1.25% for a financial manager -- good fee?

[jIM_Ohio]

Originally Posted by jpg7n16

Financial advisors can help you keep from making the wrong decisions at the wrong time. Plus the convenience of having a financial team to handle all the financial investment/tax/insurance/estate decisions for you could be a bonus. (well not bonus cause it's included in the price) And you have to compensate them somehow.

Industry standard fee is 1% for assets under management. So he's a little over the average, but not too much. Is there a structure that once you get over $X, the rate lowers?


I don't think that DS needs a financial advisor. In fact, he could probably be one. I personally don't need one either. But for others it could be worthwhile.

Seeing as I'd like to be a financial advisor/planner one day, I see more benefit in the services they offer (services DS doesn't need).

I will make this ONE post. I am a licensed advisor now, and let me reiterate the first sentence.

The cost of a bad decision to the investor is greater than the cost of the compensation to the advisor for a good decision 7 times out of 10... if not 10 out of 10... Avoid the bad decision, stick to fundamentals, and a good result will occur.

Even clients with an advisor want to "sell low" and it is good to have a person which knows the ins and outs of most decisions which need to be made (and attempt to make sure decision is in best interest of the client). Most people have to make certain financial decisions just "once", and doing them right the first (and only) time is critical.

Many times having a trusted network of tax professionals, estate planning attorneys, financial advisors and similar professionals helps the right decision get made and avoid paying taxes to the government... often times the decision comes down to would you rather pay the 30-50% taxes to the government, or 1% per year to the financial advisor and a one time fee to the estate attorney and a yearly fee to the tax advisor as well. You would have to live a long time for the government to actually come out ahead (estate taxes are not cheap)

[disneysteve]

Hi Jim. It is funny that you posted today. I've been thinking of you and was going to e-mail to check in. Hope the new career is working out well.

[disneysteve]

Originally Posted by jIM_Ohio

Many times having a trusted network of tax professionals, estate planning attorneys, financial advisors and similar professionals helps the right decision get made and avoid paying taxes to the government

I completely agree. I am NOT opposed to paying for professional advice and services. I am opposed to handing over control.

I do not do my own taxes. I pay a CPA. However, I do not tell the CPA to do whatever he feels is best. I meet with him and go over everything line by line, item by item. I make sure that I understand and agree with everything he is proposing. If I don't understand something, I don't leave there until I do. Then and only then do I sign off on the plan.

Same goes for my attorneys. Yes I trust their expertise but ultimately the responsibility lies with me.

[photo]

One more thing to consider is the accreditation of the person. The person should either be a CFP, a Certified Financial Planner or a CPA/Personal Financial Specialist, a CPA with financial planning expertise.

[MonkeyMama]

I agree with the sentiment to never hand over the reins when it comes to your finances.

Though I am all for hiring help when you need it, money management is just a different animal. It's extremely difficult to find honest advisors that keep your BEST interest in mind. Giving them control over your money just increases the odds that you will be seriously burned. (Madoff may have been an over-the-top case, but I See cases like this on a smaller scale ALL THE TIME!).

In theory, a financial advisor sounds nice, but in reality I have never come across one that I could recommend. (As a tax professional, clients ask for financial advisor referrals all the time - and we simply don't have any to give). & I do feel bad saying so, because I know there have got to be good guys out there worth the money. Sounds like Steve's synagogue may have found one. But, I think it works because the synagogue has someone on their side (Steve) looking out for them, too.

Anyway, to the OP - be VERY careful!

[disneysteve]

Originally Posted by MonkeyMama

In theory, a financial advisor sounds nice, but in reality I have never come across one that I could recommend. (As a tax professional, clients ask for financial advisor referrals all the time - and we simply don't have any to give). & I do feel bad saying so, because I know there have got to be good guys out there worth the money. Sounds like Steve's synagogue may have found one. But, I think it works because the synagogue has someone on their side (Steve) looking out for them, too.

In the synagogue's case, I still feel we could be doing fine on our own but there are a number of reasons why having the outside person is beneficial.

1. The members of the finance committee are volunteers.
2. The financial knowledge of those members varies dramatically.
3. The members are elected and change every year or so.
4. It isn't their money.

So having an outside individual creates continuity and provides education and a trained eye watching over everything.

[feh]

We signed up w/ a financial adviser one year ago. The fee is 1% of our portfolio value per year.

I watch the returns and the trades they make very closely. I'm presently undecided as to whether it's money well spent, or not.

[disneysteve]

Originally Posted by feh

We signed up w/ a financial adviser one year ago. The fee is 1% of our portfolio value per year.

I watch the returns and the trades they make very closely. I'm presently undecided as to whether it's money well spent, or not.

