Financial Advisor or not

[Footballp09]

Me and my wife are looking into a financial advisor at ameriprise, but im not sure if we should spend that kind of money or even need one. My wife and I are 27 and 24 we bring in about 80,000 a year and I put 10% of my income into a 401k. Do I need more then a 401k for retirement, or should I just max out the amount I can put in it? the Financial advisor wants $750 dollars to look at all of our finances. he wants to do our estate planning and invest our money in an IRA, ROTH, and 401k.

so my questions are Do we need one? what would the benefits be vs. just my 401k? is there a way I can invest more on my own? what other options do I have?

Is a Financial advisor worth it?

Thanks

[disneysteve]

Me and my wife are looking into a financial advisor at ameriprise, but im not sure if we should spend that kind of money or even need one. My wife and I are 27 and 24 we bring in about 80,000 a year and I put 10% of my income into a 401k. Do I need more then a 401k for retirement, or should I just max out the amount I can put in it? the Financial advisor wants $750 dollars to look at all of our finances. he wants to do our estate planning and invest our money in an IRA, ROTH, and 401k.

so my questions are Do we need one? what would the benefits be vs. just my 401k? is there a way I can invest more on my own? what other options do I have?

Is a Financial advisor worth it?

Thanks

Welcome to the site!

I would turn away and run as fast as you can. There is nothing he is going to do for you that you can't do way cheaper on your own. Estate planning is a possible exception but I wouldn't go to a broker for that; I'd go to a good attorney.

As for your other question, no, putting 10% in a 401k is not sufficient retirement planning. Your goal should be to save at least 15% of your gross annual household income for retirement. First step should be to put enough into the 401k to get the full company match. The rest should go into Roth IRAs, one for each of you. You can each invest up to $5,500/year in the Roths.

[JoeP]

I wish I had a financial advisor about 5 years into my employment, but being pre-internet, that was before it was so easy to find current information and the kind of support you can find in forums like this.

I'd look for a local firm that does long-term financial planning, has been around for a long time, and has a lot of satisfied clients. We found one that has been around for almost 100 years, still family owned, and they have been very helpful responding to our needs and our plans. The firm makes money based upon the performance of our portfolio, which has exceeded our expectations.

If you want to go it on your own, you'll want to be very plugged into markets and looking for clues that some sectors may pick up (in which case you buy) and sectors that are overvalued (in which case you sell). This takes a lot of knowledge beyond just watching indices and chasing trends. Personally, we don't have the energy, focus, education, and discipline for this, so we hand the responsibility off to our financial planner.

[feh]

I would turn away and run as fast as you can.

+1000

a) you don't need a FA and b) if you did, Ameriprise would be a terrible choice.

Do some reading; educate yourself now while you're young, and your results can be truly awesome.

Start by reading this: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

[disneysteve]

If you want to go it on your own, you'll want to be very plugged into markets and looking for clues that some sectors may pick up (in which case you buy) and sectors that are overvalued (in which case you sell). This takes a lot of knowledge beyond just watching indices and chasing trends. Personally, we don't have the energy, focus, education, and discipline for this, so we hand the responsibility off to our financial planner.

I respectfully disagree. This is why they invented INDEX FUNDS. This eliminates the guess work. You don't have to follow individual companies and sectors. You can get broad diversification in one or two funds with ultra-low expenses.

JoeP, how much of a cut does your adviser get? I pay Vanguard 0.05% for my S&P 500 Index fund. If you are paying 1%, which is a pretty typical fee charged by a financial planner, you're spending 20 times more than I am to manage your money.

You (general "you", not you specifically Joe) should not be buying and selling based on market performance. That's a recipe for disaster and sub-par returns. Get into a couple of solid index funds and stick with them from now until retirement and you'll do better than the vast majority of investors.

[MonkeyMama]

Totally agreed with feh. If you check out the boglehead forums you would get excellent financial advice for free on the internet. (I'd be cautious about free internet advice as much as I would be cautious of a paid financial advisor, but I do regularly recommend bogleheads since it is an exception).

As to do-it-yourself, invest in index funds or Target Retirement type funds and it doesn't take any time. I rebalance occasionally and manage the taxes, but this take very little effort at this point in our lives.

