Utility of Financial Advisor

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wije
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Utility of Financial Advisor

Post by wije »

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?
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Dale_G
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Re: Utility of Financial Advisor

Post by Dale_G »

And the advisors fee is?

1% = $13,000
.75% = $ 6,500
.5% = $ 3,250
Depending on the advisors fee and the expense ratio of the funds he "picks", you might be better off getting your advice from an hourly advisor.
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Wiggums
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Re: Utility of Financial Advisor

Post by Wiggums »

The data shows, with rare exception, that a fund manager cannot beat the index fund. Furthermore, the fund manager cannot be the S&P Each year on a consistent basis.
Last edited by Wiggums on Sat Jun 19, 2021 1:48 pm, edited 1 time in total.
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123
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Re: Utility of Financial Advisor

Post by 123 »

Dale_G wrote: Sat Jun 19, 2021 12:55 pm And the advisors fee is?

1% = $13,000
.75% = $ 6,500
.5% = $ 3,250
Depending on the advisors fee and the expense ratio of the funds he "picks", you might be better off getting your advice from an hourly advisor.
Dale
+1 The annual advisor's fee pays for a vacation, you pay for it and he takes it. It would not be unusual for the total cost added by the use of an advisor to be over 1.5%, especially when you add in the higher costs of the investments they always seem to select. So it's quite possible that the total costs of the advisor could be $20,000 or more annually. Very likely to be in that range for "easy to find" advisors like those at Edward Jones, Raymond James, or a million other places, particularly those that give seminars to find customers.
Last edited by 123 on Sat Jun 19, 2021 1:06 pm, edited 1 time in total.
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retired@50
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Re: Utility of Financial Advisor

Post by retired@50 »

wije wrote: Sat Jun 19, 2021 12:47 pm He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.
Have you seen any proof that his stock picking has paid off, any more than a typical index fund or small cap index fund?

If not, request it. His response could certainly be informative.

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arcticpineapplecorp.
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Re: Utility of Financial Advisor

Post by arcticpineapplecorp. »

wije wrote: Sat Jun 19, 2021 12:47 pm He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.
maybe in the short term, but isn't it the long term that matters? If so, what would you say (or him more importantly) to this:

Image

source:
https://oncoursefp.com//images/Vectors% ... 0final.pdf
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backpacker61
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Re: Utility of Financial Advisor

Post by backpacker61 »

It's your Dad's money at this point; consider discussing with him how he would feel about transferring to a low cost brokerage like Fidelity, Schwab, or Vanguard.

If he's amenable, make the switch. You could sign him up for Vanguard PAS or use a balanced fund and likely enjoy better performance.
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retired@50
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Re: Utility of Financial Advisor

Post by retired@50 »

The Roth conversion question and the estate planning concerns are legitimate areas of inquiry, but the adviser may or may not be particularly helpful in these areas.

Does this adviser have any educational qualifications (CFA, CPA, CFP, etc) that would lead you to believe he possesses any expertise?

References in the wiki:
https://www.bogleheads.org/wiki/Roth_IRA_conversion
https://www.bogleheads.org/wiki/Estate_planning


Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Utility of Financial Advisor

Post by Elric »

retired@50 wrote: Sat Jun 19, 2021 1:06 pm
wije wrote: Sat Jun 19, 2021 12:47 pm He's not opposed to passive investing but says that stockpicking pays off in today's choppy markets, particularly in smaller caps.
Have you seen any proof that his stock picking has paid off, any more than a typical index fund or small cap index fund?

If not, request it. His response could certainly be informative.

Regards,
Agree, but a single example isn't sufficient. I assume this advisor, or at least advisory firm, has managed your Dad's investments for awhile. If so, look at rolling returns over various time periods v. a reasonable benchmark. If the advisor consistently beats the benchmark, he MAY be one of the exceptions. If not...

And +1 on the comment to be sure the advisor is qualified to look at financial planning and estate planning issues.
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riverant
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Re: Utility of Financial Advisor

Post by riverant »

These guys are trained, likely with expertly crafted scripts, to make you feel secure with giving them your money. It sounds like the pitch worked on you, but trust what your gut said before you heard what he had to say. Don’t be swindled.

Btw active funds with low expense ratios just mean they pay their fund manager poorly. Probably not the cream of the crop
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Re: Utility of Financial Advisor

Post by backpacker61 »

TJat wrote: Sat Jun 19, 2021 1:51 pm Btw active funds with low expense ratios just mean they pay their fund manager poorly. Probably not the cream of the crop
I disagree; the data indicate that low cost active funds typically outperform their higher cost counterparts. In fact, fund cost is one of the best predictors of future fund performance among both passive and active funds.
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riverant
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Re: Utility of Financial Advisor

Post by riverant »

backpacker61 wrote: Sat Jun 19, 2021 1:58 pm
TJat wrote: Sat Jun 19, 2021 1:51 pm Btw active funds with low expense ratios just mean they pay their fund manager poorly. Probably not the cream of the crop
I disagree; the data indicate that low cost active funds typically outperform their higher cost counterparts. In fact, fund cost is one of the best predictors of future fund performance among both passive and active funds.
Ah, that’s mainly because active investing underperforms and the best indicator of strong performance is low expenses. The fact that a fund can hire some schlep that equals or outperforms higher paid managers for lower pay is another argument that you may as well index at an even cheaper cost.
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Re: Utility of Financial Advisor

Post by Pu239 »

OP - Hasn't the advisor already had his shot? Review his performance and philosophy and, if not to your liking, take control as requested by your Dad. Perhaps a low cost service like Vanguard PAS will suit your Dad's purposes and benefit you in the long run.
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wije
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Re: Utility of Financial Advisor

Post by wije »

retired@50 wrote: Sat Jun 19, 2021 1:31 pmHave you seen any proof that his stock picking has paid off, any more than a typical index fund or small cap index fund?
No, but I had already told him that when he prepares a short list of funds that he be ready to show how it compares against a comparable index. If I don't like his index, then I'll take the ticker names home and see how they stack against indexes that I find. If we're looking at small caps, I'll insist on the S&P 600 not the Russell 2000 (as arcticpineapplecorp. indicated).

