Am I paying too much for my Investment Advisor?

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PNWpilot
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Am I paying too much for my Investment Advisor?

Post by PNWpilot »

Hi all,

I have grown up following Dave Ramsey for personal finance. I have really latched onto his philosophy and it has served me well. About two years ago I used Ramsey Solutions to locate an "Endorsed Local Provider" to manage a taxable investment account. I currently pay 1.45% in fees (1% to the advisor and .45% fund fee). I have been pleased with our relationship so far and satisfied with the results.

Is 1.45% an appropriate rate for this type of setup? I chose to use an investment advisor because I am unfamiliar with investing outside of long-term retirement accounts and I wanted to make sure that we chose an investment method that fit our current goals. I also wanted to hire an advisor because my wife has no interest in dealing with investments and if something happened to me she would be lost trying to manage it on her own. I feel that there is some good cost/benefit with the 1.45%, but I don't have much experience in this area as this is the only investment advisor I've ever used.

Should I shop around for different advisor's and see if I can get a lower rate? Or is this a fair rate? Again, I'm very new at all this and I'm trying to learn as much as I can.

Thanks!
PNWpilot
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Sandtrap
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Re: Am I paying too much for my Investment Advisor?

Post by Sandtrap »

Other options:

***1. Fee only advisor. Setup and adjust as needed. No AUM fees, etc.
Often discussed here and a great option for many, not everyone. (search forum archives "fee only advisor".
Often, good results without the "skim" you are paying now.

2. Vanguard VPAS for fees much much lower than what you are paying.
Search forum archives for much on this. "VPAS". Read on Vanguard site.

3. Do it yourself for no fees. It might not might not be as difficult as you might think.
A first step is to post a "portfolio review" in forum format (look at forum wiki) for constructive input, then compare to Vanguard VPAS input, what you have, etc. You will see that there are many different paths than what you have now or looking for a less expensive "investment advisor", "financial advisor", "wealth consultant", etc.

dislaimer: there are many paths for each person on this. Some are "happy and content" paying a financial advisor and brokerage AUM fees and fees and fees and charges and more fees, feeling that everyone needs to make money and as long as they are told by the financial advisor that they are doing well, and bills are paid, then all is well. (one example of a zillion, not you).

Actionably: post a portfolio review for senior forum portfolio reviewers to input on. This will give you more definitive and comprehensive input and knowledge than what you have posted with limited data.

PM me as you wish.
j :D
Last edited by Sandtrap on Sat Sep 18, 2021 8:50 am, edited 1 time in total.
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invest4
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Re: Am I paying too much for my Investment Advisor?

Post by invest4 »

I think you underestimate your ability to handle it yourself and find such a fee to be a complete waste of money. Similarly, while I understand your desire to ensure your wife doesn't have to deal with it, why now while you are still living? Something like this can always be done...after (if ever).

Are you maxing out all of your tax advantaged space (which I would do before any taxable)?
Last edited by invest4 on Sat Sep 18, 2021 8:39 am, edited 1 time in total.
livesoft
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Re: Am I paying too much for my Investment Advisor?

Post by livesoft »

I would not pay that amount. My withdrawal rate is about 3% with average fund/ETF expenses of 0.09%. If I had to pay 1.45%, that would be relatively huge "tax" on my annual withdrawals+expenses. 1.45%+3% instead of 0.09%+3% is 4.45/3.09 = 1.44. So that is like a 44% annual tax rate on my withdrawals. Ouch! Double Ouch!! Triple OUCH! OUCH! OUCH!!! And it is totally unnecessary to pay that.
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59Gibson
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Re: Am I paying too much for my Investment Advisor?

Post by 59Gibson »

Sorry. You're getting clobbered.
Silk McCue
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Re: Am I paying too much for my Investment Advisor?

Post by Silk McCue »

I would say that you are paying too much although others charge the same or more. Vanguard PAS only charges .3% and will put you in low ER funds.

Better yet Mark Zoril at PlanVision will charge you $189 for the first year and $8 a month afterwards and provides Boglehead like advice. A number of folks here use them. You would have nothing to lose besides $189 to give him a try. His services would be very helpful to my wife should I pass unexpectedly. He provided a demonstration for South Florida BH chapter of their onboarding using EMoney a couple of months back.

https://planvisionmn.com/

Cheers
dbr
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Re: Am I paying too much for my Investment Advisor?

Post by dbr »

1.45% is probably an appropriate fee for what you are doing but it is also a fee that will rob you of the financial success you should have.

As an example of simple math $10,000 invested today at 6% will accumulate to about $43,000 in 25 years. If you lose 1.45% on that you will end up at about $30,000. That means your advisor will have taken about 1/3 of your future wealth. You also see above that you can be losing possibly as much as half your annual income from your investments. It can be an argument that allowing this to happen is about as stupid as it gets.

It is probably a simple fact that investors can't afford to pay what advisors have to charge to stay in business.

Whether or not you can manage the issue without an advisor is up to you. This Forum hopes that people can manage the issue without losing large fractions of their future wealth. Things do have to be attended to that avoid being stupid with investments, but that is not difficult. It is not a guarantee that an advisor will avoid being stupid with investments. Sometimes advisors intentionally sell investors things that are stupid for the investor or give bad advice.

