Am I paying too much for my Investment Advisor?

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Eagle33
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Re: Am I paying too much for my Investment Advisor?

Post by Eagle33 »

OP
Another way to look at it is when you get to retirement and continue to use this advisor that are charging you close to 2% in various fees and other charges, then instead of needing 25X of retirement expense after reducing for SS & pension you will need closer to 50X. This is because instead of drawing 4% from your portfolio you only are drawing 2% (4% minus 2% for the advisor).
MrCheapo
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Re: Am I paying too much for my Investment Advisor?

Post by MrCheapo »

1.45% is a huge fee to pay.

One thing I learnt, is no one will look after your money to your aims better than you. You can bet for sure there are other incentives you do not know about that affects your advisor's decision making process. Further, I doubt he can beat the total market so just go with a 3 fund portfolio and be done with it.
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
Blue456
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Re: Am I paying too much for my Investment Advisor?

Post by Blue456 »

dbr wrote: Sat Sep 18, 2021 9:30 am
*Doctors are to medicine
*Lawyers are to law
People love to make these arguments. I am never sure how to respond...
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

I genuinely appreciate everyone's reply. This is a taxable account containing non-retirement funds expected to be used within the next 3-7 years. I would not tolerate that level of fees with a retirement account, but I was unsure what I should do with these funds with such a short time horizon.

I will probably post a portfolio review in a separate thread later on today. Thank you all so much for your replies so far!
cjcerny
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Re: Am I paying too much for my Investment Advisor?

Post by cjcerny »

That 2% fee will probably cost you 2/3rd’s of the gains you would have received from those investments over time.

I would drop what you are doing, swing into your local library today—or order it from Amazon—and grab a copy of Bogle’s Little Book Of Common Sense Investing. If that book doesn’t call you to action, nothing will.

This whole investing thing isn’t anything complex or scary. Very few of us really need paid advisors. Those that do should seek out advisors that charge a low one-time fee.
BitTooAggressive
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Re: Am I paying too much for my Investment Advisor?

Post by BitTooAggressive »

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
You are getting screwed. If you don’t want to educate yourself enough to do it yourself, buy a target date fund or an asset allocation fund (a vanguard life strategy fund) and it will cost you a tenth of a percent a year.
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nedsaid
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Re: Am I paying too much for my Investment Advisor?

Post by nedsaid »

The bottom line to this discussion is that if you want financial advice and portfolio management that there are cheaper alternatives to your current arrangement: Fidelity, Schwab, and Vanguard offer cheaper services that combine portfolio models/algorithms with a live advisor. The drawback is that you will over a longer period of time work with different advisors. If you want a local person and a longer term relationship with a single advisor, it will most likely cost more and perhaps a lot more.

The industry is aware of the downward pricing pressures, clients are beginning to realize that the AUM model is flawed in that as your portfolio grows, your fees also grow but the amount of work needed on your account may not increase. A lot of the work is up front, it takes more work to set things up than to maintain what you already have. Your friendly neighborhood financial advisor does have to make a living, and if he or she is in business for themselves, they need to make more than if they were working for somebody else. So the commission model had its flaws and the AUM model has its flaws as well. In any case, the fees really add up over time. I suspect what will happen is that Assets Under Management will give away to some sort of subscription model and advisors will have to find ways to get some economies of scale in their business. Over time, advisory fees will come down as well, don't know how much. The Advisory business model will have to change over time.

It also has to do with how much an Advisor does for you. If comprehensive and ongoing financial planning is included, that makes a better deal. I remember having a discussion with someone who was elderly but still very sharp who wondered if a 0.5% or 0.6% AUM fee was too much. The person had negotiated the fee down with the Advisor and had a fairly good sized nest egg. Turned out the advisor was an Attorney also and a lot of extras were included in the deal. I told the person that they were getting a lot for their money, that the fees were competitive, and I encouraged them to stick with what they had. Another factor was that though the couple was still quite sharp that they were getting older, if something happened to the spouse that was the brains behind all of this, having an advisor on board would make things a lot simpler. The person was so sharp that I commented that I would have been pleased to have him/her run my affairs.

The Boglehead philosophy is relatively simple and Boglehead investment portfolios use relatively few funds. There are good resources with the Wiki and there are two Boglehead books out there: one on investing and the other on retirement planning. If you are willing to take the time, the Bogleheads can teach you most of what you need to know. Running a simple portfolio ought not take lots of time. As others have noted, you can use a Target Date or a Target Risk fund, particularly for a retirement account, and you have a cheap, one fund solution.