I didn't mention that this advisor is new. Dad had fired his predecessor, so I don't have an idea of the new person's track record. Hence my inclination to wait and see what he proposes.
Does this adviser have any educational qualifications (CFA, CPA, CFP, etc) that would lead you to believe he possesses any expertise?
CFP, ChFC, CLU
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wije
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Re: Utility of Financial Advisor

Post by wije »

backpacker61 wrote: Sat Jun 19, 2021 1:25 pm It's your Dad's money at this point; consider discussing with him how he would feel about transferring to a low cost brokerage like Fidelity, Schwab, or Vanguard.
And there lies the rub. Dad has absolutely zero interest in this IRA account (even though it represents a lifetime of hard work) and money matters in general. When he handed this task to me, he had no information to pass on save a statement that was fairly confusing and opaque. The (new) advisor did me a big favor at our first meeting by explaining what was going on. TL;DR- There are a number of accounts within that IRA account that need to be consolidated, and I'd rather him take care of this first before taking the next step.
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wije
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Re: Utility of Financial Advisor

Post by wije »

backpacker61 wrote: Sat Jun 19, 2021 1:58 pm
TJat wrote: Sat Jun 19, 2021 1:51 pm Btw active funds with low expense ratios just mean they pay their fund manager poorly. Probably not the cream of the crop
I disagree; the data indicate that low cost active funds typically outperform their higher cost counterparts. In fact, fund cost is one of the best predictors of future fund performance among both passive and active funds.
In this case, I'd be getting the institutional version of funds that would otherwise be over 1% for retail investors. Of course, when you add the advisor's own 1% then you get the same ER anyway(or more!).
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Re: Utility of Financial Advisor

Post by bsteiner »

wije wrote: Sat Jun 19, 2021 12:47 pm ...
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?
Estate planning is for him to do with a trusts and estates lawyer whose fee will probably be substantially less than this person's annual fee.

If you'll provide more details as to his situation (his other assets and his income) you may get some responses as to possible Roth conversions.
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Re: Utility of Financial Advisor

Post by nedsaid »

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?
The fact that the advisor is looking for lower cost mutual funds is an encouraging sign. I am surprised that he isn't interested in asset allocation, a concept that is pretty basic and fundamental here at the Bogleheads. I am also concerned about performance chasing.

I would be interested to hear more as you proceed. Did your father actually give you free reign over this account? How would he feel if the funds were moved elsewhere?
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Re: Utility of Financial Advisor

Post by chassis »

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?
@wije where do you hold your own accounts? Consolidate your father's multiple accounts with the current advisor, into something that can easily be rolled over to Fidelity, Schwab, wherever you like to manage your investments. I helped my FIL through something similar. I encouraged and coached him out of an advisor relationship and FIL is happy about the change. FIL is in his mid 70s.
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wije
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Re: Utility of Financial Advisor

Post by wije »

bsteiner wrote: Sat Jun 19, 2021 9:08 pmIf you'll provide more details as to his situation (his other assets and his income) you may get some responses as to possible Roth conversions.
He's required to take out about $70k per year for RMD, and then he also gets about $30k for Social Security. No other income. His only other major asset is his home which is worth about the same as the IRA (and will be inherited by my sibling).
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wije
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Re: Utility of Financial Advisor

Post by wije »

nedsaid wrote: Sat Jun 19, 2021 9:12 pmI am surprised that he isn't interested in asset allocation, a concept that is pretty basic and fundamental here at the Bogleheads. I am also concerned about performance chasing.
You got straight to the heart of my concerns. The way he was talking about the need to find "talent" in fund managers made me concerned that he's a chaser.

As for asset allocation, I don't believe it's factually true that bonds tanked at the same time stocks did in 2000 and 2008. I recall that bond yields did go up, but not right at the same time as the stock crash. If he isn't interested in asset allocation, does that also mean he isn't interested in risk management? I hope to find out soon!
Did your father actually give you free reign over this account? How would he feel if the funds were moved elsewhere?
Yes and no. He did a POA but not the durable variety that would give me full control. Ordinarily I'd have no problem with that (it's his money, right?), except that he has no interest in getting involved in managing his money. He didn't even understand that I couldn't talk with his advisor about his account without a POA.
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Re: Utility of Financial Advisor

Post by bsteiner »

wije wrote: Sat Jun 19, 2021 9:42 pm
bsteiner wrote: Sat Jun 19, 2021 9:08 pmIf you'll provide more details as to his situation (his other assets and his income) you may get some responses as to possible Roth conversions.
He's required to take out about $70k per year for RMD, and then he also gets about $30k for Social Security. No other income. His only other major asset is his home which is worth about the same as the IRA (and will be inherited by my sibling).
It sounds like he's in the 22% bracket and could go up to the 24% bracket (scheduled to be 25% and 28% beginning in 2026).

It would help to know what brackets the beneficiaries of his IRA are likely to be in.

IF he doesn't have any other income, then presumably he doesn't have much in the way of other assets that he could use to pay the tax on the conversion.

