At what point should you hire a financial advisor?

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TXGymGuy84
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At what point should you hire a financial advisor?

Post by TXGymGuy84 » Tue May 01, 2018 5:28 pm

Hi all,

I'm in a fortunate position where I've sold a majority stake in my company in an effort to take some chips off the table, diversify, and ultimately sleep better at night. Portfolio-wise, I'm at a point now where I feel like I'm in way over my head. I've looked into fee-based advisors but wanted to get the community's take on what is the best path to take. I'm relatively young and do not plan to build up another business so I need to make what we currently have last as long as possible. Here is some background info:

Me 34, Wife 31, 2 year old son with another on the way

Current Portfolio:
Taxable - $250,000 VTSAX
401K - $110,000 VTSAX
LP Investments - $500,000
Checking - $12,100,000 (taxes already accounted for)

Mortgage - $1,700,000 at 3.25% (market value ~$2.5M)
No other debt

Go forward salary: $150,000

On the expense side of things we spend roughly $8,000/month outside of our mortgage and property taxes (so roughly $18K total). I'd love to do a simple couch potato portfolio but I can't help but think I'd be stressing out about daily fluctuations and constantly doubting whether or not I was managing our money correctly. Any opinions, feedback, or advice would be great appreciated!

PFInterest
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Re: At what point should you hire a financial advisor?

Post by PFInterest » Tue May 01, 2018 5:32 pm

you need an accountant and estate planner more than you need a FA.

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Pajamas
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Re: At what point should you hire a financial advisor?

Post by Pajamas » Tue May 01, 2018 5:38 pm

The $12 million could easily cover your current expenses in perpetuity at a 2% withdrawal rate. You don't need to get tricky with it and the investing principles are the same as if you had $1.2 million or $120 thousand. You could certainly benefit from some legal advice on trusts, estates, and taxes, but don't get tricky with that, either.

Read this:

https://www.bogleheads.org/wiki/Managing_a_windfall
Last edited by Pajamas on Tue May 01, 2018 5:42 pm, edited 1 time in total.

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celia
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Re: At what point should you hire a financial advisor?

Post by celia » Tue May 01, 2018 5:41 pm

You really don't need to do anything with that much money. Even if you withdraw 4% a year, that is almost half a million.

I think you and your wife need to start with goals, dreams, long-term planning for the kind of life you want. Charities? Foundation? Travel? Lots of kids?

The "world is your oyster", once you set some goals.

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CABob
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Re: At what point should you hire a financial advisor?

Post by CABob » Tue May 01, 2018 5:43 pm

PFInterest wrote:
Tue May 01, 2018 5:32 pm
you need an accountant and estate planner more than you need a FA.
I agree with this.

The first thing that jumps out at me is the $12 MM in a checking account. If this is a single account is is way over the FICA insurance limit and you should address that issue if it is the case. Is this amount earning any interest? If not, it should.
At that point you could address the allocation of your investment accounts.
A simple approach such as the 3-fund or couch potato seems reasonable.
Bob

Jack FFR1846
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Re: At what point should you hire a financial advisor?

Post by Jack FFR1846 » Tue May 01, 2018 6:06 pm

The enemy of a good plan is the desire of a perfect plan.

Put it into a 3 fund and forget your password. It works for $12,000, for $12Million or for $12Billion.
Bogle: Smart Beta is stupid

avoidingdumbmistakes
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Re: At what point should you hire a financial advisor?

Post by avoidingdumbmistakes » Tue May 01, 2018 6:42 pm

Jack FFR1846 wrote:
Tue May 01, 2018 6:06 pm
The enemy of a good plan is the desire of a perfect plan.
I love this line and remind myself of it every time I get the urge to tinker.

Good advice in this thread already. Accountant and estate lawyer would be on my list to call immediately.

I would probably knock out the mortgage and conservatively invest the rest. Game set match.

MotoTrojan
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Re: At what point should you hire a financial advisor?

Post by MotoTrojan » Tue May 01, 2018 6:47 pm

Payoff debt. 3-fund portfolio. Depending on tax-situation maybe look at muni bonds.

