Are Financial Advisors a Complete and Total Waste of Money?

[bck63]

Another thread helped me clarify this one thought: Hiring financial advisors is a total waste of money.

Is there any reason to spend any more on financial advice than the $13.00 cost of John Bogle's "Little Book of Common Sense Investing?" Maybe or maybe not add a good tax accountant, and call it a day?

What use are Helpers (Warren Buffett's derisive euphemism for financial advisors) in any way, shape or form?

[Mr.BB]

You have to remember not everybody is or wants to be a DIY; especially with finances. I'll bet you 30 to 40% of the spouses of people on this board have no idea about their overall financial savings portfolio.
There's a lot of value if you can find a financial planner that can keep things simple and effective in all aspects of your savings.

[bck63]

You have to remember not everybody is or wants to be a DIY; especially with finances. I'll bet you 30 to 40% of the spouses of people on this board have no idea about their overall financial savings portfolio.
There's a lot of value if you can find a financial planner that can keep things simple and effective in all aspects of your savings.

Point taken. That's what my wife just said. I'd close the thread if I could. This says it all.

[NotWhoYouThink]

You can observe your own skills and behaviors, that's a start. You probably don't need an advisor.

There are many people who are incapable of putting money away instead of spending it. They don't need an advisor because they don't have any money to manage, and an advisor telling them to do it won't change their behavior.

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them. Sure, low cost services like Vanguard PAS might be better and cheaper if the savers can stick with them, but some people need the face to face contact and hand holding that other services provide.

[dbr]

I would say this forum is pretty well dedicated to the proposition that hiring financial advisors is a waste of money.

A distinction to make is that paying for accounting, tax, and estate planning advice is not a waste of money.

Another distinction to make is that financial management, meaning hiring someone to take custody of a portfolio and manage the investments according to a plan can be helpful in some situations or is even required, as in the case of trusts and estates. Lots of people want to pay a broker a modest amount to maintain a portfolio. VPAS is an example after the planning is done. Whether or not a VPAS level of planning at a VPAS level of cost is worth it remains to be discussed. This observation even extends to custodial accounts though in that case the custodian is not usually paid.

[Dave55]

I have a friend who with their 2 siblings sold their company which was 75 years old and handed down several generations. None of the 3 had any experience or knowledge of investing and they were not the least bit interested in either learning, investing or managing money. They hired a financial advisor to manage their money and now 20 years later they are all extremely satisfied with the advisor. For them it was not a waste of money.


Dave

[David Jay]

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them.

Bernstein makes this point as well, some folks just aren’t “built” for DIY.

[Triple digit golfer]

Is hiring someone to do lawn work a complete and total waste of money?

How about a bathroom remodel?

New flooring?

Answer: it depends.

For financial advisors, just hire a fee-only advisor. Pay for his or her time, not a percentage of your assets under management.

[tibbitts]

I would say this forum is pretty well dedicated to the proposition that hiring financial advisors is a waste of money.

I would say this forum is pretty well dedicated to the proposition that hiring anybody to do anything is a waste of money, except sometimes doctors, lawyers, and engineers. Coincidentally, a high percentage of forum members are doctors, lawyers, and engineers.

[austin757]

It depends on what they are being used for. Personally, I feel comfortable with investing my own money. I'm on Bogleheads to learn that, after all. What I'm not nearly as comfortable with is estate planning, taxes, insurance, etc. So while I may not need an advisor to help with my investments or AA, I could certainly use their services to help me plan on the topics I am not as proficient in. I also view the advisor as a "second pair of eyes", to help me catch any potential mistakes early.

[terran]

There is virtually no value in an advisor's investment advice. Possibly negative value if they think they're smarter than the market and put you in (usually underperforming) active funds or want to prove there value to you and trade a lot to make it look like they're doing something.

There can be enormous value in an advisor's behavioral advice if they, for example, keep you invested when you would have panic sold during a crash.

So basically, if you're an emotional robot who invests in index funds and faithfully listens to the boglehead advice then you probably won't get anything for what you pay an advisor. If not, then a good advisor might more than pay for themselves.

[abuss368]

I think a good advisor can bring value. Sometimes a good advisor can provide that extra layer of support and help a client avoid blowing strategies up!