There are still reasons that you might employ an advisor, particularly around the irrevocable decisions made around the time of retirement. Or you might have some unique circumstances in your financial life that need extra help. If you are a good Boglehead, you will know a lot already and you can save a lot of time and fees with an advisor, paying for advice by the hour rather than with an Assets Under Management fee. In some cases, you might be able to negotiate your fees to some degree but even independent Advisors have affiliation with a firm that serves as their platform. The firm has set fees that they charge the Advisor.

A commission model might actually be cheaper than an AUM fee. Something else to think about if you employ someone. Just remember that everyone has to make a living.

It is interesting that Dr. Bill Bernstein says that most investors need an advisor. He runs an Advisory service but we know him as an author and a frequent speaker at the Bogleheads annual event. I think he has come to the realization how clueless most people are about investing and even personal finance.
A fool and his money are good for business.
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Toons
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Re: Am I paying too much for my Investment Advisor?

Post by Toons »

Free Advice
Live beneath your means
Stay out of debt.
Save
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Reinvest
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Class Over
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Enjoy11
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Re: Am I paying too much for my Investment Advisor?

Post by Enjoy11 »

Now, I’m not trying to be rude. But someone’s got to say it.

A 1.45% or 2% fee is a rip off.
Jack Bogle was consistently critical of investment professionals and the financial industry that imposes and profits from such rip off fees. Jack was right.

Dave Ramsey got you involved in that rip off fee, and he makes money from getting people like yourself into those rip off fees.

Just something for you to think about.
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nedsaid
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Re: Am I paying too much for my Investment Advisor?

Post by nedsaid »

Toons raised a good point, there is free advice available. I would recommend the Wiki and the two Boglehead books. The forum itself is a good source as well.

You might be able to get a certain amount of advice for free from your mutual fund provider or brokerage. This is always changing but over the years I have had probably five free portfolio reviews done for free by my existing providers. I learned something every time I did this. Not sure what is offered today, but you can check around.
A fool and his money are good for business.
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nedsaid
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Re: Am I paying too much for my Investment Advisor?

Post by nedsaid »

Enjoy11 wrote: Sun Sep 19, 2021 12:12 pm Now, I’m not trying to be rude. But someone’s got to say it.

A 1.45% or 2% fee is a rip off.
Jack Bogle was consistently critical of investment professionals and the financial industry that imposes and profits from such rip off fees. Jack was right.

Dave Ramsey got you involved in that rip off fee, and he makes money from getting people like yourself into those rip off fees.

Just something for you to think about.
1.45% a year is too much for me.

Keep in mind that most people, probably 98% are not Bogleheads. The message of lower cost investing is getting through and fees are coming down but are still too high. We see an increasing share of assets being indexed and that is a good thing.

Have done taxes for years and have tried to give people a couple of takeaways that will improve their financial position in the future. Lots of times, eyes glaze over or my suggestions get ignored. Lots of folks are just not too interested. When they come into larger sums of money or get close to retirement, they run to advisors. They just won't take the time to educate themselves. Bogleheads are a pretty select group.

Bill Bernstein has said that most individuals need an Advisor, doubtless this comes from many years of experience. Though he is revered by Bogleheads, he does run his own Advisory service.

To me, the issue isn't whether or not people need advice, the issue is what is a fair price for that advice and what is the best model for pricing?

Over the years, I have sought advice though I have used whatever free advice was available. I have had an advisor for years with part of my retirement but I have paid with commission and kept turnover pretty low. I got fired as a client a couple of times but the last Advisor that I worked with said that he treats everyone the same and I have been with him over 20 years. Even with that Advisor, I still made my own decisions. The rest of my retirement was self managed. So I used a hybrid approach. I am two years into an Advisory relationship at one of my mutual fund companies but I am getting financial planning with the service.

Bottom line, if you want personal service, you will have to pay up for it. There are lower cost alternatives available for Financial Planning and Portfolio management, the trade off is that the Advisor you work with will change over time. If want a long term relationship with a local and independent person, the costs will be more.

Years ago, an elderly relative asked me for advice on how to invest. The relative politely listened but going to Vanguard just seemed too complicated so that person wound up at the local Edward Jones office. It can drive Bogleheads crazy but this is the reality with most people. We Bogleheads when giving advice too often sound like Charlie Brown's teacher during the TV specials, "Wah, wah. Wah, wah, wah." We just get tuned out.

The thing is, the same people around here who like rock bottom fees also complain when Vanguard won't return their calls on a timely basis. Yes, you can overpay for advice and I won't pay 1.45% a year to invest my money. But there is a cost to the relentless drive for lower and lower fees. There is a happy medium in there. People here niggle over one basis point. At some point people have to make a living so that they can be there to answer questions and return phone calls.