What metrics are you going to use to determine if the fee is worth paying? How will you know that you did better with the adviser than you could have done on your own?

[feh]

Originally Posted by disneysteve

What metrics are you going to use to determine if the fee is worth paying? How will you know that you did better with the adviser than you could have done on your own?

My primary metric is portfolio return vs. the S&P 500. Over the last 20 years of our investing, our returns were very close to that index, with a couple outlier quarters/years.

See the 3rd post from this thread for details on why we went down this road:

full discretion financial advisor

[disneysteve]

Originally Posted by feh

My primary metric is portfolio return vs. the S&P 500. Over the last 20 years of our investing, our returns were very close to that index, with a couple outlier quarters/years.

See the 3rd post from this thread for details on why we went down this road:

full discretion financial advisor

So now that it has been a year, and a tough market year at that, how did he do? Also, be sure that the S&P 500 is a fair benchmark. If the portfolio includes bonds, value stocks, international stocks and other asset classes, you want to compare each of those to the corresponding index.

For our synagogue portfolio, each individual investment is compared to the appropriate index for that asset class.

[feh]

Originally Posted by disneysteve

So now that it has been a year, and a tough market year at that, how did he do?

We're doing better than we would've otherwise because the market has been down.

We had been invested in darn near 100% equities, which is why our portfolio mirrored the S&P. One of the first things he did was to put some funds in cash and bonds. Now that we have less risk, when the market is up, we lag a bit. When the market is down, we come out ahead.

Which is why I'm still analyzing things. At this point, I think he's probably doing the same as I would, had I been following the recommended split between equities and bonds suggested for someone of my age.

Also, be sure that the S&P 500 is a fair benchmark. If the portfolio includes bonds, value stocks, international stocks and other asset classes, you want to compare each of those to the corresponding index.

Yes, I need to do this to get a clear picture, but to this point, I haven't.

[disneysteve]

Originally Posted by feh

I think he's probably doing the same as I would, had I been following the recommended split between equities and bonds suggested for someone of my age.

That would make sense. Professional advisers don't have any magic wand or crystal ball they can use to beat the market. Look at mutual funds. Something like 85% of them fail to beat the market in any given year and virtually none beat the market consistently over time.

Paying to match the market return seems a waste. If they don't actually beat the market by at least 1%, he doesn't even cover his own fee.

[jpg7n16]

Originally Posted by disneysteve

That would make sense. Professional advisers don't have any magic wand or crystal ball they can use to beat the market. Look at mutual funds. Something like 85% of them fail to beat the market in any given year and virtually none beat the market consistently over time.

Paying to match the market return seems a waste. If they don't actually beat the market by at least 1%, he doesn't even cover his own fee.

To me the fee is more about the advice, confidence, time savings and ease than the actual returns themselves.

There are far too many people who - left to their own decision making about their investments - make a good portfolio and allocate well after the market has rebounded. Then the market falls, they get freaked out and sell - cause they have nowhere to go, and no one to provide advice. They're alone. The classic selling and buying at all the wrong times.

According to: Why Average Investors Earn Below Average Market Returns the market has averaged 9.14%/year and investors left to themselves averaged only 3.13% - for the exact reasons I just mentioned. I think it would be worth 1% or even 1.25% to move from 3.13% to 8% (the market returns minus the fee).

I'm pretty confident that the average nonprofessional investor would do better paying 1% to have someone keep them in the market with a proper allocation at all times, than they would do on their own over the same timeframe. Unless they have like 14,000+ posts on a financial forum

And then there are the other benefits like not having to take the time to manage your portfolio. Not having to take the time to study asset classes, and betas and whatnot. Knowing that there's a team you can call on who already knows your financial position, goals and dreams when something unexpected arises (house burns down, inheritance received, win big in Vegas, etc.)

Still for others it may not be that they don't know enough about the markets, it's that they don't even want to know about the markets - and would gladly pay someone to take care of all that for them. If I truly trusted the advisor and had no clue what I was doing, I would have no issues with letting them decide the investments in the account. As long as there was transparency, and they were sticking to the framework we discussed.


As far as fees go, I've seen asset based fees anywhere from 0.5%-2%, with 1% being the norm. Given that range, 1.25% isn't terrible, but indicates that he probably has a better rate above a certain $$ threshold <Prob $100k or $250k>

[feh]

Originally Posted by jpg7n16

To me the fee is more about the advice, confidence, time savings and ease than the actual returns themselves.

There are far too many people who - left to their own decision making about their investments - make a good portfolio and allocate well after the market has rebounded. Then the market falls, they get freaked out and sell - cause they have nowhere to go, and no one to provide advice. They're alone. The classic selling and buying at all the wrong times.

