Utility of Financial Advisor

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pkcrafter
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Re: Utility of Financial Advisor

Post by pkcrafter »

wije wrote: Sat Jun 19, 2021 12:47 pm
This is an interesting discussion, but I have a few questions and a suggestion.

My 80-year old dad recently asked me to take control over his retirement IRA (traditional), which will also be my portion of the inheritance. It currently stands at nearly $1.3M. My dad always had zero interest in money or investing and had handed everything over to his advisor.

OK, the IRA is what he asked you to manage. Are there other accounts, and are there other children he is asking to manage?


Despite my misgivings, I'm inclined to give the advisor a shot and see what he can come up with. There are some complicated issues that he may be better able to deal with. For example, we'd like to slowly move the account to a Roth IRA and do some estate planning. What else are good topics to raise with him?

You can continue to use the advisor or do it yourself, which I would strongly recommend. I, and other Bogleheads, can guide you on how to transfer the IRA correctly to another institution. Focusing on the IRA and keeping in mind that it is still your dad's, I would suggest you don't get too aggressive. I would move it and set up a simple portfolio of maybe 35-40% equity, the equity being total stock market--and assuming the withdrawal rate is less than 4%. The rest in bonds (maybe short or intermediate term TIPS). An advisor isn't needed or this. If there are other concerns about the IRA or the whole account, we will need more information

Paul
Last edited by pkcrafter on Sun Jun 20, 2021 9:01 pm, edited 1 time in total.
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RetiredCSProf
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Re: Utility of Financial Advisor

Post by RetiredCSProf »

My experience in using a FA for several years was that he was involved in selecting funds and provided projections (based on my income, expenses,and assets). Also, he tried to sell me stuff (annuities, QLAC). He did not advise on Roth conversions.

The following may be considered in making Roth conversions:
1. Ensuring that OP's father has enough income from RMDs to cover his expenses, including taxes on Roth conversions
2. Ensuring that OP's father continues to draw enough income from RMDs to cover his expenses after tIRA balance is adjusted by Roth conversions
3. Potential increase in Medicare premiums from additional income driven by Roth conversions (increased MAGI pushing into next IRMAA bracket for single taxpayer)
4. Determining the value of Roth conversions depends partly on whether the OP expects to be in a higher tax bracket than his father at time of inheritance (plus ten years of distributions).

A separate potential issue is keeping gifts "equal" between siblings. For example, suppose that OP's father withholds an extra $10K from his annual RMD to cover taxes on the Roth conversion and that he spends another $10K on improvements / maintenance on his home. Both expenses can be considered quasi-gifts to his children, although neither is a direct benefit to heirs.
tibbitts
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Re: Utility of Financial Advisor

Post by tibbitts »

wije wrote: Sun Jun 20, 2021 8:10 pm
Fallible wrote: Sun Jun 20, 2021 5:30 pmStockpicking in small caps is appropriate for an 80-year-old who probably doesn’t understand the risks and fees? Is your dad entirely in individual stocks?
Of course stockpicking is totally inappropriate for an 80-year old who isn't even interested in learning about securities. The question is whether it's appropriate for a third-party manager selected by a FA who has an incentive for the AUM and his 1% cut to expand.

The previous advisor had selected managers who chose large cap stocks. I can get a Vanguard/Schwab/Fido large-cap ETF for less than 10 bps instead of such a manager who will ask for 20-30.
Well yes but lots of Bogleheads will choose Primecap or Capital Opportunity or Wellington or TRP Capital Appreciation or TRP Blue Chip Growth or Fidelity Growth Company or whatever and pay for those. They may be picking them themselves instead of someone else doing it but they're still paying more than for a passive fund, so that's not exactly a foreign concept around here.
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wije
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Re: Utility of Financial Advisor

Post by wije »

mathwhiz wrote: Sun Jun 20, 2021 3:21 pmI will say that active managers may add value in so-called floating quasi tactical asset allocation funds like Wellington, Puritan... They have impressive risk adjusted returns going back 70 years and can float their equity/fixed income split between 50 to 70%. Historically, much more than that in fact decades ago.

Also, fixed income active asset managers made a killing in 2009 after under performing in 2008 by exploiting some very apparent bond market inefficiencies during the financial crisis.
I'll raise this with the FA. Active bond mgmt might be an option for us (or at least "TAA" funds). Thank you!
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nedsaid
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Re: Utility of Financial Advisor

Post by nedsaid »

So here's the deal. Your dad has picked this advisor and unless you can convince him to make a change, you are sort of stuck.

Pretty much a waste of time to debate the guy on asset allocation, indexing, etc. Your dad hired him and your role is to work with him and perhaps influence him towards lower cost solutions. You could indicate your preference for low cost ETFs over Separately Managed Accounts. Perhaps he will accommodate your wishes a bit but he was hired and you need to let him do his job.

Separately Managed Accounts are hardly a disaster, so you pay 20 or 30 basis points for someone to pick stocks. The SMAs that I researched did fairly well within their mandate but often would trail a similar index a bit. Just think, at Ameriprise you could pay 1.20% AUM and then pay another 1.00% for a mutual fund. In that context, an SMA doesn't look so bad and you will probably be close to index performance. They do publish their investment results to their advisors though this isn't public information. You should be able to do rough comparisons. SMAs actually a pretty good deal compared to retail mutual funds, the active stock funds at Vanguard run 26 to 46 basis points for US Large Cap Stock funds.

So it looks like your all in expenses will be about 1.3% or so. Hopefully, what you will get is a mix of SMA's, Index Funds, and Low Cost ETFs. I think what you will find is that the SMAs will have lower expenses than the Institutional Share Class of most retail mutual funds. Maybe you can talk him into 50% active/50% passive. So not perfect but the best you can do here. I would ask about financial planning, if that is included you have a better deal. Something tells me there will be an additional charge for a financial plan.

My suspicion is that your cheapest option is SMAs plus ETFs. There might be a small transaction fee for index mutual funds probably no transaction fees for ETFs.

At some point, you could convince your father to move to Vanguard and maybe use their Personal Advisory Service at 0.30% and you will get a portfolio of four to six low cost funds. As long as it is your father's money, I think you need some kind of advisory relationship. Whenever you inherit, you can do what you want. You are knowledgeable enough to self manage.
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wije
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Re: Utility of Financial Advisor

Post by wije »

pkcrafter wrote: Sun Jun 20, 2021 8:31 pmOK, the IRA is what he asked you to manage. Are there other accounts, and are there other children he is asking to manage?
Aside from his checking account, I believe the only other thing is what we call his "transfer" account (FA calls it "CMA" I think) where he moves his RMDs from the IRA. FA thinks he should invest those too and I agree, even though the transfer account is taxable.
You can continue to use the advisor or do it yourself, which I would strongly recommend. I, and other Bogleheads, can guide you on how to transfer the IRA correctly to another institution. Focusing on the IRA and keeping in mind that it is still your dad's, I would suggest you don't get too aggressive. I would move it and set up a simple portfolio of maybe 35-40% equity, the equity being total stock market--and assuming the withdrawal rate is less than 4%. The rest in bonds (maybe short or intermediate term TIPS). An advisor isn't needed or this. If there are other concerns about the IRA or the whole account, we will need more information
I shared most everything with nedsaid. Part of the problem is that the IRA has six sub-accounts, three of which are managed by third parties. At the very least I want to get the FA to consolidate them to something coherent before I do anything else. I was unable to decipher my dad's statements, despite my experience managing my own 401k, Roth IRA + wife's, HSA, and taxable.
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nedsaid
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Re: Utility of Financial Advisor

