My financial advisor doubt

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

My financial advisor doubt

Post by larry82 »

Hi folks,

I am looking for advice from more experienced folks.

I am X years old Canadian with a ~2M portfolio, i recently signed with a DFA advisor who is charging me 1% of AUM. The assets are 90% transferred and i am already having doubts with the decision i just made.

I was initially with a discount brokerage and doing pretty well. The account is 50% cash, which is to be deployed in the next few months. With a second baby on the way and a wife with absolutely no interest in financial matters, I was under the impression that having a financial advisor could help her manage things if anything bad happen to me.
The more i think about it, there no reason to justify 20k+ in annual fee for doing a couple of trades and the usual meeting to discuss 'financial planning'. This is a giant transfer of wealth and i am less and less comfortable with this.

The advisor is recommending some DFA funds to provides small cap tilt to the total market vanguard funds that I already own. From what I understand, if I ever decide to end the relationship, theses DFA fund will need to be sold, probably generating a huge capital loss/gain.

How this situation should be approached? FYI, I am at the very beginning of this relationship.

:shock: :shock: :shock:

edit: small business owner investing in a corporate account so i guess there some 'added complexity'.
Last edited by larry82 on Sun Nov 03, 2019 1:59 pm, edited 2 times in total.
steve_14
Posts: 1507
Joined: Wed Jun 20, 2012 12:05 am

Re: My financial advisor doubt

Post by steve_14 »

What I can tell you is 1) My portfolio of a similar size takes about 2 hours per year to manage and 2) My instructions to my uninterested wife are: "Pay Vanguard financial planning services .3%/year to manage the money if you don't feel comfortable doing it."
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

steve_14 wrote:What I can tell you is 1) My portfolio of a similar size takes about 2 hours per year to manage and 2) My instructions to my uninterested wife are: "Pay Vanguard financial planning services .3%/year to manage the money if you don't feel comfortable doing it."
Excellent advice but helas in Canada Vanguard don't offer financial advice :(
kenner
Posts: 3128
Joined: Sat Mar 01, 2008 7:45 am

Re: My financial advisor doubt

Post by kenner »

DFA is one of the finest investment firms on the planet.

But I suspect you could construct a solid portfolio without the need for an advisor.

These are the basics: own broad-based US and international funds and a good bond fund or two that meet your investing needs and tax situation.
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 4:46 pm

Re: My financial advisor doubt

Post by tfb »

larry82 wrote:From what I understand, if I ever decide to end the relationship, theses DFA fund will need to be sold, probably generating a huge capital loss/gain.

How this situation should be approached? FYI, I am at the very beginning of this relationship.
Not true. If you end the relationship, your funds are still yours. You can reinvest dividends. You can sell but you can't buy more. So just get it setup, pay the fee for one year or one quarter, get all the value you need for financial planning, and then discontinue. If you still need an advisor, some advisors can manage the same DFA funds for 0.25% or less.
Harry Sit has left the forums.
tibbitts
Posts: 23729
Joined: Tue Feb 27, 2007 5:50 pm

Re: My financial advisor doubt

Post by tibbitts »

tfb wrote:
larry82 wrote:From what I understand, if I ever decide to end the relationship, theses DFA fund will need to be sold, probably generating a huge capital loss/gain.

How this situation should be approached? FYI, I am at the very beginning of this relationship.
Not true. If you end the relationship, your funds are still yours. You can reinvest dividends. You can sell but you can't buy more. So just get it setup, pay the fee for one year or one quarter, get all the value you need for financial planning, and then discontinue. If you still need an advisor, some advisors can manage the same DFA funds for 0.25% or less.
Part of what you're probably paying for is all the customers who sign up, get those DFA funds, then leave immediately. So maybe there will be something in your adviser's agreement that precludes you from doing that. I have to believe that the DFA business model would have failed completely years ago if there wasn't something to prevent that, although maybe I'm over-estimating the popularity of DFA funds.
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

tfb wrote:
larry82 wrote:From what I understand, if I ever decide to end the relationship, theses DFA fund will need to be sold, probably generating a huge capital loss/gain.

How this situation should be approached? FYI, I am at the very beginning of this relationship.
Not true. If you end the relationship, your funds are still yours. You can reinvest dividends. You can sell but you can't buy more.
Anyone can confirm ? I emailed DFA Canada couple weeks ago but they are VERY slow to answer :(
User avatar
ogd
Posts: 4876
Joined: Thu Jun 14, 2012 11:43 pm

Re: My financial advisor doubt

Post by ogd »

Larry82: I think you are right to have misgivings about a 1% fee. That is simply too high.