Also, it is a fallacy that investment advisors can make you more money than you can with simple and easy to manage accounts of your own that do not have investment costs.
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Watty
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Re: Am I paying too much for my Investment Advisor?

Post by Watty »

There is a good chance that the advisor is also putting you into investments that have high hidden expenses. Hopefully they did not get you to buy some complex annuity or life insurance as an investment.

There are all sorts details, assumptions, and qualifications but academic studies have shown that in the past a 65 year old could start out a 30 year retirement and be pretty safe starting with a 4% withdrawal rate. This is sometimes called a "safe withdrawal rate". There is a wiki on this.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

The problem is that if you are paying your advisor 1.45% that would need to come out of your 4% so you would be paying them 36% of your spendable money for the year. If there are also expensive mutual funds then it would be even higher.

Financial advisors will sometimes imply that they can invest your money better to more than make up for the expenses but that is BS. If they could do that then they would be making a seven figure salary being a mutual fund manager. One thing they will sometimes do is to make bets in the stock market with your money. About half the time they will get lucky and win the bet and look like a genius, and the other half the time they will lose the bet(with your money) but still get paid your fees.

If you feel that you really need help then Vanguard will manage your portfolio for a 0.3% fee and they will not put you into expensive investments. They call this Personal Advisor Services (PAS) and there are lots of old threads on this that you can look up using the search bar in the top right of most of the web pages.

https://investor.vanguard.com/advice/fi ... r-services

Most people with a high school education can manage their own finances though by using things like target date funds or a few simple index funds.

There is a getting started wiki.

https://www.bogleheads.org/wiki/Getting_started

and the Boglehead books are also very readable for someone without a background in investing.

https://www.amazon.com/s?k=Bogleheads&t ... ads.org-20
Ependytis
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Re: Am I paying too much for my Investment Advisor?

Post by Ependytis »

I am really surprised by investment fees being around 1.45%. I assumed with Robo brokers, index funds, and target date funds, no one would be paying that amount. They either don’t understand the long-term effects on their portfolio and or they don’t realize how easy it is to invest in target date funds.

If I was going to recommend an investment for someone that had no interest whatsoever in investing, I would just recommend a target date fund appropriate for their age. This would allow them to funnel all their money into one fund, not have to worry about rebalancing and or tax loss/gain harvesting, and be able to sleep at night.

If someone can’t or won’t choose to invest this way, then they are accepting the consequences of going with a full service broker. All they have to do is look up three things on the Internet: determine the adverse effect of brokerage fees on a portfolio, compare the inferior returns on managed funds to index funds over the long haul, and look up any low-cost brokerage ( Schwab, Fidelity, and or Vanguard) target date fund. If they can’t get behind that, as the saying goes, “You can lead a horse to water but you can’t make them drink“. I can’t imagine the three tasks above would take more than a half hour versus paying $14,500 for every million dollars you have to a full service broker that will likely under perform your target date fund with the same risk.
stan1
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Re: Am I paying too much for my Investment Advisor?

Post by stan1 »

Edited (due to not fully reading OP):

1% is about as low of an AUM fee you are going to get from an advisor outside Vanguard. I'm assuming you don't have $10Ms and this is the base fee not a discount due to very high assets.

I'd consider Vanguard PAS at 0.3% if you would like a passive index fund based portfolio with reachback to a person to ask questions of about financial planning.

SInce its a taxable account you may have capital gains and are locked into the investment choices the advisor made. If there is a market drop and those gains become losses you might want to consider shifting over to lower cost funds.
Last edited by stan1 on Sat Sep 18, 2021 9:08 am, edited 3 times in total.
Silk McCue
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Re: Am I paying too much for my Investment Advisor?

Post by Silk McCue »

stan1 wrote: Sat Sep 18, 2021 8:55 am It's the 1.45% plus the expenses on the mutual funds so could be closer to 2% or even 2.5%.

OP clearly stated
I currently pay 1.45% in fees (1% to the advisor and .45% fund fee).
AUM Fee is 1%., fund fee is .45%.

Of course that is completely unnecessary for them to give that up.

Cheers
dbr
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Re: Am I paying too much for my Investment Advisor?

Post by dbr »

What can add to fund costs is internal investment costs for high turnover funds and also tax costs for unnecessary distributions or for excessive trading in the accounts. It might not be a bad idea to assume another 0.5% in unnecessary costs.
Dottie57
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Re: Am I paying too much for my Investment Advisor?

Post by Dottie57 »

Manage your investments yourself. I had most of my investments in 401k. Using Index funds and investing from each paycheck allowed me - virtually a know nothing - to retire at 61. Read a few book by Jack Bogle and you will be fine.
cjcerny
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Re: Am I paying too much for my Investment Advisor?

Post by cjcerny »

OP, the fees you are paying your advisor are typical. That being said, I don’t believe there is any reason to think that you or your spouse could not handle a DIY approach. It is not rocket science. One single low cost balanced index fund like VBIAX or one of the Vanguard Life Strategy funds will, in the long run, serve the two of you much better than an advisor charging you 1.45%.
dbr
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Re: Am I paying too much for my Investment Advisor?

