Counseling a Colleague About Their Financial Advisor

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travelogue
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Counseling a Colleague About Their Financial Advisor

Post by travelogue » Tue Jul 16, 2019 2:41 pm

A colleague was chatting with me and mentioned she and her husband are thinking about changing financial advisors. I don’t have all the details, but it appears the advisor charges a fee of 1% of their assets. He doesn’t hold or manage their assets, he just gives advice.

My colleague mentioned she used to use a TDF in her retirement portfolio but the advisor “made her a lot of money” by changing her investments.

There are a number of issues here, and I don’t have all the details, but I was trying to share the idea of hourly fee for services vs a percentage of their assets as well as the concept of asset allocation based on risk/return vs market timing.

Any ideas on how to approach the follow on conversation regarding financial advisor best practices and the fact that the advisor may have moved to an asset allocation that may be outside their risk tolerance if they understood the trade offs?

To be clear, I’m not looking to pry or lecture; she came to me and was interested in where to learn more. I don’t think she’s the type to hang out here, so I’m thinking I’d probably need a few succinct and persuasive sources to share, at least to get started.

02nz
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Re: Counseling a Colleague About Their Financial Advisor

Post by 02nz » Tue Jul 16, 2019 2:44 pm

It doesn’t sound like you were really asked for advice, in which case I’d stay out of it, and only answer questions she proactively asks. If she wants to learn more, point her to one of the books recommended here.

Broken Man 1999
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Re: Counseling a Colleague About Their Financial Advisor

Post by Broken Man 1999 » Tue Jul 16, 2019 2:49 pm

Steer her to a copy of If You Can by Bill Bernstein. Fantastic little booklet. Simple to read and understand.

Broken Man 1999
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Trader Joe
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Re: Counseling a Colleague About Their Financial Advisor

Post by Trader Joe » Tue Jul 16, 2019 2:51 pm

travelogue wrote:
Tue Jul 16, 2019 2:41 pm
A colleague was chatting with me and mentioned she and her husband are thinking about changing financial advisors. I don’t have all the details, but it appears the advisor charges a fee of 1% of their assets. He doesn’t hold or manage their assets, he just gives advice.

My colleague mentioned she used to use a TDF in her retirement portfolio but the advisor “made her a lot of money” by changing her investments.

There are a number of issues here, and I don’t have all the details, but I was trying to share the idea of hourly fee for services vs a percentage of their assets as well as the concept of asset allocation based on risk/return vs market timing.

Any ideas on how to approach the follow on conversation regarding financial advisor best practices and the fact that the advisor may have moved to an asset allocation that may be outside their risk tolerance if they understood the trade offs?

To be clear, I’m not looking to pry or lecture; she came to me and was interested in where to learn more. I don’t think she’s the type to hang out here, so I’m thinking I’d probably need a few succinct and persuasive sources to share, at least to get started.
My recommendation is that you stay out of it. Best of luck.

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Re: Counseling a Colleague About Their Financial Advisor

Post by Grt2bOutdoors » Tue Jul 16, 2019 2:56 pm

Broken Man 1999 wrote:
Tue Jul 16, 2019 2:49 pm
Steer her to a copy of If You Can by Bill Bernstein. Fantastic little booklet. Simple to read and understand.

Broken Man 1999
I don't think Bill's booklet is going to work in this situation. The OP's colleague is not a "set it and forget it" person. Saving is not the issue, they know they need to save, they don't want to pay 1% but they do like the active trading aspect. What they should read is A Random Walk Down Wall Street by Makiel, but they have to want to read it. Another book, thinner in volume is Winning the Losers Game. Yes, you can make alot of money by taking extraordinary risk, you can make alot of money by getting lucky, you can make alot of money by working hard. Given the choice, most people will want the "quick win", but not at the expense of losing big either. The OP's colleague needs to see that they can "lose big" by going with a trader.
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Re: Counseling a Colleague About Their Financial Advisor

Post by livesoft » Tue Jul 16, 2019 2:56 pm

You have to humble brag back at her: "I made a lot of money, too, but I didn't have to pay 1% to do it." Generally, people who have made a lot of money think they did great when they made 10% even if everybody else made 20%. You know the stock market is up about* 30% since Christmas, right?