Any AA should work depending on your goals but could certainly go conservative at 50/50 if you are nervous but still want to grow decently even with small withdrawals (<3%).

A FA will convince you to give them a chunk of it.

Other advice on pros to in fact find is good.

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cfs
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Re: At what point should you hire a financial advisor?

Post by cfs » Tue May 01, 2018 7:12 pm

TXG, good on you and your wife! Your family is doing great. Concur with previous posters on the need for a good accountant and estate planner. As far as the investments I concur with the simple three-funder and I would keep it between 40/60 to 50/50. Keep things simple and enjoy life! Good luck with your investments, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

CedarWaxWing
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Re: At what point should you hire a financial advisor?

Post by CedarWaxWing » Tue May 01, 2018 7:13 pm

I would say you might benefit from the one of the few FAs who are smart, educated, and honest. Your past posts suggest you may have a very busy job with the gyms, but the very high checking values suggest you are too busy to manage those funds well at this time. Getting the right FA would likely result in the good relationship and in a couple years you would not need someone other than for the occ question, at which time it may be good to have had a relationship already set up.

Again... the RIGHT one means that is the key word.

GibsonL6s
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Re: At what point should you hire a financial advisor?

Post by GibsonL6s » Tue May 01, 2018 7:36 pm

I would immediately manage the risk of having lots of money in a checking account. I think you need to get the money out of a checking account and buy some short term treasuries while you are deciding your next move. Congrats on having won the game and run up the score :sharebeer

PhilosophyAndrew
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Re: At what point should you hire a financial advisor?

Post by PhilosophyAndrew » Tue May 01, 2018 7:46 pm

OP, I think it is appropriate to hire a financial advisor (1) when one’s ignorance and confusion about investing is significantly geeater than one’s ability and willingness to learn more about investing or (2) when impulsivity, extremely anxiety, cognitive decline, a gambling addiction, etc. make it unlikely that one could follow even a simple disciplined investment plan.

One can implement the simple Boglehead principles with any net worth, so for me size of investable assets doesn’t enter the picture — simply put, a larger net worth doesn’t require deviating from Boglehead simplicity. That said, rookie mistakes might cost a lot more for a high net worth novIce, and so a ‘halfway house’ like Vangiard PAS might be sensible in some cases.

So, those who don’t yet understand how to apply the Boglehead principles need to decide whether they are willing to learn how to do that. If yes, there’s no need tpnjire a financial advisor unless one is cognitively or temperamentally incapable of following a disciplined investing path.

The hard part here is honest self-assessment: Is one willing to educate yourself? Is one committed to following a disciplined path?

There can be other good reasons for hiring an advisor, for example to support a surviving spouse who isn’t interested in learning how to invest, and others too. But most folks who are interested in DIY investing can do well following a simple Boglehead path.

Or such are my initial thoughts after reading just your question — now I look forward to learning from the rest of the discussion!


Andy.

FoolMeOnce
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Re: At what point should you hire a financial advisor?

Post by FoolMeOnce » Tue May 01, 2018 8:14 pm

Congratulations, OP.

First, I would write a 1.7m check and pay off the mortgage (or probably arrange for a wire, I suppose). The rate is low, and others here might be ok with carrying a low-rate mortgage, but there just is no reason for you to do so. You have more than you will ever need even with a conservative asset allocation, so just clear off the debt and get a guaranteed 3.25% on that money. Better than bond funds, recently.

Then just go with a simple portfolio. You have enough to take some side gambles or "fun money" stock picks. But keep that to a minimum - that is likely to make you feel worse about whether you are managing your money correctly than just taking market returns in a simple portfolio.

