Registered Investment Advisers typical fees

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Topic Author
edvest
Posts: 46
Joined: Sat Oct 06, 2018 3:27 pm

Registered Investment Advisers typical fees

Post by edvest » Mon Sep 23, 2019 10:37 am

What fee's can I expect to pay to RIA located in the New Jersey area?

usagi
Posts: 226
Joined: Wed Jun 05, 2019 1:08 am

Re: Registered Investment Advisers typical fees

Post by usagi » Mon Sep 23, 2019 9:57 pm

Just so you understand, being a RIA is sort of like the snail droppings in the financial aquarium of life. It is not a designation to brag about. It is akin to having a driver's license. That means legally you can drive a car it does not automatically mean you are a CDL or qualified to race in the Indy 500. Designations to look for that matter related to finance are ChFC, CFP, CFA, and possibly a CLU or CIC. Of these I would look for a CFA then a MSFS, then a ChFC and finally a CFP (the CFA is by far the hardest to obtain then the MSFS). There are a few designations designed to allow CPAs and Lawyers in on the financial planning racket that may be worthwhile depending on your circumstances.

Here is a quote from investopedia:

Registering as an RIA isn't meant to denote any form of recommendation or endorsement by the SEC or state securities regulators. It means only that the investment advisor has fulfilled all the requirements for registration. For advisors who register with the SEC, the required information includes the advisor's investment style, assets under management (AUM), fees, any disciplinary actions, and, for a firm, the key officers. Other requirements include the RIA informing the SEC of any potential conflicts of interest that have arisen for them in their work, or that might do so in future.

reference:

https://www.investopedia.com/terms/r/ria.asp

I would also suggest reviewing this article:

https://www.kitces.com/blog/are-the-lic ... -too-easy/

Topic Author
edvest
Posts: 46
Joined: Sat Oct 06, 2018 3:27 pm

Re: Registered Investment Advisers typical fees

Post by edvest » Thu Oct 03, 2019 5:24 am

Thank Usagi!

I'm entertaining two different advisors. The one is independent CFA who charges an upfront fee of 3500. for the first year and a touch-up hourly fee each year afterwards.

The other owns his own investment company, charges no fee's at all and has no RIA, CFA or other designations. He was referred to us by friends who use him. When I asked our friend he said he pays no fee's and this advisor gave them a "20% return last year".

Who would you think gets paid more? (As in out of my pocket)
Do you think the above 20%/no fee is real?
Who would you suggest we go with?

tu

bradinsky
Posts: 166
Joined: Sat Jul 21, 2018 6:32 am

Re: Registered Investment Advisers typical fees

Post by bradinsky » Thu Oct 03, 2019 6:20 am

Maybe your friends actually made 35%, and the advisor skimmed off 15% :D No one works for free.

usagi
Posts: 226
Joined: Wed Jun 05, 2019 1:08 am

Re: Registered Investment Advisers typical fees

Post by usagi » Fri Oct 04, 2019 1:45 am

edvest wrote:
Thu Oct 03, 2019 5:24 am
Thank Usagi!

I'm entertaining two different advisors. The one is independent CFA who charges an upfront fee of 3500. for the first year and a touch-up hourly fee each year afterwards.

The other owns his own investment company, charges no fee's at all and has no RIA, CFA or other designations. He was referred to us by friends who use him. When I asked our friend he said he pays no fee's and this advisor gave them a "20% return last year".

Who would you think gets paid more? (As in out of my pocket)
Do you think the above 20%/no fee is real?
Who would you suggest we go with?

tu
I would not worry about who gets paid more, as much as I would worry about the quality of the advice.

Without knowing home much you have in assets it is hard to assess what is appropriate. $3,500 on a one time basis on a 1 million dollar portfolio for a professionally tailored portfolio may very well be worth it (that is .0035 of your assets). And annual touch up of $500 or so a year would also be reasonable. As I said, a CFA is a hard earned designation it is not the type of thing a salesman usually has to paint on his shingle.

I would ask each what type of information they need from you. You may get an idea of how in depth they will go by what they ask. That may very comfortably steer you to one over the other. I also would ask for a financial disclosure. It seems obvious that non-CFA is getting compensated by product placement, but that is not necessarily a red flag, as everyone needs to eat. What I would look at very closely is the pool of funds he recommends, the shareclass, so you can see if his recommendations come with an annual kickback that impacts your expense ratio.

