Money manager, is it worth it ? 1M to invest.

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paradigm17
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Money manager, is it worth it ? 1M to invest.

Post by paradigm17 » Sat May 02, 2020 4:12 pm

Hello all,

In my pursuit for financial planing i reached out to a fee only financial advisor who also manages money. Initially i signed up for the financial advising service with a fee of $3,000. I am now considering having my assets managed by the financial advisor.

Here are the services which are included in the financial planning.
  • Retirement Planning and Plans
    College Planning
    Investment Planning and Asset Allocation
    Tax Planning
    Estate Planning
    Insurance Planning and Risk Management
    Debt Management & Reduction
    Household & Family Budgeting
    Cash Flow Projections & Analysis
    Lease vs. Buy Analysis
    Large Purchase Negotiation and Goal Planning
    Debt Refinancing & Prepayment Analysis
    Stock Option Planning
    Executive Benefit Plans
    Business & Real Estate Acquisition & Planning
    Traditional to Roth IRA Conversion Planning

Breakdown of my assets, i am 30 years old. 90% of assets accumulated in last 3 years from my business.
960k - cash in a money market and other accounts.
100K - in SEP ira + Roth IRA with Vanguard 2050 fund.
350K - house.

The financial adviser i chose has the below credentials. I did shop around and i chose this one out of the others.
Manages about 60M for over 60 families. Small firm, only him as principal consultant along with his wife as a helping hand.

CERTIFIED FINANCIAL PLANNER
CERTIFIED PUBLIC ACCOUNTANT
MEMBER OF NAPFA,FPA, AICPA
ACTIVE SINCE 1980.
Managing fee is 1% of assets.

The reason why i'm considering having someone manage my assets is because in the last few months i have been trying to figure out how to invest this money according to bogleheads way of investing but i feel very overwhelmed by all the information and am very indecisive about investing a million dollars, especially in the current environment. I feel compelled to have someone with experience manage it rather then having myself go through mental gymnastics trying to make a decision.

I have a meeting to discuss further next week, what kind of questions should i ask?
Do you recommend having someone actively manage your money as supposed to slowly investing in ETFs? Pros and Cons ?


Thank you for reading and sharing your thoughts. I am trying to make the best educated decision.

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Raybo
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Re: Money manager, is it worth it ? 1M to invest.

Post by Raybo » Sat May 02, 2020 4:22 pm

Investing is part of a larger life/financial plan. Without knowing what you want to do, it is hard to design an investment scheme to get you there.

What are your goals in life? Retire early? Travel? Kids? What are your expenses?

Hopefully, the "plan" your advisor has created addresses these questions with suitable input from you.

My suggestion is to post whatever s/he has proposed here and get feedback. I've had a couple of money managers in my life. All but one was worthless and cost me money. The "good" one was honest and I was already fairly experienced at investing (along with an MBA). Still, I needed to be diligent in reading everything before investing my money.

Given your income stream (will it continue in a post-virus world economy?), I wouldn't be in a hurry to invest your current pile. My suggestion is to keep reading, posting here, and planning your future. When you feel comfortable with your investment plans, start executing them.

Investing isn't rocket science. Simple is best and many people do just fine with a single Target Retirement fund.

Good luck and congratulations on doing so well!
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

retired@50
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Re: Money manager, is it worth it ? 1M to invest.

Post by retired@50 » Sat May 02, 2020 4:27 pm

paradigm17 wrote:
Sat May 02, 2020 4:12 pm
Hello all,

Breakdown of my assets, i am 30 years old. 90% of assets accumulated in last 3 years from my business.
960k - cash in a money market and other accounts.
100K - in SEP ira + Roth IRA with Vanguard 2050 fund.

Managing fee is 1% of assets.

The reason why i'm considering having someone manage my assets is because in the last few months i have been trying to figure out how to invest this money according to bogleheads way of investing but i feel very overwhelmed by all the information and am very indecisive about investing a million dollars, especially in the current environment. I feel compelled to have someone with experience manage it rather then having myself go through mental gymnastics trying to make a decision.

I have a meeting to discuss further next week, what kind of questions should i ask?
Do you recommend having someone actively manage your money as supposed to slowly investing in ETFs? Pros and Cons ?


Thank you for reading and sharing your thoughts. I am trying to make the best educated decision.
paradigm,
See link to a Jason Zweig article from The Wall Street Journal about questions you should ask a prospective adviser.

https://jasonzweig.com/the-19-questions ... l-adviser/

Keep in mind that his fee will be $10,000 per year for a $1,000,000 portfolio. As your portfolio rises in value, his fee will rise too.