Post by dbr »

I posted this on another thread:

The following is a fallacy:

Investment companies/advisors are to investing as

*Doctors are to medicine
*Lawyers are to law
*Accountants are to accounting
*Engineers are to engineering
*Business managers are to managing a business

I am not even so sure that "car salesmen are to selling cars" does not belong more in the second list than up with the first item.
Topic Author
PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

I appreciate the replies. I had a suspicion the rate was high and would hinder our future gains.

To clarify: We have maxed out our non-taxable accounts. This taxable account exists to manage money we have set aside for a home purchase, likely to occur within the next decade. I wanted a short-term, conservative, investment allocation. This is the total opposite of our current retirement allocation, and I was unsure how to best proceed. I have been satisfied with the results only because the money sat in a savings account for over a year prior to being invested.

Are the programs mentioned above appropriate for non-retirement, short-term, investing? If so, I may need to make a change...

Thanks!
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Stinky
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Re: Am I paying too much for my Investment Advisor?

Post by Stinky »

I expect that Ramsey has given you some excellent advice concerning personal finance. I’ve listened to him a lot, and his advice about debt, spending less than you make, etc is excellent.

Unfortunately, his advice to go to one of his Endorsed providers for investment advice is costing you a LOT of money. There are many alternative paths in previous posts about how you could manage your investments cheaper, and likely better.

Use Ramsey for personal finance advice. Don’t use his recommendations for investment advice.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
59Gibson
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Re: Am I paying too much for my Investment Advisor?

Post by 59Gibson »

dbr wrote: Sat Sep 18, 2021 9:30 am I posted this on another thread:

The following is a fallacy:

Investment companies/advisors are to investing as

*Doctors are to medicine
*Lawyers are to law
*Accountants are to accounting
*Engineers are to engineering
*Business managers are to managing a business

I am not even so sure that "car salesmen are to selling cars" does not belong more in the second list than up with the first item.
These all could easily be interchanged with money/politics/social responsibility/pressures etc.. The difference is I can DIY my portfolio with readily available info/knowledge and save AUM fees, not so much with DIY law, surgery, or engineering.
Silk McCue
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Re: Am I paying too much for my Investment Advisor?

Post by Silk McCue »

59Gibson wrote: Sat Sep 18, 2021 9:48 am
dbr wrote: Sat Sep 18, 2021 9:30 am I posted this on another thread:

The following is a fallacy:

Investment companies/advisors are to investing as

*Doctors are to medicine
*Lawyers are to law
*Accountants are to accounting
*Engineers are to engineering
*Business managers are to managing a business

I am not even so sure that "car salesmen are to selling cars" does not belong more in the second list than up with the first item.
These all could easily be interchanged with money/politics/social responsibility/pressures etc.. The difference is I can DIY my portfolio with readily available info/knowledge and save AUM fees, not so much with DIY law, surgery, or engineering.
Thus the first statement. “The following is a fallacy:”

Cheers
59Gibson
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Re: Am I paying too much for my Investment Advisor?

Post by 59Gibson »

Silk McCue wrote: Sat Sep 18, 2021 9:52 am
59Gibson wrote: Sat Sep 18, 2021 9:48 am
dbr wrote: Sat Sep 18, 2021 9:30 am I posted this on another thread:

The following is a fallacy:

Investment companies/advisors are to investing as

*Doctors are to medicine
*Lawyers are to law
*Accountants are to accounting
*Engineers are to engineering
*Business managers are to managing a business

I am not even so sure that "car salesmen are to selling cars" does not belong more in the second list than up with the first item.
These all could easily be interchanged with money/politics/social responsibility/pressures etc.. The difference is I can DIY my portfolio with readily available info/knowledge and save AUM fees, not so much with DIY law, surgery, or engineering.
Thus the first statement. “The following is a fallacy:”

Cheers
I think there was a distinction between first item and second list with *s
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

So I just added up all the fees I have incurred since investing the money two years ago......I have paid 1.97% of our current...OUCH.

Clearly there are additional fees layered in the funds beyond the 1.45%. I think I need to make a phone call next week...
mary1492
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Re: Am I paying too much for my Investment Advisor?

Post by mary1492 »

.....
Last edited by mary1492 on Thu Sep 29, 2022 8:08 am, edited 1 time in total.
Silk McCue
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Re: Am I paying too much for my Investment Advisor?

Post by Silk McCue »

59Gibson wrote: Sat Sep 18, 2021 9:55 am
Silk McCue wrote: Sat Sep 18, 2021 9:52 am
59Gibson wrote: Sat Sep 18, 2021 9:48 am
dbr wrote: Sat Sep 18, 2021 9:30 am I posted this on another thread:

The following is a fallacy:

Investment companies/advisors are to investing as

*Doctors are to medicine
*Lawyers are to law
*Accountants are to accounting
*Engineers are to engineering
*Business managers are to managing a business

I am not even so sure that "car salesmen are to selling cars" does not belong more in the second list than up with the first item.
These all could easily be interchanged with money/politics/social responsibility/pressures etc.. The difference is I can DIY my portfolio with readily available info/knowledge and save AUM fees, not so much with DIY law, surgery, or engineering.
Thus the first statement. “The following is a fallacy:”

Cheers
I think there was a distinction between first item and second list with *s
Of course. I understand that was the purpose of the original post. I must have misunderstood your comment about “all could be easily interchanged …” and still don’t but that simply doesn’t matter at this point.