Fees add up, even the 0.30% that Vanguard charges for Advisory services. Even that is too much for many folks here. So there is no perfect solution.
A fool and his money are good for business.
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illumination
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Re: Am I paying too much for my Investment Advisor?

Post by illumination »

livesoft wrote: Sat Sep 18, 2021 8:39 am 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.

It really hits home when you tell someone they get to split their retirement distributions with their advisor.
deltaneutral83
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Re: Am I paying too much for my Investment Advisor?

Post by deltaneutral83 »

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

Ask yourself why you are satisfied. Do you have a frame of reference to compare? Or is the fact that US equities are up big the last decade your only metric? If I score 40 points in a football game that's great, unless my opponent (the comparable benchmark) scores 41. Have you looked under an X ray at the funds you own? I am familiar with Ramsey portfolios. They are about 70/30 US/Intl and tilted toward large cap growth and leaner on value and small. That has worked beautifully the past decade. Even in a taxable account you "are beating the market" but you shouldn't be comparing to the market, you should be comparing toward a large cap growth domestic tilt.

Is 1.45% an appropriate rate for this type of setup?

It appears as though it's a 1% AUM fee then you have expense ratios. 0.45% is high, but low for active funds, and probably includes 12B-1 fees. Also, did you pay a 5.75% load?
PNWpilot wrote: Sun Sep 19, 2021 7:30 am I would not tolerate that level of fees with a retirement account, but I was unsure what I should do with these funds with such a short time horizon.
Can you explain why the type of account matters when considering fees (not taxes)?
JBTX
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Re: Am I paying too much for my Investment Advisor?

Post by JBTX »

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
First, let's assume that the advisor has no ability to bring you extra returns. This is consistent with exhaustive data comparing active and passive investment. Given this, you are giving your advisor 1.45% each year. If you used an average return of 7%, you are giving your advisor about 20% of your return. If you assume 2.5% inflation, you are giving him about 1/3 of your inflation adjusted return each year.

If you have any bond investments, the bond return after expenses will be close to zero since bonds are yielding less than 2.0%.

Now look at it another way. Again assume 7% average return. Over the course of 20 years, the advisor will get about 25% of your investment portfolio. Over 30 years it's about 1/3 of your portfolio.

So if you ended up with $1.0 million, at the end of 30 years, the advisor would have kept about $333k and you'd be left with $667k.

The question is did that advisor add $333k worth of value? Over 30 years that's about $11,000 per year to the advisor. Only you can answer that. Clearly some people don't have the time or patience or discipline to save or invest or stay the course.
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Re: Am I paying too much for my Investment Advisor?

Post by arcticpineapplecorp. »

PNWpilot wrote: Sat Sep 18, 2021 8:24 am 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?
The only ELP I'd listen to is Emerson Lake and Palmer.

Ditch the high cost advice that's filling Dave's pockets.

If you need an advisor, Vanguards Personal Advisor Service is 0.30%.
https://investor.vanguard.com/advice/fi ... r-services

That will save you a bundle over your lifetime.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
goblue100
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Re: Am I paying too much for my Investment Advisor?

Post by goblue100 »

I found this link when I searched for the effect of fee's on a portfolio:
https://www.sec.gov/investor/alerts/ib_ ... penses.pdf

In the PDF, a 1% fee over 20 years on a $100,000 portfolio results in $30,000 less. Obviously they are making some assumptions on return and I think the assumptions tend to minimize the actual impact, so it could be worse than shown. In any case, I think the PDF is worthy of study for anyone interested in how fee's affect our results.

Here is another link I like:
https://www.forbes.com/sites/robertberg ... 8017ca4611
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nedsaid
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Re: Am I paying too much for my Investment Advisor?

Post by nedsaid »

deltaneutral83 wrote: Sun Sep 19, 2021 5:08 pm
PNWpilot wrote: Sat Sep 18, 2021 8:24 am Hi all,
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.

Ask yourself why you are satisfied. Do you have a frame of reference to compare? Or is the fact that US equities are up big the last decade your only metric? If I score 40 points in a football game that's great, unless my opponent (the comparable benchmark) scores 41. Have you looked under an X ray at the funds you own? I am familiar with Ramsey portfolios. They are about 70/30 US/Intl and tilted toward large cap growth and leaner on value and small. That has worked beautifully the past decade. Even in a taxable account you "are beating the market" but you shouldn't be comparing to the market, you should be comparing toward a large cap growth domestic tilt.

Is 1.45% an appropriate rate for this type of setup?

