My views on adviser fees

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Rick Ferri
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My views on adviser fees

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UpsetRaptor
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Re: My views on adviser fees

Post by UpsetRaptor »

It's tough, it's tough.

My in-law family is generally working class, yet still spendy. Hourly wage, extra Challenger in the garage, types. There was a dinner table conversation last year where it was noted that pretty much all the family members who had any appreciable savings had an Edward Jones guy, and the rest really didn't. So the consensus was how smart it was to get a FA. I had to bite my tongue because the observation was not incorrect.
dbr
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Re: My views on adviser fees

Post by dbr »

UpsetRaptor wrote: Tue Oct 26, 2021 10:26 am It's tough, it's tough.

My in-law family is generally working class, yet still spendy. Hourly wage, extra Challenger in the garage, types. There was a dinner table conversation last year where it was noted that pretty much all the family members who had any appreciable savings had an Edward Jones guy, and the rest really didn't. So the consensus was how smart it was to get a FA. I had to bite my tongue because the observation was not incorrect.
I suppose the conclusion is that being able to have an EJ guy was involved in being willing to save. It is unfortunate that the right answer is also so wrong.
psteinx
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Re: My views on adviser fees

Post by psteinx »

Folks on this forum, I think, disproportionately think everyone else is just like them - motivated savers, willing to risk 60-100% of portfolio in stock market despite the inevitable zigs and zags, able to find and stay with low cost options at Vanguard or similar, reasonably informed on the key tax angles and interplay with assorted government and non-government programs.

I think that's not realistic.

Not that every EJ broker is a hero, nor that every $450/hour fee-only planner is worthwhile. But neither is this financial stuff easy, for the AVERAGE person. Even for many engineers, doctors, and dentists...
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Taylor Larimore
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Re: My views on adviser fees

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Bogleheads:

Boglehead advisor Rick Ferri is special.

Best wishes
Taylor
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alfaspider
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Re: My views on adviser fees

Post by alfaspider »

psteinx wrote: Tue Oct 26, 2021 11:18 am Folks on this forum, I think, disproportionately think everyone else is just like them - motivated savers, willing to risk 60-100% of portfolio in stock market despite the inevitable zigs and zags, able to find and stay with low cost options at Vanguard or similar, reasonably informed on the key tax angles and interplay with assorted government and non-government programs.

I think that's not realistic.

Not that every EJ broker is a hero, nor that every $450/hour fee-only planner is worthwhile. But neither is this financial stuff easy, for the AVERAGE person. Even for many engineers, doctors, and dentists...
The actual stuff is easy, convincing people to follow it (and keep following it) is the hard part. But I don't think an AUM advisor necessarily solves that problem. Call an EJ "advisor" in a panic wanting to sell, and I'd wager they'd just as likely try to sell you on some "countercyclical" or "alternative" fund with a nice load as tell you to stay the course. If all you want is a bit of handholding, there are much cheaper options as well.

Tax management can be a bit more complex, but that's mostly gravy compared to staying the course on the underlying investments.
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retiredjg
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Re: My views on adviser fees

Post by retiredjg »

Thanks for posting, Rick. Good article.
BogleFan510
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Re: My views on adviser fees

Post by BogleFan510 »

psteinx wrote: Tue Oct 26, 2021 11:18 am Folks on this forum, I think, disproportionately think everyone else is just like them - motivated savers, willing to risk 60-100% of portfolio in stock market despite the inevitable zigs and zags, able to find and stay with low cost options at Vanguard or similar, reasonably informed on the key tax angles and interplay with assorted government and non-government programs.

I think that's not realistic.

Not that every EJ broker is a hero, nor that every $450/hour fee-only planner is worthwhile. But neither is this financial stuff easy, for the AVERAGE person. Even for many engineers, doctors, and dentists...
But it should be. The complexity is a result of unhealthy, wrong information pushed by a greed driven industry, just as tobacco companies made health claims about cigarettes and food product companies continue to try to drive people away from healthy, whole foods and towards junk that is killing them (e.g. soda, heavily processed fats/sugars, etc., fake research that said eggs were a bad breakfast vs carb loaded cereal, etc.).