*No tilde there. :)
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Taylor Larimore
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Re: Counseling a Colleague About Their Financial Advisor

Post by Taylor Larimore » Tue Jul 16, 2019 3:06 pm

I’m not looking to pry or lecture; she came to me and was interested in where to learn more. I don’t think she’s the type to hang out here, so I’m thinking I’d probably need a few succinct and persuasive sources to share, at least to get started.
travelogue:

I believe it almost useless to try and convince someone about the Boglehead way to invest unless they have read a good book on the subject so they know what you are talking about. Accordingly, if it is a good friend or relative, buy them a good, easy to read, book about personal investing. This may be my favorite:

"The Little Book of Common Sense Investing".

Best wishes
Taylor
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Last edited by Taylor Larimore on Tue Jul 16, 2019 3:07 pm, edited 1 time in total.
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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Tue Jul 16, 2019 3:07 pm

Good words of caution. I’m thinking a very light touch. Just the fact that there are advisors that charge by the hour rather than percentage and something simple on strategic asset allocation and basta.

Even though the ideas we generally subscribe to here are basically simple, they are challenging to meaningfully convey in a short conversation. Hopefully, if they are interested, they’ll start investigating and begin their own journey.

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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Tue Jul 16, 2019 3:10 pm

Taylor, well said. Thank you, and I agree. Maybe I’ll buy a copy and leave it on her chair with a little note that I enjoyed and learned from the book.

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Re: Counseling a Colleague About Their Financial Advisor

Post by Stinky » Tue Jul 16, 2019 4:26 pm

travelogue wrote:
Tue Jul 16, 2019 3:10 pm
Taylor, well said. Thank you, and I agree. Maybe I’ll buy a copy and leave it on her chair with a little note that I enjoyed and learned from the book.
Excellent idea. The book costs $16.49 on Amazon. You can tell your friend that this book was very important to you in understanding how to invest, and it's a very easy read.
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ClevrChico
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Re: Counseling a Colleague About Their Financial Advisor

Post by ClevrChico » Tue Jul 16, 2019 7:24 pm

I believe people are drawn to advisors to make themselves feel wealthy. (And not understanding the huge impact of fees.)

It's best to not engage and stay away from this topic. It rarely turns out well.

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Re: Counseling a Colleague About Their Financial Advisor

Post by arcticpineapplecorp. » Tue Jul 16, 2019 7:41 pm

travelogue wrote:
Tue Jul 16, 2019 2:41 pm
A colleague was chatting with me and mentioned she and her husband are thinking about changing financial advisors. I don’t have all the details, but it appears the advisor charges a fee of 1% of their assets. He doesn’t hold or manage their assets, he just gives advice.

My colleague mentioned she used to use a TDF in her retirement portfolio but the advisor “made her a lot of money” by changing her investments.

There are a number of issues here, and I don’t have all the details, but I was trying to share the idea of hourly fee for services vs a percentage of their assets as well as the concept of asset allocation based on risk/return vs market timing.
I'm a little confused. You're saying they want to change advisors. Why? And to what?

Secondly, you're saying the current advisor doesn't hold or manage their assets, but charges a 1% fee? What is he charging 1% of $0? No, he's charging 1% of the assets he's managing/holding. If he's charging an hourly fee it wouldn't be a percentage. It would be an hourly fee.

You say he just gives advice, but then you said he made her a lot of money by changing the investments. Did he change them (as in "manage") or were they recommendations to change and your friend actually made the changes?

Regardless, if she made the claim she did better with the new mix of assets, did you ask her if she compared the performance to what the TDF did? Otherwise, if she didn't compare the two how does she know how much better she did than she would have done?