[stoptothink]

You have to remember not everybody is or wants to be a DIY; especially with finances. I'll bet you 30 to 40% of the spouses of people on this board have no idea about their overall financial savings portfolio.
There's a lot of value if you can find a financial planner that can keep things simple and effective in all aspects of your savings.

This. I'm kind of known at my employer and in my circle as the guy to come talk to about investing. I give everyone my 30sec monologue about how easy it is to do yourself, I email them the Bogleheads wiki and a few related books I have on PDF...probably half of them end up coming back to me to ask if I know someone they can pay to do it for them.

[Sandtrap]

Another thread helped me clarify this one thought: Hiring financial advisors is a total waste of money.

Is there any reason to spend any more on financial advice than the $13.00 cost of John Bogle's "Little Book of Common Sense Investing?" Maybe or maybe not add a good tax accountant, and call it a day?

What use are Helpers (Warren Buffett's derisive euphemism for financial advisors) in any way, shape or form?

Not a total waste of money.

For many, there is a huge brag/status/"don't deal with it" factor to being able to say:

"When E.F. Hutton talks. . . . everybody listens. . . "
"My Wealth Advisor said that I'm up 30% just this month!"
"I let my financial advisor worry about my money. . . "
"If I didn't have Edward Jones. . what would I do?. . . "
"My Financial Advisor at Smith Barney says he makes money the old fashioned way. . . he earns it. . . "
" I don't trust myself in financial matters. . . I'm glad someone else takes care of it for me. . . " (actually a good reason).

j

[Sandtrap]

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them.

Bernstein makes this point as well, some folks just aren’t “built” for DIY.

+1
I know quite a few senior retirees that would not have any retirement funding if not for using company pension consultants, advisors, etc.
IE: One super senior has been sold multiple deferred and variable and other annuities over the decades and might actually be better off than if he self managed and played the market.
IE: Another early retiree just bought a "guaranteed 5% deferred annuity" with a substantial portion of his pension. It does protect him from spending it prematurely.

j

[dbr]

The problem here is how to obtain advice worth paying for against the vast majority that is predatory selling that does harm to the finances of the customer. The fact that legitimate advisors exist and could be worth paying for is undone by the difficulty of being able to figure out who is who. This is especially a problem as the bad actors are exceptionally skilled at appearing to be good actors.

There are cases where good advice is worth many times what is paid for it. But on average the dilemma is that investors can't afford to pay what advisors need to earn to stay in business. This is a fundamental unresolved obstacle. I don't know if robo-advising or the Vanguard model gets around this. Rick Ferri* is now running an interesting approach to advising and the cost of advising. Others may be in that model as well.

*Standard Disclaimer: I have no relationship to Rick Ferri and am not a customer of his.

[bighatnohorse]

I know someone who's made a fortune during her/his lifetime and squandered it.
Finally, at about age 67 - they got a financial advisor and are now saving to retire - even though they are upside down on their primary mortgage and out of work.
They needed an FA many years ago.

[MathIsMyWayr]

Good financial advisors are not a total waste of money or detrimental to your financial well being. In normal day to day and year to year life, you don't need a financial advisor, but a good one may be quite valuable at important decision making moments of your life. When to file for SS benefits, especially for a couple, is rather tricky. You have to do it RIGHT when inheriting a retirement account. I learned of a backdoor Roth IRA while talking to a Fidelity rep. I never have had a financial advisor, but have I done everything right? Probably no. Would have I come ahead if I had had one a few times in the past? Nobody knows. Little knowledge is a dangerous thing.

[Lalamimi]

DH and I meet with 4 various Financial Advisors/Fiduciaries (all for free) after attending one's steak dinner presentation for annuities (and being advised to RUN), and one about Social Security. We learned a great deal, and by gleaning from their "advise" and joining this forum, I am (surprisingly) comfortable with managing our portfolio at Fidelity, after escaping from over 20 yrs with an "advisor". Our BIL told me I could do it, and I did not believe him 8 months ago. We are in our mid 60s, so its all about preservation and some growth. Also have DH involved, since half of the funds are his.