It appears as though it's a 1% AUM fee then you have expense ratios. 0.45% is high, but low for active funds, and probably includes 12B-1 fees. Also, did you pay a 5.75% load?
PNWpilot wrote: Sun Sep 19, 2021 7:30 am I would not tolerate that level of fees with a retirement account, but I was unsure what I should do with these funds with such a short time horizon.
Can you explain why the type of account matters when considering fees (not taxes)?
Under an Assets Under Management arrangement, there would be no loads or sales charges. In addition, with American Funds, you would own F2 shares rather than the loaded A shares, F2 expense ratios are lower than those of A shares. So 0.45% fund expense ratio sounds about right.

If you loved American Funds for some reason, you can buy the F1 shares which have the expense ratios of the A shares but no sales charge. You can buy the F1 shares at Fidelity. In any case, going to Vanguard your expenses will be even lower still and chances are the funds will perform better.
A fool and his money are good for business.
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Re: Am I paying too much for my Investment Advisor?

Post by suemarkp »

Only a few posters said it, but for the big boy investment firms (Edward Jones, Raymond James, Valic, ...) a 1% AUM and .45% ER is pretty typical. EJ is a little higher on the AUM, and you can get some lower ERs and some Vanguard funds. So as far as the average person goes, you're paying a typical price. But as many others have pointed out, you can do much better, and the main thing to see is what this does to your growth. The worst is paying an AUM fee when you're retired, as that fee will be 25% to 30% of your living expenses.

So perhaps learn from the advisors while you are young (if there is really much to learn from them). Read this forum for a few years and you won't need an advisor. Or, choose a target date fund and fire them now (that's what I suggested my kids do - Vanguard Roth account with Target Date fund).

The worst place for managed funds is a taxable account. Many of those are going to generate capital gains even when you took no distribution. That clobbers your taxes, especially if you have been holding these for many years and they do well. I have a friend in this situation and he can't really Roth Convert efficiently because of all of his unwanted Capital Gains.
Mark | Somewhere in WA State
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

I sincerely appreciate everyone's reply. I wish I had accessed this forum years ago as I would have likely chosen a different investing path.

Since starting this thread and really analyzing my current investment strategy, I am very disappointed. I communicated my plans and goals with this money to my advisor. He understood my timeline of when these funds would likely be used. Between the fees and the capital gains taxes I will incur, I will be lucky to break even within the next few years. If there is another market downturn (as seems to be happening this month) I may end up realizing some pretty big losses...

I'm going to check out Vanguards advisory services. It'll save me 1.15% in fees. That alone feels like a win. Thank you to all who replied!
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Re: Am I paying too much for my Investment Advisor?

Post by Wanderingwheelz »

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%.
So this new found knowledge that there’s are much lower cost ways to invest your money, when presented to this high cost advisor is going to come as a surprise to him? Would the expectation be that he says you know I think you’re right and I ought to cut my fee by two thirds. The service I provide really is only worth 30% of what it was yesterday after I became aware of the information you dug up for me. Thanks. How would .75% sound- fair for you and fair for me? Okay good! How about I get back in touch next week? Right now I need to call all of my other clients to tell ten what you found out for them so I can drop their fees too, and then I need to sell my house, BMWs, my boat, and pull my kids from private school. Call you on Friday?

Or perhaps do you think he has a carefully crafted script he uses when a customer like you wakes up to the fact you’re being hosed, and the convo isn’t going to end well for you?
Being wrong compounds forever.
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

Question for the group:

I'm considering withdrawing the funds with our current advisor and placing them in the Vanguard Total Bond Market Index (VBTLX). I'll save a boat-load in fees.

When I review the fund on Vanguard's website it states the average annual return is 4.18%. Does that include the distribution yield, or is that purely share price appreciation?

Thank you all for your time and kind replies. I think I may have found a home here.
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Re: Am I paying too much for my Investment Advisor?

Post by mkc »

PNWpilot wrote: Mon Sep 20, 2021 7:25 am Question for the group:

I'm considering withdrawing the funds with our current advisor and placing them in the Vanguard Total Bond Market Index (VBTLX). I'll save a boat-load in fees.
Do please review your unrealized gains before liquidating the existing holdings... watch for capital gains tax issues and see what you can transfer "in kind" first.
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William4u
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Re: Am I paying too much for my Investment Advisor?

Post by William4u »

Yes, you are.

You could buy a Vanguard ETFs like VTI, with the small Vanguard ETF expense ratio (0.03% on VTI).