According to: Why Average Investors Earn Below Average Market Returns the market has averaged 9.14%/year and investors left to themselves averaged only 3.13% - for the exact reasons I just mentioned. I think it would be worth 1% or even 1.25% to move from 3.13% to 8% (the market returns minus the fee).

I'm pretty confident that the average nonprofessional investor would do better paying 1% to have someone keep them in the market with a proper allocation at all times, than they would do on their own over the same timeframe. Unless they have like 14,000+ posts on a financial forum

And then there are the other benefits like not having to take the time to manage your portfolio. Not having to take the time to study asset classes, and betas and whatnot. Knowing that there's a team you can call on who already knows your financial position, goals and dreams when something unexpected arises (house burns down, inheritance received, win big in Vegas, etc.)

Still for others it may not be that they don't know enough about the markets, it's that they don't even want to know about the markets - and would gladly pay someone to take care of all that for them. If I truly trusted the advisor and had no clue what I was doing, I would have no issues with letting them decide the investments in the account. As long as there was transparency, and they were sticking to the framework we discussed.


As far as fees go, I've seen asset based fees anywhere from 0.5%-2%, with 1% being the norm. Given that range, 1.25% isn't terrible, but indicates that he probably has a better rate above a certain $$ threshold <Prob $100k or $250k>

These are good points, and I do place value on not being saddled with watching and thinking about the markets.

We aren't the classic "sell low" investors (we never sold during the melt down in 2008-2009), but I'm also not an investing expert, as I stated in the other thread I referenced earlier. We've done the hard part (IMO) of accumulating funds. Having a chaperone help us get to the finish line holds a certain appeal.

Edited to add: if I was in my 20s and just starting saving for retirement, I definitely would not do this. At that stage, I think it pays to be very aggressive, which requires less knowledge.

[disneysteve]

Originally Posted by jpg7n16

To me the fee is more about the advice, confidence, time savings and ease than the actual returns themselves....

This was an excellent post. I really can't disagree with anything you said here. Obviously, advisers exist for a reason and there are lots of people who don't use them who probably should. That gap between what the market returns and what the average investor earns has always stood out to me as a glaring example of why better financial education is needed - most people don't know what the heck they are doing. Getting some paid professional advice would be well worth the cost as long as you can find the right person who isn't trying to rip you off in the process.

[kv968]

Originally Posted by feh

My primary metric is portfolio return vs. the S&P 500. Over the last 20 years of our investing, our returns were very close to that index, with a couple outlier quarters/years.

I use an appropriate target retirement fund as the primary metric for my 401k and Roth investments. Using one of those funds as a guide gives you a better idea of how your investments could be doing versus a broader asset allocation than just the S&P 500. Granted, the S&P is a good gauge for how your domestic equity investments could/should be doing, but your portfolio should include other asset classes (i.e. int'l, bonds, real estate, etc...) that the S&P alone won't capture. I feel if I can't come up with an allocation I'm comfortable with that beats or even matches the target fund, I might as well just go with that instead of having to diversify everything myself.

[jpg7n16]

Originally Posted by feh

Edited to add: if I was in my 20s and just starting saving for retirement, I definitely would not do this. At that stage, I think it pays to be very aggressive, which requires less knowledge.

IMO - If you were in just starting out in your 20's that would be the BEST time to get advice. Get started early. Work with a planner to find out how much you need to save each month, what insurance coverages you need, and which retirement vehicle is best for your tax position. Also they'd be able to help you see if there are other non-retirement goals to save for - and how to prioritize them. And to alert you to estate planning issues like: do you have a will? do you need a power of attorney for your spouse? Things that normal 20-somethings don't think about. <I speak from experience, seeing as how I'm 26>

Plus, since you're just starting out, 1% is a really small number If you only have $10,000 - you'd be paying like $10/month for advice. <assuming they take your account with a $10k balance>

Originally Posted by disneysteve

This was an excellent post. I really can't disagree with anything you said here. Obviously, advisers exist for a reason and there are lots of people who don't use them who probably should. That gap between what the market returns and what the average investor earns has always stood out to me as a glaring example of why better financial education is needed - most people don't know what the heck they are doing. Getting some paid professional advice would be well worth the cost as long as you can find the right person who isn't trying to rip you off in the process.

Thank you

For someone who feels they could benefit from a planner/advisor, I'd def recommend a CFP. Someone with credentials. And references.

Originally Posted by kv968

I use an appropriate target retirement fund as the primary metric for my 401k and Roth investments. Using one of those funds as a guide gives you a better idea of how your investments could be doing versus a broader asset allocation than just the S&P 500.

Totally agreed.