Am I overpaying my financial advisor?

[Anonymous]

Anonymous wrote:We’re currently paying our financial advisor (a fiduciary) an annual 1.25% fee

This was all I had to read. Yes, you are overpaying--dramatically so. This is one of the silliest financial choices you can make at the beginning. Three Vanguard funds and keep your 1.25%. You would be overpaying at 0.85%. You would be overpaying at anything but a flat fee once to someone who will explain what you will be doing and why and when to come back (probably as the kids approach college age).

Here are the directions for the backdoor Roth: https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

[Anonymous]

Anonymous wrote:I have met with one a few times who wants to charge us 1.45%. He also shared that he would like us to consolidate several accounts to get a better rate of return, and that he does sometimes get a commission when clients invest in certain products.

I hope you are no longer answering his calls.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We’re currently paying our financial advisor (a fiduciary) an annual 1.25% fee

This was all I had to read. Yes, you are overpaying--dramatically so. This is one of the silliest financial choices you can make at the beginning. Three Vanguard funds and keep your 1.25%. You would be overpaying at 0.85%. You would be overpaying at anything but a flat fee once to someone who will explain what you will be doing and why and when to come back (probably as the kids approach college age).

Here are the directions for the backdoor Roth: https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

OP here. Thank you! I think I’m going to go ahead and open an account with Vanguard to start the process and invest $50k in a non-restricted index fund. Next year, I’ll do the backdoor Roth through Vanguard as well. In the meantime, I’m also going to ask our FA for a reduction in fees. As I get more comfortable, I’ll look into moving all of our funds from our current brokerage over to Vanguard and break up with our FA.

Is there any difference in going with Vanguard or Charles Schwab? Charles Schwab looks higher rated based on a quick google search. Thanks!

[Anonymous]

Anonymous wrote:We’re currently paying our financial advisor (a fiduciary) an annual 1.25% fee and we have $750k in total assets in our portfolio. It’s a mix of stocks, index funds, etc. His fee is full service and includes handling of our backdoor Roth IRAs each year and our kids’ 529 plans, and he calls us when he wants to buy/sell (if any of this is relevant).

Due to my husband’s job, every fund and entity within that fund has to be pre-cleared through a database (which our advisor handles on our behalf). We could technically do this ourselves, but it’s a bit overwhelming and TBH I don’t understand a lot about investing. Our average annualized rate of return since we started with him in 2018 is 7.4% and 8.7% since 2019.

I keep reading on here about everyone managing their own money or using fee only advisors, and can’t help feeling like we’re overpaying. For example, we just checked the Schwab S&P 500 index fund, which isn’t restricted, and it looks quite promising at a fee of only .5%. I’m tempted to put $50k of cash into it to see how it performs vs giving it to him.

Given the pre-clearance requirements, his fee, the value of our portfolio, and ROI, should we look into other options for managing our money? I often read about fee only advisors but am at a loss. WWYD?

At that level, he should be charging between 0.75-1%. Make sure they are not putting money into mutual funds that give them kickbacks. How would you know? these funds typically have a high fee. Also, the returns you quote are poor (except for 2018). Here's the return for each of those years if the investment was in a market index (in this case VOO) - https://www.etfreplay.com/etf/VOO.aspx. But of course, if they invest in just VOO, customers will catch on and think 'why am i paying this guy if all they do is buy and hold one stock? I can do it myself!'.

If you bring this up, they'll likely tell you that they invest based on a risk profile they identified for you when you set up the relationship. In the long run, you will lose a ton of money through poor investment choices (hard to quantify without getting into a lot of detail) and the 1.25% fee (about 10K right now and growing each year). You need to decide if avoiding the extra effort of managing it yourself is worth the additional cost of at least $10K.

[Anonymous]

Vanguard v. Schwab v. Fidelity is debated endlessly on Bogleheads.

Some people like Schwab because you can also have banking services there; other prefer separating their investment firm from their bank. Vanguard interface is pretty basic, but if use PAS (the cheap advisory service), people like that. Others like Fidelity for certain features like better settlement accounts, useful if you transact frequently.

I have always used Vanguard. I don't transact much and the basic interface works fine for me. It has index funds with very low expense ratios (do look at those for any funds you choose), but you can buy those on Schwab or Fidelity as well. I would choose one of the latter two or you want a bricks and mortar place where you go in person.

If i were to switch from Vanguard, I would probably choose Fidelity as I prefer to keep my bank separate.

[Anonymous]

I would not pay that much. We have $5 million invested and do it ourselves. 529 is easy. I can’t imagine paying someone to do that for me. You set up monthly deposits and that’s it. Back door Roth is pretty easy, but you can learn to do it.

And is the prohibited investment list just individual stock? Just invest in broad, low cost index funds (as allowed). I have a similar list from my work, and I mostly stick to index funds.

You are better off learning these things now, rather than outsourcing it for the rest of your life. I see people with these advisors (like my in-laws) making some strange moves or showing they really do understand how things work. Don’t be in a permanent state of not understanding.

[Anonymous]

OP, a better option would be to meet with a financial planner, that will go over your estate plan, all of your insurances, tax planning , retirement planning and investment management for a year. After the year, you can decide if you need them further. If your life is not complicated, you might not need to see a financial planner till you are a few years from retirement. This approach will save you money in the long run.

[Anonymous]

Anonymous wrote:I have met with one a few times who wants to charge us 1.45%. He also shared that he would like us to consolidate several accounts to get a better rate of return, and that he does sometimes get a commission when clients invest in certain products.