An added 2% in fees, for example, over 40 years can take nearly 55% of your returns away...
CUMULATIVE IMPACT OF FEES:

.................................Annual Fee (Expense Ratio)
.............0.10%.......0.25%.....0.50%.....1.00%.....2.00%.....3.00%

3 years.....–0.3%......–0.7%......–1.5%.....–2.9%......–5.8%.....–8.5%
5 years.....–0.5%......–1.2%......–2.5%.....–4.9%......–9.4%....–13.7%
10 years...–1.0%.......–2.5%.....–4.9%.....–9.5%.....–18.0%....–25.6%
20 years...–2.0%.......–4.9%.....–9.5%....–18.0%.....–32.7%....–44.6%
30 years...–3.0%.......–7.2%....–13.9%....–25.8%.....–44.8%....–58.8%
40 years...–3.9%.......–9.5%....–18.1%....–32.8%.....–54.7%....–69.3%
http://vanguardblog.com/2011/10/28/stop ... f-returns/

Imagine that you invested the same amount in VTI at both Vanguard and with your current advisor and left it for 40 years. Lets say that the Vanguard VTI investment is worth $1 million after 40 years. If you invested the same amount in VTI equivalent with your "advisor," and they did indeed charge an added 2% annually, you would end up with something like $450,000 after 40 years. Yikes!
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Re: Am I paying too much for my Investment Advisor?

Post by muffins14 »

PNWpilot wrote: Sun Sep 19, 2021 7:30 am I genuinely appreciate everyone's reply. This is a taxable account containing non-retirement funds expected to be used within the next 3-7 years. I would not tolerate that level of fees with a retirement account, but I was unsure what I should do with these funds with such a short time horizon.

I will probably post a portfolio review in a separate thread later on today. Thank you all so much for your replies so far!
If you want a conservative fund for 3-7 years, this advisor basically is making you lose 2% per year in fees. You could probably do this yourself with 90% cash or short-term bonds and 10% stocks. The fees are killer
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MIretired
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Re: Am I paying too much for my Investment Advisor?

Post by MIretired »

OP,

Look at this 2.5 yr CD 1.00% yield:
https://www.bankrate.com/banking/saving ... -accounts/

The total bond historic return of 4+% is from starting interest rates and price appreciation. This is not todays rates. Look at SEC Yield - 1.28%. This is what you can expect to earn if you hold it to it's duration of 6.8 yrs. Holding less than that will have a volatility in what you actually yield because of price volatility. Average annual standard deviation for last 3 yrs is 3.7% --your total assets fluctuate this much during an average yr for the past 3 yrs. That's average fluctuation.
https://www.morningstar.com/funds/xnas/vbtlx/risk
https://investor.vanguard.com/mutual-fu ... nd-returns
You might/should forget about making a real after inflation return in today's markets for such a time period as 3 yrs to 7 yrs. If you could say you don't need it for 7 yrs, you could get the total bond fund. But the 1.00% CD above is guaranteed for 2.5 yrs. After that you can reevaluate.
I would just put it all in that 1.00% CD. Pay the taxes on the returns, and forget about it. It sure beats .05% or something. I don't think 10% of money into stock fund is worth the risk--can't make much if you're real lucky--could lose 50% of that 10%.
I think current avg annual inflation is about 2.3%? But that depends on what you're measuring the inflation on. Houses, food, gasoline?
protagonist
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Re: Am I paying too much for my Investment Advisor?

Post by protagonist »

People tend to be intimidated by investing on their own because they are convinced that it is very time-consuming and complex, and that it requires expertise, but investing wisely is actually incredibly simple. I have taught others how to do so, and explained why, in 15 minutes of conversation.
Plus it really requires very little monitoring on the part of the investor.
The Boglehead wiki is a good place to start, and though I have not read it in a long time, it is probably all you (or your heirs) absolutely need to know to invest at least as wisely as most advisors would have you do. As per that wonderful mid-20th century expression, "It's not rocket science."

IMHO, any fee above zero is paying too much for an investment advisor, and zero may also be too much, since many put their own financial interests above those of their clients.

When dealing with something as important as your life savings, it behooves you to understand what you are doing rather than trusting it to the integrity of strangers. It really is not difficult.
ROIGuy
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Re: Am I paying too much for my Investment Advisor?

Post by ROIGuy »

I would like to know from the OP when he looks back over this past year or so, what did your financial planner actually do for you?
How many times did they rebalance your AA? How many times did they call you to let you know how you were doing financially? How many trades did they do for you?
MIretired
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Re: Am I paying too much for my Investment Advisor?

Post by MIretired »

Maybe short-term TIPS fund.
Although it has some volatility of returns over 3 or so yrs.
To the forum:
If st tips fund yields -2.38% and say st treas yields .2% ,does that mean expected infl is the difference of 2.38+.2=2.58%?
And st tips would yield going forward: -.2% real + actual forward realized infl?
Please explain where I'm wrong. ty.
protagonist
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Re: Am I paying too much for my Investment Advisor?

