Thinking of Departing the Formation [Moving to a financial advisor]

[H20SnoSki]

Not sure whether to post this here or in the 3 Fund Theory area, but trying here.

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years. I find I'm still too interested in moving things around, though, and am considering moving to a fiduciary firm to manage things. I understand the Bogle philosophy but would like to know how much this firm would have to outperform the Bogle 3 to be worth the cost -- and what else to consider.

If I move my savings, all of which is tax deferred, of $1.5m, from both my current low cost funds and broker/dealer/bank and from the government TSP, the new firm will charge me roughly $15-20k/year, flat fee, with no additional costs for trading or anything else. That will increase if the balance increases. The flat fee is still under investigation because it depends on the level of service that I want but it is between .75 and 2.0%. I've estimated I'm paying $3-4k in expenses from the funds that I currently have. I would gain some additional benefits re: tax and social security planning. I would lose access to the G Fund in Tsp.

If the fee will end up at about 1.25%, am I correct that the new managers would have to outperform the 500 or Total Market by that 15-20k/year? Is that realistic? Am I missing anything else at the level of Bogle philosophy that I should consider before moving to such a firm?

Thank you very much.

[Cheez-It Guy]

Why are you doing this? Not satisfied with good enough?

[bendix]

If you look at Warren Buffett, arguable one of the most successful investors around, you will find there are plenty of discussions whether or not he actually beat the SP500 or not and in which timeframe he did and where he didnt. Assuming some guy will beat the market for you reliably at %1.25 is... well, optimistic.

[livesoft]

I would gain some additional benefits re: tax and social security planning. I would lose access to the G Fund in Tsp.

With all in a tax-deferred account I don't see much "tax planning" in your future. I'm not sure what "social security" planning is?

Nowadays, there is no trading and no costs associated with trading.

Anyways, sorry if I don't understand your post.

Not only is the grass not greener on the other side, but it seems to be dead.

[windaar]

You will probably lose money instead of gain money if you do this.

[drk]

You seem like a great candidate for a one-fund portfolio. The TSP appears to have excellent target-date funds, and I'm sure your brokerage has something similar (or a static allocation fund like Vanguard LifeStrategy Funds or iShares Core Allocation ETFs, both of which are covered in the thread above).

[dcabler]

Perhaps you want to consider a 1-Fund approach, either a lifecycle fund or a target date fund.

Cheers

[Normchad]

This is a great way to end up with less money. (A lot less).

It is not realistic to think your new managers will outperform enough to cover their ridiculous expenses. And the expenses are ridiculous. For 15K, they aren’t going to one damn thing that helps you…. And you will pay them year, after year after year.

Just send me that money. And I will actually care about you and try to do a good job while underperforming the market…..

Getting solid tax planning advice is a very good idea. Just buy that separately from an hourly tax planner. Might cost you a couple thousand dollars every ten years. Your “investing guys” are not going to be great tax planners….

All the best!

[Mike Scott]

The advisor will get their fee whether you get any return or not. The advisor will have to beat the index by their fee amount for you to break even. You could pay for several fee only advisors per year for that much cost. Something like Vanguard PAS is much cheaper if you need the distance and hands off treatment by a manager.

[stan1]

I'd be very careful about doing this.
What is triggering this proposed change, in this way, right now?

[mrspock]

My brutal honesty: the very few money managers who can consistently, on a risk adjusted basis, outperform the market by 1.5-2%, are not going to manage portfolios of this size. These folks manage billions of dollars, and even then, there are lots of people who were simply lucky for a time.

What will likely happen, is they will jack the risk of you portfolio in an effort to outperform, and, over time lose a lot of your money, or if your are lucky, simply underperform.

I’d highly recommend your educate yourself a bit more, especially reacquainting yourself with statistics around how successful professional money managers are. The entire point of being a Boglehead — and why it is such a successful investing methodology — is it avoids the very mistake you are likely to make here: paying high fees, and not being compensated enough for paying them.