Cheers
Silk McCue
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Re: Am I paying too much for my Investment Advisor?

Post by Silk McCue »

PNWpilot wrote: Sat Sep 18, 2021 10:01 am So I just added up all the fees I have incurred since investing the money two years ago......I have paid 1.97% of our current...OUCH.

Clearly there are additional fees layered in the funds beyond the 1.45%. I think I need to make a phone call next week...
You owe the current advisor nothing. This isn’t a personal relationship but simply business. Decide your course of action and move the funds ASAP.

Cheers
59Gibson
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Re: Am I paying too much for my Investment Advisor?

Post by 59Gibson »

Silk McCue wrote: Sat Sep 18, 2021 10:08 am
59Gibson wrote: Sat Sep 18, 2021 9:55 am
Silk McCue wrote: Sat Sep 18, 2021 9:52 am
59Gibson wrote: Sat Sep 18, 2021 9:48 am
dbr wrote: Sat Sep 18, 2021 9:30 am I posted this on another thread:

The following is a fallacy:

Investment companies/advisors are to investing as

*Doctors are to medicine
*Lawyers are to law
*Accountants are to accounting
*Engineers are to engineering
*Business managers are to managing a business

I am not even so sure that "car salesmen are to selling cars" does not belong more in the second list than up with the first item.
These all could easily be interchanged with money/politics/social responsibility/pressures etc.. The difference is I can DIY my portfolio with readily available info/knowledge and save AUM fees, not so much with DIY law, surgery, or engineering.
Thus the first statement. “The following is a fallacy:”

Cheers
I think there was a distinction between first item and second list with *s
Of course. I understand that was the purpose of the original post. I must have misunderstood your comment about “all could be easily interchanged …” and still don’t but that simply doesn’t matter at this point.

Cheers
Just to clarify..I took the post to mean investment companies/advisors are not necessarily only about investing.. ex. wolves in sheep clothing.

I thought it a bit naive to believe the list with asterisks were clean and pure as the wind driven snow and only practicing their profession.
wrongfunds
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Re: Am I paying too much for my Investment Advisor?

Post by wrongfunds »

mary1492 wrote: Sat Sep 18, 2021 10:01 am The key points are that you have been comfortable with the fee structure and you are happy with the advisor and performance. Sure, you could go look for another advisor to get a lower fee. However, will you be comfortable with him/her and the investments they choose? It seems that you like having the advisor there as opposed to doing on your own. There is a benefit in that and the fees likely justify it. Could you make a little more with someone else or doing it on your own? Of course. But it's no different than when I take my car in to the shop to get fixed. I could just buy the parts and do it on my own, or shop around for the best price in town. But, that takes time, and I already know that I can trust the shop I take my car to.

Bottom line, if you have been happy, looking to save a little bit on the advisor isn't going to make a big difference. A better plan might be to talk with your current advisor and see if they could give you a lower rate, or some type of loyalty incentive to stay with them. Explain that you've been with them for some time, you're happy with them, you intend to stay with them, but that their fees make you a bit uncomfortable relative to what others are offering and a simple DIY approach with low cost funds/ETFs.
This is going to get interesting! Just started the popcorn machine :-)
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

wrongfunds wrote: Sat Sep 18, 2021 10:27 am
mary1492 wrote: Sat Sep 18, 2021 10:01 am The key points are that you have been comfortable with the fee structure and you are happy with the advisor and performance. Sure, you could go look for another advisor to get a lower fee. However, will you be comfortable with him/her and the investments they choose? It seems that you like having the advisor there as opposed to doing on your own. There is a benefit in that and the fees likely justify it. Could you make a little more with someone else or doing it on your own? Of course. But it's no different than when I take my car in to the shop to get fixed. I could just buy the parts and do it on my own, or shop around for the best price in town. But, that takes time, and I already know that I can trust the shop I take my car to.

Bottom line, if you have been happy, looking to save a little bit on the advisor isn't going to make a big difference. A better plan might be to talk with your current advisor and see if they could give you a lower rate, or some type of loyalty incentive to stay with them. Explain that you've been with them for some time, you're happy with them, you intend to stay with them, but that their fees make you a bit uncomfortable relative to what others are offering and a simple DIY approach with low cost funds/ETFs.
This is going to get interesting! Just started the popcorn machine :-)
Honestly, his point is valid and it's why I have let my current investment advisor do his thing for the last two years. I'm not dissatisfied so much as I just feel like I can maybe do better. Especially now that I'm seeing a fee structure closer to 2%.
JD2775
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Re: Am I paying too much for my Investment Advisor?

Post by JD2775 »

Stinky wrote: Sat Sep 18, 2021 9:35 am I expect that Ramsey has given you some excellent advice concerning personal finance. I’ve listened to him a lot, and his advice about debt, spending less than you make, etc is excellent.