[bck63]

I know someone who's made a fortune during her/his lifetime and squandered it.
Finally, at about age 67 - they got a financial advisor and are now saving to retire - even though they are upside down on their primary mortgage and out of work.
They needed an FA many years ago.

If I may gently say, with such egregious behavior, would they even have listened to a financial adviser "back in the day", even if they had one?

[midareff]

Another thread helped me clarify this one thought: Hiring financial advisors is a total waste of money.

Is there any reason to spend any more on financial advice than the $13.00 cost of John Bogle's "Little Book of Common Sense Investing?" Maybe or maybe not add a good tax accountant, and call it a day?

What use are Helpers (Warren Buffett's derisive euphemism for financial advisors) in any way, shape or form?

I think that if you have read one book and think you know enough you very well might need an advisor. By the time you have read 50+ (just to pick a number greater than 1) books on investing and recognize that nobody knows nothing includes yourself you are ready to go it alone.

[texasfight]

For most people, not at all. The average person is their own worst enemy.

Unfortunately the truest statement about financial advisors is this -"Once you know enough to be able to pick out a good financial advisor, you don't need one.

For most people it is essentially rolling the dice, they had a buddy who does it or got a recommendation from a friend, or they went to who their parents use, or they went to a local EJ/fidelity office, etc. Some get in a bad spot, some get lucky. I will always make a recommendation for a low cost firm around .25% to .3%, or a flat fee advisor if their portfolio is large enough.

Robo advisors really aren't an option IMO. Just a risk/return portfolio allocation that someone can get themselves into a bad spot with. You need to talk to someone about all your assets, goals, future income streams so they can bring you down to reality if need be.

[NotWhoYouThink]

The problem here is how to obtain advice worth paying for against the vast majority that is predatory selling that does harm to the finances of the customer. The fact that legitimate advisors exist and could be worth paying for is undone by the difficulty of being able to figure out who is who. This is especially a problem as the bad actors are exceptionally skilled at appearing to be good actors.

There are cases where good advice is worth many times what is paid for it. But on average the dilemma is that investors can't afford to pay what advisors need to earn to stay in business. This is a fundamental unresolved obstacle. I don't know if robo-advising or the Vanguard model gets around this. Rick Ferri* is now running an interesting approach to advising and the cost of advising. Others may be in that model as well.

*Standard Disclaimer: I have no relationship to Rick Ferri and am not a customer of his.

I strongly disagree. I think that E Jones, Wells Fargo, UBS, and most bank investment departments will provide better outcomes than most people will generate on their own. They won't help most of the posters on this board, but most people don't post on this board. They will help most people do something that protects and grows their portfolio most of the time.

The ones to avoid are the Bernie Madoffs and the Allen Stanfords. Those are easy to avoid by staying with the large investment houses that mass market and avoiding anyone claiming to have a secret formula.

If I had to design and make my own clothes I'd be a mess. I'll never be good at it, and am happy to pay someone to do it well at scale, even if that someone makes a profit from my wardrobe choices. Most people are like that with investing. I can shop at Wal Mart or at Saks, and that will affect the cost and possibly quality of my choices, but I can't do it myself.

[tibbitts]

The mass of advisors we have now (pre-robo and pre-PAS at least) are a relatively new concept that has evolved from the traditional brokerage model. It grew up in what turned out to be a fairly prosperous time, at least for people who had enough resources to invest. I'm not sure it would have flourished had the "lost decade" come along earlier, and lasted longer. Frankly for most people it's not a big deal to pay 2% or whatever for investments when they're returning 8-9% (yes, Bogleheads will point out the horror of the compounded lost opportunity - but the point is you'd still be making money.) If we have an extended period of 2% returns... I'm not sure how well the E. Jones etc. models will do.

[nedsaid]

I have a friend who with their 2 siblings sold their company which was 75 years old and handed down several generations. None of the 3 had any experience or knowledge of investing and they were not the least bit interested in either learning, investing or managing money. They hired a financial advisor to manage their money and now 20 years later they are all extremely satisfied with the advisor. For them it was not a waste of money.


Dave

That is my view too. What I would say is that paying for advice by the hour is the most cost-effective way to purchase advice. Assets Under Management is less ideal as the fees add up over time. I am test driving an AUM arrangement myself for part of my portfolio and have done so for about a year now.