[DesertGator]

I don't believe a "fiduciary firm" exists.

[TomatoTomahto]

Just send me that money. And I will actually care about you and try to do a good job while underperforming the market…..

I don’t want to start a bidding war, but I’ll do it for $14k and care more about OP than Normchad

OP, it’s a bad idea. Don’t even think about it. Post your stats and let BH have a go at your situation. For free.

[thedaybeforetoday]

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years.

I find I'm still too interested in moving things around, though,

Given the second statement contradicts, and trumps, the first statement, the first statement is false and you are therefore, just looking for permission to perform the action in the second statement.

Permission granted, it's your money, you are free to give it to whomever you choose.

[Billy C]

This is a massive mistake in my opinion. It’s almost impossible to beat the market in the long run (decades), especially with the ridiculously high expenses you mention. Why would you even consider doing this knowing the odds are so stacked against you?

My advice would be to reread some of John Bogle’s books before making a switch from the 3 fund portfolio.

Stick with what works: low costs, simplicity, and staying the course. Try to minimize or eliminate any “helpers”.

[CletusCaddy]

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years.

I find I'm still too interested in moving things around, though,

Given the second statement contradicts, and trumps, the first statement, the first statement is false and you are therefore, just looking for permission to perform the action in the second statement.

Permission granted, it's your money, you are free to give it to whomever you choose.

I don’t interpret the OP’s statement as contradictory at all.

They’re saying they want to be a Boglehead but their behavioral tendency to tinker prevents them from being one. So they want to give their money to someone to manage to save them from themselves.

[Jack FFR1846]

You have 2 problems.

1) You have not internalized Jack Bogle's saying: "Don't do something...just stand there".

2) You have not accepted the Callan periodic table. This would tell me that if some advisor beat the market in his first year of charging you the price of a new compact car to do so, in subsequent years, it's most likely that they will greatly underperform the market. What do you do then? Say the market goes up 10%. Your advisor, before taking fees into account returns 8% and when meeting with them shows you S & P 500 without dividends and spouts that it only went up 7% so he beat it. Of course with fees, he's greatly underperformed. He'll have tap dancing shoes, a black cane and top hat and dance around the office like Fred Astaire.

And remember Fidelity's 401k study where they found that people who forgot about their account outperformed everyone else. If you want to avoid all of your problems, go on to your broker's site and write down a long, complicated new password on a small piece of paper. Change your password. Make sure it works. Log out and eat the paper.

[pizzy]

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years.

I find I'm still too interested in moving things around, though,

Given the second statement contradicts, and trumps, the first statement, the first statement is false and you are therefore, just looking for permission to perform the action in the second statement.

Permission granted, it's your money, you are free to give it to whomever you choose.

I don’t interpret the OP’s statement as contradictory at all.

They aren’t convinced then. As the first statement states.

[Nohbdy]

I find I'm still too interested in moving things around, though, and am considering moving to a fiduciary firm to manage things. I understand the Bogle philosophy but would like to know how much this firm would have to outperform the Bogle 3 to be worth the cost -- and what else to consider.


Thank you very much.

I would like to better understand why you are “interested in moving things around.”

How does spending $15k+ solve this problem? You can get active management for a lot less $.

If you still want to move it around after signing up, how much will that cost you?

[CletusCaddy]

1) You have not internalized Jack Bogle's saying: "Don't do something...just stand there".

If avoiding behavioral errors was as simple as resolving to avoid behavioral errors, they wouldn’t exist in the first place.

[silverbullet75]

Taking a big step back.... what is the ultimate outcome that you want?

If I make some gross assumptions that you are still working age and will be for a while, that retirement is the primary focus timeline, and that wealth accumulation is the primary goal, and that where you want to sit on the risk-adjusted-returns spectrum is "more risk and more returns", then it is hard for me to believe that a 1.5% AUM FA will outperform indexing.

If those gross assumptions are off, I think BH can help, but as a collective would need to understand more specifics.