Whenever someone says their advisor "made them a lot of money" I say how nice it is for the advisor to be running a charity. :wink:

When I then get the blank stare, I correct them, saying the advisor did it because it made the "him a lot of money". :twisted:
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Wed Jul 17, 2019 8:28 am

This Morningstar Long View podcast is a timely addition to the conversation. A good listen on choosing a financial advisor. Rick gets a nice mention.

https://www.morningstar.com/articles/93 ... i-was-nuts

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Re: Counseling a Colleague About Their Financial Advisor

Post by Sandtrap » Wed Jul 17, 2019 8:31 am

Here's an ongoing thread on the same scenario but with Edward Jones, the same comments apply here:
Interesting reading.
Edward Jones: Trap
viewtopic.php?f=1&t=233308

The comments and thread could apply to other FA's, etc.
Perhaps forward the link to your friends so they will be cautious.

j
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Re: Counseling a Colleague About Their Financial Advisor

Post by Nate79 » Wed Jul 17, 2019 9:30 am

A hourly fee advisor might actually be more expensive than she is paying depending on how much money she has under management and how much they cost for their advice.

A really good advisor is Rick Ferri and you can see here what he charges for his time and this should be the benchmark:
https://www.thinkadvisor.com/2019/04/12 ... 0617102829
Ferri charges $450 an hour for investment advice to restructure or create long-term customized portfolios for individual clients but has a special introductory offer of $500 for a 90-minute session that is prorated if the session runs shorter. “You only pay for the time you need,” he says.
So Rick is cheaper if she has >$50k of assets. But I can guarantee that Rick is a much better advisor with much better advice for low cost investing with index funds.

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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Wed Jul 17, 2019 9:33 am

I would guess over $1.5M of assets.

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Re: Counseling a Colleague About Their Financial Advisor

Post by pkcrafter » Wed Jul 17, 2019 9:58 am

A colleague was chatting with me and mentioned she and her husband are thinking about changing financial advisors. I don’t have all the details, but it appears the advisor charges a fee of 1% of their assets. He doesn’t hold or manage their assets, he just gives advice.
This doesn't sound right. If he's charging an ongoing 1% he's probably withdrawing it from their portfolio, which means assets are under management. If not actually AUM (assets under management) and they are paying out of pocket, it's way too much. Is the advisor a fiduciary?

https://investingroadmap.wordpress.com/ ... n-advisor/

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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Wed Jul 17, 2019 9:59 am

Most of their portfolio is in the TSP, so I don’t think that’s possible. I highly doubt the advisor is a fiduciary. She was interested in the Morningstar podcast linked above, so that might help.

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Re: Counseling a Colleague About Their Financial Advisor

Post by dbr » Wed Jul 17, 2019 11:08 am

They want to pay $15,000 per year for advice on how to manage the money in their TSP? Is that their understanding of what they are doing or is there some missing information here? If all the money is in the TSP do they write the guy a check for $1250 every month?

I'm curious what change was made and how much money she gained by it? It is even possible that TDF fund was not the optimum choice given their need, ability, and willingness to take risk and the advice was worth it. I wonder if he continues to advice changes in how the money is invested.

Of course, if you pay someone $300,000 over twenty years and at the end of that have $500,000 more, then how can you argue? It is impossible to see without a lot of study and understanding that the one thing is not actually the cause of the other.

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Re: Counseling a Colleague About Their Financial Advisor

Post by Pu239 » Wed Jul 17, 2019 11:50 am

Charging 1% annually to advise about assets in a TSP is highway robbery. Hopefully they are getting full planning services and not just advice on investments. A fiduciary responsibility is advisable. Some folks need and benefit from an advisor especially during downturns and at critical stages of life. If a spark of self-help is detectable, there's hope your colleague will gain from your advice and knowledge.

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Re: Counseling a Colleague About Their Financial Advisor

Post by pkcrafter » Wed Jul 17, 2019 11:52 am

Travelogue ,wow, if your friends are paying someone (anyone) 1% to tell them how to invest in TSP funds, they are just throwing the money away. An advisor, to justify the fee, will have to give the appearance of doing something, so the account will get constantly churned, which will ultimately hurt performance. :(

Paul
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Re: Counseling a Colleague About Their Financial Advisor

Post by dbr » Wed Jul 17, 2019 12:05 pm

I really wonder if something is missing here. I still want the OP to tell me his friends actually write a thousand dollar check every month to this guy.

Maybe the advisor is a one man office. At a firm is it even possible to set-up an arrangement like this with a fee NAAUM (no assets actually under management)?