I agree with you that the behavioral guidance is the biggest benefit of an advisor. However, there are other ways to achieve this, such as teaching your spouse to use and trust Vanguard's free advice, or even using an all-in-one fund like the LifeStrategy series. The latter option costs you less than 0.1%.

I have no problem with the DFA funds and theoretical approach, but like you say there is a troublesome lock-in aspect, where some years down the road you will be unable to reverse the decision to use an advisor without paying extra capital gains (sell) or having a portfolio twice as complex (don't sell, but put new money in non-DFA funds). Now is the right time to make that decision.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: My financial advisor doubt

Post by nedsaid »

I went to a couple Paul Merriman seminars led by Tom Cock back in 2007. The pitch they presented was that an investor could perform the tilting strategies using Vanguard Funds and they showed you how to do it. But they claimed that they could deliver a 1% performance premium over Vanguard even with the 1% fee because the DFA Funds tended to have better value characteristics and had smaller market capitalizations than the similar Vanguard Funds. More small-ee and value-ee.

There is something to this as DFA believes in the performance factors and Vanguard in their heart of hearts does not. So you would expect that DFA would do a better job screening for factors than Vanguard. So you would expect that DFA funds would have better value characteristics than Vanguard funds.

It boils down to whether you think this is worth the 1% fee or not. Their accounts were at Schwab so there were small trading fees on top of that. It also depends on whether or not you believe that the performance factors exist. And if you believe they exist, can the individual investors capture the excess returns?

I passed on the offer and continued to mostly self-manage my accounts. I did however make changes in my portfolio based on what I learned from the seminars. So I am still small and value tilting.
A fool and his money are good for business.
MN Finance
Posts: 1926
Joined: Sat Dec 22, 2012 9:46 am

Re: My financial advisor doubt

Post by MN Finance »

This is a very easy problem to solve. Sit down with your new advisor and discuss your concerns. Any quality advisor is looking for long time clients that are comfortable with the arrangement. He/she has no interest in you coming on board for a short time then leaving, so if that's the likely outcome, he'd rather know now. There's clearly value in good advisor with expertise in investments, income planning, taxes, insurance, and estate planning, but you need to figure out if the benefits are worth the costs. To clarify the fund issue: If you start with them and then discontinue, your assets remain just as they are (or will be), custodied with the discount broker. The advisory firm just losses their poa over the account. You can then do what you will.
User avatar
Random Musings
Posts: 6772
Joined: Thu Feb 22, 2007 3:24 pm
Location: Pennsylvania

Re: My financial advisor doubt

Post by Random Musings »

First question is what types of services is this advisor providing you? If it is only to manage the $2MM in assets and deploy into DFA funds, I would attempt to negotiate lower and see what their counter is.

But it sounds like you already have a bad taste in your mouth.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
User avatar
Rob5TCP
Posts: 3812
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: My financial advisor doubt

Post by Rob5TCP »

If you really want DFA for part of your solutions, Portfolio Solutions charges something like .37% (or close to that) with a minimum of $925 per quarter.
Rick Ferri is a frequent contributor on here and is well respected. This might be an option if you are inclined to include some DFA in your portfolio.
User avatar
AlaskanWolf
Posts: 34
Joined: Sat Feb 22, 2014 2:04 pm

Re: My financial advisor doubt

Post by AlaskanWolf »

kenner wrote:DFA is one of the finest investment firms on the planet.
Do you mean Dimensional?
heyyou
Posts: 4461
Joined: Tue Feb 20, 2007 3:58 pm

Re: My financial advisor doubt

Post by heyyou »

Read about fees at Evanson Asset Management. He writes that the annual fee should not be more than a CPA or some other professional would charge at an hourly rate for the same time spent. Your paying $20K annually is just too much.

Evanson's flat fee is $2000 a year for a somewhat cookie cutter, slice and dice portfolio using DFA funds all held at Schwab, or all at TD Ameritrade, or all at one other brokerage. You can choose which slices to keep and which ones to reject, including choosing the stock to bond ratio. If you leave your new advisor, E.A.M. is a much cheaper option but with less personal service, while still using DFA funds, unless you want to add a specific fund at Vanguard or Fidelity.