It is sad. Advisor fees dragging performance by 2-3% are not the answer. Basic financial education in schools is, but the financial industry will never allow that to happen.
alex_686
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Re: My views on adviser fees

Post by alex_686 »

BogleFan510 wrote: Tue Oct 26, 2021 12:15 pm
psteinx wrote: Tue Oct 26, 2021 11:18 am Not that every EJ broker is a hero, nor that every $450/hour fee-only planner is worthwhile. But neither is this financial stuff easy, for the AVERAGE person. Even for many engineers, doctors, and dentists...
But it should be. The complexity is a result of unhealthy, wrong information pushed by a greed driven industry, just as tobacco companies made health claims about cigarettes and food product companies continue to try to drive people away from healthy, whole foods and towards junk that is killing them (e.g. soda, heavily processed fats/sugars, etc., eggs bad breakfast, etc.

It is sad. Advisor fees dragging performance by 2-3% are not the answer.
I will modestly disagree.

Years ago I worked on advisors profitability and we could never make the numbers work for middle income people.

Good advice should and must be tailored to the individual. 1/2 the issues you need to address are behavioral - people are weirdly emotional about money and are affected by greed and fear at the wrong time. 1/2 the issues are technical. After you have articulated your goals and risk tolerance what is the best Asset Allocation and required savings rate? I know that Bogleheads prefer a rough and ready gut-feeling for asset allocation but there is a right way to do this.

To do this correctly requires about 8 hours of in-take to set up the client and about 4 hours a year afterwards. So $100s to $1000s depending on labor and support costs.

I kind of blame the fiduciary rule for this. It is technically a high quality standard. But it means that it is very hard to do a generic low cost consult with clients to say, "max out your 401(k), dump some money into a target fund". You have to go the full 9 yards.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
ScubaHogg
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Re: My views on adviser fees

Post by ScubaHogg »

alex_686 wrote: Tue Oct 26, 2021 12:28 pm
BogleFan510 wrote: Tue Oct 26, 2021 12:15 pm
psteinx wrote: Tue Oct 26, 2021 11:18 am Not that every EJ broker is a hero, nor that every $450/hour fee-only planner is worthwhile. But neither is this financial stuff easy, for the AVERAGE person. Even for many engineers, doctors, and dentists...
But it should be. The complexity is a result of unhealthy, wrong information pushed by a greed driven industry, just as tobacco companies made health claims about cigarettes and food product companies continue to try to drive people away from healthy, whole foods and towards junk that is killing them (e.g. soda, heavily processed fats/sugars, etc., eggs bad breakfast, etc.

It is sad. Advisor fees dragging performance by 2-3% are not the answer.
I will modestly disagree.

Years ago I worked on advisors profitability and we could never make the numbers work for middle income people.

Good advice should and must be tailored to the individual. 1/2 the issues you need to address are behavioral - people are weirdly emotional about money and are affected by greed and fear at the wrong time. 1/2 the issues are technical. After you have articulated your goals and risk tolerance what is the best Asset Allocation and required savings rate? I know that Bogleheads prefer a rough and ready gut-feeling for asset allocation but there is a right way to do this.

To do this correctly requires about 8 hours of in-take to set up the client and about 4 hours a year afterwards. So $100s to $1000s depending on labor and support costs.

I kind of blame the fiduciary rule for this. It is technically a high quality standard. But it means that it is very hard to do a generic low cost consult with clients to say, "max out your 401(k), dump some money into a target fund". You have to go the full 9 yards.
So do you think the quality of available consults has gone down for middle income people since the fiduciary rule?
There are more things in Heaven and Earth, Horatio, than are dreamt of in your Expected Returns
alex_686
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Re: My views on adviser fees

Post by alex_686 »

ScubaHogg wrote: Tue Oct 26, 2021 12:37 pm So do you think the quality of available consults has gone down for middle income people since the fiduciary rule?
My answer is complex.

I can't answer that directly since I got out of that specific line of business before the fiduciary rule was put into effect. However I have seen a steady migration away from advisors serving the middle class for multiple reasons.

You can make more money serving a few wealthy clients then serving a mass number of clients.

Compliance and suitability rules have gotten more complex, so the advisor has to spend more time on those items. I did get a hint of the extra paperwork required to be a fiduciary was.

Costs have dropped dramatically. As the old saying goes, when the tide recedes you can see who is wearing swim trunks. It used to be easier to advisors to burry their compensation in high brokerage fees. Now it is clear exactly what they are paying. This has let sophisticated DIY investors strike out on their own. This tends to leave less sophisticated less wealthily clients who require more time for the same fee.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
psteinx
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Re: My views on adviser fees

Post by psteinx »

Roughly, the 4 biggest steps, IMO, are:

1) Saving SOMETHING. 10% of paycheck or whatever. Creates funds to allow individual to avoid high interest loans for cars, consumer goods (appliances, furniture) etc. Much of the population still relies on rent-to-own, pawnbrokers, title loans, etc.

