Talk to me about why we should or should not use a financial advisor

[Anonymous]

Depends on what you're looking for. My H works as a portfolio manager for an investment firm, which means you actually give them money to invest on your behalf. Of course I'm biased but I think that is worthwhile. A lot of these places have pretty high minimums you have to fork over to be involved though. At H's you have to give them $1M cash. Gains are pretty good (they often beat the S&P).

[Anonymous]

Anonymous wrote:

Anonymous wrote:
I am the poster who started this debate and this actually captures my sentiment. I would also add -- inanticipate making significant monthly deposits and I also have wondered -- do I just spread this evenly? These issues are not always as simple as people on here make them seem.

What our advisor seems to do (I get the trade confirmations but don't look at them too closely) is spread it to get our portfolio in balance. For example, let's take a macro case like you want to be 70% equities and 30% bonds, and you invested $100k ($70k and $30k). Now let's say the equities went down a bit so you're at $67k in equities and $30k in bonds. They'll allocate the new money to get your portfolio back in line.

That's a simple case. The more common scenario is that in your equities basket, you want to be 20% tech, 20% commodities, 10% international, etc. You're in 20 different funds, one is the S&P500, another the Russell 2000, etc. Tech is doing well, so now your portfolio across all your funds is now 25% tech... but you only know that by analyzing the holdings across all your funds, to see what stocks is in each.. for example maybe 3 of the funds hold Apple stock and 2 hold Google stock. They'll run the numbers to figure out how much $ to put into which funds to rebalance it. Of course, they're just using fancy software and you can work this out on your own with many hours of work and Excel... but I just don't have that time.

But if one sector is a larger part of the market then owning the market means owning more of that sector. Why mess with that?

[Anonymous]

Anonymous wrote:Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

No, you actually don't know finance. In fact, your post basically just laid out all the proof we all need to know that not only do you not know finance, but there is a high probability there is a lot more stuff you have no clue about either. Just reading your post makes me wonder if you are one of those online MBAs or if you were just kidding or something. There are so many problems here I don't know where to start. What your adviser is doing is elementary to someone with basic financial skills and certainly an MBA (unless it was Strayer or SNHU). Based on the language in your post what I am getting is that you come from money and are used to having things done for you so you'd rather not bother yourself with learning or doing anything and would rather pay someone to do everything for you except play with your children. Close? If not, and you still want to play finance guru, maybe you can start by explaining to us how you being in 100% equities is less risky in the event of a market downturn than someone in 100% index funds.

[Anonymous]

Anonymous wrote:We use an independent advisory firm. They charge 0.85% of managed assets. They don't get commissions for pushing particular funds.

Regarding index funds, no one has talked about risk really. Basically, in investing the more risk you take, the higher the returns but also the higher the downside. For example, our adviser has us in 100/0 (equities (stocks) vs bonds) for retirement funds because we won't be drawing those for 20-30 years, but for funds we may use sooner, we're in 70/30 equities vs bonds. Then that same advisor manages a trust for an elderly relatively where I'm a trustee, and we have that in 50/50 since she may need the money for long-term care in a few years.

So if you're in all index, yes you won't have high fees, but you also face large downside if the market goes down. That's fine for long-term investing (it's cyclical) but not great if you planned to use that money 2 years from now on a home renovation and you're down 30%.

Then the "just buy 5 different Vanguard index funds" can be tricky. What if the combination of them means you're holding 20% commodities while the market in general is only 10%? That may be OK, but most people don't check across investments.

Then, let's say you want to put in another $5k. Which fund? Evenly across all?

Here's what our advisor helps us on:
- Reviews our wills and provides advice on situations like if we both die before our children turn 18. Our lawyer wanted to give it all to them right at 18, but our advisors suggested milestones age-based due to the sums involved.
- Reviews our 401k allocations from employers against our investments with them, to ensure we have proper diversification based on our risk preferences.
- Reviews insurance coverage
- Does tax-advantaged management of our portfolio, like when certain funds are down, sell them but re-buy a similar fund the next day, for tax loss harvesting purposes. No wash sale since it's a different fund.
- Reinvests dividends and new money to rebalance the portfolio.
- Helps us plan for long-term financial scenarios, like how much needed to retire and when.

Yes, we can read books to figure all this out, and we can take the time to do it. Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

We also don't mow our own lawn, or clean our own house, or fix our own cars. We know how to do all these, but the one thing we have a fixed amount of is time, and we've chosen to allocate it to different priorities.