Unfortunately, his advice to go to one of his Endorsed providers for investment advice is costing you a LOT of money. There are many alternative paths in previous posts about how you could manage your investments cheaper, and likely better.

Use Ramsey for personal finance advice. Don’t use his recommendations for investment advice.
This part in bold can't be stressed enough. I listen to his show as well, it is entertaining and his advice on getting out of debt is solid. I cringe though whenever I hear him refer someone to one of his ELP's/SmartVestorPros for investing as I know he is lining them up for the situation you have described above OP.
dbr
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Re: Am I paying too much for my Investment Advisor?

Post by dbr »

The cost of hiring an advisor is usually so punitively high that the investor has to have some really good reasons to justify it. Either that or he has enough money to the point that he doesn't care.
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nisiprius
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Re: Am I paying too much for my Investment Advisor?

Post by nisiprius »

You need to write down carefully just what things this advisor is doing for you, how many dollars you are spending per year, and how much you think those services are worth. You might consider asking the advisor or makig your own guesstimate of how many hours a year he is putting in working on your account.

If all they are doing is choosing investments for you, it is not credible that they could be increasing your returns by 1.45% over simply doing it yourself unless they are taking extra risk that you might not understand. "Doing it yourself" could be just as simple as freezing your portfolio at whatever it is now, running it by this forum for a reality check, possibly replacing some funds with less expensive ones (although American Funds, if that's what they are, are not too bad), and rebalancing every couple of years.

It's all controversial but the studies that suggest that money managers can add alpha through skilled investment selection all get about the same numbers: the amount they can add is around 0.5% to 1%. So if all they are doing is investment selection, you are not going to come out ahead if the fees are much higher than 0.5% per year. I suspect this means that few advisors can justify their fees. It may be fair recompense for the amount of work they put in, but that work can't pay for itself in the form of more money for you.
Last edited by nisiprius on Sat Sep 18, 2021 11:06 am, edited 1 time in total.
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dbr
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Re: Am I paying too much for my Investment Advisor?

Post by dbr »

nisiprius wrote: Sat Sep 18, 2021 10:49 am You need to write down carefully just what things this advisor is doing for you, how many dollars you are spending per year, and how much you think those services are worth. You might consider asking the advisor or makig your own guesstimate of how many hours a year he is putting in working on your account.

If all they are doing is choosing investments for you, it is not credible that they could be increasing your returns by 1.45% over simply doing it yourself. It could be just as simple as freezing your portfolio at whatever it is now, running it by this forum for a reality check, possibly replacing some funds with less expensive ones (although American Funds, if that's what they are, are not too bad), and rebalancing every couple of years.

It's all controversial but the studies that suggest that money managers can add alpha through skilled investment selection all get about the same numbers: the amount they can add is around 0.5% to 1%. So if all they are doing is investment selection, you are not going to come out ahead if the fees are much higher than 0.5% per year. I suspect this means that few advisors can justify their fees. It may be fair recompense for the amount of work they put in, but that work can't pay for itself in the form of more money for you.
My point as well. But to be added to this is the danger of these people doing actual harm to the investor by selling inappropriate and harmful products and even by giving bad investment advice.
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Re: Am I paying too much for my Investment Advisor?

Post by nisiprius »

Silk McCue wrote: Sat Sep 18, 2021 10:10 am
PNWpilot wrote: Sat Sep 18, 2021 10:01 am So I just added up all the fees I have incurred since investing the money two years ago......I have paid 1.97% of our current...OUCH.

Clearly there are additional fees layered in the funds beyond the 1.45%. I think I need to make a phone call next week...
You owe the current advisor nothing. This isn’t a personal relationship but simply business. Decide your course of action and move the funds ASAP.

Cheers
Do not call the advisor. Decide what firm you will be moving your holdings to. Call them and let them call the advisor. Avoid talking to the advisor. If it can't be avoided, be cordial, be friendly, memorize the phrase "I have made my decision" and keep using. Thank them for their hard work if you like.

Do not get drawn into any discussion of investing details. None. If you have already set the process in motion and they know where you're moving your holdings do, you don't need to keep that secret, of course.

In particular, do not let them convince you that you have agreed to a game, and that the rules of the game are that you must say with them if you cannot convince them that self=managed low-cost indexing is better.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Dregob
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Re: Am I paying too much for my Investment Advisor?

Post by Dregob »

PNWpilot wrote: Sat Sep 18, 2021 10:01 am So I just added up all the fees I have incurred since investing the money two years ago......I have paid 1.97% of our current...OUCH.

Clearly there are additional fees layered in the funds beyond the 1.45%. I think I need to make a phone call next week...
I hope to retire next year and plan to withdraw ~2%/year to fund my retirement.
OUCH INDEED!
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Stinky
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Re: Am I paying too much for my Investment Advisor?

Post by Stinky »

PNWpilot wrote: Sat Sep 18, 2021 10:41 am I'm not dissatisfied so much as I just feel like I can maybe do better. Especially now that I'm seeing a fee structure closer to 2%.
If you’re paying 2%, you CAN do better.