Are his children likely to have taxable estates or be concerned about creditors or spouses such that he would provide for them in trust rather than outright (which would mean that to keep the asset protection the trustees would have to retain the IRA distributions and pay tax on them at higher rates)? If so, he might want to do Roth conversions.

Might he leave his IRA to a charitable remainder trust for his grandchildren? That would require grandchildren over 27 or 28 who aren't likely to have taxable estates or be concerned about spouses or creditors. If so, then he probably wouldn't do Roth conversions.
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wije
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Re: Utility of Financial Advisor

Post by wije »

chassis wrote: Sat Jun 19, 2021 9:18 pmI helped my FIL through something similar. I encouraged and coached him out of an advisor relationship and FIL is happy about the change. FIL is in his mid 70s.
Right there the similarity ends. It sounds like your FIL has at least some minimal interest in his finances, whereas my father does not. He's not open to coaching or learning.
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Re: Utility of Financial Advisor

Post by nedsaid »

wije wrote: Sat Jun 19, 2021 10:02 pm
nedsaid wrote: Sat Jun 19, 2021 9:12 pmI am surprised that he isn't interested in asset allocation, a concept that is pretty basic and fundamental here at the Bogleheads. I am also concerned about performance chasing.
You got straight to the heart of my concerns. The way he was talking about the need to find "talent" in fund managers made me concerned that he's a chaser.

Nedsaid: What I would be more concerned about than performance is the investment process, the manager/analyst talent behind the funds, and the depth of their bench. You don't want to be dependent upon a star manager who might get lured away. Firms like T Rowe Price, American Funds, and the active funds run by Vanguard get high marks from me. The late Jack Bogle had nice things to say about Dodge & Cox, as I recall. A fund can do relatively poorly in the short run because its investment approach is out of favor. A good example of this would be the Value approach, which until recently, had trailed Growth for over a decade. When looking at Index funds, index construction is very important, there are indexes that are better than others.

As for asset allocation, I don't believe it's factually true that bonds tanked at the same time stocks did in 2000 and 2008. I recall that bond yields did go up, but not right at the same time as the stock crash. If he isn't interested in asset allocation, does that also mean he isn't interested in risk management? I hope to find out soon!

Nedsaid: Most bonds went down in 2008-2009 except for nominal US Treasuries and US Agency Bonds like GNMAs. A big reason is that liquidity in the bond market just dried up, GE couldn't even roll over its commercial paper. Even such things as TIPS and Investment Grade Corporates were down temporarily about 10%-12%, High Yield Corporates were down over 20%. Fortunately, bonds of all stripes rebounded strongly within a few months.

What happened is that after the smoke cleared from the 2008-2009 financial crisis, bond yields actually went DOWN and by a lot. It took several months for that to happen.

In 2008-2009 and during spring of 2020, safe bonds like nominal US Treasuries did very well. They are the best diversifiers against stock market bears.

Did your father actually give you free reign over this account? How would he feel if the funds were moved elsewhere?
Yes and no. He did a POA but not the durable variety that would give me full control. Ordinarily I'd have no problem with that (it's his money, right?), except that he has no interest in getting involved in managing his money. He didn't even understand that I couldn't talk with his advisor about his account without a POA.

Nedsaid: Wow. Talk about disengaged. First thing I would do is pull as many statements as you can and look at what the advisor has actually been doing. Your father was ripe to be taken advantage of, my guess is that the advisor probably did a conscientious job, even if you disagree with his philosophy. The statements will tell the story. You can also get a sense for what strategy that advisor was employing.

If he had an Assets Under Management agreement, the advisor would have had no incentive to churn the account. Churning, or excessive turnover to generate commissions has happened with commissioned representatives.

So I want to be clear, it sounds like this is Assets Under Management. Am I right about this? Under this arrangement, it is in the advisor's best interest that the account grows in size over time as the compensation will also increase.

My guess is that the funds are well known names, I would be surprised to see flaky stuff in there. The one really encouraging thing is that the advisor is looking at keeping the expense ratios of the funds relatively low. That is something you want to see.

If it appears that the advisor was trying to do the right thing, I would do my best to work with him or her. Until your father gives you full powers, there isn't much else you can do.
A fool and his money are good for business.
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wije
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Re: Utility of Financial Advisor

Post by wije »

bsteiner wrote: Sat Jun 19, 2021 10:10 pmIt sounds like he's in the 22% bracket and could go up to the 24% bracket (scheduled to be 25% and 28% beginning in 2026).
Thank you so much. I'm sure he files as an individual so he'd be in the 24% bracket, and it seems he could withdraw another $60k for the Roth conversion and still remain in that bracket.
It would help to know what brackets the beneficiaries of his IRA are likely to be in.
I'm in the 22% bracket, filing jointly with spouse.
Are his children likely to have taxable estates or be concerned about creditors or spouses such that he would provide for them in trust rather than outright (which would mean that to keep the asset protection the trustees would have to retain the IRA distributions and pay tax on them at higher rates)? If so, he might want to do Roth conversions.
I'm in the process of putting all my assets under a trust. My only creditor is my credit union to whom I pay mortgage.
Might he leave his IRA to a charitable remainder trust for his grandchildren? That would require grandchildren over 27 or 28 who aren't likely to have taxable estates or be concerned about spouses or creditors. If so, then he probably wouldn't do Roth conversions.
He has only grandson (my son) who just turned 1.
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wije
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Re: Utility of Financial Advisor