Post by protagonist »

Lee_WSP wrote: Sat Sep 18, 2021 1:51 pm

The mechanic and CPA in both scenarios should add value by doing the job for you and saving you time.
Right, and if you trust your entire life savings to an advisor, you should be spending a LOT more time monitoring what he is doing and constantly assessing whether you are getting your money's worth than you would be spending investing in low-cost index funds for the long haul.
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AllMostThere
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Re: Am I paying too much for my Investment Advisor?

Post by AllMostThere »

PNWpilot wrote: Mon Sep 20, 2021 6:59 am I sincerely appreciate everyone's reply. I wish I had accessed this forum years ago as I would have likely chosen a different investing path.

Since starting this thread and really analyzing my current investment strategy, I am very disappointed. I communicated my plans and goals with this money to my advisor. He understood my timeline of when these funds would likely be used. Between the fees and the capital gains taxes I will incur, I will be lucky to break even within the next few years. If there is another market downturn (as seems to be happening this month) I may end up realizing some pretty big losses...

I'm going to check out Vanguards advisory services. It'll save me 1.15% in fees. That alone feels like a win. Thank you to all who replied!
PNWpilot, no need to beat yourself up. Dave Ramsey has some solid direction, but as others have pointed out, his investment philosophy is not good. Good news is that this "Endorsed Local Provider" got you started and you are now asking all the right questions as you move forward. You are on a good path, so don't sweat it. As Dave would say, you have paid a little "Stupid Tax" (Dave's words not mine! :twisted:), but following the BH team here you will get onto a more beneficial course. This is fully recoverable, but you need to move ASAP to stop the bleeding. Good luck and keep posting! :beer
It is not about how much you make; it is about how much you keep and how well you invest it. - Author Unknown | Dream as if you’ll live forever. Live as if you’ll die today. - Author James Dean
MIretired
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Re: Am I paying too much for my Investment Advisor?

Post by MIretired »

Never mind. -2.38% real after infl is the same as +.20 nominal today.
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

I wanted to post a quick update to this thread.

The good news:

I dropped my investment advisor last fall and haven't looked back. I politely explained some of the Boglehead philosophy and he had no response.

The bad news:

In order to close the account I had to liquidate all the holdings. This left me with a tax bill that was larger than my profits. :oops: Oh well, guess that was my "stupid tax" to make sure I never do that again.

I appreciate everyone's help from this forum.
Exchme
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Re: Am I paying too much for my Investment Advisor?

Post by Exchme »

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 think targeting 2% is very typical, but of course horrific for the investor (can total half your money in 30 years). When we had an advisor, he kept harping that his fee was 0.55%, but then the funds were 0.55-0.85% and they were a mixture of factor funds that themselves charged 0.55-0.85%, so all together it was about 2%. The funds were fairly tax inefficient on top of that. The "even worse" advisors will also get you with loads when you buy, fees when you sell, annuities and insurance products with high costs, etc. Like the proverbial frog in heating water, the job is to put your money in their pocket as fast as possible, but not so fast that you notice and hop out.

[Edited for OP update]
You could make a lot of mistakes on your own and still be better off. Just having the awareness to investigate and enough knowledge to come here and ask, suggests you will be fine on your own with a simple Boglehead portfolio. Your update shows it was expensive to get your money out from the advisor as they like to hold funds that cannot be transferred, forcing you to liquidate. It's still well worth the short term pain to get the leeches off of you.
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Cheez-It Guy
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Re: Am I paying too much for my Investment Advisor?

Post by Cheez-It Guy »

PNWpilot wrote: Sun Feb 20, 2022 2:21 am I wanted to post a quick update to this thread.

The good news:

I dropped my investment advisor last fall and haven't looked back. I politely explained some of the Boglehead philosophy and he had no response.

The bad news:

In order to close the account I had to liquidate all the holdings. This left me with a tax bill that was larger than my profits. :oops: Oh well, guess that was my "stupid tax" to make sure I never do that again.

I appreciate everyone's help from this forum.
Maybe I'm missing something easy, but how can your tax bill be bigger than your profits when only the capital gains (profits?) are even taxable? In any case, congratulations for breaking free.
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Re: Am I paying too much for my Investment Advisor?

Post by Stinky »

Cheez-It Guy wrote: Sun Feb 20, 2022 8:27 am
PNWpilot wrote: Sun Feb 20, 2022 2:21 am I wanted to post a quick update to this thread.

The good news:

I dropped my investment advisor last fall and haven't looked back. I politely explained some of the Boglehead philosophy and he had no response.