Without a doubt.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
wrongfunds
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Re: Am I paying too much for my Investment Advisor?

Post by wrongfunds »

PNWpilot wrote: Sat Sep 18, 2021 10:41 am
wrongfunds wrote: Sat Sep 18, 2021 10:27 am
mary1492 wrote: Sat Sep 18, 2021 10:01 am The key points are that you have been comfortable with the fee structure and you are happy with the advisor and performance. Sure, you could go look for another advisor to get a lower fee. However, will you be comfortable with him/her and the investments they choose? It seems that you like having the advisor there as opposed to doing on your own. There is a benefit in that and the fees likely justify it. Could you make a little more with someone else or doing it on your own? Of course. But it's no different than when I take my car in to the shop to get fixed. I could just buy the parts and do it on my own, or shop around for the best price in town. But, that takes time, and I already know that I can trust the shop I take my car to.

Bottom line, if you have been happy, looking to save a little bit on the advisor isn't going to make a big difference. A better plan might be to talk with your current advisor and see if they could give you a lower rate, or some type of loyalty incentive to stay with them. Explain that you've been with them for some time, you're happy with them, you intend to stay with them, but that their fees make you a bit uncomfortable relative to what others are offering and a simple DIY approach with low cost funds/ETFs.
This is going to get interesting! Just started the popcorn machine :-)
Honestly, his point is valid and it's why I have let my current investment advisor do his thing for the last two years. I'm not dissatisfied so much as I just feel like I can maybe do better. Especially now that I'm seeing a fee structure closer to 2%.
Here is the thing. When you are in the accumulation stage, you don't think too much of the cost. I understand that is wrong way to look at it but the insidious effect is hidden by the gains that you are seeing. Besides, doing apples to apples comparison is not easy with various investment mix. I am guilty of that too as my username implies (many high cost underperforming funds in our portfolio).

HOWEVER, once you stop accumulating and want to use the assets to fund your retirement, then this cost becomes huge elephant in the room and you can NO longer justify it under any circumstances. If you are going to use the usual 4% withdrawal ratio, you will be giving up 50% of your retirement income to the financial advisor!

The only person who can justify that would be somebody whose livelihood is dependent upon financial advisor industry. That is why I made the popcorn comment.
ROIGuy
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Re: Am I paying too much for my Investment Advisor?

Post by ROIGuy »

PNWpilot wrote: Sat Sep 18, 2021 10:01 am So I just added up all the fees I have incurred since investing the money two years ago......I have paid 1.97% of our current...OUCH.

Clearly there are additional fees layered in the funds beyond the 1.45%. I think I need to make a phone call next week...
To understand the long term effect of paying those high AUM fees. Try this calculator. Set it for 30-40 yrs out. It is an eye opener!
https://www.begintoinvest.com/expense-ratio-calculator/
investorpeter
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Re: Am I paying too much for my Investment Advisor?

Post by investorpeter »

PNWpilot wrote: Sat Sep 18, 2021 8:24 am I currently pay 1.45% in fees (1% to the advisor and .45% fund fee). I have been pleased with our relationship so far and satisfied with the results.
This seems to be a common sentiment expressed by people who pay exorbitant advisor fees - something along the lines of "I know I'm paying a lot in fees, but I'm happy with the relationship and I'm satisfied with the results". The thing that people seem to miss is that the baseline return that one should be comparing results to is not 0% return, or a savings account return, but the overall return of the market, because it literally takes almost no effort and costs almost nothing to obtain the return of the SP500.

So what you are really paying for is just the "relationship". And you are not just paying the 1.45% fee, but you are also paying the difference between the return you would be getting through an SP500 index fund compared to the return you are actually getting from your advisor. I don't know about you, but when I hire a professional, I hire them to do their job.

It is as though you continued to pay a high-priced CPA accountant $500 every year to do your income taxes, even though that CPA is missing appropriate deductions and causing you to get a smaller refund than you would get had you just done the return yourself or gone to the local H&R block who would have done it for $100. But you continue paying that high-priced CPA because "I'm happy with the refund I'm getting, and he's a good guy".
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

investorpeter wrote: Sat Sep 18, 2021 12:33 pm
PNWpilot wrote: Sat Sep 18, 2021 8:24 am I currently pay 1.45% in fees (1% to the advisor and .45% fund fee). I have been pleased with our relationship so far and satisfied with the results.
This seems to be a common sentiment expressed by people who pay exorbitant advisor fees - something along the lines of "I know I'm paying a lot in fees, but I'm happy with the relationship and I'm satisfied with the results". The thing that people seem to miss is that the baseline return that one should be comparing results to is not 0% return, or a savings account return, but the overall return of the market, because it literally takes almost no effort and costs almost nothing to obtain the return of the SP500.

So what you are really paying for is just the "relationship". And you are not just paying the 1.45% fee, but you are also paying the difference between the return you would be getting through an SP500 index fund compared to the return you are actually getting from your advisor. I don't know about you, but when I hire a professional, I hire them to do their job.