That's a lot of money to pay to avoid reading up on the Three Fund Portfolio. See link. https://www.bogleheads.org/wiki/Three-fund_portfolio

I'd recommend you take a few days to think about when you might need the money (retirement) or sooner and for what purpose. Then, develop a plan that suits your needs. You can also take a week or two and read the J.L. Collins book "The Simple Path to Wealth". There are so many great resources available to you, it's certainly within your capability to handle this on your own. And of course, you can always come back here for more help and encouragement.

Regards,
This is one person's opinion. Nothing more.

sport
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Re: Money manager, is it worth it ? 1M to invest.

Post by sport » Sat May 02, 2020 4:53 pm

Investment management is not difficult. In fact is surprisingly easy. However, if you feel you need a "pro" to manage your investments, Vanguard Personal Advisor Service (PAS) will manage your portfolio for 0.3% of the assets under management. They will use only very low cost Vanguard Funds, so they will not put you into any expensive investments that somehow benefit the advisor. In short, they have no conflict of interest. In addition, there are no long-term commitments. Once they set things up for you and you see how it all works, you can discontinue the service and take over the management yourself, any time you wish. So, if you follow this suggestion, I just saved you $7000 the first year.

mhalley
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Re: Money manager, is it worth it ? 1M to invest.

Post by mhalley » Sat May 02, 2020 5:17 pm

I agree that 1% is way too much to pay. I second using vanguard PAS and after a quarter or 2 you should have learned enough to cancel them and do it without the 0.3% fee.

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CAsage
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Re: Money manager, is it worth it ? 1M to invest.

Post by CAsage » Sat May 02, 2020 5:57 pm

How many of those nifty long list of items do you need help with, really? The hard part about investing is figuring out what YOUR short term and long term goals are. Then you can choose an asset allocation (and there are a range of right or good enough answers). What you cannot buy at any price is a prediction of what the market will do so as to prevent any losses or maximize your return.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

KSActuary
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Re: Money manager, is it worth it ? 1M to invest.

Post by KSActuary » Sat May 02, 2020 6:29 pm

Unless you are a rock star, pro athlete or speciality doc, financial planning for a 30 year is not very time consuming. The list of services is more like the things they want to sell you. You have done very well for yourself. A 1% fee for you is crazy unless you have extremely tricky investment needs including irrevocable trusts, etc. Trust the BH way and save the fees. I would never charge that much.

nanameg
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Re: Money manager, is it worth it ? 1M to invest.

Post by nanameg » Sat May 02, 2020 6:35 pm

That's a lot of money to pay to avoid reading up on the Three Fund Portfolio. See link. https://www.bogleheads.org/wiki/Three-fund_portfolio

I'd recommend you take a few days to think about when you might need the money (retirement) or sooner and for what purpose. Then, develop a plan that suits your needs. You can also take a week or two and read the J.L. Collins book "The Simple Path to Wealth". There are so many great resources available to you, it's certainly within your capability to handle this on your own. And of course, you can always come back here for more help and encouragement.


I’ve read the “ Simple Path to Wealth” and I see that now JL Collins is investing in international but he had all the reasons not to so sewn up in that book!

L82GAME
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Re: Money manager, is it worth it ? 1M to invest.

Post by L82GAME » Sat May 02, 2020 6:45 pm

paradigm17 wrote:
Sat May 02, 2020 4:12 pm
Hello all,

In my pursuit for financial planing i reached out to a fee only financial advisor who also manages money. Initially i signed up for the financial advising service with a fee of $3,000. I am now considering having my assets managed by the financial advisor.

Here are the services which are included in the financial planning.
  • Retirement Planning and Plans
    College Planning
    Investment Planning and Asset Allocation
    Tax Planning
    Estate Planning
    Insurance Planning and Risk Management
    Debt Management & Reduction
    Household & Family Budgeting
    Cash Flow Projections & Analysis
    Lease vs. Buy Analysis
    Large Purchase Negotiation and Goal Planning
    Debt Refinancing & Prepayment Analysis
    Stock Option Planning
    Executive Benefit Plans
    Business & Real Estate Acquisition & Planning
    Traditional to Roth IRA Conversion Planning

Breakdown of my assets, i am 30 years old. 90% of assets accumulated in last 3 years from my business.
960k - cash in a money market and other accounts.
100K - in SEP ira + Roth IRA with Vanguard 2050 fund.
350K - house.