Post by wije »

nedsaid wrote: Sat Jun 19, 2021 10:32 pm In 2008-2009 and during spring of 2020, safe bonds like nominal US Treasuries did very well. They are the best diversifiers against stock market bears.
Yes, I should've had the presence of mind to say that I look at strictly Treasurys as portfolio ballast- not corporate or even total bond funds.
Nedsaid: Wow. Talk about disengaged. First thing I would do is pull as many statements as you can and look at what the advisor has actually been doing. Your father was ripe to be taken advantage of, my guess is that the advisor probably did a conscientious job, even if you disagree with his philosophy. The statements will tell the story. You can also get a sense for what strategy that advisor was employing.
I should've specified that this advisor is new and thus I don't have a track record to look at.
So I want to be clear, it sounds like this is Assets Under Management. Am I right about this? Under this arrangement, it is in the advisor's best interest that the account grows in size over time as the compensation will also increase.
I'm pretty sure this is the arrangement, but I'll doublecheck.
My guess is that the funds are well known names, I would be surprised to see flaky stuff in there. The one really encouraging thing is that the advisor is looking at keeping the expense ratios of the funds relatively low. That is something you want to see.
This is off-topic but I had a very different experience after my stepfather passed away. He had meant to get me in touch with his financial advisor (he named me to execute his trust) but never got around to it, as a result we were blindsided when he passed away. We had no idea where his investments were (turned out they were spread across a number of places) or who was managing them. A self-described "friend" of stepdad (whom I had never seen before) stepped in and offered to help. He did get mom's Social Security squared away, but then we foolishly entrusted him the task of locating and consolidating late stepdad's finances. The next thing we knew, "friend" was trying to push on us weird 2% ER mutual funds. We immediately ran back to stepdad's original advisor and he resumed control.

I stuck with that advisor after he outperformed me in the 2014-2016 timeframe and ensured that mom got her monthly income. He had a somewhat similar fee setup as dad's new advisor, except that his fees were even lower: about .7% combined. So I think I understand your point. There are advisors like "friend" and then there are others who aren't trying to push arcane pricey stuff on us. This new advisor seems to have the latter vibe, I'm just concerned about his chasing.
If it appears that the advisor was trying to do the right thing, I would do my best to work with him or her. Until your father gives you full powers, there isn't much else you can do.
I agree. I'll try to at least get him to consolidate everything into something that I could manage myself.
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Re: Utility of Financial Advisor

Post by tibbitts »

wije wrote: Sat Jun 19, 2021 8:34 pm No, but I had already told him that when he prepares a short list of funds that he be ready to show how it compares against a comparable index. If I don't like his index, then I'll take the ticker names home and see how they stack against indexes that I find. If we're looking at small caps, I'll insist on the S&P 600 not the Russell 2000 (as arcticpineapplecorp. indicated).
What do you mean by "short list"? If you mean for funds to buy now, then I completely disagree with your approach. What matters is only what funds he chose in the past and how they subsequently performed while he held them. I'd have no objection to him choosing a fund with a terrible history vs. an index or comparable funds, particularly if it has low expenses. At least a good part of poor performance persistence seems to be attributable to the persistence of high expenses. Besides, funds change advisers and even objectives from time to time, so I would really not be interested in history for a fund he didn't recommend/own at the time.

The S&P600 vs. R2000... I think you're mostly fighting the last war there. Before the R2000 at least partly addressed some of its issues I'd have been more interested in that story, but despite the last month or so, when you look at five years for example - no difference. But if you're going back far enough in time then I'd put more emphasis on what a fund's mandate was in deciding which would be the most relevant index, not just picking the index that in retrospect performed better, even if due to construction issues.
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Re: Utility of Financial Advisor

Post by nedsaid »

I am a bit confused here. Is there one $1.3 million account or are there multiple accounts scattered all over the place? It sounds like your father has a new advisor, is this someone new that he chose or did the advisor succeed someone else your dad had been doing business with?

Old dad must have done something right. Accumulating $1.3 million in retirement accounts is an impressive achievement. Did your dad work with advisors while building this up?
A fool and his money are good for business.
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Re: Utility of Financial Advisor

Post by nedsaid »

wije wrote: Sat Jun 19, 2021 11:03 pm
nedsaid wrote: Sat Jun 19, 2021 10:32 pm In 2008-2009 and during spring of 2020, safe bonds like nominal US Treasuries did very well. They are the best diversifiers against stock market bears.
Yes, I should've had the presence of mind to say that I look at strictly Treasurys as portfolio ballast- not corporate or even total bond funds.

Nedsaid: To be clear, my own bond portfolio is mostly Intermediate Term Investment Grade Bonds. About 12% are International Bonds and about 15% are TIPS. So I have mostly Treasuries and Agency Bonds held within the bond funds that I own but there are a lot of corporates as well. Personally, I am willing to tolerate a bit more volatility in my bonds to get higher returns. I hold the Fidelity U.S. Bond Index and the Vanguard Total Bond Market Index ETF in different accounts. So I have nothing against the Bond Indexes. About 70% of Total Bond Market are US Treasuries and US Agency Bonds, so it is mostly a Government Bond Fund. My bonds held up fairly well in 2008-2009 and in 2020, so I think something like Total Bond Index is plenty well good enough. I don't hold a 100% Treasury bond portfolio but folks like Merriman and Swedroe advocate for that.
Nedsaid: Wow. Talk about disengaged. First thing I would do is pull as many statements as you can and look at what the advisor has actually been doing. Your father was ripe to be taken advantage of, my guess is that the advisor probably did a conscientious job, even if you disagree with his philosophy. The statements will tell the story. You can also get a sense for what strategy that advisor was employing.
I should've specified that this advisor is new and thus I don't have a track record to look at.
So I want to be clear, it sounds like this is Assets Under Management. Am I right about this? Under this arrangement, it is in the advisor's best interest that the account grows in size over time as the compensation will also increase.
I'm pretty sure this is the arrangement, but I'll doublecheck.
My guess is that the funds are well known names, I would be surprised to see flaky stuff in there. The one really encouraging thing is that the advisor is looking at keeping the expense ratios of the funds relatively low. That is something you want to see.
This is off-topic but I had a very different experience after my stepfather passed away. He had meant to get me in touch with his financial advisor (he named me to execute his trust) but never got around to it, as a result we were blindsided when he passed away. We had no idea where his investments were (turned out they were spread across a number of places) or who was managing them. A self-described "friend" of stepdad (whom I had never seen before) stepped in and offered to help. He did get mom's Social Security squared away, but then we foolishly entrusted him the task of locating and consolidating late stepdad's finances. The next thing we knew, "friend" was trying to push on us weird 2% ER mutual funds. We immediately ran back to stepdad's original advisor and he resumed control.