It is as though you continued to pay a high-priced CPA accountant $500 every year to do your income taxes, even though that CPA is missing appropriate deductions and causing you to get a smaller refund than you would get had you just done the return yourself or gone to the local H&R block who would have done it for $100. But you continue paying that high-priced CPA because "I'm happy with the refund I'm getting, and he's a good guy".
Well, you got me. This makes perfect sense and unfortunately I believe I am doing just this.
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Re: Am I paying too much for my Investment Advisor?

Post by Lee_WSP »

investorpeter wrote: Sat Sep 18, 2021 12:33 pm
PNWpilot wrote: Sat Sep 18, 2021 8:24 am I currently pay 1.45% in fees (1% to the advisor and .45% fund fee). I have been pleased with our relationship so far and satisfied with the results.
This seems to be a common sentiment expressed by people who pay exorbitant advisor fees - something along the lines of "I know I'm paying a lot in fees, but I'm happy with the relationship and I'm satisfied with the results". The thing that people seem to miss is that the baseline return that one should be comparing results to is not 0% return, or a savings account return, but the overall return of the market, because it literally takes almost no effort and costs almost nothing to obtain the return of the SP500.

So what you are really paying for is just the "relationship". And you are not just paying the 1.45% fee, but you are also paying the difference between the return you would be getting through an SP500 index fund compared to the return you are actually getting from your advisor. I don't know about you, but when I hire a professional, I hire them to do their job.

It is as though you continued to pay a high-priced CPA accountant $500 every year to do your income taxes, even though that CPA is missing appropriate deductions and causing you to get a smaller refund than you would get had you just done the return yourself or gone to the local H&R block who would have done it for $100. But you continue paying that high-priced CPA because "I'm happy with the refund I'm getting, and he's a good guy".
I agree with this analogy, not the mechanic analogy. The mechanic and CPA in both scenarios should add value by doing the job for you and saving you time. They should add even more value if they're able to do stuff you can't.

However, neither profession charges an AUM fee. Both bill by the hour and while the CPAs bill may scale with taxes owed, it's also because the work needed is greater. The Porsche mechanic charges more per hour because of insurance and any additional car specific training required.

I'm only aware of one other mainstream professional that charges based on assets under management, but the percentage actually goes down the larger the estate. That practice is trust management.

All other percentage based fees usually go along with a recovery and could be zero if there is no recovery/win.
Ed 2
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Re: Am I paying too much for my Investment Advisor?

Post by Ed 2 »

If you prefer not go with DIY way then no more than 0.20 % charge . No more than that.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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nedsaid
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Re: Am I paying too much for my Investment Advisor?

Post by nedsaid »

PNWpilot wrote: Sat Sep 18, 2021 8:24 am Hi all,

I have grown up following Dave Ramsey for personal finance. I have really latched onto his philosophy and it has served me well. About two years ago I used Ramsey Solutions to locate an "Endorsed Local Provider" to manage a taxable investment account. I currently pay 1.45% in fees (1% to the advisor and .45% fund fee). I have been pleased with our relationship so far and satisfied with the results.

Is 1.45% an appropriate rate for this type of setup? I chose to use an investment advisor because I am unfamiliar with investing outside of long-term retirement accounts and I wanted to make sure that we chose an investment method that fit our current goals. I also wanted to hire an advisor because my wife has no interest in dealing with investments and if something happened to me she would be lost trying to manage it on her own. I feel that there is some good cost/benefit with the 1.45%, but I don't have much experience in this area as this is the only investment advisor I've ever used.

Should I shop around for different advisor's and see if I can get a lower rate? Or is this a fair rate? Again, I'm very new at all this and I'm trying to learn as much as I can.

Thanks!
PNWpilot
For what you are doing, paying 1.45% for the advisor and for the expense ratios of the funds, is not outrageous. As others will point out, you have much cheaper options available for you.

Knowing what I know about Dave Ramsey, you are probably invested in a portfolio of American Funds, and you can do a lot worse than that. American Funds are actually a good fund family.

Going from memory, Dave doesn't like bonds and I hope you aren't invested 100% in stocks. As you get older, you need to start de-risking the portfolio as your human capital (the years you have left in the work force) decreases.

Unfortunately, if you want a local advisor, what you are paying is par for the course. If you want a local guy or gal, probably 0.75% is about as cheap as you will get for portfolio management. It also depends upon how much your advisor is really doing for you.

If you need an Advisory service with portfolio management, you can go to Vanguard where they will charge 0.30% plus small annual expense ratios for the funds. The drawback is that you will probably work with several advisors over the course of a long advisory relationship. Individual advisors, particularly those who are Certified Financial Planners, will move on for better opportunities.

You can go to Charles Schwab, work with a Certified Financial Planner for $300 planning fee up front and $30 a month after that. You will be put into one of the Schwab Intelligent Portfolios, the only drawback is that Schwab portfolios tend to be somewhat cash heavy, that is where they make their money. They will invest you in ETFs, some of which are Schwab ETFs. The Intelligent Portfolio has no advisory fee and no commissions. This looks like a pretty good deal to me. Again, the disadvantage is that you will not always work with the same person.