Post by nedsaid »

StealthRabbit wrote: Sun Jun 20, 2021 12:08 pm Thoughts...
Dad has no interest in managing or consulting in this... (That's fine, I was a fiduciary and HC for my dad for over 30 yrs...so we do what is in their best interest, acting on their behalf.). As if we were 80 and in their shoes)

1) drill Fidelity advisor to specifics on their plan BEFORE handing over.. be sure to inquire and view their results against their benchmarks. If they don't deliver, request another advisor. Have them provide (3+) scenarios using their eMoney reports, include allocations, income streams, Roth rolls to desired tax cap. (This is all free). You get eMoney as a perk, but only advisor can run full range of scenarios. You can update and run your current scenario. (View changes). If you want a printed report, just populate eMoney as you desire and ask for a report. This has been very helpful in tax and invest planning.

Fidelity research and reporting can be very handy, as I populate it with links to several outside brokerages and accts, and Fidelity aggregates and I can download very detailed reports of my consolidated holdings, all "auto-segregated" into their appropriate allocations. Pretty helpful, I downloaded one last night.
2) consolidate accts for ease of visibility and managing.
3) choose a sustainable and digestible allocation and withdrawal.

Management?
DIY if desired... Pay advisor if desired.... Split between both if desired. Do simplify as appropriate.

Often the Fidelity advisor can offer some insight and details if they have similar clients. Most advisors are only sales / customer facing and know little about the mechanics of investing or research. They usually just transfer the investment portion to back office team who runs similar clients through age and objective specific standard investments. (Bulk client management)

I have had some great acct managers at Fidelity, and have had annual sessions with advisor. (free) as well as Fidelity estate planners and staff or contract estate attorney (specify to my state.). They have all been quite helpful and free. They also concur .... If you are well prepared, ask informed questions, illustrate an ounce of sense and responsibility.... "You are doing a good job of this, if you are willing to stay engaged, you can manage this on your own, if you would like to transfer this responsibility to us, we are happy to do so,.... Call with any questions".
This is an excellent post. It almost should be in a Wiki section of Bogleheads describing how to work with Fidelity. I don't think this is an option for the original poster. . .at least not yet. This is, however, of great interest to other Bogleheads who might be interested in Fidelity.

Too often, advisors get dismissed as just being securities salesman. You might get a gentle pitch sort of like the pretty waitress bringing around the dessert tray. Upsell is part of every business, you can always say no. What I will say is that if you keep an open mind and an open ear that you can learn a lot from these sessions. Sometimes these free sessions can be quite informative.
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wije
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Re: Utility of Financial Advisor

Post by wije »

RetiredCSProf wrote: Sun Jun 20, 2021 8:34 pmThe following may be considered in making Roth conversions:
1. Ensuring that OP's father has enough income from RMDs to cover his expenses, including taxes on Roth conversions
2. Ensuring that OP's father continues to draw enough income from RMDs to cover his expenses after tIRA balance is adjusted by Roth conversions
3. Potential increase in Medicare premiums from additional income driven by Roth conversions (increased MAGI pushing into next IRMAA bracket for single taxpayer)
4. Determining the value of Roth conversions depends partly on whether the OP expects to be in a higher tax bracket than his father at time of inheritance (plus ten years of distributions).
This was super helpful. We're trying to avoid pushing dad into the next income tax bracket, and it seems we might have some wiggle room there.

Currently I'm one notch lower in the tax bracket primarily because I'm married and he isn't (although it is a bit grating that he earns almost as much as I do while being retired!). In any case, there's no way that we can convert the entire IRA. We'll have to settle for nibbles each year.
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wije
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Re: Utility of Financial Advisor

Post by wije »

nedsaid wrote: Sun Jun 20, 2021 9:36 pm So here's the deal. Your dad has picked this advisor and unless you can convince him to make a change, you are sort of stuck.
I'm fairly sure I can convince dad to change, but for now I don't have a compelling reason and I heed your earlier warning that I'll get the blame if I DIY and something goes wrong. Hence my primary interest in searching for questions to ask the FA instead of how to transfer things to my sole control.
Pretty much a waste of time to debate the guy on asset allocation, indexing, etc. Your dad hired him and your role is to work with him and perhaps influence him towards lower cost solutions. You could indicate your preference for low cost ETFs over Separately Managed Accounts. Perhaps he will accommodate your wishes a bit but he was hired and you need to let him do his job.
Maybe you can talk him into 50% active/50% passive. So not perfect but the best you can do here.
My suspicion is that your cheapest option is SMAs plus ETFs. There might be a small transaction fee for index mutual funds probably no transaction fees for ETFs.
My sense is that the FA is flexible and would accommodate a 50% allocation to ETFs.
I would ask about financial planning, if that is included you have a better deal. Something tells me there will be an additional charge for a financial plan.
I'll find out.
At some point, you could convince your father to move to Vanguard and maybe use their Personal Advisory Service at 0.30% and you will get a portfolio of four to six low cost funds. As long as it is your father's money, I think you need some kind of advisory relationship. Whenever you inherit, you can do what you want. You are knowledgeable enough to self manage.
I wish I had done this to begin with, but I needed someone to explain to me what dad's account was since he didn't know himself. I wasn't even sure whether it was an IRA or some employer-established setup that couldn't be transferred to another custodian.
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nedsaid
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Re: Utility of Financial Advisor

Post by nedsaid »

wije wrote: Sun Jun 20, 2021 9:40 pm
pkcrafter wrote: Sun Jun 20, 2021 8:31 pmOK, the IRA is what he asked you to manage. Are there other accounts, and are there other children he is asking to manage?
Aside from his checking account, I believe the only other thing is what we call his "transfer" account (FA calls it "CMA" I think) where he moves his RMDs from the IRA. FA thinks he should invest those too and I agree, even though the transfer account is taxable.
You can continue to use the advisor or do it yourself, which I would strongly recommend. I, and other Bogleheads, can guide you on how to transfer the IRA correctly to another institution. Focusing on the IRA and keeping in mind that it is still your dad's, I would suggest you don't get too aggressive. I would move it and set up a simple portfolio of maybe 35-40% equity, the equity being total stock market--and assuming the withdrawal rate is less than 4%. The rest in bonds (maybe short or intermediate term TIPS). An advisor isn't needed or this. If there are other concerns about the IRA or the whole account, we will need more information
I shared most everything with nedsaid. Part of the problem is that the IRA has six sub-accounts, three of which are managed by third parties. At the very least I want to get the FA to consolidate them to something coherent before I do anything else. I was unable to decipher my dad's statements, despite my experience managing my own 401k, Roth IRA + wife's, HSA, and taxable.
A couple of things that you will find regarding advisors is belief in active management and belief in tactical asset allocation. You will probably see from advisors an interest in Alternative investments such as non-Traded REITs. These are three concepts that are mostly frowned upon here but that is the environment you are working in. What I would tell you in this instance is to keep everything liquid, don't have your dad put in illiquid or semi-liquid investments as this would greatly complicate moving assets elsewhere at a later date.