I wouldn't know if EAM is in Canada or not.
User avatar
InvestorNewb
Posts: 1663
Joined: Mon Sep 03, 2012 11:27 am

Re: My financial advisor doubt

Post by InvestorNewb »

I don't understand why someone who has been registered on the forum since November 23 2010 would sign-up and pay 1% AUM.

I would expect this from someone who has never visited the site before, but not from someone who has almost 5 years of membership history.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

InvestorNewb wrote:I don't understand why someone who has been registered on the forum since November 23 2010 would sign-up and pay 1% AUM.

I would expect this from someone who has never visited the site before, but not from someone who has almost 5 years of membership history.
Bad decision...
hoopy
Posts: 108
Joined: Sat Jul 06, 2013 6:26 pm

Re: My financial advisor doubt

Post by hoopy »

Advisers like Rick Ferri, as well as Vanguard won't/can't accept investments from Canadians, due to Canadian regulations.

It might be difficult to find an adviser with lower fees in the same city as you, especially if you want to stick with DFA funds. I'm sure there are some low-fee Canadian DFA advisers out there, but you might have to call several, and be willing to have a phone/email-based relationship.
ralph124cf
Posts: 2985
Joined: Tue Apr 01, 2014 11:41 am

Re: My financial advisor doubt

Post by ralph124cf »

tfb wrote:
larry82 wrote:From what I understand, if I ever decide to end the relationship, theses DFA fund will need to be sold, probably generating a huge capital loss/gain.

How this situation should be approached? FYI, I am at the very beginning of this relationship.
Not true. If you end the relationship, your funds are still yours. You can reinvest dividends. You can sell but you can't buy more. So just get it setup, pay the fee for one year or one quarter, get all the value you need for financial planning, and then discontinue. If you still need an advisor, some advisors can manage the same DFA funds for 0.25% or less.
In my 401(k) account at Schwab I am allowed to buy DFA funds. In my other retirement account at Schwab, I cannot buy DFA. I have no idea why there is this difference.

Ralph
derosa
Posts: 464
Joined: Wed Jul 24, 2013 5:18 pm

Re: My financial advisor doubt

Post by derosa »

This just sounds a bit like buyer's remorse. What was I thinking when I bought that ice cream cone, shirt, car, house, vacation, etc...

Take a deep breath, talk with the guy and review with him and your wife why you did this. And what you expect to get out of it. And what your wife can get out of it.

If a year from now you and your wife want to make changes and this arrangement isn't working - make the changes. But hopping around doesn't tell you anything. You clearly weren't happy with what you were doing, were you?
RPS
Posts: 369
Joined: Thu Sep 09, 2010 7:58 am

Re: My financial advisor doubt

Post by RPS »

Here's what Vanguard has to say about the value of advisors:

http://vanguardadvisorsblog.com/2014/03 ... ng-advice/

In short, Vanguard thinks the value of a good advisor is "about 3%." Obviously, you can and should be able to get good advice for much less than that.
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

derosa wrote:This just sounds a bit like buyer's remorse. What was I thinking when I bought that ice cream cone, shirt, car, house, vacation, etc...

Take a deep breath, talk with the guy and review with him and your wife why you did this. And what you expect to get out of it. And what your wife can get out of it.

If a year from now you and your wife want to make changes and this arrangement isn't working - make the changes. But hopping around doesn't tell you anything. You clearly weren't happy with what you were doing, were you?
You nailed it, buyer remorse thats it.

i would be happy to give it a try for one year. However, If i purchase DFA funds, this mean i would be "stuck" with them when i decide to end the relationship, ending with a much more complex portfolio­. This complicate the situation quite a bit imho.

Regarding the "before", like many i suffered from market timing and delayed market entry. wich mean i am >50% cash ATM. In retrospective, I could have simply called the discount broker phone rep and asked them to deploy the cash for 20$ a trade instead of the 5.99$ web comission...
chw
Posts: 1316
Joined: Thu May 24, 2012 4:22 pm

Re: My financial advisor doubt

Post by chw »

A few points about your original post:
1) Regarding your wife not having any interest in financial affairs, and your concern if you pass on suddenly for some reason is a valid concern. I agree that you shouldn't pay 20K a year in AUM for that possibility. I would find a fee only (hourly) advisor (Garret planning network here in the US is one- not sure if in Canada), that you may vet out now for your wife to call should you pre-decease her.