Total ripoff - please don’t do this, unless your alternative would be to put the $ under your mattress

[Anonymous]

Anonymous wrote:

Anonymous wrote:We’re currently paying our financial advisor (a fiduciary) an annual 1.25% fee and we have $750k in total assets in our portfolio. It’s a mix of stocks, index funds, etc. His fee is full service and includes handling of our backdoor Roth IRAs each year and our kids’ 529 plans, and he calls us when he wants to buy/sell (if any of this is relevant).

Due to my husband’s job, every fund and entity within that fund has to be pre-cleared through a database (which our advisor handles on our behalf). We could technically do this ourselves, but it’s a bit overwhelming and TBH I don’t understand a lot about investing. Our average annualized rate of return since we started with him in 2018 is 7.4% and 8.7% since 2019.

I keep reading on here about everyone managing their own money or using fee only advisors, and can’t help feeling like we’re overpaying. For example, we just checked the Schwab S&P 500 index fund, which isn’t restricted, and it looks quite promising at a fee of only .5%. I’m tempted to put $50k of cash into it to see how it performs vs giving it to him.

Given the pre-clearance requirements, his fee, the value of our portfolio, and ROI, should we look into other options for managing our money? I often read about fee only advisors but am at a loss. WWYD?

At that level, he should be charging between 0.75-1%. Make sure they are not putting money into mutual funds that give them kickbacks. How would you know? these funds typically have a high fee. Also, the returns you quote are poor (except for 2018). Here's the return for each of those years if the investment was in a market index (in this case VOO) - https://www.etfreplay.com/etf/VOO.aspx. But of course, if they invest in just VOO, customers will catch on and think 'why am i paying this guy if all they do is buy and hold one stock? I can do it myself!'.

If you bring this up, they'll likely tell you that they invest based on a risk profile they identified for you when you set up the relationship. In the long run, you will lose a ton of money through poor investment choices (hard to quantify without getting into a lot of detail) and the 1.25% fee (about 10K right now and growing each year). You need to decide if avoiding the extra effort of managing it yourself is worth the additional cost of at least $10K.

Op here. This is exactly what has happened. And we had an influx of cash ($300k) in 2021 and a chunk of that money is still sitting in mutual funds because he recommended spacing it out over time through various investments, which I suppose is fine, but then I’m wondering why not just dump it into an index fund?

[Anonymous]

I think you have to have 1 - 2MM to get it down to 1%, then it's easier to get down.

I would also look to see if you are paying 1.25% PLUS the fees charged to be in the different funds. That was the surprise to me. With 5MM we were paying .75% with one of the top wealth management funds, but also paying for the different vehicles were were in with other companies. Ex: .75% financial advisor and .03 for VOO that he put us in. (It wasn't actually VOO--we switched to that when we left them--but most funds have their own fees. I would see if that is the case for you.)

We left and are now doing ourselves.

[Anonymous]

Anonymous wrote:I would not pay that much. We have $5 million invested and do it ourselves. 529 is easy. I can’t imagine paying someone to do that for me. You set up monthly deposits and that’s it. Back door Roth is pretty easy, but you can learn to do it.

And is the prohibited investment list just individual stock? Just invest in broad, low cost index funds (as allowed). I have a similar list from my work, and I mostly stick to index funds.

You are better off learning these things now, rather than outsourcing it for the rest of your life. I see people with these advisors (like my in-laws) making some strange moves or showing they really do understand how things work. Don’t be in a permanent state of not understanding.

OP here. The pre-clearance requirement is for individual stocks and index funds. But if the index fund has a green light, it’s okay to invest. There are a decent amount that are clear.

[Anonymous]

Anonymous wrote:I think you have to have 1 - 2MM to get it down to 1%, then it's easier to get down.

I would also look to see if you are paying 1.25% PLUS the fees charged to be in the different funds. That was the surprise to me. With 5MM we were paying .75% with one of the top wealth management funds, but also paying for the different vehicles were were in with other companies. Ex: .75% financial advisor and .03 for VOO that he put us in. (It wasn't actually VOO--we switched to that when we left them--but most funds have their own fees. I would see if that is the case for you.)

We left and are now doing ourselves.

I would assume the 1.25% is in addition to the fund expense fees. In fairness, you have to pay those even if you DIY.

[Anonymous]

Anonymous wrote:I think you have to have 1 - 2MM to get it down to 1%, then it's easier to get down.

I would also look to see if you are paying 1.25% PLUS the fees charged to be in the different funds. That was the surprise to me. With 5MM we were paying .75% with one of the top wealth management funds, but also paying for the different vehicles were were in with other companies. Ex: .75% financial advisor and .03 for VOO that he put us in. (It wasn't actually VOO--we switched to that when we left them--but most funds have their own fees. I would see if that is the case for you.)

We left and are now doing ourselves.

Op here. Thank you for the warning. I will look into this. To my knowledge, we don’t pay other fees but I’ll look into it. And it’s inspiring to see that you’ve made the switch and it’s working out well.

[Anonymous]

Anonymous wrote:I just checked our Fidelity account - self-managed 401k, mix of stocks and mutual funds - and our annualized rate of return since 2019 is 14.8%

Our Vanguard account, which is a basic mix of Vanguard mutual funds - 8.6%

fwiw

Both companies offer free help.

[Anonymous]

Anonymous wrote:OP, a better option would be to meet with a financial planner, that will go over your estate plan, all of your insurances, tax planning , retirement planning and investment management for a year. After the year, you can decide if you need them further. If your life is not complicated, you might not need to see a financial planner till you are a few years from retirement. This approach will save you money in the long run.

OP here. This is what our FA did the first time we met with him. Isn’t it the same thing or very similar?