If I had to do this blind, I would go with the CFA, it is a moderately tough designation to get. A CFP, ChFC, CPCU, or CPA is a cakewalk in comparison. I already had my Series 6 & 7, ChFC, a B.S. in finance, and a MA in Econ before I took the first CFA exam and it was challenging. I was awarded my CPCU, before I took my second CFA exam. Out of these, the CFA exams (I never took the third exam)were the toughest by far (granted this was decades ago, but I doubt it has changed much).

20% in any of the last few years could have been easy depending on when the market was entered and the risk ensured. Here is an important concept to understand, there is a thing called a risk adjusted return. In essence it means the more risk you take the greater your compensation should be. So what that mean in practice is if the S&P 500 rose 10% in a given year, but you put all your money in just 3 stocks and they collectively returned 20%, on a risk adjusted basis you under performed the market because you took on industry specific risk as well as company specific risk and were not adequately rewarded for the risk ensued. Another way to view it is, who is the better investor, the person who gets 2% on a FDIC insured CD or the person who get a 10% return betting on a horse race?

It it not hard to earn a seeming outside return for 1,3,5,7 years, the trick is in doing it consistently.

And when looking at returns, you need to look at the beta of the portfolio. If the portfolio had a 1.2 beta, then a 20% return in an up year would be expected (by definition).

Lastly a 20% return means your portfolio would double every 3.6 years. I would ask the 20% financial guy for an audited statement of his personal net worth. You can see the progression.

In a mere 10.8 years, at 20%, you would expect 100K to grow to 800k, in 14.4 years 1.6 million and in 18 years 3.2 million without having added in a single dime. As a result I would expect someone who can get 20% returns in a year when the broad based market was down 5-6% to be worth several million dollars on a personal level and be able to prove it. I mean, just think of the pile of money someone would had if they were making yearly contributions. Then I would wonder with all those millions why was he still out looking for clients.

I hope that helps.

frcabot
Posts: 211
Joined: Mon Mar 26, 2018 12:59 am

Re: Registered Investment Advisers typical fees

Post by frcabot » Fri Oct 04, 2019 1:53 am

usagi wrote:
Fri Oct 04, 2019 1:45 am
edvest wrote:
Thu Oct 03, 2019 5:24 am
Thank Usagi!

I'm entertaining two different advisors. The one is independent CFA who charges an upfront fee of 3500. for the first year and a touch-up hourly fee each year afterwards.

The other owns his own investment company, charges no fee's at all and has no RIA, CFA or other designations. He was referred to us by friends who use him. When I asked our friend he said he pays no fee's and this advisor gave them a "20% return last year".

Who would you think gets paid more? (As in out of my pocket)
Do you think the above 20%/no fee is real?
Who would you suggest we go with?

tu
I would not worry about who gets paid more, as much as I would worry about the quality of the advice.

Without knowing home much you have in assets it is hard to assess what is appropriate. $3,500 on a one time basis on a 1 million dollar portfolio for a professionally tailored portfolio may very well be worth it (that is .0035 of your assets). And annual touch up of $500 or so a year would also be reasonable. As I said, a CFA is a hard earned designation it is not the type of thing a salesman usually has to paint on his shingle.

I would ask each what type of information they need from you. You may get an idea of how in depth they will go by what they ask. That may very comfortably steer you to one over the other. I also would ask for a financial disclosure. It seems obvious that non-CFA is getting compensated by product placement, but that is not necessarily a red flag, as everyone needs to eat. What I would look at very closely is the pool of funds he recommends, the shareclass, so you can see if his recommendations come with an annual kickback that impacts your expense ratio.

If I had to do this blind, I would go with the CFA, it is a moderately tough designation to get. A CFP, ChFC, CPCU, or CPA is a cakewalk in comparison. I already had my Sereies 6 & 7, ChFC, a B.S. in finance, and a MA in Econ before I took the first CFA exam and it was challenging. I was awarded my CPCU, before I took my second CFA exam. Out of these, the CFA was the toughest by far (granted this was decades ago, but I doubt it has changed much).