2) Regarding DFA funds having to be sold if you terminate your relationship- that isn't accurate. I did this a few years ago, and basically all my positions I had at advisor termination stayed in place. Not sure who your custodian is, but perhaps call them to freeze your account from your advisor, so that he can't place any trades as you terminate him/her. I did this with my Schwab custodial account, and everything worked out fine. You won't be able to add to your DFA positions, but you should be able to hold them if you prefer to.
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: My financial advisor doubt

Post by abuss368 »

After many years, different "advisors", and many investment "houses", we found that moving everything to Vanguard was the best financial decision we ever made.

Own 3 - 6 low cost and total market index funds and nothing else is "needed" ever!

Keep investing simple.
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

bill1958 wrote: 2) Regarding DFA funds having to be sold if you terminate your relationship- that isn't accurate. I did this a few years ago, and basically all my positions I had at advisor termination stayed in place. Not sure who your custodian is, but perhaps call them to freeze your account from your advisor, so that he can't place any trades as you terminate him/her. I did this with my Schwab custodial account, and everything worked out fine. You won't be able to add to your DFA positions, but you should be able to hold them if you prefer to.
Confirmed with Vanguard Canada this PM, can still hold existing position, cannot add more units.
msj16
Posts: 366
Joined: Tue Oct 19, 2010 1:16 am

Re: My financial advisor doubt

Post by msj16 »

I am helping my mother who lives in Canada to manage her portfolio. It is very simple now that one can purchase ETF's through Vanguard Canada. She now has a portfolio which is exactly what Bogleheads recommend ( 3 fund-total US stock market, total bond market, total international, as well as Canadian stock/bond ETF's). It is a buy and hold and rebalance once a year type of portfolio.
chw
Posts: 1316
Joined: Thu May 24, 2012 4:22 pm

Re: My financial advisor doubt

Post by chw »

larry82 wrote:
bill1958 wrote: 2) Regarding DFA funds having to be sold if you terminate your relationship- that isn't accurate. I did this a few years ago, and basically all my positions I had at advisor termination stayed in place. Not sure who your custodian is, but perhaps call them to freeze your account from your advisor, so that he can't place any trades as you terminate him/her. I did this with my Schwab custodial account, and everything worked out fine. You won't be able to add to your DFA positions, but you should be able to hold them if you prefer to.
Confirmed with Vanguard Canada this PM, can still hold existing position, cannot add more units.
If you're planning to move your accounts to Vanguard, they may require you to hire an advisor to retain the DFA funds. Vanguard claims that DFA requires this (at least Vanguard USA stated this). I found this out when attempting to move my accounts from Schwab to Vanguard recently. Like you, I didn't want to cash out large gains in my taxable account, so I left my accounts with Schwab. BTW, Schwab did agree to commission free trades in Vanguard mutual funds, which made staying at Schwab easier.
BigJohn
Posts: 2627
Joined: Wed Apr 02, 2014 11:27 pm

Re: My financial advisor doubt

Post by BigJohn »

Check out this thread about DFA vs VG. Be sure to check out the link to the White Coat Investor comparison of DFA vs non-DFA (mostly VG).

http://www.bogleheads.org/forum/viewtop ... 0&t=136943

As you'll see in the thread, there is lots of debate on whether DFA really has a persistent advantage but I don't think anyone would argue that paying 1%/yr just to access DFA is not a prudent step.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
User avatar
Frugal Al
Posts: 1736
Joined: Fri May 28, 2010 10:09 am

Re: My financial advisor doubt

Post by Frugal Al »

BigJohn wrote:... I don't think anyone would argue that paying 1%/yr just to access DFA is not a prudent step.
If one wants an advisor it might be prudent, but just for access to DFA it would not be prudent. Did you get tangled up in double negatives, BigJohn?
BigJohn
Posts: 2627
Joined: Wed Apr 02, 2014 11:27 pm

Re: My financial advisor doubt

Post by BigJohn »

Frugal Al wrote:Did you get tangled up in double negatives, BigJohn?
Maybe, I think we are saying the same thing but your words are more clear.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

Cancelled the advisor contract this morning, feel much better.

In a low interest environment, there no reason to justify a negative 1% in a portfolio.

Thanks everyone for your support !
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: My financial advisor doubt

Post by dbr »

larry82 wrote:Cancelled the advisor contract this morning, feel much better.

In a low interest environment, there no reason to justify a negative 1% in a portfolio.