Active management in itself isn't bad, it is okay if you can get it cheap enough. If you can get active management for 30 basis points, that is pretty good. You can compare with what Vanguard charges for active management, presumably you are getting it at Vanguard at cost.

One of the reasons that the statements were confusing is that you probably saw activity as the SMAs bought and sold stocks. This is another thing that bugs me, turnover is another source of drag on returns. Plus I believe in conviction, if a manager buys a stock and then sells it three months later, it tells me that he or she did not have much belief in the stock. To me, lower turnover strategies are better than higher turnover strategies. That is another discussion but it boils down to incorrect sell/buy decisions, the more you trade, the more errors you make with sell/buy decisions. It seems that stocks that are sold tend to do better than what you buy to replace, it is a huge problem with amateur stock pickers but even institutional investors don't escape this problem entirely.

As far as tactical asset allocation, there are folks out there who seem pretty good at it but Vanguard took a stab at this and failed. It is pretty hard to outguess the markets. My thoughts are that tactical investing might help a little or it might hurt a little. There are Balanced Funds and certain Asset Allocation funds that shift the allocations between stocks and bonds a bit, wherever the manager sees opportunities. Another poster in this thread mentioned this. My belief about tactical is that it might be more about reducing risk than boosting returns. A lot of advisors believe pretty strongly in this, my convictions regarding this are pretty mild. Don't be surprised if the advisor discusses this.

Finally, I would say that pkcrafter is one of the better posters here on the forum and I always read his posts with great interest. He is encouraging you to take control and do this on your own, you are competent to do this. I am just concerned that when you are dealing with somebody else's money that you should have a third party involved, particularly with a close family member. It just looks better to other family members. But yes, you probably could do this yourself. Speaking for myself, I would not manage other people's money, partly because I have no licenses or credentials.
Last edited by nedsaid on Sun Jun 20, 2021 10:46 pm, edited 1 time in total.
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nedsaid
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Re: Utility of Financial Advisor

Post by nedsaid »

wije wrote: Sun Jun 20, 2021 10:03 pm
nedsaid wrote: Sun Jun 20, 2021 9:36 pm So here's the deal. Your dad has picked this advisor and unless you can convince him to make a change, you are sort of stuck.
I'm fairly sure I can convince dad to change, but for now I don't have a compelling reason and I heed your earlier warning that I'll get the blame if I DIY and something goes wrong. Hence my primary interest in searching for questions to ask the FA instead of how to transfer things to my sole control.
Pretty much a waste of time to debate the guy on asset allocation, indexing, etc. Your dad hired him and your role is to work with him and perhaps influence him towards lower cost solutions. You could indicate your preference for low cost ETFs over Separately Managed Accounts. Perhaps he will accommodate your wishes a bit but he was hired and you need to let him do his job.
Maybe you can talk him into 50% active/50% passive. So not perfect but the best you can do here.
My suspicion is that your cheapest option is SMAs plus ETFs. There might be a small transaction fee for index mutual funds probably no transaction fees for ETFs.
My sense is that the FA is flexible and would accommodate a 50% allocation to ETFs.
I would ask about financial planning, if that is included you have a better deal. Something tells me there will be an additional charge for a financial plan.
I'll find out.
At some point, you could convince your father to move to Vanguard and maybe use their Personal Advisory Service at 0.30% and you will get a portfolio of four to six low cost funds. As long as it is your father's money, I think you need some kind of advisory relationship. Whenever you inherit, you can do what you want. You are knowledgeable enough to self manage.
I wish I had done this to begin with, but I needed someone to explain to me what dad's account was since he didn't know himself. I wasn't even sure whether it was an IRA or some employer-established setup that couldn't be transferred to another custodian.
Merrill Lynch would not have been among my choices to invest but my thinking here might be outdated. ML was once one of the premier Full Service Brokerages in the country but now are a division of Bank of America. In the old days, they were pretty much stock brokers and would have put you into individual stocks and loaded mutual funds. Things have changed and they offer Merrill Edge, which Bogleheads have written favorably about.

Another problem with Full Service Brokerages is that the brokerage traded its own account and sometimes these companies would unload on their clients securities that they didn't want to own anymore for their own portfolio. In those days, the brokers were paid by commission and you can see the potential conflicts of interest. I still remember the days of 2% to 3% commissions to trade a stock, round trip (buy/sell) was 4% to 6%. Brokers also were under incredible pressure to meet sales quotas.

I need to tell you that the sales culture within certain large financial institutions is intense. I have seen this with banking and insurance companies. One reason that I recommend that you go to somebody that is truly independent. Of course even an independent advisor has to generate enough revenue to make a living but they can grow their business to the extent that they desire, they don't face high quotas and intense sales pressure from a sales manager. I hope your guy is truly independent.

So things have changed a lot, your advisor is a Certified Financial Planner which is a big plus. So your father's advisor is not the old fashioned stock broker. Another thing is that you are in an Assets Under Management arrangement.

So you will probably have a similar experience to going to a more independent local advisor. Cost structure seems similar. The guy has his eye on costs and that is another plus. I also like that he is open to passive investment. Some good signs here but giving you realistic expectations.

This isn't the old Merrill Lynch or at least I hope so.
A fool and his money are good for business.
illumination
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Re: Utility of Financial Advisor

Post by illumination »

tibbitts wrote: Sun Jun 20, 2021 6:59 pm
illumination wrote: Sun Jun 20, 2021 3:14 pm
tibbitts wrote: Sun Jun 20, 2021 1:05 pm
illumination wrote: Sun Jun 20, 2021 12:56 pm Ask the FA to show his performance (net of fees) and then compare to a benchmark like the S&P500 in the same years. You won't hear anything back, but it's fun to watch them squirm. Honestly, it really is just a waste of time, and even if he could show a slight outperformance (he won't) that bears nothing on the future. Warren Buffett has been losing to the S&P500 for about the last 16 years.
Virtually nobody has the objective of matching the S&P500 so it isn't an appropriate comparison. If I were the FA I wouldn't squirm, I'd just try to decide whether someone doing an S&P500 comparison was worth educating [OT comment removed by admin LadyGeek].
This is what the OP said about the financial advisor:
wije wrote: Sat Jun 19, 2021 12:47 pm Instead he's focused on finding the best-performing mutual fund managers at ETF costs (of course, his own fee brings the ER to mutual fund ER levels!). He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.
So why not compare his pick of actively managed mutual funds (and his own picks) and see if they do outperform a passive index? Or he can also look at a small cap index if that's what he trades in? How is that unfair?
I've been in this situation with an adviser and you won't win that argument. The advisor will be all over the map in the selection of funds, and those funds will be all over the map in what they're invested in at any given time: international/domestic, large/mid/small, growth/value, balanced with varying bond characteristics... changing every few months at least. Even if you're willing to do the the work to come up with the mix of indexes to match what the investments have been over time, then you'll get the "risk adjusted return" argument, and what math are you going to use to counter that? Realistically with some other "better" adviser or even a lifecycle fund he wouldn't have been in just the S&P500, even with some small-cap mixed in.