If it is still too daunting - which it might be; that is a significant amount of money - don't go right to a regular FA. A normal FA could charge 1% of assets under management per year. Are you so nervous that you want to pay $100,000 per year to have someone probably trail the market over the coming decades? (though perhaps you can find someone who charges less for such significant assets) At least start with Vanguard (Personal Advisor Services). They charge 0.3% and will set you up in low-cost index funds. After a year, and $30,000, if you are ready to control your assets yourself, you will take over a manageable portfolio. If you went with a regular FA, he/she might put you in such a dizzying array of positions that you will feel stuck and it will be even harder to get out. I'm going through this right now, trying to simplify about 140 holdings, more than half of which are individual stocks and, of the others, many are in high cost funds. It is a headache. So I can't stress this enough - if you feel you need a FA, start with Vanguard PAS or at least someone who you can trust to keep you in a relatively small amount of low-cost funds.

Ultimately, once you realize that a financial advisor is unlikely to beat the market over the long run, especially considering ongoing fees, the stress over feeling like you are mismanaging your assets should recede.

bloom2708
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Re: At what point should you hire a financial advisor?

Post by bloom2708 » Tue May 01, 2018 8:41 pm

1. Pay off mortgage
2. Keep $250k in a couple checking accounts at two different banks
3. Transfer the balance to Vanguard

30% Total US
20% Total International
30% Int-Term Tax-Exempt
20% Int-Term Treasuries

There could be tweaks based on your state.

It can be very easy and you do not need an advisor.

Congrats on your success!
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Theseus
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Re: At what point should you hire a financial advisor?

Post by Theseus » Tue May 01, 2018 8:53 pm

TXGymGuy84 wrote:
Tue May 01, 2018 5:28 pm
Hi all,

I'm in a fortunate position where I've sold a majority stake in my company in an effort to take some chips off the table, diversify, and ultimately sleep better at night. Portfolio-wise, I'm at a point now where I feel like I'm in way over my head. I've looked into fee-based advisors but wanted to get the community's take on what is the best path to take. I'm relatively young and do not plan to build up another business so I need to make what we currently have last as long as possible. Here is some background info:

Me 34, Wife 31, 2 year old son with another on the way

Current Portfolio:
Taxable - $250,000 VTSAX
401K - $110,000 VTSAX
LP Investments - $500,000
Checking - $12,100,000 (taxes already accounted for)

Mortgage - $1,700,000 at 3.25% (market value ~$2.5M)
No other debt

Go forward salary: $150,000

On the expense side of things we spend roughly $8,000/month outside of our mortgage and property taxes (so roughly $18K total). I'd love to do a simple couch potato portfolio but I can't help but think I'd be stressing out about daily fluctuations and constantly doubting whether or not I was managing our money correctly. Any opinions, feedback, or advice would be great appreciated!
First of all Congratulations!!

You will get some really good advise here so I won't repeat that.

But I will say this. Give yourself a lot more credit than you project :-). You are able to build a business that has generated $12 million in after tax money. Unless it just happened by a chance, you have to be reasonably intelligent to pull that off. You will figure this out at somepoint that financial planning and investment management is simpler than running a business that generated over $12million payout.

At your age, you should not feel rushed to make a decision super quickly. You have a long life ahead of you so you HAVE TO educate yourself about finances and investments. You are better off learning most of it yourself, even if you end up hiring a financial planer in the end.

Park the money in a reasonable place. Starting with the wiki here I suggest you run different scenarios. Ask questions about your scenarios, assumptions etc. on this forum. Spend time planning it out. Just like your business, a planned effort has a better chance of getting what you desire. I used ESPlanner to develop my initial plan based on consumption, then Financial Engines to develop asset allocation and make investment decisions based on that, and then WealthTrace (recently) to track my investment and chances of meeting my goals on an ongoing basis.

Only after you have developed an asset allocation plan I would go to a financial planner.

At your networth level, you will get into a private client group at Fidelity. They will assign you a financial planner (fiduciary) and it won't cost you anything. If you go fidelity route, I suggest you insist on interviewing 2-3 planners in-person with open ended questions to get a one that seems aligned. I did this myself and I have been extremely happy with my planner. He has worked with my investment plan and made reasonable suggestions. Some I have accepted, others rejected. But he has been terrific.

Good luck.

Nearly A Moose
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Re: At what point should you hire a financial advisor?