[L84SUPR]

There are good reasons to seek financial advise. Assuming alpha will exceed fees is not one of them.

https://www.investopedia.com/terms/a/alpha.asp

[southernlucky]

Hi OP. +1 to consider using an all-in-one balanced index fund that hides the underlying components and automatically rebalances for you. Nothing to do but feed it money and leave it alone to compound and grow. You would likely pay less than 0.25% for such a fund saving you tens of thousands of dollars each year.

If you are still not convinced then I would encourage you to ask this company to share the annualized performance results of their recommended portfolio *after* fees for the past 1, 3, 5 and 10 yrs. Judge these results to a comparable 3-fund (be sure USA and Intl stock and bond allocations are similar). Use www.portfoliovisualizer.com for reference.

[Tdubs]

OP, why do you want to pursue this path rather than going with something like Vanguard's personal advisory service for 1/5th the cost? What secret sauce does this advisor have? It would help for us to know.

[rich126]

Most of my early years/decades of investing involved money that was deducted directly from my pay and I never really saw it. In those days due to high commissions the only way to invest, barring having truckloads of money, was mutual funds. That kept me from tinkering with investments. Now with zero commissions everywhere I can see it is more tempting.

I tried using someone locally that started his own business. He had years of doing his own investments and worked in the bond business and also had records of his investments. He tended to be value oriented which I liked but after a few years I hold him I was moving on. Writing that check for 1% per year was too painful.

I'm not sure why it is so hard to invest in a few ETFs/mutual funds and not look at it until you are close to retirement.

[Uniballer]

If you are still not convinced then I would encourage you to ask this company to share the annualized performance results of their recommended portfolio *after* fees for the past 1, 3, 5 and 10 yrs. Judge these results to a comparable 3-fund (be sure USA and Intl stock and bond allocations are similar). Use www.portfoliovisualizer.com for reference.

You are unlikely to get honest and useful answers to these kinds of questions. Not saying they will lie, but they will not give complete answers. Besides, what is "their recommended portfolio" at all considering they are probably planning to churn his account?

[Doctor Rhythm]

I think there are two goals being discussed here:
1. Wanting or needing an advisor
2. Improving returns

Number 1 is really up to the individual. This forum tends to encourage DIY and is often critical of advisors. However, some investors want to be hands-off, and some probably should be hands-off. It then becomes a matter of finding one with sound practices and low costs. Can’t say anything about the former in your case, but their fees are high. Also, there will additional expenses intrinsic to the funds they will buy with your money, unless they just deal with a bunch of individual stocks.

Number 2 is like a crap shoot — the chance that an actively managed equity fund beat the market in the last 5-10 years is around the same as rolling a 7. The advisor has an even higher bar: they need to beat the market by greater than their 1% fee.

The analogy I draw is to look at the annual fee and ask: “Over the length of my career, how long did it take to earn that much after taxes?” If your after tax income averaged out over your full career was $150K, then you worked six weeks each year just to be able to afford financial advice.

[nisiprius]

...The flat fee is still under investigation because it depends on the level of service that I want but it is between .75 and 2.0%. I've estimated I'm paying $3-4k in expenses from the funds that I currently have. I would gain some additional benefits re: tax and social security planning. I would lose access to the G Fund in Tsp.

If the fee will end up at about 1.25%, am I correct that the new managers would have to outperform the 500 or Total Market by that 15-20k/year? Is that realistic?...

No, it's not realistic that the firm will be able to reliably outperform the S&P 500 by 1.25%/year.

The proof is that the average expense ratio for actively managed mutual funds, according to the ICI, was about 1.06% in 1996 and 0.61% today. So if the average active fund manager could beat the benchmarks by 1.25%/year before expenses, the majority of active funds would still beat the market after expenses.

In reality, according to the S&P SPIVA report, over the last 15 years,

93.4% of actively managed funds underperformed their benchmarks.