I'm not really interested in winning an argument with a salesman, you're just wasting everyone's time. But some clients really do believe these people "outperform" and that's why they pay them to manage their money. So let them show that outperformance. In the OP's situation, the guy is touting he has an edge as a stock picker. So make him show that. If he's not outperforming a passive index or benchmark and then makes the case he's not trying to, then corner him on his strategy. Again, I'm not interested in this debate with a FA, but sometimes clients need to see it for themselves.

I obviously understand you can't say have 50% of the account in fixed income and still expect the entire managed account to outperform the S&P500, I don't think anyone here is making that case. But you can pretty easily backtest a lot of these factors and get an idea if they are worth their fees. In my experience with managed accounts, they aren't. In fact, the fees were actually the "rounding error" compared to the dramatic underperformance versus the same level of risk in simple index funds. I actually had one managed account and after fees, the total return was negative (while nearly every index had a bull run). Hard for the FA to really debate that strategy, could have done better in a checking account.
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Re: Utility of Financial Advisor

Post by tibbitts »

illumination wrote: Sun Jun 20, 2021 11:14 pm I'm not really interested in winning an argument with a salesman, you're just wasting everyone's time. But some clients really do believe these people "outperform" and that's why they pay them to manage their money. So let them show that outperformance. In the OP's situation, the guy is touting he has an edge as a stock picker. So make him show that. If he's not outperforming a passive index or benchmark and then makes the case he's not trying to, then corner him on his strategy. Again, I'm not interested in this debate with a FA, but sometimes clients need to see it for themselves.

I obviously understand you can't say have 50% of the account in fixed income and still expect the entire managed account to outperform the S&P500, I don't think anyone here is making that case. But you can pretty easily backtest a lot of these factors and get an idea if they are worth their fees. In my experience with managed accounts, they aren't. In fact, the fees were actually the "rounding error" compared to the dramatic underperformance versus the same level of risk in simple index funds. I actually had one managed account and after fees, the total return was negative (while nearly every index had a bull run). Hard for the FA to really debate that strategy, could have done better in a checking account.
You say you're not interested in winning the argument and debating with the FA, yet you also want to "make him show that" he's outperforming, or not underperforming, or whatever. I'm not seeing how that, and "corner[ing] him on his strategy", isn't going to eventually result in debating with the FA.

But you're missing what's really the more important point. I was in the exactly the same situation. In my relative's case the total fees were around 2% and net underperformance compared to what I felt was a reasonable index benchmark was well over the amount of those fees for... decades. Actually I have to credit the brokerage for reporting the underperformance vs. their own (reasonable, I think) benchmarks for similar risk-profile clients, going back fifteen years, on every statement. But this isn't a "client" to you, it's someone you're close to. In the process of questioning and criticizing the adviser, if you actually manage to get through to "the client" after enough hammering away, your relative or friend is going to feel bad about themselves for using/trusting the adviser all these years. I've experienced the first signs of that, and it absolutely isn't worth it, especially in the case of someone as old as we're discussing here, except in a case of serious abuse. And just as in my case, I don't see any evidence of serious abuse here, just business-as-usual in the financial industry. In fact this actually sounds like business-somewhat-better-than-usual, lacking evidence to the contrary. If the odds are very good the investor will be okay in the end, in terms of having the lifestyle they want, sometimes even a seriously sub-optimal situation is best left alone, however hard it might be for Bogleheads to do that. It was difficult for me to accept in the beginning, but as the years went by it got easier. And ultimately this was what would become "my" money so it's not like I didn't have a stake in the process. But after my initial resistance, I realized it was very worth it to me to leave the adviser relationship as it was. As time went on I did occasionally have the opportunity to tweak a little around the edges, and did that where I could without creating any controversy. But that's all I did, and all I'd encourage the OP to do.
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Re: Utility of Financial Advisor

Post by pkcrafter »

wije, tibbits brings up a good point about simply leaving everything where it is. On the other hand I keep thinking about why your father handed management of this money to you. SMAs aren't bad ways to invest, but they add additional fees and they certainly complicate your holding, partly on purpose I believe.

Some information on SMAs

https://smartasset.com/investing/separa ... ed-account

So, ultimately, you have to decide if you are simply going to continue to use the advisor, or you are going to simplify and reduce costs. One thing that won't work is discussing with the current advisor on what you should do. Either stay there or move. If you want to move the account, then talk to Fidelity or Schwab. Tell them what the accounts are (IRA/SMA...) and ask them how to transfer the accounts to them. Fidelity may suggest their advisory service, but I would decline that and use the simple 3-fund portfolio or a Fidelity Freedom INDEX fund with an allocation of about 40% stock.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
illumination
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Re: Utility of Financial Advisor

Post by illumination »

tibbitts wrote: Mon Jun 21, 2021 2:21 am
illumination wrote: Sun Jun 20, 2021 11:14 pm I'm not really interested in winning an argument with a salesman, you're just wasting everyone's time. But some clients really do believe these people "outperform" and that's why they pay them to manage their money. So let them show that outperformance. In the OP's situation, the guy is touting he has an edge as a stock picker. So make him show that. If he's not outperforming a passive index or benchmark and then makes the case he's not trying to, then corner him on his strategy. Again, I'm not interested in this debate with a FA, but sometimes clients need to see it for themselves.

I obviously understand you can't say have 50% of the account in fixed income and still expect the entire managed account to outperform the S&P500, I don't think anyone here is making that case. But you can pretty easily backtest a lot of these factors and get an idea if they are worth their fees. In my experience with managed accounts, they aren't. In fact, the fees were actually the "rounding error" compared to the dramatic underperformance versus the same level of risk in simple index funds. I actually had one managed account and after fees, the total return was negative (while nearly every index had a bull run). Hard for the FA to really debate that strategy, could have done better in a checking account.
You say you're not interested in winning the argument and debating with the FA, yet you also want to "make him show that" he's outperforming, or not underperforming, or whatever. I'm not seeing how that, and "corner[ing] him on his strategy", isn't going to eventually result in debating with the FA.

But you're missing what's really the more important point. I was in the exactly the same situation. In my relative's case the total fees were around 2% and net underperformance compared to what I felt was a reasonable index benchmark was well over the amount of those fees for... decades. Actually I have to credit the brokerage for reporting the underperformance vs. their own (reasonable, I think) benchmarks for similar risk-profile clients, going back fifteen years, on every statement. But this isn't a "client" to you, it's someone you're close to. In the process of questioning and criticizing the adviser, if you actually manage to get through to "the client" after enough hammering away, your relative or friend is going to feel bad about themselves for using/trusting the adviser all these years. I've experienced the first signs of that, and it absolutely isn't worth it, especially in the case of someone as old as we're discussing here, except in a case of serious abuse. And just as in my case, I don't see any evidence of serious abuse here, just business-as-usual in the financial industry. In fact this actually sounds like business-somewhat-better-than-usual, lacking evidence to the contrary. If the odds are very good the investor will be okay in the end, in terms of having the lifestyle they want, sometimes even a seriously sub-optimal situation is best left alone, however hard it might be for Bogleheads to do that. It was difficult for me to accept in the beginning, but as the years went by it got easier. And ultimately this was what would become "my" money so it's not like I didn't have a stake in the process. But after my initial resistance, I realized it was very worth it to me to leave the adviser relationship as it was. As time went on I did occasionally have the opportunity to tweak a little around the edges, and did that where I could without creating any controversy. But that's all I did, and all I'd encourage the OP to do.
The OP seems to be open the sales pitch, that's why I was advocating for him to "show his work" and be transparent. Not so he can win a debate with the guy.