Post by Nearly A Moose » Tue May 01, 2018 8:56 pm

I at first read that as $1,200 in the checking account and then became concerned however OP would pay that mortgage :o

In all seriousness, I don't think you need an FA. But you should make sure you're set on estate planning, insurance (not whole life, but liability, etc. - you may not even need life insurance anymore), taxes if you have anything complicated in your financial life, etc. I also don't have a $11M net worth, but I have goals, and if I hit that, I wouldn't move (back) to a financial planner. You don't need to do anything fancy at your point - you just need reasonable growth and a smart spending plan.

I actually bet the biggest risk you face now is boredom, so make a deal with yourself to truly keep that money off the table.

And, congratulations!
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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Misenplace
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Re: At what point should you hire a financial advisor?

Post by Misenplace » Tue May 01, 2018 9:17 pm

TXGymGuy84 wrote:
Tue May 01, 2018 5:28 pm
Hi all,


LP Investments - $500,000
This. Do a search on this forum about LP Investments. I have also observed first hand (doing taxes for the elderly) the inappropriate investments they sell their customers.

I agree with the advice above regarding estate and tax planning, also remember liability insurance.

confusedinvestor
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Re: At what point should you hire a financial advisor?

Post by confusedinvestor » Tue May 01, 2018 10:16 pm

Congratulations to you, your family and your heirs !

The fact you self doubt of self money management and/or daily fluctuations , you may want to get fee-only hourly consultations with a CFP+CPA - I'd not sing up with a AUM model, given such large assests.

If I were you, I'd get a good AA book and BH Wiki and do this myself as 3Fund.

In dont know about TX, but, in CA, your estate will be highly taxed > 5.5 M so yes, please get a consultation with a good estate attorney
TXGymGuy84 wrote:
Tue May 01, 2018 5:28 pm
I'd love to do a simple couch potato portfolio but I can't help but think I'd be stressing out about daily fluctuations and constantly doubting whether or not I was managing our money correctly. Any opinions, feedback, or advice would be great appreciated!

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Raymond
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Re: At what point should you hire a financial advisor?

Post by Raymond » Tue May 01, 2018 11:26 pm

As mentioned above, if you were smart enough to build a business that your portion was worth $12.1 million when you sold it, I think you're smart enough to manage your money yourself :D

Definitely an accountant and an estate attorney, but do not let them manage your investments. Be skeptical of any referrals to what Warren Buffett calls "Helpers" (see page 18, "How to Minimize Investment Returns")

Umbrella insurance.

As much as possible, keep your financial details private to minimize the risk of "...rustlers, cut throats, murderers, bounty hunters, desperados, mugs, pugs, thugs, nitwits, halfwits, dimwits, vipers, snipers, con men, Indian agents, Mexican bandits, muggers, buggerers, bushwhackers, hornswogglers, horse thieves, bull dykes, train robbers, bank robbers, a**-kickers, s***-kickers and Methodists" sniffing around for loans, gifts and "business opportunities."

Congratulations!
"Ritter, Tod und Teufel"

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BL
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Re: At what point should you hire a financial advisor?

Post by BL » Wed May 02, 2018 12:05 am

The Wiki has a lot of good information written by the best of the best Bogleheads (not me!) Search for
Getting Started,
3-fund portfolio,
tax-efficient investments,
windfalls
Recommended books.
I would pick up a Boglehead's Guide to Investing and their Retirement one as well. You can read through it and/or use it as a reference. It is easy to read and covers most critical topics. There are all kinds of theory books as well, but the practical BH ones are all you really need. The key is not to do anything stupid. There is no single best way to do everything, and there is no likelihood that an advisor would do better than the advice you get here, especially after paying ~1% extra to them. You might consider putting 50k or more into Vanguard's PAS (0.3% AUM/year) to see how you like their management for a while. At least they won't leave you with a big mess like a lot of "advisors". Also they won't put you into expensive insurance or brokerage products or flatter you in selling expensive products sold only to the "rich".

From investopedia:
An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience.
In other words, the SEC doesn't offer any protection for products sold to "accredited investors" because you have enough money so you can take your chances!

pennylane
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Re: At what point should you hire a financial advisor?