2) Get employer matches on 401k, etc.

3) Fill tax advantaged space

4) Equities! Huge return spreads vs. savings accounts/money markets, and pretty big spreads versus bonds/bond funds. But too many folks are too skittish about equities, and avoid them altogether, or underutilize them.

These are pretty simple and straightforward, and not too difficult to execute on, technically. But huge chunks of the population don't do them. Paying an advisor 1% or so to get you ~2 steps further on this ladder is probably worth it for a large chunk of folks who wouldn't* do it on their own.

* Key word "wouldn't". Not "couldn't"...
BogleFan510
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Re: My views on adviser fees

Post by BogleFan510 »

Appretiate the reply by Alex_868.

Frankly, I think the right model for moderate wealth folks is something more like a discount broker model, over a human advisor. Something like the Schwab roboadvisor plus their generic educational materials with a strong message not to fiddle with allocations will likely well outperform something like EJ. Or of course the Vanguard model. Their occasional tips about taxes, the economy and saving are usually reasonable and mostly preach 'have a plan and stay the course,' which is usually the best advice. Avoid any materials encouraging trading and folks are likely fine.

That said, some people pay for a 'friend experience', but I see that as buying a geisha's service, paying someone to talk to for emotional support. Perhaps I am too pessamistic, but ive seen too many 'independent advisor' presentations and materials that end up as poor performing insurance sales pitches.
ScubaHogg
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Re: My views on adviser fees

Post by ScubaHogg »

alex_686 wrote: Tue Oct 26, 2021 12:56 pm I can't answer that directly since I got out of that specific line of business before the fiduciary rule was put into effect. However I have seen a steady migration away from advisors serving the middle class for multiple reasons.
I guess the assumption is that those middle class investors were being well-served by those non-fiduciary advisors. I'm sure there were some great ones, but on the whole I personally don't think that's the case. At a minimum the burden of proof would be showing they were well-served. But I think the endless EJ threads on here indicate otherwise.

Default Target date elections in 401Ks probably does more for a typical investor than pre-fiduciary advisors. But that's showing my bias.
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Re: My views on adviser fees

Post by dodecahedron »

psteinx wrote: Tue Oct 26, 2021 2:18 pm Roughly, the 4 biggest steps, IMO, are:

1) Saving SOMETHING. 10% of paycheck or whatever. Creates funds to allow individual to avoid high interest loans for cars, consumer goods (appliances, furniture) etc. Much of the population still relies on rent-to-own, pawnbrokers, title loans, etc.

2) Get employer matches on 401k, etc.

3) Fill tax advantaged space

4) Equities! Huge return spreads vs. savings accounts/money markets, and pretty big spreads versus bonds/bond funds. But too many folks are too skittish about equities, and avoid them altogether, or underutilize them.

These are pretty simple and straightforward, and not too difficult to execute on, technically. But huge chunks of the population don't do them. Paying an advisor 1% or so to get you ~2 steps further on this ladder is probably worth it for a large chunk of folks who wouldn't* do it on their own.

* Key word "wouldn't". Not "couldn't"...
Struck by the analogy to fees for a nutritionist or personal trainer.

Many folks *know* equally simple rules for what they should be eating and/or doing for exercise. Some folks are able to execute successfully without paid professional behavioral support. Others may pay thousands in fees to professionals for support, accountability, and discipline.
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Re: My views on adviser fees

Post by nedsaid »

alex_686 wrote: Tue Oct 26, 2021 12:28 pm
BogleFan510 wrote: Tue Oct 26, 2021 12:15 pm
psteinx wrote: Tue Oct 26, 2021 11:18 am Not that every EJ broker is a hero, nor that every $450/hour fee-only planner is worthwhile. But neither is this financial stuff easy, for the AVERAGE person. Even for many engineers, doctors, and dentists...
But it should be. The complexity is a result of unhealthy, wrong information pushed by a greed driven industry, just as tobacco companies made health claims about cigarettes and food product companies continue to try to drive people away from healthy, whole foods and towards junk that is killing them (e.g. soda, heavily processed fats/sugars, etc., eggs bad breakfast, etc.

It is sad. Advisor fees dragging performance by 2-3% are not the answer.
I will modestly disagree.

Years ago I worked on advisors profitability and we could never make the numbers work for middle income people.

Good advice should and must be tailored to the individual. 1/2 the issues you need to address are behavioral - people are weirdly emotional about money and are affected by greed and fear at the wrong time. 1/2 the issues are technical. After you have articulated your goals and risk tolerance what is the best Asset Allocation and required savings rate? I know that Bogleheads prefer a rough and ready gut-feeling for asset allocation but there is a right way to do this.