Nedsaid: Sounds like stepdad had an advisor trying to do a conscientious job. Yes, there are those who try to do the best for their clients and others who are more self interested.

I stuck with that advisor after he outperformed me in the 2014-2016 timeframe and ensured that mom got her monthly income. He had a somewhat similar fee setup as dad's new advisor, except that his fees were even lower: about .7% combined. So I think I understand your point. There are advisors like "friend" and then there are others who aren't trying to push arcane pricey stuff on us. This new advisor seems to have the latter vibe, I'm just concerned about his chasing.

Nedsaid: Stepdad's advisor charged pretty low fees for the industry. 1% Assets Under Management has been the standard for years, depending upon how much money you have to invest. Last I checked, Edward Jones charged 1.35% and years ago Ameriprise offered a managed account at 1.20%. A CPA I worked for a few months charged 0.75% for portfolio management and that is probably about as low as a small firm could go. It sounds like he did well for your mom.

The thing is, I would not run a portfolio for a family member, I would send them to a reputable advisor so that I would not get blamed if something went wrong. Nothing is perfect, the best option for Bogleheads seems to be Vanguard which charges 0.30%. In the case of a family member, I would probably send them somewhere local. For older folks, the default is running to the nearest Edward Jones office and I believe that one can do better than that. You want an advisor that has Fiduciary status, that isn't a guarantee that things won't go wrong but it is a much higher standard than a suitability standard in the brokerage industry.

If it appears that the advisor was trying to do the right thing, I would do my best to work with him or her. Until your father gives you full powers, there isn't much else you can do.
I agree. I'll try to at least get him to consolidate everything into something that I could manage myself.

Nedsaid: Seeing that ultimately you are the beneficiary on the account and that this still is dad's money, I would not manage it yourself even though you most likely have the capability. I would try to work with a local advisor first but ultimately you might want to take him to Vanguard. Even 0.30% adds up over time but better to have a third party involved. Years from now, when you inherit, you can self manage if you would like. You don't want the blame if something goes wrong.
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retired@50
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Re: Utility of Financial Advisor

Post by retired@50 »

wije wrote: Sat Jun 19, 2021 10:02 pm
nedsaid wrote: Sat Jun 19, 2021 9:12 pmI am surprised that he isn't interested in asset allocation, a concept that is pretty basic and fundamental here at the Bogleheads. I am also concerned about performance chasing.
You got straight to the heart of my concerns. The way he was talking about the need to find "talent" in fund managers made me concerned that he's a chaser.
This adviser seems to hold an odd mix of attitudes when you consider the educational credentials you mentioned earlier.
wije wrote: CFP, ChFC, CLU
This either doesn't say much for the training he's received or he thinks he's telling you something you want to hear.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Utility of Financial Advisor

Post by nedsaid »

The Boglehead forum advocates for simpler 3-5 fund portfolios and thus managing a portfolio of a few funds should be relatively simple but you need a perspective on market history and a grasp of proper age appropriate asset allocation. Or one can go with something like a Vanguard LifeStrategy Fund which puts you in 4-5 funds and keeps a stable asset allocation over time. If a person can self manage a portfolio and not pay an advisor to do this for them, one can save immense amounts of money over time.

Problem is that most people are not Bogleheads and are pretty clueless regarding investing. Folks can be prone to panic in bad markets and behavioral errors make the difference between a comfortable retirement and an underfunded one. Handholding and reassurance during bad markets is another service a good advisor can provide. The avoidance of behavioral errors can much more than make up for the fees that add up over time.

Even the great Bill Bernstein has said that most people would benefit from an advisory relationship. I am agreeing with that statement more and more as time goes on. This despite the fact that I have been mostly a do-it-myself investor.

Ideally, if you get good financial planning mixed in, you get help with making decisions regarding retirement that are difficult, if not impossible to reverse once made.
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Re: Utility of Financial Advisor

Post by nedsaid »

retired@50 wrote: Sat Jun 19, 2021 11:47 pm
wije wrote: Sat Jun 19, 2021 10:02 pm
nedsaid wrote: Sat Jun 19, 2021 9:12 pmI am surprised that he isn't interested in asset allocation, a concept that is pretty basic and fundamental here at the Bogleheads. I am also concerned about performance chasing.
You got straight to the heart of my concerns. The way he was talking about the need to find "talent" in fund managers made me concerned that he's a chaser.
This adviser seems to hold an odd mix of attitudes when you consider the educational credentials you mentioned earlier.
wije wrote: CFP, ChFC, CLU
This either doesn't say much for the training he's received or he thinks he's telling you something you want to hear.