You really seem to be an apologist for a Financial Advisor that's openly saying he he's an amazing stock picker in the small cap space and he likes to shuffle through active fund managers. Avoiding this type of portfolio management is a pretty bedrock principle around here. I don't think every FA is crook, but I do believe for most consumers it likely could be one of the worst financial mistakes they ever make to have a lifetime of paying a financial advisor. Not sure why you are so eager to debate this? You seem to want to argue for argument sake, so now you arguing that I really want to argue with a financial planner?


On the emotional side of someone no longer having a FA, I can't answer that, I'm not a therapist. But if someone is indeed asking for my advice and I "know better" I'm going to offer my advice on how to best invest his life savings. I have helped a few family members with this transition and every single one was happy with the change. Obviously if that person doesn't want to leave the FA relationship, you defer to them as its their money. You're making this way more complicated than it needs to be.
reln
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Re: Utility of Financial Advisor

Post by reln »

wije wrote: Sat Jun 19, 2021 12:47 pm My 80-year old dad recently asked me to take control over his retirement IRA (traditional), which will also be my portion of the inheritance. It currently stands at nearly $1.3M. My dad always had zero interest in money or investing and had handed everything over to his advisor.

The advisor seems nice but we have different investment philosophies. He isn't very interested in asset allocation or correlations, arguing that bond yields now often rise as the stock market tanks. Instead he's focused on finding the best-performing mutual fund managers at ETF costs (of course, his own fee brings the ER to mutual fund ER levels!). He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.

Despite my misgivings, I'm inclined to give the advisor a shot and see what he can come up with. There are some complicated issues that he may be better able to deal with. For example, we'd like to slowly move the account to a Roth IRA and do some estate planning. What else are good topics to raise with him?
Tell him to invest the money as you want it invested. And to optimize the Roth conversions. Then you can keep him or not. Or, go with Vanguard Personal Advisory Service so they can do the same thing for a lower fee (then you can keep them or not).
tibbitts
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Re: Utility of Financial Advisor

Post by tibbitts »

illumination wrote: Mon Jun 21, 2021 11:42 am The OP seems to be open the sales pitch, that's why I was advocating for him to "show his work" and be transparent. Not so he can win a debate with the guy.

You really seem to be an apologist for a Financial Advisor that's openly saying he he's an amazing stock picker in the small cap space and he likes to shuffle through active fund managers. Avoiding this type of portfolio management is a pretty bedrock principle around here. I don't think every FA is crook, but I do believe for most consumers it likely could be one of the worst financial mistakes they ever make to have a lifetime of paying a financial advisor. Not sure why you are so eager to debate this? You seem to want to argue for argument sake, so now you arguing that I really want to argue with a financial planner?


On the emotional side of someone no longer having a FA, I can't answer that, I'm not a therapist. But if someone is indeed asking for my advice and I "know better" I'm going to offer my advice on how to best invest his life savings. I have helped a few family members with this transition and every single one was happy with the change. Obviously if that person doesn't want to leave the FA relationship, you defer to them as its their money. You're making this way more complicated than it needs to be.
Yes, I do want to debate this, and I'm only making it as complicated as it actually was for me in a very similar circumstance.

I'm going off this statement by the OP:

He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.

I'm not reading that as someone claiming to be "an amazing stock picker", and don't see how he's "shuffling through fund managers" any more than Vanguard or the rest of us probably have, unless there's more to the story. Bogleheads clearly haven't reached a universal consensus that active management has no place in investing: just look at all the discussions over the years regarding W&W, Primecap, International Explorer, plus various TRP and Fidelity active funds. Although I mostly use index funds myself, I still hold multiple Vanguard and Fidelity active funds. I don't do that because because of what I expect to be "awesome" stock picking or performance, but because of a combination of the fund's investments being somewhat difficult to duplicate with a single passive fund, and the possibility that the fund actually could slightly outperform a roughly comparable passive fund over time. We've both read studies comparing the historical performance of Vanguard active funds to benchmarks. You may have arrived at a different conclusion, but for me, as long as you invest in enough of them to diversify your risk and limit yourself to lower cost share classes, you're unlikely to lose significantly to a roughly comparable passive option over time, and obviously could in fact somewhat outperform. The OP is adding an adviser cost on top of that, but if the OP wants an adviser, they're going to pay somehow, and those costs will be added to an index fund as well.

When you say using an adviser like the OP has been can be the "worst financial decision" for most consumers, I'd say that on average there historically hasn't been a penalty to using an adviser relative to what lots of consumers would do in the absence of an adviser: put all their money in their local bank. You make it sound like the default position is for someone to invest in low-cost index funds. Not that it perhaps shouldn't be, but even today most people aren't being educated in a way that would lead them to do that on their own. It's absolutely true that some advisers can be abusive and take advantage of the relationship, but some Bogleheads jump at the first scent of a fee or active management and assume that to be practically - and maybe actually - criminal, when in fact it rarely is. It seems like this adviser is at least somewhat conscious of costs, and not pursuing past performance at any price.

It took me years to accept what I felt were excessive fees and poor performance. It was a process, and I had to resist the Boglehead temptation to be overly zealous about "converting" other people to my way of thinking. It was hard to accept that it didn't matter if I thought there was a better, more optimal way to invest. Here's someone eighty years old, who's apparently done more than well enough investing a certain way with an adviser he chose. When I get to the point where I need someone else to help with my finances, I'm hoping they'll tell me I did a good job to get to the point I'm at, and maybe just gradually tweak my finances around the edges where they think I could be doing better.
Topic Author
wije
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Re: Utility of Financial Advisor

Post by wije »

nedsaid wrote: Sun Jun 20, 2021 10:07 pmA couple of things that you will find regarding advisors is belief in active management and belief in tactical asset allocation. You will probably see from advisors an interest in Alternative investments such as non-Traded REITs. These are three concepts that are mostly frowned upon here but that is the environment you are working in. What I would tell you in this instance is to keep everything liquid, don't have your dad put in illiquid or semi-liquid investments as this would greatly complicate moving assets elsewhere at a later date.
Ahh, this is very good to know, thanks! The FA did mention alts to use in place of bonds, although he didn't go into specifics. We'll be sure to keep things liquid.
To me, lower turnover strategies are better than higher turnover strategies. That is another discussion but it boils down to incorrect sell/buy decisions, the more you trade, the more errors you make with sell/buy decisions. It seems that stocks that are sold tend to do better than what you buy to replace, it is a huge problem with amateur stock pickers but even institutional investors don't escape this problem entirely.
This is yet another valuable data point and something that did not occur to me. pkcrafter's article on SMAs had this interesting quote:

"Additionally, while ETFs and SMAs are both collections of various securities, an ETF tracks an index so its holdings are more set. Alternately, SMAs’ holdings are more flexible and fluid, which also makes them more attractive to high net worth investors."