[RocketShipTech]

The problem here is how to obtain advice worth paying for against the vast majority that is predatory selling that does harm to the finances of the customer. The fact that legitimate advisors exist and could be worth paying for is undone by the difficulty of being able to figure out who is who. This is especially a problem as the bad actors are exceptionally skilled at appearing to be good actors.

There are cases where good advice is worth many times what is paid for it. But on average the dilemma is that investors can't afford to pay what advisors need to earn to stay in business. This is a fundamental unresolved obstacle. I don't know if robo-advising or the Vanguard model gets around this. Rick Ferri* is now running an interesting approach to advising and the cost of advising. Others may be in that model as well.

*Standard Disclaimer: I have no relationship to Rick Ferri and am not a customer of his.

I strongly disagree. I think that E Jones, Wells Fargo, UBS, and most bank investment departments will provide better outcomes than most people will generate on their own. They won't help most of the posters on this board, but most people don't post on this board. They will help most people do something that protects and grows their portfolio most of the time.

The ones to avoid are the Bernie Madoffs and the Allen Stanfords. Those are easy to avoid by staying with the large investment houses that mass market and avoiding anyone claiming to have a secret formula.

If I had to design and make my own clothes I'd be a mess. I'll never be good at it, and am happy to pay someone to do it well at scale, even if that someone makes a profit from my wardrobe choices. Most people are like that with investing. I can shop at Wal Mart or at Saks, and that will affect the cost and possibly quality of my choices, but I can't do it myself.

Agree 100%. The big investment houses will charge 1% AUM and up to 1% of underlying fund fees. So the cost of advice is 1.5 - 2%. It’s expensive relative to DIY, but is it expensive relative to putting everything in your company stock? Or keeping everything in cash?

[Nate79]

I know a lot of people, including family that I wished they had even used a high fee advisor. They would have been far better off. Instead, like many their savings were in low yield savings and CDs at the local bank.

[dbr]

I strongly disagree. I think that E Jones, Wells Fargo, UBS, and most bank investment departments will provide better outcomes than most people will generate on their own. They won't help most of the posters on this board, but most people don't post on this board. They will help most people do something that protects and grows their portfolio most of the time.

The ones to avoid are the Bernie Madoffs and the Allen Stanfords. Those are easy to avoid by staying with the large investment houses that mass market and avoiding anyone claiming to have a secret formula.

If I had to design and make my own clothes I'd be a mess. I'll never be good at it, and am happy to pay someone to do it well at scale, even if that someone makes a profit from my wardrobe choices. Most people are like that with investing. I can shop at Wal Mart or at Saks, and that will affect the cost and possibly quality of my choices, but I can't do it myself.

It could be the heart of the two sides of this is the question of what unadvised people do do compared to what unadvised people could do if they were willing to pay attention or if predatory financial selling was reined in. It is also a question of whether the unadvised people who don't manage appropriately are simply not capable of it and need someone to take care of them.

So the question is whether or not predatory advising should be tolerated on the grounds that it is a disaster that is far less disastrous than the alternative. Alternatively, what should be done to fix the problem?

Following up on your analogy, I don't think most people buying clothes are ill served by clothing manufacturers and department stores or even tailors. The problem in the advising community is that the damage is excessive and unnecessary. Clothing makers and sellers earn a fair profit for value while the earnings in too much of the advising community are more like robbing you for your wallet is a good deal because you are still alive.

[bck63]

OP here. The first response to my post, and others that followed, convinced me that there are plenty of times where an advisor is worth the money.

Who knows? Maybe it would be for me as well.

[Stinky]

Is hiring someone to do lawn work a complete and total waste of money?

How about a bathroom remodel?

New flooring?

Answer: it depends.

For financial advisors, just hire a fee-only advisor. Pay for his or her time, not a percentage of your assets under management.

That’s exactly the way I feel.

I think that I’m capable of handling my own investments, so I don’t hire that out.

Bathroom remodel or new flooring? - not so much. I hire others who are more capable and experienced than me.