If all you need is portfolio management, there are Robo Advisory services such as Fidelity Go which last I looked charged 0.35%. If you want the robots to run your portfolio but want an Advisor to talk to, the charge goes to 0.50% per year.
A fool and his money are good for business.
rockstar
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Re: Am I paying too much for my Investment Advisor?

Post by rockstar »

This thread follows the common theme here: rich people paying too much for stuff. You see this far more in the personal consumer section, but it's a very common theme. If Bogle did anything right, it's making available funds that cost rich people less money.

To put this into perspective, you're paying all of the dividends received from a S&P500 index ETF like VOO to your advisor. That's insane.
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Re: Am I paying too much for my Investment Advisor?

Post by livesoft »

Now that more and more people are used to Zooming, I think there really is not much need for a "local" advisor anymore.
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triggertreat
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Re: Am I paying too much for my Investment Advisor?

Post by triggertreat »

Dont forget the hit with capital gains tax unless you can transfer in kind.
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

triggertreat wrote: Sat Sep 18, 2021 2:24 pm Dont forget the hit with capital gains tax unless you can transfer in kind.
That's correct. Last Spring, during the pullback, our portfolio was reconfigured and our cost-basis is now less than our initial investment. This means our capital gains burden is going to be based on a much larger amount than the profit..... :annoyed
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Re: Am I paying too much for my Investment Advisor?

Post by Gill »

PNWpilot wrote: Sat Sep 18, 2021 2:33 pm
triggertreat wrote: Sat Sep 18, 2021 2:24 pm Dont forget the hit with capital gains tax unless you can transfer in kind.
That's correct. Last Spring, during the pullback, our portfolio was reconfigured and our cost-basis is now less than our initial investment. This means our capital gains burden is going to be based on a much larger amount than the profit..... :annoyed
To put it another way, do you mean that you recognized capital losses in 2020 and then repurchased so that now your overall basis is less than your original investment with the advisor?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

Gill wrote: Sat Sep 18, 2021 2:48 pm
PNWpilot wrote: Sat Sep 18, 2021 2:33 pm
triggertreat wrote: Sat Sep 18, 2021 2:24 pm Dont forget the hit with capital gains tax unless you can transfer in kind.
That's correct. Last Spring, during the pullback, our portfolio was reconfigured and our cost-basis is now less than our initial investment. This means our capital gains burden is going to be based on a much larger amount than the profit..... :annoyed
To put it another way, do you mean that you recognized capital losses in 2020 and then repurchased so that now your overall basis is less than your original investment with the advisor?
Gill
Yes, exactly. It seems like this will hurt us when it comes to capital gains. Am I correct in this? Sorry, I’m still learning.
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Watty
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Re: Am I paying too much for my Investment Advisor?

Post by Watty »

PNWpilot wrote: Sat Sep 18, 2021 9:32 am This taxable account exists to manage money we have set aside for a home purchase, likely to occur within the next decade. I wanted a short-term, conservative, investment allocation. This is the total opposite of our current retirement allocation, and I was unsure how to best proceed. I have been satisfied with the results only because the money sat in a savings account for over a year prior to being invested.

Are the programs mentioned above appropriate for non-retirement, short-term, investing? If so, I may need to make a change...

Thanks!
One of the Life Strategy funds would be an option to look at.

https://investor.vanguard.com/mutual-fu ... trategy/#/

They are not very tax efficient but if you are not in a real high tax bracket that may not be a big problem.
MIretired
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Re: Am I paying too much for my Investment Advisor?

Post by MIretired »

Watty wrote: Sat Sep 18, 2021 3:13 pm
PNWpilot wrote: Sat Sep 18, 2021 9:32 am This taxable account exists to manage money we have set aside for a home purchase, likely to occur within the next decade. I wanted a short-term, conservative, investment allocation. This is the total opposite of our current retirement allocation, and I was unsure how to best proceed. I have been satisfied with the results only because the money sat in a savings account for over a year prior to being invested.

Are the programs mentioned above appropriate for non-retirement, short-term, investing? If so, I may need to make a change...

Thanks!
One of the Life Strategy funds would be an option to look at.

https://investor.vanguard.com/mutual-fu ... trategy/#/

They are not very tax efficient but if you are not in a real high tax bracket that may not be a big problem.
Glad you bumped the OPs time frame.
Considering possible tax costs and (cough) possibility? Of OPs convictions in staying the course (no dis to the OP), I can safely recommend moving it to Vanguard PAS. Save over 1- 1.5%. Less risky portfolio, most likely.
My do it yourself would be like life strategy or targetdate retirement fund, except maybe muni bonds in place of bnd. When get to 2-3 yrs from home purchase, move most/all to short bonds and mm funds.
I, myself, wouldn't have any conviction to be successful at his history. Maybe his portfolio size and other investments warrant conviction, though. Win, win.
MIretired
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Re: Am I paying too much for my Investment Advisor?

Post by MIretired »

:confused In good faith, I must submit, humbly, that I am not an advisor. Just see that I would already change my recommended DIY port by leaving bonds in bnd-like fund til rates are higher-if. -little tax on little gains.
So, I think that a good advisor can improve your risk/return, you have to ask, is your advisor looking out for you , and at a reasonable cost.
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