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Re: Counseling a Colleague About Their Financial Advisor

Post by nick evets » Wed Jul 17, 2019 12:13 pm

Will you tell your friend she should listen to you because you've been reading a free internet forum, and getting good advice from strangers? And she is wasting money working with a certified financial advisor?

What level of credibility are you bringing to the table that qualifies you to direct her family's investments? It's a very reasonable question.

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Re: Counseling a Colleague About Their Financial Advisor

Post by sergeant » Wed Jul 17, 2019 12:14 pm

OP, stay out of it.
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travelogue
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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Wed Jul 17, 2019 12:29 pm

Hi folks. No need to get cross. I’m staying out of it and (as mentioned above) for sure don’t have all the details. Thanks for constructive insights.

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Re: Counseling a Colleague About Their Financial Advisor

Post by esteen » Wed Jul 17, 2019 1:02 pm

Taylor Larimore wrote:
Tue Jul 16, 2019 3:06 pm
travelogue:

I believe it almost useless to try and convince someone about the Boglehead way to invest unless they have read a good book on the subject so they know what you are talking about. Accordingly, if it is a good friend or relative, buy them a good, easy to read, book about personal investing. This may be my favorite:

"The Little Book of Common Sense Investing".

Best wishes
Taylor
+1 to Taylor's suggestion if you go the book route. A lot of folks are not readers and won't sit through reading a whole book, so instead you can point them to something like a short Youtube video of a Jack Bogle interview, or (though this is more 401(k) specific) John Oliver's 20-min bit on Retirement Plans, which is both humorous and informative. That might get them interested enough to then move on to a book that provides more detail.

Though I love "If You Can", the tilt toward Millennials can sometimes make older individuals disregard it as of the first page, which is unfortunate because the advice works well for many ages.

-ES

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Re: Counseling a Colleague About Their Financial Advisor

Post by travelogue » Wed Jul 17, 2019 1:05 pm

Sandtrap wrote:
Wed Jul 17, 2019 8:31 am
Here's an ongoing thread on the same scenario but with Edward Jones, the same comments apply here:
Interesting reading.
Edward Jones: Trap
viewtopic.php?f=1&t=233308

The comments and thread could apply to other FA's, etc.
Perhaps forward the link to your friends so they will be cautious.

j
Yes, this was a good (and very similar) thread. Thanks. Painful as it may be, it’s an extremely fraught process to try and share financial knowledge with others.

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Re: Counseling a Colleague About Their Financial Advisor

Post by barnaclebob » Wed Jul 17, 2019 1:21 pm

Your friend likely wont listen because believing in what you say will cause them to have to come to terms with the reality that they've thrown away tens if not a hundred thousand dollars. It is human nature to not want to look like a fool. In some cases this urge can be so strong that you literally may not take life saving actions if it causes you to have to act out in a crowd.
Last edited by barnaclebob on Wed Jul 17, 2019 1:26 pm, edited 1 time in total.

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Re: Counseling a Colleague About Their Financial Advisor

Post by mptfan » Wed Jul 17, 2019 1:23 pm

02nz wrote:
Tue Jul 16, 2019 2:44 pm
It doesn’t sound like you were really asked for advice, in which case I’d stay out of it, and only answer questions she proactively asks. If she wants to learn more, point her to one of the books recommended here.
I agree. Stay out of it unless you are asked a direct question.

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Re: Counseling a Colleague About Their Financial Advisor

Post by mptfan » Wed Jul 17, 2019 1:26 pm

nick evets wrote:
Wed Jul 17, 2019 12:13 pm
Will you tell your friend she should listen to you because you've been reading a free internet forum, and getting good advice from strangers? And she is wasting money working with a certified financial advisor?

What level of credibility are you bringing to the table that qualifies you to direct her family's investments? It's a very reasonable question.
I agree it's a very reasonable question, and it's something that some Bogleheads tend to overlook. Are we supposed to advise people to fire a professional financial advisor with certifications after their name because we read some stuff on a free internet forum that says so?

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Re: Counseling a Colleague About Their Financial Advisor

Post by jbranx » Wed Jul 17, 2019 2:25 pm

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