20% in any of the last few years could have been easy depending on when the market was entered and the risk ensured. Here is an important concept to understand, there is a thing called a risk adjusted return. In essence it means the more risk you take the greater your compensation should be. So what that mean in practice is if the S&P 500 rose 10% in a given year, but you put all your money in just 3 stocks and they collectively returned 20%, on a risk adjusted basis you under performed the market because you took on industry specific risk as well as company specific risk and were not adequately rewarded for the risk ensued. Another way to view it is, who is the better investor, the person who gets 2% on a FDIC insured CD or the person who get a 10% return betting on a horse race?

It it not hard to earn a seeming outside return for 1,3,5,7 years, the trick is in doing it consistently.

And when looking at returns, you need to look at he beta of the portfolio. If the portfolio had a 1.2 beta, then a 20% return in an up year would be expected (by definition).

Lastly a 20% return means your portfolio would double every 3.6 years. I would ask the 20% financial guy for an audited statement of his personal net worth. You can see the progression.

In a mere 10.8 years, at 20%, you would expect 100K to grow to 800k, in 14.4 years 1.6 million and in 18 years 3.2 million without having added in a single dime. As a result I would expect someone who can get 20% returns in a year when the broad based market was down 5-6% to be worth several million dollars on a personal level and be able to prove it. I mean just think of the pile of money someone would had if they were making yearly contributions. Then I would wonder with all those millions why was he still out looking for clients.

I hope that helps.
Some of us have our millions and still enjoy helping others.

usagi
Posts: 226
Joined: Wed Jun 05, 2019 1:08 am

Re: Registered Investment Advisers typical fees

Post by usagi » Fri Oct 04, 2019 2:10 am

frcabot wrote:
Fri Oct 04, 2019 1:53 am

Some of us have our millions and still enjoy helping others.
That is likely true but also unusual.

Sconie
Posts: 762
Joined: Sun Feb 07, 2010 10:23 am
Location: Arizona

Re: Registered Investment Advisers typical fees

Post by Sconie » Fri Oct 04, 2019 4:30 am

edvest-----my suggestion is neither. Just hang around here for awhile and, in the process, save yourself some real coin. :wink:
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

Topic Author
edvest
Posts: 46
Joined: Sat Oct 06, 2018 3:27 pm

Re: Registered Investment Advisers typical fees

Post by edvest » Thu Oct 10, 2019 8:08 am

Thank you Usagi and friends!

pkcrafter
Posts: 13649
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Registered Investment Advisers typical fees

Post by pkcrafter » Thu Oct 10, 2019 11:05 am

edvest wrote:
Thu Oct 03, 2019 5:24 am
Thank Usagi!

I'm entertaining two different advisors. The one is independent CFA who charges an upfront fee of 3500. for the first year and a touch-up hourly fee each year afterwards.

This sounds like a fee for a one-time complete investment plan, not assets under management.

The other owns his own investment company, charges no fee's at all and has no RIA, CFA or other designations. He was referred to us by friends who use him. When I asked our friend he said he pays no fee's and this advisor gave them a "20% return last year".

Stay clear of this guy.

Who would you think gets paid more? (As in out of my pocket).

Hard to say, but when looking at these two options, neither would be a wise choice. Accredited advisors usually charge 1% of managed assets, but they can increase income by putting you into high-cost investments, churing your portfolio and other things, so again, you have to know a fair deal when it's pitched.

One thing you must do is learn about investing. Turning over assets to someone without some knowledge is a risky move. The second part of that is once you do know enough to judge an advisor, you probably also know enough to self-manage. You can learn all you need to know right here.

Getting Started:

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


Using an accredited advisor usually costs 1% of assets under management

Do you think the above 20%/no fee is real?

Don't know, but the guy is not legit.

Who would you suggest we go with?

1. Hang around and learn how to do it yourself
2. Check out Garrett Planning Network


viewtopic.php?t=62197

https://garrettplanningnetwork.com/

3. How to evaluate and choose an advisor

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

Welcome to the forum! :sharebeer

Paul

Last edited by pkcrafter on Thu Oct 10, 2019 4:43 pm, edited 1 time in total.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Topic Author
edvest
Posts: 46
Joined: Sat Oct 06, 2018 3:27 pm

Re: Registered Investment Advisers typical fees

Post by edvest » Thu Oct 10, 2019 11:14 am

Wow ^ thanks Paul! :happy

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