The bad news:

In order to close the account I had to liquidate all the holdings. This left me with a tax bill that was larger than my profits. :oops: Oh well, guess that was my "stupid tax" to make sure I never do that again.

I appreciate everyone's help from this forum.
Maybe I'm missing something easy, but how can your tax bill be bigger than your profits when only the capital gains (profits?) are even taxable? In any case, congratulations for breaking free.
OP said upthread that he had tax loss harvested somewhere along the way. So he reset his basis lower. I guess that the taxes using the lower basis could exceed the gain, compared to the original invested amount.

But that logic ignores the value of the tax losses that were generated when harvesting occurred.

So I’m confused too.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Am I paying too much for my Investment Advisor?

Post by YeahBuddy »

Yes, you are paying too much. You can do it yourself. I'm not the brightest bulb and just reading some of the information on this site I have been able to do all our own investing, retirement planning, everything financial myself and our investments have outperformed my peers who have financial advisors (from what they tell me).

That 1.45% eats away at your nest egg over time.

You can do this!
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nedsaid
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Re: Am I paying too much for my Investment Advisor?

Post by nedsaid »

cjcerny wrote: Sat Sep 18, 2021 9:25 am 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%.
Yes, these are pretty typical fees for a local advisor. You are probably in American Funds and in their F2 share class, so not bad at all. As others have pointed out, there are cheaper options available but you haven't been ripped off. When I talked to Merriman back in 2007 and 2008, they wanted 1% a year for management fees and the expense ratios of the underlying DFA Funds were 0.34%. I declined though I like the firm and their recommendations, 1.34% seemed like just too much.
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Re: Am I paying too much for my Investment Advisor?

Post by sschullo »

PNWpilot wrote: Sun Feb 20, 2022 2:21 am I wanted to post a quick update to this thread.

The good news:

I dropped my investment advisor last fall and haven't looked back. I politely explained some of the Boglehead philosophy and he had no response.

The bad news:

In order to close the account I had to liquidate all the holdings. This left me with a tax bill that was larger than my profits. :oops: Oh well, guess that was my "stupid tax" to make sure I never do that again.

I appreciate everyone's help from this forum.

We knew you could do it.

Yeah, I had to pay hideous surrender fees too 25 years ago, but never looked back.

Instead of Mr. Ramsey purchasing his new and expensive car every two years (he said this!), perhaps he will now have to rethink this frequent turnover.

Congratulations on joining the DIY club!
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

Cheez-It Guy wrote: Sun Feb 20, 2022 8:27 am
PNWpilot wrote: Sun Feb 20, 2022 2:21 am I wanted to post a quick update to this thread.

The good news:

I dropped my investment advisor last fall and haven't looked back. I politely explained some of the Boglehead philosophy and he had no response.

The bad news:

In order to close the account I had to liquidate all the holdings. This left me with a tax bill that was larger than my profits. :oops: Oh well, guess that was my "stupid tax" to make sure I never do that again.

I appreciate everyone's help from this forum.
Maybe I'm missing something easy, but how can your tax bill be bigger than your profits when only the capital gains (profits?) are even taxable? In any case, congratulations for breaking free.
Sorry for the confusion. There was some tax loss harvesting throughout '20 and '21 that reset our cost basis to a lower amount than the initial investment. Bad news is that there is a limit to how much "loss" you can claim when filing taxes. I believe it is $3k. So I'm not sure that we even benefitted at all from it.

The portfolio was only up about 2% from its inception, however 16% of the value incurred capital gains due to the lower cost-basis. We still made a small profit, but it was a smaller amount than I paid the IRS in capital gains.

Hopefully that makes sense.
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Cheez-It Guy
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Re: Am I paying too much for my Investment Advisor?

Post by Cheez-It Guy »

Thanks, but you understand there is a capital loss carryover allowance, correct? You are allowed to claim $3000 per year, but unused balance rolls over.
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Re: Am I paying too much for my Investment Advisor?

Post by rob »

PNWpilot wrote: Sun Sep 19, 2021 7:30 am This is a taxable account containing non-retirement funds expected to be used within the next 3-7 years.
As most replies, I agree your getting ripped off.... but why are you in stocks for potentially 3 years?
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

Cheez-It Guy wrote: Sun Feb 20, 2022 9:42 pm Thanks, but you understand there is a capital loss carryover allowance, correct? You are allowed to claim $3000 per year, but unused balance rolls over.
Thank you for letting me know. I pay a CPA to do my taxes, so I'm not terribly familiar with this. I will call him this week to discuss. I remember that on last years return I could only claim up to $3k.