Your ordinary good professional manager with years of investment education, and a work week devoted to investment management, probably does have some skill and can generate some alpha, but they do not earn 1.25% above the S&P 500.

It does not make sense to use an advisor if the primary thing they are going to do is to manage a portfolio for you. You need to calculate or judge in dollars exactly what you think those "additional benefits" are worth to you.

[Doctor Rhythm]

Also: why do you pay $3-4K in expenses on $1.5M in tax-deferred accounts? Index funds should run maybe 0.05%, so $750 per year.

[CletusCaddy]

Also: why do you pay $3-4K in expenses on $1.5M in tax-deferred accounts? Index funds should run maybe 0.05%, so $750 per year.

Not everyone has access to such cheap funds in their 401k

Also not everyone is invested in VTI. Note OP's comment that they like to tinker. I would imagine they are in something like AVGV with a 0.26% ER

[123]

Best wishes for your journey outside of the Formation.

If I was in command I would not risk all my troops at once to a known hazardous (fees) jungle. I would sent an exploratory company, maybe 20% - 30% and see how they survive in the new territory, I would see if/how the explorers prosper and I would evaluate how many are lost in the fight.

I would not disclose to the potential enemy/ally whether I still had troops at home base, that's intelligence that might tell my enemies how committed to the new territory I was. I'd keep my options open for a retreat if it looked like my troops were going to be massacred or if a pandemic was brewing.

[CAsage]

My aggregate fee for a Vanguard Index fund portfolio (high due to CA muni bond fund, VTI, VXUS, VCIT, VCSH, VCADX) is 0.039%. One could roll a less desirable 401k to a Rollover IRA. For $1.5mil, that would be $587 per year; less with just pure ETF. You are proposing flushing lots of money down the drain and will lose long term. See this wiki on the long term impact when they inevitably fail to beat the market:

https://www.bogleheads.org/wiki/How_muc ... y_years%3F

[Doctor Rhythm]

Also: why do you pay $3-4K in expenses on $1.5M in tax-deferred accounts? Index funds should run maybe 0.05%, so $750 per year.

Not everyone has access to such cheap funds in their 401k

Also not everyone is invested in VTI. Note OP's comment that they like to tinker. I would imagine they are in something like AVGV with a 0.26% ER

Maybe, but it sounds like they have access to TSP (mentions G fund above and earlier post asks about simulating total market with TSP).

[Tdubs]

Also: why do you pay $3-4K in expenses on $1.5M in tax-deferred accounts? Index funds should run maybe 0.05%, so $750 per year.

Not everyone has access to such cheap funds in their 401k

Also not everyone is invested in VTI. Note OP's comment that they like to tinker. I would imagine they are in something like AVGV with a 0.26% ER

Maybe, but it sounds like they have access to TSP.

Yes, which means the remainder must have very high expenses.

[nedsaid]

Not sure whether to post this here or in the 3 Fund Theory area, but trying here.

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years. I find I'm still too interested in moving things around, though, and am considering moving to a fiduciary firm to manage things. I understand the Bogle philosophy but would like to know how much this firm would have to outperform the Bogle 3 to be worth the cost -- and what else to consider.

If I move my savings, all of which is tax deferred, of $1.5m, from both my current low cost funds and broker/dealer/bank and from the government TSP, the new firm will charge me roughly $15-20k/year, flat fee, with no additional costs for trading or anything else. That will increase if the balance increases. The flat fee is still under investigation because it depends on the level of service that I want but it is between .75 and 2.0%. I've estimated I'm paying $3-4k in expenses from the funds that I currently have. I would gain some additional benefits re: tax and social security planning. I would lose access to the G Fund in Tsp.

If the fee will end up at about 1.25%, am I correct that the new managers would have to outperform the 500 or Total Market by that 15-20k/year? Is that realistic? Am I missing anything else at the level of Bogle philosophy that I should consider before moving to such a firm?

Thank you very much.