The services provided by your advisor are fine but do you really need to be paying .85% every year for that service? Using simple numbers, if you have a million bucks under management, you're paying $8,500 every year, regardless of the amount of work the advisor does or how well/poorly your investments perform. The items you list can be done by a pro in several hours -- and you don't need it done every year (some of the items you list, can be done once). Find a reputable hourly-fee advisor, pay them for their up-front work, then revisit as needed over the years. You don't need to shell our thousands of dollars every year.

[Anonymous]

Hi OP - it really depends on you. You don't need to be a professional investor to manage your own finances. Personally, I believe most people are perfectly capable of managing their 'grand strategy' (i.e. index funds, Roth IRA if appropriate, maxing out 401k, etc), but once you hit a certain level of complexity, you should definitely hire a good CPA. An accountant can answer most of the tricky questions that a financial adviser can, at lest cost and with incentives that are more aligned with yours.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We use an independent advisory firm. They charge 0.85% of managed assets. They don't get commissions for pushing particular funds.

Regarding index funds, no one has talked about risk really. Basically, in investing the more risk you take, the higher the returns but also the higher the downside. For example, our adviser has us in 100/0 (equities (stocks) vs bonds) for retirement funds because we won't be drawing those for 20-30 years, but for funds we may use sooner, we're in 70/30 equities vs bonds. Then that same advisor manages a trust for an elderly relatively where I'm a trustee, and we have that in 50/50 since she may need the money for long-term care in a few years.

So if you're in all index, yes you won't have high fees, but you also face large downside if the market goes down. That's fine for long-term investing (it's cyclical) but not great if you planned to use that money 2 years from now on a home renovation and you're down 30%.

Then the "just buy 5 different Vanguard index funds" can be tricky. What if the combination of them means you're holding 20% commodities while the market in general is only 10%? That may be OK, but most people don't check across investments.

Then, let's say you want to put in another $5k. Which fund? Evenly across all?

Here's what our advisor helps us on:
- Reviews our wills and provides advice on situations like if we both die before our children turn 18. Our lawyer wanted to give it all to them right at 18, but our advisors suggested milestones age-based due to the sums involved.
- Reviews our 401k allocations from employers against our investments with them, to ensure we have proper diversification based on our risk preferences.
- Reviews insurance coverage
- Does tax-advantaged management of our portfolio, like when certain funds are down, sell them but re-buy a similar fund the next day, for tax loss harvesting purposes. No wash sale since it's a different fund.
- Reinvests dividends and new money to rebalance the portfolio.
- Helps us plan for long-term financial scenarios, like how much needed to retire and when.

Yes, we can read books to figure all this out, and we can take the time to do it. Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

We also don't mow our own lawn, or clean our own house, or fix our own cars. We know how to do all these, but the one thing we have a fixed amount of is time, and we've chosen to allocate it to different priorities.

The services provided by your advisor are fine but do you really need to be paying .85% every year for that service? Using simple numbers, if you have a million bucks under management, you're paying $8,500 every year, regardless of the amount of work the advisor does or how well/poorly your investments perform. The items you list can be done by a pro in several hours -- and you don't need it done every year (some of the items you list, can be done once). Find a reputable hourly-fee advisor, pay them for their up-front work, then revisit as needed over the years. You don't need to shell our thousands of dollars every year.

+1. This is a luxury/concierge type of example. There is no need to do all this, but this PP is wealthy/silver spoon territory so doesn't mind throwing all that cash at the problem so he/she doesn't have to worry about it. Similar to having a cleaning service, yard service, groceries delivered, Christmas decorating service, stylist come to your house before a party, etc. Fine if you want to spend your money that way, but certainly not necessary to manage your finances correctly.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We use an independent advisory firm. They charge 0.85% of managed assets. They don't get commissions for pushing particular funds.

Regarding index funds, no one has talked about risk really. Basically, in investing the more risk you take, the higher the returns but also the higher the downside. For example, our adviser has us in 100/0 (equities (stocks) vs bonds) for retirement funds because we won't be drawing those for 20-30 years, but for funds we may use sooner, we're in 70/30 equities vs bonds. Then that same advisor manages a trust for an elderly relatively where I'm a trustee, and we have that in 50/50 since she may need the money for long-term care in a few years.

So if you're in all index, yes you won't have high fees, but you also face large downside if the market goes down. That's fine for long-term investing (it's cyclical) but not great if you planned to use that money 2 years from now on a home renovation and you're down 30%.