Question: If I claim $3,000 per year, is that in addition to the standard deduction? Or separate? Sorry if that's a dumb question. This is why I hire someone to do this for me.
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

rob wrote: Sun Feb 20, 2022 9:57 pm
PNWpilot wrote: Sun Sep 19, 2021 7:30 am This is a taxable account containing non-retirement funds expected to be used within the next 3-7 years.
As most replies, I agree your getting ripped off.... but why are you in stocks for potentially 3 years?
This is a great question. I had no say in the portfolio allocation. I told the advisor what my goals were with the money and he created the portfolio.

I'm glad I'm out. No way am I doing that again.
MiddleOfTheRoad
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Re: Am I paying too much for my Investment Advisor?

Post by MiddleOfTheRoad »

PNWpilot wrote: Sun Feb 20, 2022 10:03 pm
Cheez-It Guy wrote: Sun Feb 20, 2022 9:42 pm Thanks, but you understand there is a capital loss carryover allowance, correct? You are allowed to claim $3000 per year, but unused balance rolls over.
Thank you for letting me know. I pay a CPA to do my taxes, so I'm not terribly familiar with this. I will call him this week to discuss. I remember that on last years return I could only claim up to $3k.

Question: If I claim $3,000 per year, is that in addition to the standard deduction? Or separate? Sorry if that's a dumb question. This is why I hire someone to do this for me.
You can use the entire amount of tax loss harvested last year against your capital gain realized this year. Remind your cpa that you have tax loss carryover.
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PNWpilot
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Re: Am I paying too much for my Investment Advisor?

Post by PNWpilot »

MiddleOfTheRoad wrote: Sun Feb 20, 2022 10:29 pm
PNWpilot wrote: Sun Feb 20, 2022 10:03 pm
Cheez-It Guy wrote: Sun Feb 20, 2022 9:42 pm Thanks, but you understand there is a capital loss carryover allowance, correct? You are allowed to claim $3000 per year, but unused balance rolls over.
Thank you for letting me know. I pay a CPA to do my taxes, so I'm not terribly familiar with this. I will call him this week to discuss. I remember that on last years return I could only claim up to $3k.

Question: If I claim $3,000 per year, is that in addition to the standard deduction? Or separate? Sorry if that's a dumb question. This is why I hire someone to do this for me.
You can use the entire amount of tax loss harvested last year against your capital gain realized this year. Remind your cpa that you have tax loss carryover.
Thank you. I will get with them regarding this.
feh
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Re: Am I paying too much for my Investment Advisor?

Post by feh »

59Gibson wrote: Sat Sep 18, 2021 8:43 am Sorry. You're getting clobbered.
To say the least.

Just another example of Ramsey screwing over his devoted followers.
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Re: Am I paying too much for my Investment Advisor?

Post by muffins14 »

PNWpilot wrote: Sun Feb 20, 2022 10:44 pm
MiddleOfTheRoad wrote: Sun Feb 20, 2022 10:29 pm
PNWpilot wrote: Sun Feb 20, 2022 10:03 pm
Cheez-It Guy wrote: Sun Feb 20, 2022 9:42 pm Thanks, but you understand there is a capital loss carryover allowance, correct? You are allowed to claim $3000 per year, but unused balance rolls over.
Thank you for letting me know. I pay a CPA to do my taxes, so I'm not terribly familiar with this. I will call him this week to discuss. I remember that on last years return I could only claim up to $3k.

Question: If I claim $3,000 per year, is that in addition to the standard deduction? Or separate? Sorry if that's a dumb question. This is why I hire someone to do this for me.
You can use the entire amount of tax loss harvested last year against your capital gain realized this year. Remind your cpa that you have tax loss carryover.
Thank you. I will get with them regarding this.
Please do this, the losses carry over indefinitely and you can use them to offset all gains
Crom laughs at your Four Winds
BitTooAggressive
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Re: Am I paying too much for my Investment Advisor?

Post by BitTooAggressive »

Sandtrap wrote: Sat Sep 18, 2021 8:36 am 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
That about covers it. No need to read further on this thread.
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Re: Am I paying too much for my Investment Advisor?

Post by HMSVictory »

Is the 1.45% worth the cost? Yes and no. Its worth the cost if you need and want an advisor and are pleased with the advice you receive.

Paying 1.45% expense is ok if you would not invest otherwise. Returns minus fees you will still come out ahead vs zero. With that being said you will underperform the market by..... 1.45% annually which is a large draw on your account. It doesn't seem large but when bonds return 1.75% and stocks may return 8-9% then you are giving up all of your bond return and a good chunk of your equity returns to fees.

We are a bunch of misers here on this board and enjoy DIY investing. I pay 0.07% average fees in my 3 fund portfolio. YMMV.
Stay the course!
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