Why would such investors prefer more fluid holdings, given your entirely intuitive argument that more trading = more errors?
My belief about tactical is that it might be more about reducing risk than boosting returns. A lot of advisors believe pretty strongly in this, my convictions regarding this are pretty mild. Don't be surprised if the advisor discusses this.
FA didn't bring up TAA (yet), but I'm open to discussing risk management.
Topic Author
wije
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Re: Utility of Financial Advisor

Post by wije »

pkcrafter wrote: Mon Jun 21, 2021 10:42 amSome information on SMAs
https://smartasset.com/investing/separa ... ed-account
Thank you so much Paul! The article cleared up a lot of confusion, since I didn't really know what SMAs were. I didn't understand how they have more flexibility than mutual funds or ETFs, since the third-party manager is selecting the stocks. And as I mentioned to nedsaid, I didn't understand why high net-worth investors would prefer to have more turnover, resulting in trading costs and possible increased errors. Less turnover + good performance = manager who seems to know what's going on.
If you want to move the account, then talk to Fidelity or Schwab.
Why would you recommend Fido or Schwab over Vanguard?
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wije
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Re: Utility of Financial Advisor

Post by wije »

illumination wrote: Mon Jun 21, 2021 11:42 amYou really seem to be an apologist for a Financial Advisor that's openly saying he he's an amazing stock picker in the small cap space and he likes to shuffle through active fund managers.
FA never claimed to be an amazing stock picker in the small cap space. He merely said that stockpicking tends to pay off in volatile markets, and that the small cap space is less efficient than large because it's not as well-researched. He didn't say that he himself would pick stocks.

Bogleheads here pointed out correctly that if I'm investing for the long term, then I shouldn't be asking whether or not the market is choppy right now. When it's my turn to run the account, I'm sure I won't need a FA for the next 20 years. Right now, though, it isn't my money, and I take nedsaid's point that it might not be advisable to manage dad's money myself for reasons of proximity.
I don't think every FA is crook, but I do believe for most consumers it likely could be one of the worst financial mistakes they ever make to have a lifetime of paying a financial advisor.
I completely agree with nedsaid that for my father, paying a FA was a far better decision than managing the money himself. As I had earlier mentioned, dad would've put everything into a savings account or CDs if it had been up to him. TBF to him, he didn't have the internet or bogleheads.org to help him when he was making a living.

EDIT- And furthermore, I'd say that holding on to my late stepdad's FA for my mom instead of taking charge was the right move, with the benefit of hindsight. He outperformed me from 2014 through 2017 despite having a far far more conservative portfolio because he didn't whiplash like I did and stuck to his plan. I definitely would not have generated a monthly income for my mother while growing the portfolio with the retail allocation I had had in mind for her at the time.
Last edited by wije on Mon Jun 21, 2021 8:54 pm, edited 1 time in total.
Topic Author
wije
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Re: Utility of Financial Advisor

Post by wije »

tibbitts wrote: Mon Jun 21, 2021 2:21 amIn the process of questioning and criticizing the adviser, if you actually manage to get through to "the client" after enough hammering away, your relative or friend is going to feel bad about themselves for using/trusting the adviser all these years.
I appreciate your thoughtfulness, but my dad has a fairly thick skin. Actually I already told him that he suffered a massive opportunity cost by not watching his previous FA more closely. In his case, the cost was not a 2% fee but instead a large cash position. He didn't seem to care because he has enough from his RMDs and Social Security to get by. In other words, it's my problem (and future generations'), not his.
tibbitts wrote: Mon Jun 21, 2021 2:21 amIn fact this actually sounds like business-somewhat-better-than-usual, lacking evidence to the contrary. If the odds are very good the investor will be okay in the end, in terms of having the lifestyle they want, sometimes even a seriously sub-optimal situation is best left alone, however hard it might be for Bogleheads to do that.
Nedsaid really nailed it when he pointed out that having that suboptimal previous FA was far better than dad taking charge himself, and I also agree with him that something going wrong under my watch would be far worse than if his FA screws up. However, I am going to be watching the new FA very closely, and if we don't see eye-to-eye or he underperforms benchmarks (he did agree to be scrutinized in this way), then I'm finding someone else. Dad isn't attached to him; he found the FA because his name was the first to show up in a google search!
tibbitts
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Re: Utility of Financial Advisor

Post by tibbitts »

wije wrote: Mon Jun 21, 2021 8:49 pm I appreciate your thoughtfulness, but my dad has a fairly thick skin. Actually I already told him that he suffered a massive opportunity cost by not watching his previous FA more closely. In his case, the cost was not a 2% fee but instead a large cash position. He didn't seem to care because he has enough from his RMDs and Social Security to get by. In other words, it's my problem (and future generations'), not his.
I would say that it's only your problem if you anticipate the shortfall would cause you to have to provide some financial support down the road. In my case I know there was probably well into six-figures lost to fees and/or questionable decisions by the FA and I would have eventually had that money, but I don't really consider that a "problem" for me. It would have been a problem if it affected/limited lifestyle decisions - for example the fees prevented getting better care when older. Or if there was someone left to provide for. In those cases I would agree with being a lot more forceful about pushing low-cost solutions.
illumination
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Re: Utility of Financial Advisor

Post by illumination »

tibbitts wrote: Mon Jun 21, 2021 5:49 pm
illumination wrote: Mon Jun 21, 2021 11:42 am The OP seems to be open the sales pitch, that's why I was advocating for him to "show his work" and be transparent. Not so he can win a debate with the guy.

You really seem to be an apologist for a Financial Advisor that's openly saying he he's an amazing stock picker in the small cap space and he likes to shuffle through active fund managers. Avoiding this type of portfolio management is a pretty bedrock principle around here. I don't think every FA is crook, but I do believe for most consumers it likely could be one of the worst financial mistakes they ever make to have a lifetime of paying a financial advisor. Not sure why you are so eager to debate this? You seem to want to argue for argument sake, so now you arguing that I really want to argue with a financial planner?


On the emotional side of someone no longer having a FA, I can't answer that, I'm not a therapist. But if someone is indeed asking for my advice and I "know better" I'm going to offer my advice on how to best invest his life savings. I have helped a few family members with this transition and every single one was happy with the change. Obviously if that person doesn't want to leave the FA relationship, you defer to them as its their money. You're making this way more complicated than it needs to be.
Yes, I do want to debate this, and I'm only making it as complicated as it actually was for me in a very similar circumstance.

I'm going off this statement by the OP:

He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.