Then the "just buy 5 different Vanguard index funds" can be tricky. What if the combination of them means you're holding 20% commodities while the market in general is only 10%? That may be OK, but most people don't check across investments.

Then, let's say you want to put in another $5k. Which fund? Evenly across all?

Here's what our advisor helps us on:
- Reviews our wills and provides advice on situations like if we both die before our children turn 18. Our lawyer wanted to give it all to them right at 18, but our advisors suggested milestones age-based due to the sums involved.
- Reviews our 401k allocations from employers against our investments with them, to ensure we have proper diversification based on our risk preferences.
- Reviews insurance coverage
- Does tax-advantaged management of our portfolio, like when certain funds are down, sell them but re-buy a similar fund the next day, for tax loss harvesting purposes. No wash sale since it's a different fund.
- Reinvests dividends and new money to rebalance the portfolio.
- Helps us plan for long-term financial scenarios, like how much needed to retire and when.

Yes, we can read books to figure all this out, and we can take the time to do it. Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

We also don't mow our own lawn, or clean our own house, or fix our own cars. We know how to do all these, but the one thing we have a fixed amount of is time, and we've chosen to allocate it to different priorities.

The services provided by your advisor are fine but do you really need to be paying .85% every year for that service? Using simple numbers, if you have a million bucks under management, you're paying $8,500 every year, regardless of the amount of work the advisor does or how well/poorly your investments perform. The items you list can be done by a pro in several hours -- and you don't need it done every year (some of the items you list, can be done once). Find a reputable hourly-fee advisor, pay them for their up-front work, then revisit as needed over the years. You don't need to shell our thousands of dollars every year.

+1. This is a luxury/concierge type of example. There is no need to do all this, but this PP is wealthy/silver spoon territory so doesn't mind throwing all that cash at the problem so he/she doesn't have to worry about it. Similar to having a cleaning service, yard service, groceries delivered, Christmas decorating service, stylist come to your house before a party, etc. Fine if you want to spend your money that way, but certainly not necessary to manage your finances correctly.

Why is there an assumption that someone had a silver spoon? What if this same person came from nothing, busted his or her butt to get where he or she is? There are a lot of people who come from very modest backgrounds and do quite well in life and there is no reason that people should think that just because you have enough money to hire a financial advisor that you automatically have a silver spoon.

A lot of people simply do not understand the time constraints that come along with certain jobs and how you time can be more valuable than money. But it really is true.

[Anonymous]

And yet more than one person on this board has given you all the information you need to setup a perfectly reasonable asset allocation.

It's not about time. It's about prestige. A financial advisor is something rich people have (well, before they graduate to a Wealth Manager and really start throwing their money down the drain.)

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We use an independent advisory firm. They charge 0.85% of managed assets. They don't get commissions for pushing particular funds.

Regarding index funds, no one has talked about risk really. Basically, in investing the more risk you take, the higher the returns but also the higher the downside. For example, our adviser has us in 100/0 (equities (stocks) vs bonds) for retirement funds because we won't be drawing those for 20-30 years, but for funds we may use sooner, we're in 70/30 equities vs bonds. Then that same advisor manages a trust for an elderly relatively where I'm a trustee, and we have that in 50/50 since she may need the money for long-term care in a few years.

So if you're in all index, yes you won't have high fees, but you also face large downside if the market goes down. That's fine for long-term investing (it's cyclical) but not great if you planned to use that money 2 years from now on a home renovation and you're down 30%.

Then the "just buy 5 different Vanguard index funds" can be tricky. What if the combination of them means you're holding 20% commodities while the market in general is only 10%? That may be OK, but most people don't check across investments.

Then, let's say you want to put in another $5k. Which fund? Evenly across all?

Here's what our advisor helps us on:
- Reviews our wills and provides advice on situations like if we both die before our children turn 18. Our lawyer wanted to give it all to them right at 18, but our advisors suggested milestones age-based due to the sums involved.
- Reviews our 401k allocations from employers against our investments with them, to ensure we have proper diversification based on our risk preferences.
- Reviews insurance coverage
- Does tax-advantaged management of our portfolio, like when certain funds are down, sell them but re-buy a similar fund the next day, for tax loss harvesting purposes. No wash sale since it's a different fund.
- Reinvests dividends and new money to rebalance the portfolio.
- Helps us plan for long-term financial scenarios, like how much needed to retire and when.