[dbr]

OP here. The first response to my post, and others that followed, convinced me that there are plenty of times where an advisor is worth the money.

Who knows? Maybe it would be for me as well.

Yes, in that case the question to be answered is how to obtain that advice at a fair price when most of the options are at an unfair and unnecessary price.

This whole Boglehead thing originates in Mr. Bogle's recognition that financial services for individual investors were being provided at unfair and unproductive high costs that were unnecessary. That remains a prime objective of everything here. Mr. Bogle especially recognized that the cost discrepancy in financial services was/is not like anything in the other ordinary transactions we make when we hire people to do things.

[RocketShipTech]

Is hiring someone to do lawn work a complete and total waste of money?

How about a bathroom remodel?

New flooring?

Answer: it depends.

For financial advisors, just hire a fee-only advisor. Pay for his or her time, not a percentage of your assets under management.

That’s exactly the way I feel.

I think that I’m capable of handling my own investments, so I don’t hire that out.

Bathroom remodel or new flooring? - not so much. I hire others who are more capable and experienced than me.

What bothers me the most about Bogleheads is giving novices the illusion of DIY investment skill and then setting them up for failure when a true market test comes along. Just look at the posts around here from March through June.

[Triple digit golfer]

Is hiring someone to do lawn work a complete and total waste of money?

How about a bathroom remodel?

New flooring?

Answer: it depends.

For financial advisors, just hire a fee-only advisor. Pay for his or her time, not a percentage of your assets under management.

That’s exactly the way I feel.

I think that I’m capable of handling my own investments, so I don’t hire that out.

Bathroom remodel or new flooring? - not so much. I hire others who are more capable and experienced than me.

What bothers me the most about Bogleheads is giving novices the illusion of DIY investment skill and then setting them up for failure when a true market test comes along. Just look at the posts around here from March through June.

Exactly. A DIY handyman forum would have members who would never hire out, but someone looking for advice just may not be capable of doing it him or herself. Just because it is easy for us doesn't mean it ever will be for others, no matter how many books we read or research we do.

I personally don't do much of any handyman work myself. I am terrible at it, have no confidence, and honestly patience for it. I maintain my own lawn mower and I change my furnace filter. That's about it!

[arcticpineapplecorp.]

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them.

Bernstein makes this point as well, some folks just aren’t “built” for DIY.

yes and he's also said repeatedly we don't expect people to do their own brain surgery or fly their own airplanes but we expect them to manage their own life savings, which he has said is harder than the first two.

To the OP, not sure if you checked out because you quickly got the answer you were looking for, but from a quantitative perspective, Vanguard has made the case that for many and advisor can add "alpha" to one's portfolio of up to 3% (not guaranteed).

But before you think alpha as in, "Is Vanguard saying they can beat the market by 3%?" No. They're saying they may be able to get your return to be better by that amount, than if you DIY. In this paper they explain why that is ("Putting a value on your value: Quantifying Vanguard Advisor’s Alpha"):

Based on our analysis, advisors can potentially add “about 3%” in net returns by using the Vanguard Advisor’s Alpha framework.
source: https://www.vanguard.com/pdf/ISGQVAA.pdf

Mind you, when they're talking alpha, they're not saying they'll beat the market by 3%. They're saying they're likely do get you 3% better returns than if you managed your money yourself because of:



you can see that behavioral coaching, i.e., keeping you from doing dumb stuff with your money is very valuable...that is, if you'd otherwise do dumb stuff with your money (panic selling, market timing errors, changing allocation willy nilly, etc).

[goodenyou]

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them.

Bernstein makes this point as well, some folks just aren’t “built” for DIY.

I’ll take it a step further. In his last interview on a financial podcast, Bernstein made a comment to the effect that because the (US) government and employee pensions have failed as an adequate welfare system, people are “forced” to figure out how to support themselves. He stated that this was the impetus to starting his investing education and ultimately his second career. He said that not everyone has the capacity to successfully navigate financial information and create a plan.

[coffeeblack]

I would pay for one on an as needed basis.

To check in on me. A second set of eyes as someone said.
To answer some questions that I want to have clarified and perhaps don't have time or desire to go looking for.
To keep me on track.

I use one from time to time on an hourly basis.

