spell out his value to you. If he’s getting kickbacks from selling you securities that are not in your best interests, that’s a huge problem. That’s what the fiduciary rules are created to solve.

[Bill_Door]

@CurtC

In my observations of the industry, no advice at all is way better than the conflicted advice offered by brokerage houses.

A financial planner should be able to spell out his value to you. If he’s getting kickbacks from selling you securities that are not in your best interests, that’s a huge problem. That’s what the fiduciary rules are created to solve.

Would you play poker with someone who used a marked deck if they promised not to look at the cards? Yeah, neither would I.

[StusBlues]

@Roderick_Femm

Whichever firm you select, please consider what is called socially responsible investing, also known as ethical, green or socially conscious investing. It may (or may not) be marginally less profitable than oil wells, armaments and tobacco, but you might sleep better at night. I believe SRI type funds are widely available if you don’t want to mess around with individual stocks.

Thrivent is reasonably good at that sort of thing. They’re run by the ELCA (the “liberal” Lutherans).

[Siam_Sam]

@Dinsdale

Additional datapoint - neither my wife nor I want to spend too much time/attention on wealth management. Even if I go to Vanguard and search S&P 500 no load funds, I’ll probably get 20+ results, and I don’t want to spend the time trying to intelligently pick among them. And yeah - sites like Motley Fool are excellent. But if I’m reading/surfing, I’d prefer it to be on topics other than finances.

So if you are lazy/disinterested like us, there is potential benefit to paying for professional management. Whether or not it is worth it for you depends on many factors, including how you value and wish to spend your personal time. When I look at the assets I have with this guy, the ultimate number keeps going up at an acceptable rate, such that I don’t miss whatever fees he takes off the top. And, in today’s climate where it is so difficult to get prompt clear information from a knowledgeable human, it is not inconsequential that my wife and I know that 100% percent of the time we have a question, all we need to do is pick up a phone and we will be able to promptly talk to an intelligent person.

Lazy does describe me. I have no intention of making managing my finances a full-time career, now would I have the time. Paying a manager to do that is fine as long as I’m not getting fleeced.

@Quartz

Do you mean someone who will help you minimise inheritance taxes or someone trustworthy who will manage your investments for you? I think the older demographic are increasing need of the latter.

I do mean the latter.

Thanks for all the advice so far. I am drinking it all in.

[Section_Maker_Jupe]

subscribing to this thread. Thank you.

[octopus]

@jasg

Also take a look at the Boglehead forum thread on the Three Fund Portfolio - 60% Total US stock 20% Intl stock 20% Total Bond index funds (other other suitable AA) will shame almost all wealth managers.

Then pay an attorney and a tax accountant for estate and tax planning.

Best advice in this thread. Though I do 100% equities at my age and risk tolerance.

[jasg]

@octopus

Best advice in this thread. Though I do 100% equities at my age and risk tolerance.

Thanks!
That worked for me - kept my AA close to 100% equities until age 65. I rode things down and up in 1987, 2000-2002 and 2098-2009. Lost a lot on paper, made it all back. Just kept buying in the 401k.

[octopus]

@jasg

Thanks!
That worked for me - kept my AA close to 100% equities until age 65. I rode things down and up in 1987, 2000-2002 and 2098-2009. Lost a lot on paper, made it all back. Just kept buying in the 401k.

That’s the thing isn’t it? Psychological steadiness. It’s not like the shares disappear when the stock market goes up or down. The shares are still there and more are easy to accumulate when the market is down. People make the mistake of thinking that what they have is actually the current dollar value of their investments. They don’t. They have shares, bonds, property etc that aren’t equal to dollars until sold.

It’s strange actually.

[Hari_Seldon]

What I keep reading is that investment in a low cost index fund is as good as you can do in the long run. Don’t forget that these “wealth managers” have no obligation to look after your interests and can put their own first. Obama had put in a rule that for retirement accounts, the manager be required to look after your interest before his own (which are to make as much commission buy and selling as he could while keeping your suspicions banked), but Trump suspended that rule before it went into effect. For other types of accounts, such a rule was never even proposed and I would trust those guys as far as I could toss them.

[Jonathan_Chance]

@Hari_Seldon

What I keep reading is that investment in a low cost index fund is as good as you can do in the long run. Don’t forget that these “wealth managers” have no obligation to look after your interests and can put their own first. Obama had put in a rule that for retirement accounts, the manager be required to look after your interest before his own (which are to make as much commission buy and selling as he could while keeping your suspicions banked), but Trump suspended that rule before it went into effect. For other types of accounts, such a rule was never even proposed and I would trust those guys as far as I could toss them.

Nvm. Crossed a line

[Bill_Door]

@Hari_Seldon

What I keep reading is that investment in a low cost index fund is as good as you can do in the long run. Don’t forget that these “wealth managers” have no obligation to look after your interests and can put their own first. Obama had put in a rule that for retirement accounts, the manager be required to look after your interest before his own (which are to make as much commission buy and selling as he could while keeping your suspicions banked), but Trump suspended that rule before it went into effect. For other types of accounts, such a rule was never even proposed and I would trust those guys as far as I could toss them.

Investment advisors are held to the fiduciary rule that requires them to act in the best interest of their clients. They have been held to this standard since the Investment Advisors Act of 1940, and no changes have been made to this rule.

Broker/Dealers are held to a much looser suitability standard that says that the broker/dealer must reasonably believe that their recommendations are suitable for the client’s in terms of the client’s financial needs, objectives and unique circumstances. This is the rule that the Obama era rule was intended to address. In that rule change broker/dealers for retirement accounts were to be held to the fiduciary standard.

So, again, Investment Advisors are already held to the stricter fiduciary rule for all investments, not just retirement, while Broker/Dealers are only held to the fiduciary standard for retirement accounts. That has not changed either. Broker/Dealers started to be held to the new rule back in June.