I'm not reading that as someone claiming to be "an amazing stock picker", and don't see how he's "shuffling through fund managers" any more than Vanguard or the rest of us probably have, unless there's more to the story. Bogleheads clearly haven't reached a universal consensus that active management has no place in investing: just look at all the discussions over the years regarding W&W, Primecap, International Explorer, plus various TRP and Fidelity active funds. Although I mostly use index funds myself, I still hold multiple Vanguard and Fidelity active funds. I don't do that because because of what I expect to be "awesome" stock picking or performance, but because of a combination of the fund's investments being somewhat difficult to duplicate with a single passive fund, and the possibility that the fund actually could slightly outperform a roughly comparable passive fund over time. We've both read studies comparing the historical performance of Vanguard active funds to benchmarks. You may have arrived at a different conclusion, but for me, as long as you invest in enough of them to diversify your risk and limit yourself to lower cost share classes, you're unlikely to lose significantly to a roughly comparable passive option over time, and obviously could in fact somewhat outperform. The OP is adding an adviser cost on top of that, but if the OP wants an adviser, they're going to pay somehow, and those costs will be added to an index fund as well.

When you say using an adviser like the OP has been can be the "worst financial decision" for most consumers, I'd say that on average there historically hasn't been a penalty to using an adviser relative to what lots of consumers would do in the absence of an adviser: put all their money in their local bank. You make it sound like the default position is for someone to invest in low-cost index funds. Not that it perhaps shouldn't be, but even today most people aren't being educated in a way that would lead them to do that on their own. It's absolutely true that some advisers can be abusive and take advantage of the relationship, but some Bogleheads jump at the first scent of a fee or active management and assume that to be practically - and maybe actually - criminal, when in fact it rarely is. It seems like this adviser is at least somewhat conscious of costs, and not pursuing past performance at any price.

It took me years to accept what I felt were excessive fees and poor performance. It was a process, and I had to resist the Boglehead temptation to be overly zealous about "converting" other people to my way of thinking. It was hard to accept that it didn't matter if I thought there was a better, more optimal way to invest. Here's someone eighty years old, who's apparently done more than well enough investing a certain way with an adviser he chose. When I get to the point where I need someone else to help with my finances, I'm hoping they'll tell me I did a good job to get to the point I'm at, and maybe just gradually tweak my finances around the edges where they think I could be doing better.
I disagree with most all of this, but its puzzling you want to make a case against almost everything that most people here are advocating. Actively managed funds, stock picking, and paying fees to financial planners are devastating to returns for an investor.
tibbitts wrote: Mon Jun 21, 2021 5:49 pm When you say using an adviser like the OP has been can be the "worst financial decision" for most consumers, I'd say that on average there historically hasn't been a penalty to using an adviser relative to what lots of consumers would do in the absence of an adviser: put all their money in their local bank.
You think there's only two options, paying a financial planner or putting all your money in a savings account? Have you not read anything in this forum? Talk about a straw man argument. So why not sign up for that variable annuity or whole life insurance the salesman is pushing, after all, the only other option for a consumer is a savings account? And those (terrible) products do outperform .1% at their bank.

You're really inserting emotional arguments to why this person needs to stay with a financial advisor and frankly you really have no background or knowledge of why this is so important to this individual. There's really no "zealousness" here, if the people involved are happy with the service and fees and are opposed to any changes, that's really the end of the discussion. If someone asks though if they think these services are worthwhile and want honesty, I'm going to tell them the truth as I have experienced the consequences first hand.

The argument of "it could have been worse without this person" just seems a really hollow argument and doesn't answer the question of what to now do in the future. When I make a mistake, I don't stick with the mistake moving forward all because I could have made an even bigger past mistake.
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nedsaid
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Re: Utility of Financial Advisor

Post by nedsaid »

wije wrote: Mon Jun 21, 2021 8:12 pm
nedsaid wrote: Sun Jun 20, 2021 10:07 pmA couple of things that you will find regarding advisors is belief in active management and belief in tactical asset allocation. You will probably see from advisors an interest in Alternative investments such as non-Traded REITs. These are three concepts that are mostly frowned upon here but that is the environment you are working in. What I would tell you in this instance is to keep everything liquid, don't have your dad put in illiquid or semi-liquid investments as this would greatly complicate moving assets elsewhere at a later date.
Ahh, this is very good to know, thanks! The FA did mention alts to use in place of bonds, although he didn't go into specifics. We'll be sure to keep things liquid.
To me, lower turnover strategies are better than higher turnover strategies. That is another discussion but it boils down to incorrect sell/buy decisions, the more you trade, the more errors you make with sell/buy decisions. It seems that stocks that are sold tend to do better than what you buy to replace, it is a huge problem with amateur stock pickers but even institutional investors don't escape this problem entirely.
This is yet another valuable data point and something that did not occur to me. pkcrafter's article on SMAs had this interesting quote:

"Additionally, while ETFs and SMAs are both collections of various securities, an ETF tracks an index so its holdings are more set. Alternately, SMAs’ holdings are more flexible and fluid, which also makes them more attractive to high net worth investors."

Why would such investors prefer more fluid holdings, given your entirely intuitive argument that more trading = more errors?
My belief about tactical is that it might be more about reducing risk than boosting returns. A lot of advisors believe pretty strongly in this, my convictions regarding this are pretty mild. Don't be surprised if the advisor discusses this.
FA didn't bring up TAA (yet), but I'm open to discussing risk management.

Probably the reason that high net worth investors like the SMAs is that the manager can do tax loss harvesting within the portfolio to offset capital gains. But this account is in an IRA so that is a non-issue.

Even in a taxable account, my preference would be for low turnover strategies. Fidelity has a service where they track the index the best they can and trade a lot to realize capital losses within the account which can be used to offset gains elsewhere or within the portfolio. So they sell one stock to create a loss and replace it with a similar stock. My view is to take advantage of tax loss harvesting when the opportunities present themselves but the main purpose of the account is to make money. So this is sort of a rabbit trail but you can do more research on this on your own.

For me, I just don't get the frequent trading. There is a randomness within the markets and I think sometimes people see patterns that really aren't there. People trade to take advantage of non-existent patterns, the brain wants to see order and patterns when if fact there might not be any at all. Plus the manager is up against professional traders and such things as the hedge funds who do this for a living. The objective is to be an owner of businesses and to get the fruits of business and of capitalism. The stocks are shares of real businesses which make real money. You make money from the growth of those businesses over time and whatever cash is returned to you in the form of dividends. Frequent trading is really trying to take advantage of very short term inefficiencies in the market and can be more like just gambling. Markets are pretty darned efficient. Plus if you have to be selling your shares all the time, it tells me that you weren't very good at picking the stocks in the first place.

So you want lower turnover strategies. Just my opinion. You want turnover of less than 100%, probably 50% or lower is optimal. 100% turnover implies average holding periods of one year, 50% turnover is an average holding period of two years, 20% turnover is an average holding period of five years. My guess is that you want something like 20% to 50% turnover, an average holding period of 2-5 years. The S&P 500 Index has 4% turnover. I have seen statements where a manager bought a stock and then sold it three months later which to me shows a lack of conviction or belief in the stock. I like to see managers with strong convictions.

Good investing should be dull like watching paint dry or watching tumbleweeds tumble. If you want excitement, investing is the wrong place to get it. As they say, the key is time in the market and not the timing of the market. Buy, hold, rebalance is the best policy.
A fool and his money are good for business.
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nedsaid
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Re: Utility of Financial Advisor

Post by nedsaid »

One more comment that I will make here. There is a certain ethic to the value of people's time or like going into someone's store and raising the hopes of a shopkeeper. You may meet with an advisor once maybe twice for free as sort of an inquiry phase but there gets to be a point where people should be compensated for their time. There gets to get a point where you have spent enough time that there is a moral obligation to pay for services rendered. To me, this seems to be at the point where a proposal is made, there you can take it or leave it. Whatever you do, don't spend hours and hours with this guy beyond the proposal and then say, "Oh, we've decided to take it all to Vanguard." If you accept the proposal, then you should follow through and give the guy a chance.