[afan]

yes and he's also said repeatedly we don't expect people to do their own brain surgery or fly their own airplanes but we expect them to manage their own life savings, which he has said is harder than the first two.

Managing your life savings is approximately as difficult as crawling. Crawling is easier than walking. Walking is easier than riding a bike. Biking is easier than driving. Driving is way easier than flying an airplane, which is way easier than brain surgery.

Almost no one needs someone to provide ongoing management of a portfolio. Once set up, there should be almost nothing to do. Even for some trusts, the design may require a trustee but the trustee would have almost nothing to do for portfolio management.

Many people may occasionally benefit from episodic advice from an hourly fee adviser on topics like Social Security and retirement planning, buying a house, funding education, getting the right insurance for the right price. But none of these require ongoing planning.

The challenge is finding a planner who knows enough about all of these areas to be worth paying for.

[dknightd]

I would say this forum is pretty well dedicated to the proposition that hiring anybody to do anything is a waste of money, except sometimes doctors, lawyers, and engineers. Coincidentally, a high percentage of forum members are doctors, lawyers, and engineers.

LOL

[Rick Ferri]

"Based on our analysis, advisors can potentially add “about 3%” in net returns by using the Vanguard Advisor’s Alpha framework."
source: https://www.vanguard.com/pdf/ISGQVAA.pdf

Mind you, when they're talking alpha, they're not saying they'll beat the market by 3%. They're saying they're likely do get you 3% better returns than if you managed your money yourself because of:



you can see that behavioral coaching, i.e., keeping you from doing dumb stuff with your money is very valuable...that is, if you'd otherwise do dumb stuff with your money (panic selling, market timing errors, changing allocation willy nilly, etc).

This is total nonsense. I've worked with thousands of individual investors. No adviser adds 3% alpha over what an individual could do, and a lot of commission and AUM advisers HARM investors.

Advisers have many conflicts of interest, and sometimes the "fee-only" advisers are the worst. They charge 1% or more while these "advisers" use the term "fiduciary" like they're actually acting like one. Here are some problems I routinely encounter:

1) Advisers often push their canned model portfolios when a custom approach is clearly needed, and tax management is often atrocious.
2) They tell clients to roll money from old 401k's into an IRAs so the adviser can manage and collect fees when the client would be better-off transferring those assets into their new employer's 401k plan where an adviser cannot charge fees.
3) Advisers will not recommend fixed annuities or any product that takes money out of a client account because this reduces the fee an adviser gets from the client.
4) Advisers tell clients not to pay off a mortgage even though the client is no longer getting a tax benefit from the interest deduction because paying off a mortgage means reduced assets for the adviser to manage, which reduces their revenue.

I'm not saying don't hire an adviser, I'm saying don't hire one who says their working in your best interest, but makes decisions like the above in their own best interest.

Full disclosure, I've been an adviser for 30+ years.

Rick Ferri

[smitcat]

"Based on our analysis, advisors can potentially add “about 3%” in net returns by using the Vanguard Advisor’s Alpha framework."
source: https://www.vanguard.com/pdf/ISGQVAA.pdf

Mind you, when they're talking alpha, they're not saying they'll beat the market by 3%. They're saying they're likely do get you 3% better returns than if you managed your money yourself because of:



you can see that behavioral coaching, i.e., keeping you from doing dumb stuff with your money is very valuable...that is, if you'd otherwise do dumb stuff with your money (panic selling, market timing errors, changing allocation willy nilly, etc).

This is total nonsense. I've worked with thousands of individual investors. No adviser adds 3% alpha over what an individual could do, and a lot of commission and AUM advisers HARM investors.

Advisers have many conflicts of interest, and sometimes the "fee-only" advisers are the worst. They charge 1% or more while these "advisers" use the term "fiduciary" like they're actually acting like one. Here are some problems I routinely encounter:

1) Advisers often push their canned model portfolios when a custom approach is clearly needed, and tax management is often atrocious.
2) They tell clients to roll money from old 401k's into an IRAs so the adviser can manage and collect fees when the client would be better-off transferring those assets into their new employer's 401k plan where an adviser cannot charge fees.
3) Advisers will not recommend fixed annuities or any product that takes money out of a client account because this reduces the fee an adviser gets from the client.
4) Advisers tell clients not to pay off a mortgage even though the client is no longer getting a tax benefit from the interest deduction because paying off a mortgage means reduced assets for the adviser to manage, which reduces their revenue.