The financial adviser i chose has the below credentials. I did shop around and i chose this one out of the others.
Manages about 60M for over 60 families. Small firm, only him as principal consultant along with his wife as a helping hand.

CERTIFIED FINANCIAL PLANNER
CERTIFIED PUBLIC ACCOUNTANT
MEMBER OF NAPFA,FPA, AICPA
ACTIVE SINCE 1980.
Managing fee is 1% of assets.

The reason why i'm considering having someone manage my assets is because in the last few months i have been trying to figure out how to invest this money according to bogleheads way of investing but i feel very overwhelmed by all the information and am very indecisive about investing a million dollars, especially in the current environment. I feel compelled to have someone with experience manage it rather then having myself go through mental gymnastics trying to make a decision.

I have a meeting to discuss further next week, what kind of questions should i ask?
Do you recommend having someone actively manage your money as supposed to slowly investing in ETFs? Pros and Cons ?


Thank you for reading and sharing your thoughts. I am trying to make the best educated decision.
RE: Bold passage above; answer is “no”. Will result in an ongoing, automatic, compounding loss of your wealth. Does it make sense to use a fee-only advisor to kick-start your journey? Maybe, but educate yourself first per other posts herein.

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nisiprius
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Re: Money manager, is it worth it ? 1M to invest.

Post by nisiprius » Sat May 02, 2020 6:57 pm

I don't think an ordinary retirement saver with $1 million to invest, and that is the only financial management issue you have, needs to pay a professional manager just to manage an investment portfolio.

If you have $5 million, are mostly invested in a taxable account, run a small business, file schedule C, are paying or being paid alimony, are managing rental real estate, need estate planning, are receiving royalties, are already paying an accountant and a lawyer, and need a coordinated planner who understands enough about taxes and insurance and college tuition and business to grasp the whole picture.. then yes.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Guinness8
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Re: Money manager, is it worth it ? 1M to invest.

Post by Guinness8 » Sat May 02, 2020 7:19 pm

The problem with money managers is the fact that it is based on a percentage of your money, when it takes the same amount of effort to manage your million, versus someone else's 200K. I would check out the 3 fund portfolio on this site and maybe read one of the Bogleheads books on investing or retirement and decide if you want to do it yourself or use Vanguard's service or someone who doesn't charge you according to the amount of money you have.

retired@50
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Re: Money manager, is it worth it ? 1M to invest.

Post by retired@50 » Sat May 02, 2020 7:48 pm

Guinness8 wrote:
Sat May 02, 2020 7:19 pm
The problem with money managers is the fact that it is based on a percentage of your money, when it takes the same amount of effort to manage your million, versus someone else's 200K. I would check out the 3 fund portfolio on this site and maybe read one of the Bogleheads books on investing or retirement and decide if you want to do it yourself or use Vanguard's service or someone who doesn't charge you according to the amount of money you have.
Welcome to the forum Guinness8! Well reasoned advice for a first post. Keep it up! :sharebeer
This is one person's opinion. Nothing more.

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Dale_G
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Re: Money manager, is it worth it ? 1M to invest.

Post by Dale_G » Sat May 02, 2020 8:41 pm

I decided to run a test on my own portfolio to see how things would have changed if I paid an advisor 1% over the past 24 years.

I first had 1 million in December 1995, all invested in low cost Bogleheadish funds. I am assuming the advisor would not have improved or detracted from my investment returns. He/she would have had to use low cost funds.

Money was added and removed, so this has nothing to do with investment returns, I simply used year end portfolio balances adjusted to account for the cumulative advisor fees, and the effective compounding of those fees. Minor errors introduced because I took the fee out at the end of the year, etc.

So the results over 24 years:

Fees paid to the advisor = $565,163 - and the portfolio value was reduced by $1,069,644.

Glad I read a few books.

Dale
Volatility is my friend

ellink
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Re: Money manager, is it worth it ? 1M to invest.

Post by ellink » Sat May 02, 2020 8:51 pm

It is frustrating to always get the same answer, "you can do it yourself" or "use the Vanguard advisor". The thing is, neither of those options address the issues that the OP listed:

Insurance Planning and Risk Management
Debt Management & Reduction
Household & Family Budgeting
Cash Flow Projections & Analysis
Lease vs. Buy Analysis
Large Purchase Negotiation and Goal Planning
Debt Refinancing & Prepayment Analysis
Stock Option Planning
Executive Benefit Plans
Business & Real Estate Acquisition & Planning

I am in the same position and the advice isn't especially helpful. Likely a fee-only advisor is what he needs. And as someone who has done that search, it's a needle in a haystack scenario.

confusedinvestor
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Re: Money manager, is it worth it ? 1M to invest.