[jIM_Ohio]

Me and my wife are looking into a financial advisor at ameriprise, but im not sure if we should spend that kind of money or even need one. My wife and I are 27 and 24 we bring in about 80,000 a year and I put 10% of my income into a 401k. Do I need more then a 401k for retirement, or should I just max out the amount I can put in it? the Financial advisor wants $750 dollars to look at all of our finances. he wants to do our estate planning and invest our money in an IRA, ROTH, and 401k.

so my questions are Do we need one? what would the benefits be vs. just my 401k? is there a way I can invest more on my own? what other options do I have?

Is a Financial advisor worth it?

Thanks

Any reputable planner will consult with you for free. Realize there are 3 types of planners

1) is transactional- they get paid when you execute a transaction. Most car insurance agents would fall into this category. This works well with small accounts or people which invest only a little bit of money.
2) Fee based. This means the advisor gets paid more than one way- for example on some transactions they get compensated, in other cases they make a percentage of the assets invested, in other cases they charge you a fee for a service (like a financial planning fee of $750). THIS IS AMERIPRISE, Edwards Jones and 98% of all financial planners.
3) Fee only. This means the advisor only charges one fee. The fee will be one of 5 types
1) Flat fee
2) Retainer based on hourly rate (similar to an attorney)
3) Assets under management
4) Net Worth percentage
5) Hourly rate


There are a few other things to note
Fee-only planners have only a series 65 and 63, they don't need a brokerage license. Fee only planners are Fiduciaries- a fee based planner CANNOT sign on as a Fiduciary because they work for a broker dealer, and that violates numerous laws put in place FINRA. This may all sound like gibberish, but only work with advisors which can be fiduciaries. Attorneys are fiduciaries (they must always act in best interests of their client, and cannot serve two sides to same transaction). You want a financial planner which only works one side of a transaction as well- they need to represent your side only.

Two choices:
1) Find a fee only financial planner in your area and sit down with them. They will discuss your situation with you for free.
2) Learn how to do it yourself like most others on this site.

Disclaimer- I am a fee-only financial planner in the state of Ohio.

[JoeP]

It's ok to disagree! If someone wants to ride the unmanaged and low-cost index funds, then absolutely that is a perfectly fine way to have very good performance long-term. Clearly, one does not need an advisor to coach or manage your money if this option is selected. In fact, this is the option I took for the better part of 10 years prior to getting married.

In our case, we wanted more potential for growth, and were willing to allocate part of our portfolio to funds outside of the index category. We needed guidance in this area, and were willing to pay the management fees; this has worked out very well for us.

We still manage about 40% of our retirement outside of our financial planner's company. We provide statements so he can proportion allocations, and provide net worth calculations.

I'd recommend this to anyone: don't let any financial planner manage all of your retirement money. Empower yourself...index funds are a great way to engage this.

[disneysteve]

It's ok to disagree!

Of course, as long as it's done politely.

In our case, we wanted more potential for growth, and were willing to allocate part of our portfolio to funds outside of the index category.

I'm really curious about this comment. Every study I've ever seen has shown the same thing. Over time, index funds always outperform actively managed funds. "Hot" managers come and go so there may be periods where a particular active fund has a great run but it's never sustained over the long term. What led you to believe that the person you are using could do something different? Not only do they need to outperform the index funds, they need to cover their own fees and usually higher expense ratios of the active funds.

I'd recommend this to anyone: don't let any financial planner manage all of your retirement money.

Very good advice. Don't put all of your eggs in one basket.

[jIM_Ohio]

Of course, as long as it's done politely.


I'm really curious about this comment. Every study I've ever seen has shown the same thing. Over time, index funds always outperform actively managed funds. "Hot" managers come and go so there may be periods where a particular active fund has a great run but it's never sustained over the long term. What led you to believe that the person you are using could do something different? Not only do they need to outperform the index funds, they need to cover their own fees and usually higher expense ratios of the active funds.

Very good advice. Don't put all of your eggs in one basket.

The value of a financial planner is not investment performance. When a prospect comes to me and asks about performance I don't let them hire me.

The value of a planner is information applied to a specific situation. Whether the information be choosing an investment, picking a health insurance policy, a social security withdraw technique, long term care insurance, a tax benefit for retirees, or investment advice for a specific tax situation.

A financial planner usually makes their money managing investments (it's how they get paid). The value a person receives is far beyond the investment performance.

[JoeP]

The value of a financial planner is not investment performance. When a prospect comes to me and asks about performance I don't let them hire me.