There is a second part of the Obama era rule change that was due to become law in 2018. Among other things it would allow class action suits by investors against advisors. This is the part of the rule that is currently under review by the Trump administration.

The fact that you were wrong about the fiduciary rule and the role of Advisors and Broker/Dealers shouldn’t detract from your first point, that low cost index funds are the best investment most people can make. An investment advisor can bring some value to the process if you’re making a big change in your financial life, retiring or coming into a windfall or if you have no plan and are just starting out, but in that case a fee-only advisor is the way to go, paying an Assets Under Management (AUM) fee is for suckers.

[Munch]

@Hari_Seldon

Don’t forget that these “wealth managers” have no obligation to look after your interests and can put their own first. <snip> (which are to make as much commission buy and selling as he could while keeping your suspicions banked)

What you’re referring to is churning, and is exceedingly rare - especially now. For the average investor (less than $5 million in assets?), I’d be absolutely amazed if you ran into it. There are plenty of advisors out there that only work with accounts that can’t be adjusted without the client’s approval. If you give an advisor you don’t trust free rein with your account, you’ve done a really bad job finding an advisor.

[Siam_Sam]

Thank you all again. After much discussion and consideration, we’ve decided to go with Morgan Stanley.

[msmith537]

@China_Guy

I was in investment banking for 8 years. I find that the vast majority of wealth management advisors I’ve been in contact with, would not have kept up on the trading floor or institutional trading desk. In fact, most (but not all) might be less ethical and qualified than a used car salesman. YMMV

Because trading and wealth management have very little to do with each other, beside involving financial instruments?
My Dad and brother use a wealth management guy. He doesn’t charge “15%-20%”. He doesn’t actively manage or trade on their accounts. He’s more like what Dinsdale described. A guy who can give you intelligent advice on where to park your money long term.

[Bill_Door]

@msmith537

Because trading and wealth management have very little to do with each other, beside involving financial instruments?
My Dad and brother use a wealth management guy. He doesn’t charge “15%-20%”. He doesn’t actively manage or trade on their accounts. He’s more like what Dinsdale described. A guy who can give you intelligent advice on where to park your money long term.

My guess is he does charge between 15%-20% of their earnings. What confuses people is that the fees charged are typically around 1% of the assets under management. They figure 1% is diddly. They never stop to do the math to find out that if their portfolio generates 6% growth 1% of the assets under management is 17% of their earnings. And of course in a down year you still pay the fees.

[jasg]

@Bill_Door

My guess is he does charge between 15%-20% of their earnings. What confuses people is that the fees charged are typically around 1% of the assets under management. They figure 1% is diddly. They never stop to do the math to find out that if their portfolio generates 6% growth 1% of the assets under management is 17% of their earnings. And of course in a down year you still pay the fees.

This.

and don’t forget the fine print in the prospectus of the recommended funds. An advisor can/will also be compensated via commissions on the funds you buy. 12-b fees pay for these.

This link shows the effect of fees on investment returns.

[Voyager]

@Dinsdale

I suggest you focus on the individual, rather than the firm. And I’m not sure how to do that other than through references of people you know and respect/trust.

Here’s my situation. My wife’s family has a longstanding relationship with a particular ML broker. FIL is quite wealthy and notoriously cheap. Though he is a complete asshole in just about every personal respect, when our wealth got to a certain point, his recommendation on this topic carried considerable weight with us.

My experience has been very similar to this. Now, index funds are great if you are far from retirement and don’t have to diversify that much. But since they are so popular they can be more volatile than other investments that might be more income oriented.
Additional services we’ve received include cleaning up a problem when my wife made less money than she expected to and had put too much in her SEP. My manager also helps my daughter whose account is linked to ours. (It is joint with my wife.)
We’ve now got a very good income stream coming from less volatile investments. They also did an excellent simulation of our money after retirement, by far the most useful I’ve seen, far better than you get from the retirement planning websites.
I started with ML when I attended a college planning seminar, when my older daughter was about 4. Having a relationship was really good when I got a nice buyout. But I definitely agree that the person is more important than the company, assuming the company is not a fly by night one.
My results have been very good.

[msmith537]

@Bill_Door

My guess is he does charge between 15%-20% of their earnings. What confuses people is that the fees charged are typically around 1% of the assets under management. They figure 1% is diddly. They never stop to do the math to find out that if their portfolio generates 6% growth 1% of the assets under management is 17% of their earnings. And of course in a down year you still pay the fees.

Your math confuses me.

[chappachula]

They figure 1% is diddly. They never stop to do the math to find out that if their portfolio generates 6% growth 1% of the assets under management is 17% of their earnings.

@msmith537

Your math confuses me.

I’m no math whiz, but I assume he means:
On a million dollars, 6% growth means $60 000 profit in a year.
Paying a “diddly” 1% fee is $10 000.
You are left with $50 thousand.
So you’ve lost 10 thousand, i.e 17% of your profit. ( because 17 percent of 60 is 10 ).

[Bill_Door]

@chappachula

I’m no math whiz, but I assume he means:
On a million dollars, 6% growth means $60 000 profit in a year.
Paying a “diddly” 1% fee is $10 000.
You are left with $50 thousand.
So you’ve lost 10 thousand, i.e 17% of your profit. ( because 17 percent of 60 is 10 ).

What chappachula said. Typically wealth managers charge around 1.0% of assets under management. Some a little more, some a little less, but that’s the industry average. But a typical portfolio only generates around 6% income. If you think about it, that means your wealth manager only needs a half dozen clients like you and he’s making as much as you are; while you take the entire risk.

Add in the fact that the investment vehicles all have their own costs and fees and it’s easy to see why indices easily beat the advisors over time.