Post by confusedinvestor » Sat May 02, 2020 8:54 pm

Hi,

Question you may ask...

1. Are you a fiduciary ?
2. Are you open to a one time 'planning' with fixed fee w/o a AUM model (meaning moving your 1M assets with him) ?
3. Do you include tax prep as part of the AUM model / yearly engagement ?
4. What is your investment philosophy? what funds do you use and why ? What is your "typical" 64:40 portfolio look like ?
5. Will you share your typical planning template to see what value will I be getting for that 10K fees on 1M assets ?
6. What planning software's do you use ? who is your custodian ?
7.
8.

I can give you another 15+ questions to ask but....

You may want to read his ADV Part 2 first before going into the meeting. You can check his ADV in his website or request a copy or check at https://adviserinfo.sec.gov/ with his license number.

Hope this helps.

Read about ADV - https://beta.cfp.net/career-and-growth/ ... d5f6a18413

printer86
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Re: Money manager, is it worth it ? 1M to invest.

Post by printer86 » Sat May 02, 2020 9:16 pm

Cancel the meeting and keep the money parked in the money market funds while you educate yourself here. You’ll soon realize how simple managing your own account can be.

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Dale_G
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Re: Money manager, is it worth it ? 1M to invest.

Post by Dale_G » Sat May 02, 2020 11:34 pm

ellink wrote:
Sat May 02, 2020 8:51 pm
It is frustrating to always get the same answer, "you can do it yourself" or "use the Vanguard advisor". The thing is, neither of those options address the issues that the OP listed:

Insurance Planning and Risk Management
Debt Management & Reduction
Household & Family Budgeting
Cash Flow Projections & Analysis
Lease vs. Buy Analysis
Large Purchase Negotiation and Goal Planning
Debt Refinancing & Prepayment Analysis
Stock Option Planning
Executive Benefit Plans
Business & Real Estate Acquisition & Planning

I am in the same position and the advice isn't especially helpful. Likely a fee-only advisor is what he needs. And as someone who has done that search, it's a needle in a haystack scenario.
The OP said he had already signed up for financial advice on the laundry list you quoted. That's absolutely okay for someone who wants those services. I hope the OP gets a lot of benefit from that service.

But the OP also wrote
I am now considering having my assets managed by the financial advisor.
And that is the reason for the advice to learn how to do it yourself - or go with PAS - or pay by the hour.

A 1% AUM (assets under management) fee can be a very expensive proposition. And most "fee-only" advisors base the fee on AUM.

Did I mention that if I were paying a 1% AUM fee it would amount to more than the pretax total of my SS, my wife's SS and my small pension? And with the haircut to assets over a long period of time, the portfolio generates less income. Not a good idea.

Dale
Volatility is my friend

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Re: Money manager, is it worth it ? 1M to invest.

Post by bogledogle » Sat May 02, 2020 11:42 pm

paradigm17 wrote:
Sat May 02, 2020 4:12 pm

  • Retirement Planning and Plans
    College Planning
    Investment Planning and Asset Allocation
    Tax Planning
    Estate Planning
    Insurance Planning and Risk Management
    Debt Management & Reduction
    Household & Family Budgeting
    Cash Flow Projections & Analysis
    Lease vs. Buy Analysis
    Large Purchase Negotiation and Goal Planning
    Debt Refinancing & Prepayment Analysis
    Stock Option Planning
    Executive Benefit Plans
    Business & Real Estate Acquisition & Planning
    Traditional to Roth IRA Conversion Planning


That's a long list. How many of these services did you use since you started paying for these?

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Re: Money manager, is it worth it ? 1M to invest.