The value of a planner is information applied to a specific situation. Whether the information be choosing an investment, picking a health insurance policy, a social security withdraw technique, long term care insurance, a tax benefit for retirees, or investment advice for a specific tax situation.

A financial planner usually makes their money managing investments (it's how they get paid). The value a person receives is far beyond the investment performance.

Yes, this is what we use our advisor for. He guided us to term life insurance that fits our needs, offered strategy on planning for upcoming college costs, set up post-tax bond funds for access to near-liquid money for 2-4 year horizon purchases, discussed dialing back some retirement contributions during the college tuition phases, discussed forecasting when and how much retirement income sources will occur...

The actual performance guidance he gives is looking at maneuvering through trends that are out 6 months and greater. For example, he suggested dialing back our holdings on a REIT and putting more toward the energy sector.

[disneysteve]

The value of a financial planner is not investment performance.

The value of a planner is information applied to a specific situation.

I can't argue with that.

Yes, this is what we use our advisor for.

That makes sense. Speaking to someone about the big picture is a good use of a financial professional if you feel you need some outside guidance.

For example, he suggested dialing back our holdings on a REIT and putting more toward the energy sector.

Here's where I would disagree. This sounds suspiciously like market-timing to me. But as long as he is only making recommendations and not actually executing trades on your account, at least the final decision is in your hands. You can choose to follow his advice or not.

[JoeP]

Here's where I would disagree. This sounds suspiciously like market-timing to me. But as long as he is only making recommendations and not actually executing trades on your account, at least the final decision is in your hands. You can choose to follow his advice or not.

And that's exactly how the relationship is set up. He makes suggestions, we research, and then we decide. I'd never give free reign to anyone or any firm.

[BrokeGirlGetsRich]

I respectfully disagree. This is why they invented INDEX FUNDS. This eliminates the guess work. You don't have to follow individual companies and sectors. You can get broad diversification in one or two funds with ultra-low expenses.

JoeP, how much of a cut does your adviser get? I pay Vanguard 0.05% for my S&P 500 Index fund. If you are paying 1%, which is a pretty typical fee charged by a financial planner, you're spending 20 times more than I am to manage your money.

You (general "you", not you specifically Joe) should not be buying and selling based on market performance. That's a recipe for disaster and sub-par returns. Get into a couple of solid index funds and stick with them from now until retirement and you'll do better than the vast majority of investors.

I'd like to second you, disneysteve.

I ALMOST went with a financial advisor to start my investments, but I'm soooo glad I didn't.

I had picked out a highly-recommended investor, but he was suggesting to go with an actively-managed mutual fund, and of course he'd be getting his cut too.

Just before I made the plunge, I read Suze Orman's book, The Money Book for the Young Broke & Fabulous. She spelled out why I had no need for a financial advisor, and saved my neck by driving home the point that I should definitely be using index funds, giving my future self up to hundreds of thousands of dollars more for retirement, just due to the fact that I'm young (27) and have time for all that saved money from seemingly small fees to significantly compound.

If you get to the point where you're super rich and want to get into individual stock or regular trading, maybe it's something you'd want to consider at that point.... but I'm pretty far off from there.

But for the basics like 401k & IRAs, I'd say read good books (like the one I recommended) and manage it yourself. You'll make a ton more off your investments in the long run.

[snafu]

Football, welcome to SA. We all have different backgrounds and experiences but we try our best to make helpful suggestions. I think it's important to learn investment basics as you will be earning a lot of money added up over a lot of years and you will need to make a lot of decisions. There are a lot of books written for couples like yourself that you might find helpful. I suggest The Automatic Millionaire, David Bach, likely available as an e-book at your library. Another is Wm. Danko's The Millionaire Next Door.

I'm of the opinion... If you educate yourself, you will answer your own questions most of the time.

While retirement is a long way off, you will be relying on sums invested now to compound over the long term to support yourselves for 35 years or more. I hope you both will increase and expand your retirement savings, taking full advantage of any [free money] matching funds from your employers. You need to know what their program costs in management expenses [MER] and how the sum you contribute is distributed. You both also need to open and fund a ROTH account which has it's own set of rules. It's a lot to take in as an initial step but it goes by rote once you get started.

To answer your specific question, I'd avoid spending $ 750. for a review just now. Perhaps more useful when you are the Millionaire Next Door!