1.25% for a financial manager -- good fee?

[BuckyBadger]

This would be a deal-breaker for me. No way am I letting someone else make trades on my account without my knowledge and consent. You can give me advice and I can pay you for that advice but the final investment decision should lie with me.

That presupposes that you know as much or more than the person advising you.

I may have a unique perspective. I have been riding and showing horses for about 20 years. In that business, you have to either do everything yourself (self care) or you have to trust the daily care of your horse to someone you trust, and whose program you trust. When I have my horse in training with someone, I am paying for her expertise and her experience. I don't want to worry about every supplement my horse is eating or if she needs to be jumped once this week or twice or when she needs her feet done. I want to discuss my expectations with my trainer and I want to know that when I get on my horse for a ride or for a show that she's prepped and prepared for me. As long as we're on the same page, she has a great deal of leeway with which to care for my horse. I am used to a "hobby" where you choose your people carefully and keep an educated eye on them, but once you have chosen a program you trust, you trust that program. You hire the person you trust and then trust them to do what they do best.

I don't have the time for self care, so I chose to carefully select a trainer to handle that portion of my horse's care for me. I look at a financial planner in the same way. Now, granted, I'm a lot better and judging the actions of a horse trainer than a financial planner, but that's why I'm asking here for advice.

I dunno. That's where I'm coming from at least.

[photo]

That presupposes that you know as much or more than the person advising you.

No, not really. It's about giving control of your money to someone else. At that point, the person isn't advising you, he's doing whatever he wants, all with your permission. Very frightening.

[humandraydel]

That presupposes that you know as much or more than the person advising you.

Here's a question for you: how often are you going to evaluate your portfolio and the performance of your financial advisor? Are you going to look at the expense ratios of the funds he puts you in? What if your financial advisor has a friend who sells mutual funds and he puts you in his friend's expensive loaded mutual funds?

To be honest, you can get the same or better advice around here for free. We can even use his "system" of risk tolerance - i.e. 6/10 - which, ironically probably just equates to percentage of stocks he'll put you in (6/10 = 60% stocks).

[kv968]

Are you going to look at the expense ratios of the funds he puts you in? What if your financial advisor has a friend who sells mutual funds and he puts you in his friend's expensive loaded mutual funds?

To make this part kind of easy for you, if he starts talking about different "classes" of funds (i.e. "A" shares, "B" shares, "C" shares, etc...) you're either going to be paying up to, or possibly over, a 5.75% upfront load fee and/or a much higher than normal expense ratio for the funds you'll be investing in. And that's on top of the 1.5% he'll be charging you. Which you said you don't consider "commission based" but I do. A "flat fee" is when someone sits down with you for X amount of dollars and devises a plan for you, not taking a percentage of what you'll invest.

Let me just add, I'm not saying having a financial advisor would be a bad thing. I just want you to understand all the expenses that may be involved that don't seem too obvious.

[disneysteve]

That presupposes that you know as much or more than the person advising you.

Not at all. What is an adviser but one who gives advice? You may choose to act on his advice or not but that decision should be yours, not his. Part of his job is to educate his clients and explain why he feels his advice is the appropriate course of action for your situation.

I guarantee that if you sit down with 5 different advisers, you will walk out with 5 different recommended plans. That's not to say that all 5 might not be perfectly reasonable options but you as the investor need to understand the advice and make an informed decision based on that advice.

Let me give you a real-life example. I am on the executive board and the finance committee for our synagogue. About a year ago, we hired a professional money manager to invest the liquid assets of the congregation, a move that I initially opposed because I felt we could do it ourselves and save thousands of dollars in fees. I was outvoted and we did establish this professional relationship. Since then, we've gotten very good professional advice, detailed monthly statements and reports and, most importantly, quarterly in-person meetings with our adviser. At those meetings, he sits down with us and goes through the reports item by item explaining why he feels each investment earned or lost money, what he feels are the prospects for the investments and what he feels we should consider changing going forward. The level of financial knowledge among the members of the committee varies dramatically and the adviser has done a great job of educating all of us regardless of our existing knowledge base. He is patient and answers all questions until people understand the issues at hand. HOWEVER, the ultimate decision of what to do lies with the committee. We strongly lean on his advice but the final decision is ours.

So far, we have pretty much followed his recommendations but nobody knows our money situation better than we do - including our adviser. The same goes for you. Nobody will ever know your situation better than you. Nobody will ever care more about your money than you. To hand over control of your money to another person just isn't a good idea in my opinion. I realize people do it every day but it just isn't a prudent way to go.

I have no problem if someone wants to seek the input of an adviser and pay an appropriate fee for that input but handing over the reins would greatly concern me.

[jIM_Ohio]

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]

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]

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]

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]

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:

http://www.savingadvice.com/forums/personal-finance/54797-full-discretion-financial-advisor.html

[disneysteve]

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:

http://www.savingadvice.com/forums/p...l-advisor.html

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.