Regards,
The Certified Financial Planner has pretty rigorous requirements to achieve. The Chartered Financial Consultant requires 27 hours of college credit. Both require work experience. So the CFP is the most impressive, the ChFC is not exactly chopped liver. I know about the Chartered Life Underwriter designation but don't know much about the requirements but there is coursework and experience requirements as well.

RIght now, I am taking the Externship through the Financial Planning Association, about 180 hours of class time. It is all virtual and was designed to take the place of internships that were cancelled because of Covid. So far I have been really impressed and have learned a lot more about the field.

Of course, credentials are no guarantee of success or even competence, but it is an indication of some pretty extensive study.

What I will say is that given this background, you should be hearing more about such things as asset allocation and risk management. The thing is, you are pretty early in this process and you really aren't the client. Let's see what develops.
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Re: Utility of Financial Advisor

Post by tibbitts »

nedsaid wrote: Sat Jun 19, 2021 11:51 pm Ideally, if you get good financial planning mixed in, you get help with making decisions regarding retirement that are difficult, if not impossible to reverse once made.
I didn't appreciate the value of this until I made what were in retrospect very obvious mistakes with my own investments. A second opinion might have been worth more than it cost in fees. Or not, of course - there's no way to know in retrospect whether an adviser would have caught and corrected the problems I didn't on my own.
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Re: Utility of Financial Advisor

Post by nedsaid »

tibbitts wrote: Sun Jun 20, 2021 12:23 am
nedsaid wrote: Sat Jun 19, 2021 11:51 pm Ideally, if you get good financial planning mixed in, you get help with making decisions regarding retirement that are difficult, if not impossible to reverse once made.
I didn't appreciate the value of this until I made what were in retrospect very obvious mistakes with my own investments. A second opinion might have been worth more than it cost in fees. Or not, of course - there's no way to know in retrospect whether an adviser would have caught and corrected the problems I didn't on my own.
Obviously, there are no guarantees on any of this. Even Dan Solin admitted to succumbing to panic as an advisor. I would say the odds are better for avoiding bad investor behavior if you have an advisory relationship. Avoiding bad behavior might not overcome the effect of advisory fees, it would depend upon how bad the behavior errors might be.

In fairness, the articles that I have read noted that data from Vanguard and Fidelity show that most investors in 401(k) plans stayed in the market and continued to invest regularly during the 2008-2009 financial crisis and during the 2020 Covid-19 bear market. So it looks like financial education is getting through to the small investor.

I am a frugal individual and would be reluctant to part with even the 0.30% that Vanguard charges for their Personal Advisory Service. Even those relatively low fees add up over time. Yet I have sought out advice during my investment career and have recently started an Assets Under Management arrangement with part of my retirement.

Problem is, nothing is perfect, there are flaws to everything. Even the best of arrangements will draw valid criticisms. So the choice of whether or not to hire an advisor is not an easy one. If you want individual attention, you will have to pay up.
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Re: Utility of Financial Advisor

Post by nedsaid »

A few other things to keep in mind. Who is the firm that the advisor is affiliated with? Is the advisor truly independent or does he have a sales manager that he reports to? Is the advisor in business for him or herself? What brokerage platform does the advisor use?

The independence issue is really important, if the advisor has a sales manager then he or she will face immense pressure to sell you whatever "product of the month" the firm wants to sell whether it is in your interest or not. Fiduciary status really helps here though it isn't a 100% guarantee of conflict of interest. With the full service brokerage firms, the firm trades for its own account and you might have investments recommended to you that the firm doesn't want to own for itself. Not sure how true this still is but in the past this was a real problem.

With certain firms, the advisor is reliant on the research department and pretty much recommends whatever the research department says. Not necessarily bad but it is a good thing if the advisor will think for him or herself. Everyone is reliant on good research though. Advisors will often have model portfolios that they want to work with.

On the other hand, the advisor needs some sort of affiliation: mainly for back office help, research, compliance, and a brokerage platform to operate from. Affiliation is good what you don't want is an advisor who is captive, in other words an advisor who has to sell the products that a sales manager says to sell and an advisor that has to recommend whatever the research department says. You want affiliation and a good measure of independence.

The brokerage platform is also important, some brokerage firms are better than others.
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Re: Utility of Financial Advisor

Post by wije »

nedsaid wrote: Sat Jun 19, 2021 11:09 pmI am a bit confused here. Is there one $1.3 million account or are there multiple accounts scattered all over the place? It sounds like your father has a new advisor, is this someone new that he chose or did the advisor succeed someone else your dad had been doing business with?
I was more than a bit confused when I saw the statement. There are multiple accounts held by the same custodian, and the advisor works for that custodian. Under the original advisor, three of the six accounts were "Separately Managed Accounts" (SMA) each with a different fund manager. The remaining three were inexplicably "unmanaged" and even worse were mostly in cash by the time the new advisor took over.

New advisor wants to consolidate the "unmanaged" accounts into one and put all of the fixed income and other ballast portion of the portfolio there, as well as some equities (so yes, he does pay attention to asset allocation, despite what I had said earlier). For the SMAs, he wants to determine if there are better equity funds out there and will report to me by the end of this week what he finds.
Is the advisor truly independent or does he have a sales manager that he reports to? Is the advisor in business for him or herself.
Affiliated with Merrill, in business with just himself and an administrative assistant. He also has access to Morgan Stanley research. No sales manager.