What an Advisory firm can do is put you into a diversified portfolio, it is pretty unlikely that they would beat the market by enough to cover the Advisory fee. More likely is that the portfolio would trail the market by the amount of the Advisory fee. Also the Advisor might put you into more expensive funds than you have now.

Have you looked at other Advisory services and what they charge? In other threads, I have discussed five Advisory services offered by major mutual fund companies and a discount brokerage. These are Vanguard, Fidelity, Schwab, American Century, and T. Rowe Price. All of these are cheaper than what you are considering. You could also look at local Advisors and see what they charge. You could pay an Advisor by the hour and implement the plan yourself.

Why do you think you need an Advisory service? What do you want them to do for you? If you want a detailed financial plan, you could hire a local Certified Financial Planner and they could provide a plan for a few thousand dollars.

[lws]

My aggregate fee for a Vanguard Index fund portfolio (high due to CA muni bond fund, VTI, VXUS, VCIT, VCSH, VCADX) is 0.039%. One could roll a less desirable 401k to a Rollover IRA. For $1.5mil, that would be $587 per year; less with just pure ETF. You are proposing flushing lots of money down the drain and will lose long term. See this wiki on the long term impact when they inevitably fail to beat the market:

https://www.bogleheads.org/wiki/How_muc ... y_years%3F

That table is dear to Bogleheads.

[cchrissyy]

If the fee will end up at about 1.25%, am I correct that the new managers would have to outperform the 500 or Total Market by that 15-20k/year? Is that realistic? Am I missing anything else at the level of Bogle philosophy that I should consider before moving to such a firm?

it isn't remotely realistic they will outperform

the only way this saves you money or breaks even is if your own behavioral mistakes are rather expensive and if you are correct that this move will prevent those mistakes.

[mhalley]

Having a financial advisor is fine, but paying 1% or more is egregious. Vanguard pas, garret planning network, planvision, there are multiple ways to get reasonable financial advice and or management. Multiple studies have shown it is very difficult to beat the market consistently year after year.

[Retired@58]

Your considering hiring help for about 1250-1875.00 per month?

Not me

[epictetus]

big mistake.

you are going to end up transferring a lot of money from your pocket to their pocket.

other posters have mentioned lots of ways you can receive the help you feel you need in a more reasonable way

[random_walker_77]

Not sure whether to post this here or in the 3 Fund Theory area, but trying here.

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years. I find I'm still too interested in moving things around, though, and am considering moving to a fiduciary firm to manage things. I understand the Bogle philosophy but would like to know how much this firm would have to outperform the Bogle 3 to be worth the cost -- and what else to consider.

If I move my savings, all of which is tax deferred, of $1.5m, from both my current low cost funds and broker/dealer/bank and from the government TSP, the new firm will charge me roughly $15-20k/year, flat fee, with no additional costs for trading or anything else. That will increase if the balance increases. The flat fee is still under investigation because it depends on the level of service that I want but it is between .75 and 2.0%. I've estimated I'm paying $3-4k in expenses from the funds that I currently have. I would gain some additional benefits re: tax and social security planning. I would lose access to the G Fund in Tsp.

If the fee will end up at about 1.25%, am I correct that the new managers would have to outperform the 500 or Total Market by that 15-20k/year? Is that realistic? Am I missing anything else at the level of Bogle philosophy that I should consider before moving to such a firm?

Thank you very much.

This will cost you, and I think it's a big mistake. Put it in a target date fund (example, but pick the appropriate retirement date: vanguard target retirement 2035)

If you insist on an advisor, go with Vanguards PAS at 0.3%.

You should not be expecting an advisor to beat the market. That's a bad reason, and will likely lead to underperformance.

Hiring an advisor to save you from yourself, however, would be a good reason. But if you can just use a 1-fund (target retirement date fund), and not deviate from it, then do that.

[random_walker_77]

If you are going to hire a financial advisor, I highly recommend
What your financial advisor isn't telling you, by Liz Davidson who, despite what the title might imply, recommends the value of financial advisors. It's the best book I've seen on the pitfalls of financial advisors and wealth managers, with advice most bogleheads could agree with, in my opinion.