I'm not saying don't hire an adviser, I'm saying don't hire one who says their working in your best interest, but makes decisions like the above in their own best interest.

Full disclosure, I've been an adviser for 30+ years.

Rick Ferri

"1) Advisers often push their canned model portfolios when a custom approach is clearly needed, and tax management is often atrocious.
2) They tell clients to roll money from old 401k's into an IRAs so the adviser can manage and collect fees when the client would be better-off transferring those assets into their new employer's 401k plan where an adviser cannot charge fees.
3) Advisers will not recommend fixed annuities or any product that takes money out of a client account because this reduces the fee an adviser gets from the client.
4) Advisers tell clients not to pay off a mortgage even though the client is no longer getting a tax benefit from the interest deduction because paying off a mortgage means reduced assets for the adviser to manage, which reduces their revenue."

Hello Rick,
Yup - they did all that with us , good summary.

[Toons]

No
They Are NOT a waste of money

[stoptothink]

yes and he's also said repeatedly we don't expect people to do their own brain surgery or fly their own airplanes but we expect them to manage their own life savings, which he has said is harder than the first two.

Managing your life savings is approximately as difficult as crawling. Crawling is easier than walking. Walking is easier than riding a bike. Biking is easier than driving. Driving is way easier than flying an airplane, which is way easier than brain surgery.

The idea that managing your money is more difficult than brain surgery or flying a plane may be the single most ludicrous statement I've ever seen on this board.

[heyyou]

Are Financial Advisors a Complete and Total Waste of Money?
As usual, there will be an exception to any broad generalization.

My flat fee advisor costs less than VG's PAS percentage fee, and I have dealt with the same CFP there, for 14 years. My fee has not ever been raised when the fee for new accounts was increased. The suggested portfolio is a slice and dice of several index funds from any of three providers, including VG, but each client can request a preferred allocation. The custodian is a well-known national brokerage.

I needed a buffer for my somewhat younger spouse's lack of any previous investing education. In the near future, I will need the buffer for my declining cognition (disease related). Dear spouse is now gone, but was a better tight wad than even I was.

[nisiprius]

I'll just state what I personally believe without trying to support or defend it.

It is not worth paying someone just for investment advice if they are like me: in the "mass affluent" category, not doing much taxable investing, and do not have a "complicated" financial life.

It may well be worth paying a financial planner who has broad expertise in many different financial fields, including taxes, insurance, family-law-financial-stuff-like-alimony, college financial assistance, etc. if you are in the high-net-worth category and you have a somewhat complicated financial life. Anyone with their own business, beyond filing a C-EZ, might well fit that description. That is, even if you already have a CPA for taxes etc. it may be worthwhile to have someone who can understand your financial life as an integrated whole. But I don't fit that description.

It is not credible to me that a financial advisor can add enough return to a portfolio to pay their own fees without adding risk. For it to make sense to pay an advisor, the advisor needs to be providing you with valuable services, that you are willing to pay for, above and beyond simply choosing funds and ETFs for a portfolio.

There is in my arrogant opinion another danger with using advisors, which is the danger of losing the picture. If you do it yourself, it may be suboptimal but you probably have a clear grasp of what you own, why you bought it, and what you expect it to do, whereas if you hand it over to an advisor, there's a good chance of the advisor doing something that's perfectly clear to them but not to you. Pretty soon you end up in a "my-eyes-glaze-over" state in which you are reduced to personal trust of the advisor without really understanding your investments. In a way, that's what you're signing up for. If the advisor is only doing things you understand well yourself, why do you need the advisor?

[oldfort]

yes and he's also said repeatedly we don't expect people to do their own brain surgery or fly their own airplanes but we expect them to manage their own life savings, which he has said is harder than the first two.

Managing your life savings is approximately as difficult as crawling. Crawling is easier than walking. Walking is easier than riding a bike. Biking is easier than driving. Driving is way easier than flying an airplane, which is way easier than brain surgery.