To do this correctly requires about 8 hours of in-take to set up the client and about 4 hours a year afterwards. So $100s to $1000s depending on labor and support costs.

I kind of blame the fiduciary rule for this. It is technically a high quality standard. But it means that it is very hard to do a generic low cost consult with clients to say, "max out your 401(k), dump some money into a target fund". You have to go the full 9 yards.
A criticism of the Garrett network is that many of their Advisors just can't make it on hourly fees. Rick Ferri and Alan Roth are well known and are probably solidly booked up as far as the eye can see. They are very good and can charge $450/hour. This just isn't the reality for someone starting out, AUM for now is the way for them to make it. The minimum that I have seen a local Advisor charge is 0.75% Assets Under Management, not sure if he charged planning fees on top of that, he probably did.

There are cheaper ways to get Advice and Asset Management. Fidelity, Vanguard, T Rowe Price, and Schwab have lower cost options. Not sure how comprehensive the advice is compared to a local Financial Planner. What it boils down to is that however you pay the fees, it will likely cost about $200 an hour to make the thing work. People have to make a living, everything can't be done for 3 or 4 basis points. So sports fans and Bogleheads, sorry to disappoint but that is the reality.

I suspect that the AUM model will slowly fade away and some sort of subscription model will replace it. I noticed that Vineviz charges 3 basis a points on net worth per month and 3 basis points per month on income plus $50/month. My guess is that for a lot of folks, that is probably 0.40% to 0.60% a year for folks with a good level of assets and income, maybe a bit more. I think that is about as cheap as you will get. The reality is that people have to make a living doing this. You ain't going to get comprehensive services for that 3 or 4 basis points per year.
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Carol88888
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Re: My views on adviser fees

Post by Carol88888 »

I have always felt charging 1% of assets year in and year out represented highway robbery by the financial industry.

But the second question is : Do people really need a financial advisor?

Maybe. If they are unwilling to learn anything about investing and just don't trust themselves not to do something stupid and emotional with their money.

But the better course is to read some books and ask questions on this board and save a lot of money.
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Re: My views on adviser fees

Post by Normchad »

I’m really glad that Rick is advocating for this.

I know though, that many people just won’t spend $450/hour for advice. So the advisors need to get paid somehow. I agree though that a fixed AUM scale makes no sense to me, or for me.

I’ve never used a financial advisor. And I don’t think I need one. However, just this morning I have reached out to a fee-only advisor for advice. (It’s not Rick though). I’m looking for another set of eyes to,look over everything I’ve got, and my plans, and tell me if I’m on the right track or if I’m missing something big. I’m looking for more than just portfolio ad ice. I don’t think I am missing anything but who knows. I want the peace of mind…..

So I expect that will cost about $4,500 all in. That’s a lot of money, but it’s also small potatoes compared to what I would have paid by using an AUM advisor all these years.
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Re: My views on adviser fees

Post by abuss368 »

Rick Ferri wrote: Tue Oct 26, 2021 10:12 am And here they are:

Rick Ferri: Advisor Fees Are ‘Last Bastion of Gluttony’ in Investment Industry

by Jane Wollman Rusoff
Rick -

Enjoyed this and could not agree more (from someone in the professional services world)!

Well said and you are a leader sir!

Mr. Bogle would be proud.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: My views on adviser fees

Post by abuss368 »

Taylor Larimore wrote: Tue Oct 26, 2021 11:27 am Bogleheads:

Boglehead advisor Rick Ferri is special.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Tens of millions of investors need personal guidance in allocating their assets and selecting funds. Other tens of millions do not."
Hi Taylor -

We Bogleheads are very lucky to have Rick Ferri be a part of our forum! I personally have learned much.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: My views on adviser fees

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Taylor Larimore wrote: Tue Oct 26, 2021 11:27 am Bogleheads:

Boglehead advisor Rick Ferri is special.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Tens of millions of investors need personal guidance in allocating their assets and selecting funds. Other tens of millions do not."
+1
Well said.

And freely donates time and education and good will.
Mahalo! Rick!

jim :D
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Re: My views on adviser fees

Post by abuss368 »

Taylor Larimore wrote: Tue Oct 26, 2021 11:27 am Bogleheads:

Boglehead advisor Rick Ferri is special.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Tens of millions of investors need personal guidance in allocating their assets and selecting funds. Other tens of millions do not."
Hi Taylor -

And may I add: a United States Marine who served our great country!

Thank you Rick.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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