[vnatale]

Best wishes for your journey outside of the Formation.

If I was in command I would not risk all my troops at once to a known hazardous (fees) jungle. I would sent an exploratory company, maybe 20% - 30% and see how they survive in the new territory, I would see if/how the explorers prosper and I would evaluate how many are lost in the fight.

I would not disclose to the potential enemy/ally whether I still had troops at home base, that's intelligence that might tell my enemies how committed to the new territory I was. I'd keep my options open for a retreat if it looked like my troops were going to be massacred or if a pandemic was brewing.

Thanks! Highly amusing!

[neurosphere]

Am I missing anything else at the level of Bogle philosophy that I should consider before moving to such a firm?

You are missing all the financial academic research which shows paying someone to help you beat the markets is likely to make you poorer 90% of the time. That's the wrongest reason to hire a financial professional.

As per nisiprius: viewtopic.php?p=7455288#p7455288

[Gennaro Dillinger]

$20,000/year invested for 20 years with a 3% return is equal to about $550-$600,000. 30 years is about a million. Think your broker can do that on top of what you are hoping for otherwise? If you read the Boglehead literature again, please do, you'll see on of the key items in being a Boglehead is that you are investing at very, very low cost and that is key to success. Remember Morningstar recently admitted that a great way to pick similar indexes for best result was by the one with the lowest cost. It does take discipline to invest and just leave it alone.

[Silverado]

Take 5% of your portfolio and go nuts with it. Lose your password to the rest.

In reality, this has to be a troll thread. I mean come on.

[Gaston]

I don’t interpret the OP’s statement as contradictory at all.

They’re saying they want to be a Boglehead but their behavioral tendency to tinker prevents them from being one. So they want to give their money to someone to manage to save them from themselves.

I think you hit the nail on the head. It also sounds like a behavioral issue to me, and we’ve all been there at one time or another. So what suggestions can we offer to help address the behavioral challenge, rather than gifting a lot of money to an %AUM advisor?

A one-fund portfolio might help, as could a cheaper advisory service, such as Vanguard’s PAS service (although I have no experience with that service). Another option might be an hourly-fee advisor, seeing him or her once a month initially, then tapering off. Still another option is a bit more education from posts on this forum, or from books such as those by John Bogle or Bill Schultheis (often available for free at a library or Internet Archive).

Behaviors can be difficult to change, so I wish the OP every success.

[Stinky]

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years. I find I'm still too interested in moving things around, though, and am considering moving to a fiduciary firm to manage things.

What’s wrong with the approach you laid out in your first post on the Forum in February 2022? viewtopic.php?t=370776

Hello, new to the forum..... How would one allocate to the TSP C and S funds in order to approximate the Total Stock Market Index (VTSAX as I understand it)? In other words, how are funds allocated to "C" and "S" funds within the total stock market index funds? Or does one need to go outside TSP to approximate this? I have funds also in Fidelity so could use them in conjunction.

[GaryA505]

OP, if you find that advisor that can beat the market by that much consistently please let me know. I'll wait ...

[bd7]

Am I missing anything else at the level of Bogle philosophy that I should consider before moving to such a firm?

If it were taxable I'd say why not just put it all in BRK/B and let Warren, Munger & Co. manage your money? Do you think your guys will do better?

Since it is tax-advantaged, ask yourself if your guys have any chance of outperforming something like VIG, if you want a bit more quality and stability than VTI.

Paying someone 1.25% to 'manage' 1.5M in a tax-advantaged account is utterly Boneheaded in my view. What services could they possibly provide for you in that type of account? If you are losing money because you just can't keep your hands off the account, then perhaps you just need to find something else to do with your time. Paying someone $20K a year to keep your money safe from you seems a bit silly.

Has Fisher Investments gotten their hooks into you and made you doubt yourself? Perhaps you should buy an annuity....