Your father picked this guy and you have spent time with him. What I would do is to test drive the advisory service for a year and see how it works. If you want to go elsewhere then do so after the year's trial period.

If a proposal has not been presented and accepted, you have no further obligation. There are fine lines here and I have learned the ethic of how to treat professional people and people in general. Pretty much don't waste their time. There are folks who delight in tying up people's time only to not buy from them. Sort of like spending an hour at a store at an item for an hour, asking the clerk lots of questions, and then buying the item at Amazon. Don't string people along.

This is not directed at the original poster but is a comment in general how others should be treated. I think the original poster has done things right and this is very good. Nothing wrong with interviewing advisors and shopping around. Just saying there is a limit of free time that you should expect.

Not sure exactly where the line is but there is a line.
A fool and his money are good for business.
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Re: Utility of Financial Advisor

Post by tibbitts »

illumination wrote: Tue Jun 22, 2021 12:35 am I disagree with most all of this, but its puzzling you want to make a case against almost everything that most people here are advocating. Actively managed funds, stock picking, and paying fees to financial planners are devastating to returns for an investor.
That is somewhat the point of Bogleheads: for people to make cases for and against various investment alternatives. You haven't been reading the forum very carefully if you're under the impression that a significant percentage of Bogleheads don't invest in actively managed funds that pick stocks, or that many Bogleheads don't use financial advisers. The original post was about an FA selecting active funds or fund managers for a client, not about an investor or even the FA choosing individual stocks.
illumination wrote: Tue Jun 22, 2021 12:35 am
tibbitts wrote: Mon Jun 21, 2021 5:49 pm When you say using an adviser like the OP has been can be the "worst financial decision" for most consumers, I'd say that on average there historically hasn't been a penalty to using an adviser relative to what lots of consumers would do in the absence of an adviser: put all their money in their local bank.
You think there's only two options, paying a financial planner or putting all your money in a savings account? Have you not read anything in this forum? Talk about a straw man argument. So why not sign up for that variable annuity or whole life insurance the salesman is pushing, after all, the only other option for a consumer is a savings account? And those (terrible) products do outperform .1% at their bank.
Regarding having read anything in the forum, I definitely read my own posts - they're my favorite ones! And sometimes I read other people's posts too. But I don't see how it would be possible to interpret what I wrote as there being only two options. Bogleheads live in a world where everyone is familiar with investing choices like mutual funds, ETFs, annuities, etc. As I wrote, "lots of consumers" aren't aware of investing options unless an adviser presents those options to them. Most people are familiar with bank accounts, so that's where "lots of consumers" will indeed place their money if not presented with other alternatives.

Actually some "terrible" products haven't outperformed at least some bank accounts historically, but since you mentioned variable annuities... As much as I've complained about one of the FA's I've had personal experience with, I will say that he sold a variable annuity nearly thirty years ago that is now paying me at least a guaranteed 4% per year (although unfortunately now subject to the equivalent of RMDs) for life. During its accumulation phase its return was competitive with such Boglehead-approved investments as CDs and high-yield savings accounts, so it served mostly the same purpose as a conservative bond allocation would have, with a similar return. Would I have thought it was a good deal at the time it was sold? No, I voiced my opposition at the time, on the usual grounds that we hear Bogleheads objecting to variable annuities. And I was promptly overruled.
illumination wrote: Tue Jun 22, 2021 12:35 am You're really inserting emotional arguments to why this person needs to stay with a financial advisor and frankly you really have no background or knowledge of why this is so important to this individual.
You're absolutely correct. Emotions are a significant aspect to investing, so I was explaining why it wasn't the worst thing to stay with what I felt was a poor financial adviser under the circumstances I experienced.
illumination wrote: Tue Jun 22, 2021 12:35 am There's really no "zealousness" here...
Seriously? No zealousness on Bogleheads?
illumination wrote: Tue Jun 22, 2021 12:35 am ...I'm going to tell them the truth as I have experienced the consequences first hand.
Coincidentally, that's exactly what I was doing: telling the truth as I have experienced the consequence first hand. Well put.
illumination wrote: Tue Jun 22, 2021 12:35 am When I make a mistake, I don't stick with the mistake moving forward all because I could have made an even bigger past mistake.
I try to do that with regard to my own finances as well, but this isn't about your investments or mine, it's about someone advising someone else defining "mistake" and changing what that person has done to get to the point he's at, late in life. Remember this "mistake" has somehow resulted in this person having accumulated a considerable amount, and being successful by almost any definition. Some other paths might have resulted in a better outcome, but many might have resulted in a worse outcome as well.
illumination
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Re: Utility of Financial Advisor

Post by illumination »

tibbitts wrote: Tue Jun 22, 2021 2:19 pm

As much as I've complained about one of the FA's I've had personal experience with, I will say that he sold a variable annuity nearly thirty years ago that is now paying me at least a guaranteed 4% per year (although unfortunately now subject to the equivalent of RMDs) for life. During its accumulation phase its return was competitive with such Boglehead-approved investments as CDs and high-yield savings accounts, so it served mostly the same purpose as a conservative bond allocation would have, with a similar return. Would I have thought it was a good deal at the time it was sold? No, I voiced my opposition at the time, on the usual grounds that we hear Bogleheads objecting to variable annuities. And I was promptly overruled.

I'm not going to keep going in circles with this, I think the OP has moved on made their decision. But again, I think it's a strange way to look at things where you recognize a financial mistake and your advice would to continue down the same path (and keep using the same person) because it could have been worse. Almost like telling someone here to buy another variable rate annuity from the same sales person because after all, it outperformed a savings account. I'm glad I found the advice here because even though the way I was doing things wasn't leaving me in poverty, there really was a much better way to do it. I still employ professionals for say estate planning and tax preparation, but I found the role of financial planners (the type employed at places like MErril Lynch, Morgan Stanley, EJ, Raymond James, etc) their fees, and how they manage money to be an incredible millstone. And I found this to be true at all the ones I used over the years.
tibbitts wrote: Tue Jun 22, 2021 2:19 pm I try to do that with regard to my own finances as well, but this isn't about your investments or mine, it's about someone advising someone else defining "mistake" and changing what that person has done to get to the point he's at, late in life. Remember this "mistake" has somehow resulted in this person having accumulated a considerable amount, and being successful by almost any definition. Some other paths might have resulted in a better outcome, but many might have resulted in a worse outcome as well.
You're making assumptions that because an end balance is (somewhat) high, the financial planner must not have been so bad. When I left my financial planner (that lost money over their time managing it) it was a higher total balance than what the OP is saying his father's IRA is worth. But that still doesn't change the fact that it was poorly managed, it was just a bigger amount before they got to it. Just because an account is worth 7 figures doesn't tell you whether they actually did a good job.
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