Post by Jack FFR1846 » Sun May 03, 2020 6:39 am

Insurance Planning and Risk Management
Are you able to sit down with a good Independent insurance agent? It's how I determine what insurance to pay for. I won't go with a captive agent as they don't have an alternative when their options are not good. As much as I'd love for you to buy from the lizard (I own some BRK), I'd never go with them myself.
Debt Management & Reduction
If you need pats on the back, then study Dave Ramsey's snowball method. If you're an engineer and can do math, you'll find that the avalanche method is clearly the way to go. Besides these choices, what else do you need a CPA, CIA, MOUSE for?
Household & Family Budgeting
If you need a structured plan, buy YNAB (you need a budget)
Cash Flow Projections & Analysis
Excel spread sheet, with a % increase for each year that you can change to project. I built this to go along with my investments spread sheet.
Lease vs. Buy Analysis
There are plenty of tools for this. Or just post your numbers here and you will absolutely get inputs on which way to go and why.
Large Purchase Negotiation and Goal Planning
Like what? Buying a house? Buying a car? This has been played to death. Look around for the guide here or on auto trader or on car gurus or on consumer reports.
Debt Refinancing & Prepayment Analysis
This can be broken down into an excel if you want to overkill it.
Stock Option Planning
Sell at vest. Why would you not.
Executive Benefit Plans
Are you planning what to do with your benefits or are you running a company and generating plans to pay executives who work for you. If the former, what's so complicated that you need a CPA for?
Business & Real Estate Acquisition & Planning
Sounds more like running a business than individual issues. I don't know where to go for advice on this, but if you own the business, I would think that this is your strong point and others would come to you for advice.
Traditional to Roth IRA Conversion Planning
This is one of the most asked questions on Bogleheads.


Finally, what makes you think that the CPA you're paying ten grand to will help with all of this? I expect they're going to tell you that for your 1%, they develop an AA, pick a long list of random investments and hold them for you. When you come to them with each of the above, they're going to charge you more money or they're going to refer you to someone else.

Also, if you really need help with all of this, where is your legal advice coming from. I'd expect you'd have a lawyer on retainer so you're ready to go when you need to move quickly on a legal matter.
Bogle: Smart Beta is stupid

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Re: Money manager, is it worth it ? 1M to invest.

Post by Outer Marker » Sun May 03, 2020 7:10 am

Absolutely not! If you post your full situation here in "laura's format" you are likely to get superior advice to that of an a paid advisor.

1% of AUM doesn't "sound" like a lot - but it is huge.

Consider that the expected return of a 70/30 portfolio is about 9%, see, https://personal.vanguard.com/us/insigh ... llocations. If Inflation is running around 2%, that means that your real return is about 7%. 1% AUM fee of that 7% expected real return means that you are giving up a whopping 14% over your entire investing horizion. That is huge. As someone else pointed out, on your $1M, that $10,000 a year that is going to your advisor and not you. All of the academic evidence shows that it is impossible to beat the market, so its extremely unlikely that the advisor will be able to generate returns that offset his fees.

It's honestly not that hard, and in fact is kind of fun, which is why so many people hang out on this board. I'd suggest in addition you read one or two books to give you a better feel for it. I'm particularly fond of Bill Bernstein's "Investor's Manifesto" which is a fun and accessible read you can do in a weekend. You'll be better financially educated than most pro's out there.

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Re: Money manager, is it worth it ? 1M to invest.

Post by retiredjg » Sun May 03, 2020 7:16 am

ellink wrote:
Sat May 02, 2020 8:51 pm
It is frustrating to always get the same answer, "you can do it yourself" or "use the Vanguard advisor". The thing is, neither of those options address the issues that the OP listed:

Insurance Planning and Risk Management
Debt Management & Reduction
Household & Family Budgeting
Cash Flow Projections & Analysis
Lease vs. Buy Analysis
Large Purchase Negotiation and Goal Planning
Debt Refinancing & Prepayment Analysis
Stock Option Planning
Executive Benefit Plans
Business & Real Estate Acquisition & Planning

I am in the same position and the advice isn't especially helpful. Likely a fee-only advisor is what he needs. And as someone who has done that search, it's a needle in a haystack scenario.
The original poster said those things were included in the service, not that s/he was looking for or needed all those things.

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Re: Money manager, is it worth it ? 1M to invest.

Post by retiredjg » Sun May 03, 2020 7:24 am

Outer Marker wrote:
Sun May 03, 2020 7:10 am
Absolutely not! If you post your full situation here in "laura's format" you are likely to get superior advice to that of an a paid advisor.
Paradigm17, even if you decide to use a money manager, I suggest you go through this exercise. It's some work and people report they learn quite a bit about their financial situation when they do this. Many seem to finally "get it" when they see the whole picture.

If you do this, you will be better prepared to make a decision about the manager, choose one, and know what the manager is doing.

See the format in the link at the bottom of this message. The closer you follow the format the easier it is to help you (meaning you get more help and more reliable help).

If you simply want your money managed, I suggest using Vanguard's Personal Advisor Service. You can use them for some time and then disengage when/if you feel like you now what you are doing. They are very low cost and have no incentive to sell you stuff that is not in your best interest.

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