My one issue with him is that he's not as responsive as I'd prefer. If he were part of a larger team, then I could at least reach someone if he's unavailable.
Old dad must have done something right. Accumulating $1.3 million in retirement accounts is an impressive achievement. Did your dad work with advisors while building this up?
Yes, dad worked with the previous advisor for the past few decades. I believe he accumulated that much through hard work and a relatively modest lifestyle. I'm fairly certain the number would've been higher if he just had a minimal level of interest in his own money and did not hand over everything to his advisor.
I am willing to tolerate a bit more volatility in my bonds to get higher returns.
Me too, except that I seek bond volatility by extending the duration of Treasury funds. I allocate high-yield corporate and EM bonds (when I have them at all) to the equity side because they behave like equities.
Sounds like stepdad had an advisor trying to do a conscientious job.
That's the sense I had. He's very responsive and always answers my questions. It had occurred to me that stepdad had chosen him, and not "friend," to manage his money, which made the decision to dump "friend" much easier.
I would not run a portfolio for a family member, I would send them to a reputable advisor so that I would not get blamed if something went wrong.
I have to confess, I let my dad choose his new advisor instead of finding someone I liked and recommending dad to him, for exactly the reason you mentioned.
What I will say is that given this background, you should be hearing more about such things as asset allocation and risk management. The thing is, you are pretty early in this process and you really aren't the client. Let's see what develops.
I fully agree. Right now I'm looking for additional questions I should be asking him.
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Re: Utility of Financial Advisor

Post by nedsaid »

wije wrote: Sun Jun 20, 2021 9:42 am
nedsaid wrote: Sat Jun 19, 2021 11:09 pmI am a bit confused here. Is there one $1.3 million account or are there multiple accounts scattered all over the place? It sounds like your father has a new advisor, is this someone new that he chose or did the advisor succeed someone else your dad had been doing business with?
I was more than a bit confused when I saw the statement. There are multiple accounts held by the same custodian, and the advisor works for that custodian. Under the original advisor, three of the six accounts were "Separately Managed Accounts" (SMA) each with a different fund manager. The remaining three were inexplicably "unmanaged" and even worse were mostly in cash by the time the new advisor took over.

Nedsaid: WIth a Separately Managed Account, your dad hired a third party manager to manage it. Instead of owning a mutual fund, your dad owned the individual securities picked by the manager. SMA's tend to be more concentrated portfolios than retail mutual funds, you might see 30 stocks or so in these accounts.

New advisor wants to consolidate the "unmanaged" accounts into one and put all of the fixed income and other ballast portion of the portfolio there, as well as some equities (so yes, he does pay attention to asset allocation, despite what I had said earlier). For the SMAs, he wants to determine if there are better equity funds out there and will report to me by the end of this week what he finds.

Nedsaid: This sounds reasonable to me. Not sure that SMAs have anything to offer that you can't get in a mutual fund except that an advisor can get 3rd Party managers for what amounts to institutional rates. So if the Advisor charges you 1.00% a year and gets you a manager for 30 basis points, as you noted earlier you are back in mutual fund territory in terms of fees. Your advisor could probably just buy low cost Vanguard active funds for about the same result.

What I am trying to say is that you can get relatively cheap asset management through an SMA but you need an advisor to access them. Active management costs about 20-30 basis points but retail investors, except through Vanguard, pay more like 80-120 basis points. One reason that retail mutual funds are so profitable, the margins are pretty high.

From what I have seen, the SMA managers do a competent job. You have more concentrated portfolios and they run into the same problem as the retail mutual funds in that those market indexes are not easy to beat. Passive investing really works and "average" is most often better than actively managed accounts. It boils down to cost.

At least your Dad's prior and current advisor paid attention to costs. Dad could have paid for the imbedded costs of a retail mutual fund in addition to the advisor fee. So choosing cheaper active management and ETFs based upon indexes drives the cost down. Through an advisor you should be getting Institutional Share Classes. Better to pay 1.30% in costs with SMAs and ETFs rather than a combined 2% or more.


Is the advisor truly independent or does he have a sales manager that he reports to? Is the advisor in business for him or herself.
Affiliated with Merrill, in business with just himself and an administrative assistant. He also has access to Morgan Stanley research. No sales manager.

My one issue with him is that he's not as responsive as I'd prefer. If he were part of a larger team, then I could at least reach someone if he's unavailable.

Nedsaid: Make best use of the time with him that you have. For simpler questions, you might have to reach out to his assistant. I will just say that I have a better appreciation now for the daily life of an advisor. Time has to be split among many clients and meetings do require preparation time.
Old dad must have done something right. Accumulating $1.3 million in retirement accounts is an impressive achievement. Did your dad work with advisors while building this up?
Yes, dad worked with the previous advisor for the past few decades. I believe he accumulated that much through hard work and a relatively modest lifestyle. I'm fairly certain the number would've been higher if he just had a minimal level of interest in his own money and did not hand over everything to his advisor.

Nedsaid: I would still recommend that you go through the statements to get a sense of the strategy and the returns he was getting. If you are still at the same firm, the advisor will be able to provide return information. Hint, the account would not have beaten the indexes because of the fees but your dad had a much better portfolio than if he tried to do this on his own. Most people don't even want to manage a 3-5 Fund portfolio on their own or even choose a one fund solution like a Vanguard LifeStrategy fund. So many choices and most folks get overwhelmed. Hence they flock to advisors.
I am willing to tolerate a bit more volatility in my bonds to get higher returns.
Me too, except that I seek bond volatility by extending the duration of Treasury funds. I allocate high-yield corporate and EM bonds (when I have them at all) to the equity side because they behave like equities.