Yes, we can read books to figure all this out, and we can take the time to do it. Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

We also don't mow our own lawn, or clean our own house, or fix our own cars. We know how to do all these, but the one thing we have a fixed amount of is time, and we've chosen to allocate it to different priorities.

The services provided by your advisor are fine but do you really need to be paying .85% every year for that service? Using simple numbers, if you have a million bucks under management, you're paying $8,500 every year, regardless of the amount of work the advisor does or how well/poorly your investments perform. The items you list can be done by a pro in several hours -- and you don't need it done every year (some of the items you list, can be done once). Find a reputable hourly-fee advisor, pay them for their up-front work, then revisit as needed over the years. You don't need to shell our thousands of dollars every year.

+1. This is a luxury/concierge type of example. There is no need to do all this, but this PP is wealthy/silver spoon territory so doesn't mind throwing all that cash at the problem so he/she doesn't have to worry about it. Similar to having a cleaning service, yard service, groceries delivered, Christmas decorating service, stylist come to your house before a party, etc. Fine if you want to spend your money that way, but certainly not necessary to manage your finances correctly.

Why is there an assumption that someone had a silver spoon? What if this same person came from nothing, busted his or her butt to get where he or she is? There are a lot of people who come from very modest backgrounds and do quite well in life and there is no reason that people should think that just because you have enough money to hire a financial advisor that you automatically have a silver spoon.

A lot of people simply do not understand the time constraints that come along with certain jobs and how you time can be more valuable than money. But it really is true.

It may just be the other way around.

[Anonymous]

Anonymous wrote:I agree with PP about fee-only. You'll get a lot of people telling you you don't need an adviser, they're stupid, don't know what they're doing, but my spouse and I find it worth the cost to hire one (fee-only) because we just don't feel like dealing with it. They help us maximize our investments (things like how to use our HSA as a super-advantaged retirement account and doing the math on why it makes sense), ensure we're protected financially in a very holistic way (estate plan, insurance coverage, benefit elections at work, etc.), and also just give us peace that we're on track for our goals.

Before we hired them, it was one of those things where every few months we'd say "Yeahhhh, we really need to reassess our portfolio and make sure everything looks good" or I'd spend 4 hours on a Saturday researching how much insurance I should be carrying because I was switching from employer provided to open-market, etc. It was something we constantly procrastinated on, hated spending the time on, and even after we did it felt no confidence that we'd done it optimally.

I hire a financial adviser for the same reason I hire a cleaning lady - I am sure I could do it myself if I wanted to, but I don't and having someone else do it makes my life better. It's worth it to me based on how I want to spend my time/mental energy.

We did meet with/interview 4 different advisers (3 fee-only and one commission based), which was a painstaking process, but totally worth it - just like hiring someone to do a big home improvement. We ended up going with the middle-of-the-road person based on experience and where we're headed, but meeting with all of them helped clarify our needs and what was and was not worth hiring them for.

+1

I agree with this. It is worth getting a fee-based advisor. Just sorting out your insurance alone is worth it. I also agree that Vanguard index funds are the way to go. You could figure this all out yourself but if you can afford the fee it is great to have someone to advise and guide.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I agree with PP about fee-only. You'll get a lot of people telling you you don't need an adviser, they're stupid, don't know what they're doing, but my spouse and I find it worth the cost to hire one (fee-only) because we just don't feel like dealing with it. They help us maximize our investments (things like how to use our HSA as a super-advantaged retirement account and doing the math on why it makes sense), ensure we're protected financially in a very holistic way (estate plan, insurance coverage, benefit elections at work, etc.), and also just give us peace that we're on track for our goals.

Before we hired them, it was one of those things where every few months we'd say "Yeahhhh, we really need to reassess our portfolio and make sure everything looks good" or I'd spend 4 hours on a Saturday researching how much insurance I should be carrying because I was switching from employer provided to open-market, etc. It was something we constantly procrastinated on, hated spending the time on, and even after we did it felt no confidence that we'd done it optimally.

I hire a financial adviser for the same reason I hire a cleaning lady - I am sure I could do it myself if I wanted to, but I don't and having someone else do it makes my life better. It's worth it to me based on how I want to spend my time/mental energy.

We did meet with/interview 4 different advisers (3 fee-only and one commission based), which was a painstaking process, but totally worth it - just like hiring someone to do a big home improvement. We ended up going with the middle-of-the-road person based on experience and where we're headed, but meeting with all of them helped clarify our needs and what was and was not worth hiring them for.