Thanks everyone for your support !
Actually you can't justify a negative 1% in any environment.
User avatar
White Coat Investor
Posts: 17413
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: My financial advisor doubt

Post by White Coat Investor »

If you really want an advisor AND DFA funds, then you should be able to do that for $1-5K per year. Is it worth that price on a $2M portfolio just for DFA funds assuming the advisor adds no additional value? Wouldn't surprise me. Is it worth 1% for the typical forum participant? Probably not. Is it worth 1% for many people? Absolutely.

Keep in mind that the general gestalt on this forum is a bit more pro-Vanguard and a big more anti-advisor than I think one should really be. But there is no doubt that if you can learn to manage assets well without an advisor, you will save money, have higher returns, retire earlier or with more money etc.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
User avatar
greg24
Posts: 4512
Joined: Tue Feb 20, 2007 9:34 am

Re: My financial advisor doubt

Post by greg24 »

InvestorNewb wrote:I don't understand why someone who has been registered on the forum since November 23 2010 would sign-up and pay 1% AUM.

I would expect this from someone who has never visited the site before, but not from someone who has almost 5 years of membership history.
Don't used biased numbers to make your point. Its 3.5 years.
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

At really was under the impression that an estate in the ~2M range need some kind of 'special' treatment. I finally realised that, for investing, a portfolio of plain old broad market equities and bonds funds is more than adequate. For fiscal planning, a good accountant, a fiscalist and a lawyer can do wonder for a fraction of the cost of 1% AUM...

For the record, my portfolio is:

20% VTI - Vanguard Total Stock Market ETF
20% VXUS - Vanguard Total International Stock ETF
20% VCE - Vanguard FTSE Canada Index ETF
35% ZDB - BMO Discount Bond Index ETF
5% ZRE - BMO Equal Weight REITs Index ETF

For a total MER of ~0.15%...

Investing in a taxable account does add some complexity but except some optimization regarding the fixed income and withdrawal strategy (in 30year+ in my case...) there not much more to do.
User avatar
InvestorNewb
Posts: 1663
Joined: Mon Sep 03, 2012 11:27 am

Re: My financial advisor doubt

Post by InvestorNewb »

Congrats on finding the way. :beer I'm also invested in VCE. Is there a particular reason you chose VCE over VCN?

I'm debating about moving to VCN but I doubt it really matters. It's akin to VOO vs. VTI.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

InvestorNewb wrote:Congrats on finding the way. :beer I'm also invested in VCE. Is there a particular reason you chose VCE over VCN?
I invest in VCE because i already have money in this fund. While VCN is more diversified, moving my canadian equities in this fund would mean triggering a capital gain and writing a check to the taxman :(

You migh also want to take a look at XIC, same index but iShares recently lowered the MER to ... 0.05% (VCE is at 0.13%).

http://ca.ishares.com/product_info/fund ... ew/XIC.htm
http://ca.ishares.com/content/stream.js ... cation/pdf
http://www.moneysense.ca/invest/etfs/is ... -price-war

I originally held XIC but changed to VCE for tax lost harvesting two years ago :)
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

A little follow-up on my situation. The assets transfer to my brokerage account was performed early last week. I finally bit the bullet and deployed all the remaining capital according to my original asset allocation. Portfolio is composed of the usual Vanguard ETF's with a total MER of 0.13%.

I was charged some transfer fee's back and forth but the discount broker agree to refund all of them,I even succeeded haggling some free perks, a 8" Samsung Tablet and 100 free trades :)

1% a year in fee is death by a thousand cuts. With the amount of capital i am investing... this is 2x more than my mortgage !

Thanks for all the tips bogleheads, It feel good to be back in control. :)
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am

Re: My financial advisor doubt

Post by letsgobobby »

very nice job. 1% is $20k on a $2M portfolio, and that ain't nuthin'.
NOLA
Posts: 373
Joined: Sun Jul 10, 2011 1:23 pm

Re: My financial advisor doubt

Post by NOLA »

Seems like you made a good choice and you will probably sleep better at night as well. Good luck.
User avatar
prudent
Moderator
Posts: 9085
Joined: Fri May 20, 2011 2:50 pm

Re: My financial advisor doubt

Post by prudent »

Great job and thanks for the follow-up.
Topic Author
larry82
Posts: 92
Joined: Tue Nov 23, 2010 11:57 am

Re: My financial advisor doubt

Post by larry82 »

Finally deployed my remaining capital today, cost me about 6 trades instead of 20k.

Also cleaned the portfolio of the "sector" fund that the advisor bough.

Portfolio is now 100% invested in a total of 5 funds, all ultra-low-cost broad market ETF's.
Post Reply