Nedsaid: You don't have to take my comments as Gospel. There are different approaches out there. It is perfectly okay to adopt the philosophy that bonds are for safety and that you take your risks on the equity side of the portfolio. Personally I am willing to take a bit more risk with my bonds but I don't stretch things too far, if you have the great bulk of your bonds in Intermediate Term Investment Grade bonds, you will be fine. Again there are differing opinions out there. A 100% US Treasury Bond portfolio for your fixed income investments is A-OK.
Sounds like stepdad had an advisor trying to do a conscientious job.
That's the sense I had. He's very responsive and always answers my questions. It had occurred to me that stepdad had chosen him, and not "friend," to manage his money, which made the decision to dump "friend" much easier.
I would not run a portfolio for a family member, I would send them to a reputable advisor so that I would not get blamed if something went wrong.
I have to confess, I let my dad choose his new advisor instead of finding someone I liked and recommending dad to him, for exactly the reason you mentioned.
What I will say is that given this background, you should be hearing more about such things as asset allocation and risk management. The thing is, you are pretty early in this process and you really aren't the client. Let's see what develops.
I fully agree. Right now I'm looking for additional questions I should be asking him.

Nedsaid: Whatever you ultimately decide, be professional in your dealings with the advisor and don't waste his time. Hear him out and see what he recommends. It depends upon what your father wants, after all it is his money.
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Re: Utility of Financial Advisor

Post by Wash.Invest »

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".
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Re: Utility of Financial Advisor

Post by illumination »

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.

Also, FA are more salesmen than experts on topics like Estate Planning. Most of their energy is used to secure new clients. Hire an estate attorney and make sure everything is in order if you have concerns, don't rely on a FA.

Assuming your father is on board, take it away from the FA and just manage yourself. Brokerages will handle the RMD calculations and distributions for free. Pick some allocation of stocks to bonds that everyone feels comfortable with, and let it ride.

It wouldn't surprise me if the FA's fees are close to what your dad gets every month for Social Security. Like getting an extra Social Security check.
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Re: Utility of Financial Advisor

Post by tibbitts »

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].
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Re: Utility of Financial Advisor

Post by illumination »

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?
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Re: Utility of Financial Advisor

Post by mathwhiz »

I 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.
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Re: Utility of Financial Advisor

Post by nedsaid »

Just curious, what is this costing your Dad to invest through Merrill?

If this is an Assets Under Management agreement, you will get charged an annual fee billed quarterly. The industry standard for an AUM Fee is 1% a year but it depends upon the size of your account.

You also want to check for any transaction fees and for any account fees.
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Re: Utility of Financial Advisor

Post by mathwhiz »

My thoughts on Financial Advisors is they are not necessary for smart, diligent people who are prepared to take the time to get educated. A lot of people are ignorant and just don't trust themselves to do anything with investments, even very very smart and successful people like small business owners. If hiring a financial advisor is going to stop you from doing something extraordinarily foolish like betting it all on GameStop or AMC or day trading bitcoin, or panicking and selling it all at the stock market lows in 2009 or 2020. They are well worth that 1% for behavioral finance reasons to stop emotional people from making mistakes as a gatekeeper. Sure, they may rob you blind in fees but you'll probably come out ahead from the damage you would do to yourself. That's one of the primary reasons they justify their fees.
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Re: Utility of Financial Advisor

Post by Fallible »

wije wrote: Sat Jun 19, 2021 12:47 pm ...
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. ...
Stockpicking 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? Can the advisor tell you how this is right for your dad? And can he show you how, exactly, his investments have done?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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wije
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Re: Utility of Financial Advisor

Post by wije »

nedsaid wrote: Sun Jun 20, 2021 4:33 pmJust curious, what is this costing your Dad to invest through Merrill?
1%. I'll keep my eyes peeled for transaction and account fees, thanks!
WIth a Separately Managed Account, your dad hired a third party manager to manage it. Instead of owning a mutual fund, your dad owned the individual securities picked by the manager.
Yes, you were correct and I was incorrect to equate the SMAs with mutual funds. The SMAs are exactly as you described, with the advisor selecting the third-party manager for about .2-.3 ER who in turn selects individual stocks for dad to buy. As you can see, all of this is new to me.

I believe that the old advisor had bought into a tech fund for one of the "unmanaged" accounts, so in that case dad had paid for both the advisor fee and the mutual fund fee. We're definitely getting rid of that one.
Hint, the account would not have beaten the indexes because of the fees but your dad had a much better portfolio than if he tried to do this on his own.
Bingo. If my dad hadn't gotten that original advisor, he would've put everything into a savings account or CDs, so yes I agree him getting a FA, even a suboptimal one, was better than nothing.
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Re: Utility of Financial Advisor

Post by tibbitts »

wije wrote: Sat Jun 19, 2021 10:02 pm Yes and no. He did a POA but not the durable variety that would give me full control.
I'm not an attorney but I don't believe being durable has any effect on the degree of control you have today, since you haven't indicated there is an issue of incapacity here, or that there is likely to be in the near future.
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Re: Utility of Financial Advisor

Post by tibbitts »

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.
Topic Author
wije
Posts: 220
Joined: Sun Jun 07, 2015 8:35 pm

Re: Utility of Financial Advisor

Post by wije »

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.
Topic Author
wije
Posts: 220
Joined: Sun Jun 07, 2015 8:35 pm

Re: Utility of Financial Advisor

Post by wije »

tibbitts wrote: Sun Jun 20, 2021 6:48 pmI'm not an attorney but I don't believe being durable has any effect on the degree of control you have today, since you haven't indicated there is an issue of incapacity here, or that there is likely to be in the near future.
I believe you are correct. The issue is not incapacity but rather apathy, and as insane as being apathetic about one's own life's savings is, it isn't grounds for incapacity.
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