Post by pennylane » Wed May 02, 2018 6:16 am

Talk about having won the game of life!

Congratulations!

Good advice from the top posters so I won’t attempt to give you any financial advise.

I do know one thing, you and your wife need to sit down and decide what kind of life you want to have because with that money, once you properly allocate it, just withdrawing 2% per year you will be ok.

Do lots of traveling and enjoy life, I’m sure you’ve worked hard.

FoolMeOnce
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Re: At what point should you hire a financial advisor?

Post by FoolMeOnce » Wed May 02, 2018 7:00 am

BL wrote:
Wed May 02, 2018 12:05 am
You might consider putting 50k or more into Vanguard's PAS (0.3% AUM/year) to see how you like their management for a while.
This is a good point. More generally, if you really want to try a traditional financial advisor, start by giving the advisor just a portion of your assets to manage, even 1 or 2 million. See how you like it for a year or two while the rest is in a simple two- or three-fund portfolio you manage yourself.

oldnewinvestor
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Re: At what point should you hire a financial advisor?

Post by oldnewinvestor » Wed May 02, 2018 7:37 am

Steps:
1. 3 funds vanguard, set and forget.
2. Pay off mortgage.
3. 2% withdraw forever. Get details on how and what to withdraw when. 2% of 10million is 200K/year gross.
4. Enjoy life.

Katietsu
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Re: At what point should you hire a financial advisor?

Post by Katietsu » Wed May 02, 2018 8:00 am

You asked on a site skewed to a group of people who DIY. So, remember that as you read the responses that are skewed to DIY. I think it is very reasonable given your feelings and the transition you are experiencing to at least hire professionals to work out a plan. As others have said, the type of helpful professionals can vary.

I do not see the point of hiring someone to manage just a small part. I assume these suggestions were made so that you could save on AUM fees.

Instead, I would look for one of two things: 1) Hire someone like Alan Roth that will charge you on an hourly basis. 2) Hire a DFA Advisor that charges a flat rate, or, more specifically, flat rate plus al a carte hourly charges, like FPL Capital Management. Both of these options would be cheaper than Vanguard PAS. Of course, you also need to make sure that whatever FA you choose would check all the other boxes that have been discussed like using low cost simple portfolios. I suspect that the right advisor might pay for themselves in tax savings on a $12 million taxable portfolio if the alternative is set it forget it, sell everything at average cost basis for living expenses.


I have no experience on this front. I base my suggestion on what I am considering for myself as we get closer to retirement and the instructions I have left for my husband should the situation arise.
Last edited by Katietsu on Wed May 02, 2018 8:36 am, edited 1 time in total.

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Psyayeayeduck
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Re: At what point should you hire a financial advisor?

Post by Psyayeayeduck » Wed May 02, 2018 8:12 am

Jack FFR1846 wrote:
Tue May 01, 2018 6:06 pm
The enemy of a good plan is the desire of a perfect plan.

Put it into a 3 fund and forget your password. It works for $12,000, for $12Million or for $12Billion.
+1

Don't make it complicated. OP won. The hard part is done. Time to reap your rewards.

Glockenspiel
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Re: At what point should you hire a financial advisor?

Post by Glockenspiel » Wed May 02, 2018 8:28 am

I would move the money from checking immediately, and then decide on a simple asset allocation with Vanguard, Fidelity, or Schwab. Keep up to the FDIC limits in a checking account. I would make a plan to retire as soon as possible, and would forget all my worries and spend as much time as possible with family and friends. You could live very well on $250k (increasing it with inflation) a year, with no mortgage payment, and your overall portfolio value would still keep increasing due to low withdrawal rate. You need to make sure you have a tax and estate lawyer. Come up with a plan for charitable contributions to organizations whose values align with yours. Time to sit down with your wife and discuss what each of you truly want in your lives to make you happiest. Might be good to have some sort of document, outlining these priorities.

Congratulations. You have won the game of life for you and all your descendants, if you manage this appropriately.

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