+1

I agree with this. It is worth getting a fee-based advisor. Just sorting out your insurance alone is worth it. I also agree that Vanguard index funds are the way to go. You could figure this all out yourself but if you can afford the fee it is great to have someone to advise and guide.

You are paying someone to do what you don't feel like doing. Which is fine, but that's not what OP asked. She is interested in doing it herself, and wanted to know if she was "missing something" which she is definitely not. I think the cleaning lady analogy is spot on. You only need to pay an advisor if you simply don't want to do it yourself.

[Anonymous]

Anonymous wrote:Depends on what you're looking for. My H works as a portfolio manager for an investment firm, which means you actually give them money to invest on your behalf. Of course I'm biased but I think that is worthwhile. A lot of these places have pretty high minimums you have to fork over to be involved though. At H's you have to give them $1M cash. Gains are pretty good (they often beat the S&P).

Right, this is the kind of thing that is worth shelling out for but I don't think this is what the OP is talking about. I don't think she wants active money management, she just wants advice.

[Anonymous]

PP who uses an advisor here. I checked our allocation. It's about 40% in Vanguard funds, spread across 8 different funds. Then 30-40% in a variety of DFA funds, and the rest in smaller funds.

I think if the goal is solely returns and you need no other financial advice like tax strategies, trusts, estate planning, retirement, etc.. then you can just do it on your own. If you have a more complex situation, it's helpful to have a person or firm who has the expertise to understand all of it and look at it holistically.

An analogy may be if you want to remodel your kitchen. If you just want new appliances, it's going to be cheaper to go to Bray and Scarff and buy it and have them install it, than to hire a general contractor who will probably do the same thing. However, if you also need tile work, electrical work, and new cabinets, now the general contractor is going to be a big benefit as they will coordinate that work and look at the whole-kitchen view.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I agree with PP about fee-only. You'll get a lot of people telling you you don't need an adviser, they're stupid, don't know what they're doing, but my spouse and I find it worth the cost to hire one (fee-only) because we just don't feel like dealing with it. They help us maximize our investments (things like how to use our HSA as a super-advantaged retirement account and doing the math on why it makes sense), ensure we're protected financially in a very holistic way (estate plan, insurance coverage, benefit elections at work, etc.), and also just give us peace that we're on track for our goals.

Before we hired them, it was one of those things where every few months we'd say "Yeahhhh, we really need to reassess our portfolio and make sure everything looks good" or I'd spend 4 hours on a Saturday researching how much insurance I should be carrying because I was switching from employer provided to open-market, etc. It was something we constantly procrastinated on, hated spending the time on, and even after we did it felt no confidence that we'd done it optimally.

I hire a financial adviser for the same reason I hire a cleaning lady - I am sure I could do it myself if I wanted to, but I don't and having someone else do it makes my life better. It's worth it to me based on how I want to spend my time/mental energy.

We did meet with/interview 4 different advisers (3 fee-only and one commission based), which was a painstaking process, but totally worth it - just like hiring someone to do a big home improvement. We ended up going with the middle-of-the-road person based on experience and where we're headed, but meeting with all of them helped clarify our needs and what was and was not worth hiring them for.

+1

I agree with this. It is worth getting a fee-based advisor. Just sorting out your insurance alone is worth it. I also agree that Vanguard index funds are the way to go. You could figure this all out yourself but if you can afford the fee it is great to have someone to advise and guide.

This was us. Before getting one, it was always low on the to-do list to look over our portfolio, read up, adjust allocations, etc.

Now the advisor does it all for us, without even asking. If I compare our portfolio before and after using an advisor, we're doing much better now, mainly because now someone is managing it -- way better than the fees we pay to them.

Yes, we could do what they do, but past history shows we simply didn't have time for it. Other family items took higher priority.

[Anonymous]

Anonymous wrote:
Why is there an assumption that someone had a silver spoon? What if this same person came from nothing, busted his or her butt to get where he or she is? There are a lot of people who come from very modest backgrounds and do quite well in life and there is no reason that people should think that just because you have enough money to hire a financial advisor that you automatically have a silver spoon.

A lot of people simply do not understand the time constraints that come along with certain jobs and how you time can be more valuable than money. But it really is true.

I think I'm the PP being referred to. No silver spoon -- start a company from nothing, worked long hours to grow it, and have been blessed to be successful at it the last few years. Time is the most valuable asset right now, especially with young children.

I also will spend $1,000 more on an airplane ticket just to get a flight that gets me home in time for dinner with the family, instead of the one that arrives at 10pm when they're in bed.