The idea that managing your money is more difficult than brain surgery or flying a plane may be the single most ludicrous statement I've ever seen on this board.

+1 Some people may need unique or specialized investment advice. The average person could put 100% of their retirement savings into an appropriate Vanguard target date fund and do better than with the typical advisor.

[goodenyou]

yes and he's also said repeatedly we don't expect people to do their own brain surgery or fly their own airplanes but we expect them to manage their own life savings, which he has said is harder than the first two.

Managing your life savings is approximately as difficult as crawling. Crawling is easier than walking. Walking is easier than riding a bike. Biking is easier than driving. Driving is way easier than flying an airplane, which is way easier than brain surgery.

The idea that managing your money is more difficult than brain surgery or flying a plane may be the single most ludicrous statement I've ever seen on this board.

I agree. I have done the former, but not the latter. I also manage my own investment portfolio. Dr. Bernstein is a smart personal wealth author. I can't comment on his skills as a neurologist, but it is very unlikely that he has ever done brain surgery.

[FrugalInvestor]

In theory a financial advisor can be helpful and worth the fees charged. The trick is finding the one who is.

Seriously, if you don't want to understand and deal with your finances (many I know don't but really appreciate the annual dinner, golf game, flowers or flavored popcorn) then it may be better to have one than not.

[7eight9]

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them.

Bernstein makes this point as well, some folks just aren’t “built” for DIY.

I’ll take it a step further. In his last interview on a financial podcast, Bernstein made a comment to the effect that because the (US) government and employee pensions have failed as an adequate welfare system, people are “forced” to figure out how to support themselves. He stated that this was the impetus to starting his investing education and ultimately his second career. He said that not everyone has the capacity to successfully navigate financial information and create a plan.

Dr. Bernstein in my opinion is correct that the current system of investing for retirement stinks. 401ks were a gift to Wall Street and a curse for the average Joe. I didn't sign up to be a portfolio manager. I'm not interested in gambling my retirement savings in the equity markets. I just want to be able to retire with a little bit of dignity. My goal is to get to a point where we can annuitize everything and "set it and forget it".

[RocketShipTech]

There are many people who can and do save, but left to their own devices, would make appallingly bad choices on investing. They are busy with work and family issues, they are creative but not analytical, they are impulsive or impatient, or many other reasons. Those people will do better with advisors than without, even though the advisor will make a lot of money from them.

Bernstein makes this point as well, some folks just aren’t “built” for DIY.

I’ll take it a step further. In his last interview on a financial podcast, Bernstein made a comment to the effect that because the (US) government and employee pensions have failed as an adequate welfare system, people are “forced” to figure out how to support themselves. He stated that this was the impetus to starting his investing education and ultimately his second career. He said that not everyone has the capacity to successfully navigate financial information and create a plan.

Dr. Bernstein in my opinion is correct that the current system of investing for retirement stinks. 401ks were a gift to Wall Street and a curse for the average Joe. I didn't sign up to be a portfolio manager. I'm not interested in gambling my retirement savings in the equity markets. I just want to be able to retire with a little bit of dignity. My goal is to get to a point where we can annuitize everything and "set it and forget it".

Someone needs to invest that money to give you that return. Just because it’s done by the man behind the curtain doesn’t mean it’s not being done. The question is how much do you value that curtain?

[02nz]

There is in my arrogant opinion another danger with using advisors, which is the danger of losing the picture. If you do it yourself, it may be suboptimal but you probably have a clear grasp of what you own, why you bought it, and what you expect it to do, whereas if you hand it over to an advisor, there's a good chance of the advisor doing something that's perfectly clear to them but not to you. Pretty soon you end up in a "my-eyes-glaze-over" state in which you are reduced to personal trust of the advisor without really understanding your investments. In a way, that's what you're signing up for. If the advisor is only doing things you understand well yourself, why do you need the advisor?

Related to this, we've seen many portfolio set up by advisors that had enormous and unnecessary complexity (dozens of mutual funds, many overlapping holdings). They do this to create precisely that "my-eyes-glaze-over" state, which perpetuates the dependency on the advisor to the advisor's financial benefit.