Why (or why not) use an advisor

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SS84
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Why (or why not) use an advisor

Post by SS84 » Thu Mar 08, 2018 11:43 am

Hi Everyone,

I've been enjoying reading through the forum to learn more about investing and financial advice. I'm trying to get smart about this space and have a few questions that I'd love opinions on

I see a lot of discussion on the forum on the pros and cons of advisors. For those of you who don't use an advisor, could you help me understand why not? What would an advisor have to do differently to make you reconsider your decision to not use one?

When looking for an advisor - how important is it that the advisor have a local presence?

How important is it that the advisor be affiliated with a well known brand (e.g. Vanguard)?

Since most of the local firms aren't from well know brands - I'm trying to understand how to think about those two factors.

Thanks in advance!

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BolderBoy
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Re: Why (or why not) use an advisor

Post by BolderBoy » Thu Mar 08, 2018 12:34 pm

SS84 wrote:
Thu Mar 08, 2018 11:43 am
I see a lot of discussion on the forum on the pros and cons of advisors. For those of you who don't use an advisor, could you help me understand why not? What would an advisor have to do differently to make you reconsider your decision to not use one?
Advisor would have to guarantee to me in writing that he could beat the total return I get on my self-advised portfolio every year for the next 30 years. In addition, the advisor would have to guarantee to make up the difference in any year that s/he failed.

The studies show that no advisor can perform that way in the former and no advisor in his/her right mind would guarantee the latter.

Through the 2000s I had a series of 4 advisors. Each promised me that they could do better than I had done. Each did worse than I did and each did worse than the preceding advisor with the last one's portfolio management losing me about 50% over three years where my portfolio self-management went up 40% during the same period. (NB: the advisors still took their 1% fees regardless of portfolio performance!)

I've been happily using Taylor Larimore's BH framework for investing since 2010 and doing it without any advisors except for the BH forum.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

TwstdSista
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Re: Why (or why not) use an advisor

Post by TwstdSista » Thu Mar 08, 2018 12:39 pm

Advisor? No thank you.

They're great for taking your money, complicating your portfolio and making a general mess of things.

A simple three fund portfolio does not need an advisor.

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Alexa9
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Re: Why (or why not) use an advisor

Post by Alexa9 » Thu Mar 08, 2018 12:55 pm

People on this forum are willing to help you out for free!
Advisors often want to charge you ridiculous fees or sell you something you don't need.

KSActuary
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Re: Why (or why not) use an advisor

Post by KSActuary » Thu Mar 08, 2018 12:56 pm

There are advisors who will follow BH strategy and charge you a low fee. Basically, you are paying for the opportunity to ask questions of a financial nature and get a response. Hence, the low fee.

Also, most robo's follow a low cost index strategy. While not Vanguard, the philosophy is the same.

While many advisors may follow Vanguard Strategy, they are not endorsed or affiliated with Vanguard.

Goods luck

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ruralavalon
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Re: Why (or why not) use an advisor

Post by ruralavalon » Thu Mar 08, 2018 12:58 pm

Welcome to the forum :) .

SS84 wrote:
Thu Mar 08, 2018 11:43 am
Hi Everyone,

I've been enjoying reading through the forum to learn more about investing and financial advice. I'm trying to get smart about this space and have a few questions that I'd love opinions on

I see a lot of discussion on the forum on the pros and cons of advisors. For those of you who don't use an advisor, could you help me understand why not? What would an advisor have to do differently to make you reconsider your decision to not use one?

When looking for an advisor - how important is it that the advisor have a local presence?

How important is it that the advisor be affiliated with a well known brand (e.g. Vanguard)?

Since most of the local firms aren't from well know brands - I'm trying to understand how to think about those two factors.

Thanks in advance!
Consider doing it yourself. For suggestions specific to your situation you could post your financial information on this forum Please see the post "asking portfolio questions" for necessary information and format.

. . . . .

My preference for fund companies would be
1) Vanguard
2) Fidelity
3) Schwab
in that order.

Fidelity and Schwab have local customer service offices in some areas. So if you want an advisor with a name brand fund firm, and either has an office in your area, then consider that solution.

. . . . .

What do you want in an advisor? Do you want someone to manage your investments for you? Do you want a planner, to help you set up an investment plan that you will manage yourself?

Vanguard has a Personal Advisory Service which will help you plan and then will manage your investments for an annual fee of 0.3% of your investments. I am sure Fidelity and Schwab have similar services.

. . . . .

We used an independent planner to set up an investment plan, which I have since managed on my own.

1) I would insist on a "fee only" planner who is a fiduciary and does not sell products on commission. To locate a fee only planner see:
www.garretplanningnetwork.com or
www.napfa.org.

2) I would insist on credentials like CFA, CFP, CPA.
Last edited by ruralavalon on Thu Mar 08, 2018 1:11 pm, edited 4 times in total.
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Re: Why (or why not) use an advisor

Post by Darth Xanadu » Thu Mar 08, 2018 12:59 pm

I just dumped my advisor yesterday. He only advised/held my IRA account, but the reality is that he didn't do much except ask me questions about risk tolerance, and then peddle high-cost funds that matched that profile.

Oh, he also reminded me annually to make contributions to Roth IRA. So, some real value added, there. :wink:
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Re: Why (or why not) use an advisor

Post by Dottie57 » Thu Mar 08, 2018 1:01 pm

BolderBoy wrote:
Thu Mar 08, 2018 12:34 pm
SS84 wrote:
Thu Mar 08, 2018 11:43 am
I see a lot of discussion on the forum on the pros and cons of advisors. For those of you who don't use an advisor, could you help me understand why not? What would an advisor have to do differently to make you reconsider your decision to not use one?
Advisor would have to guarantee to me in writing that he could beat the total return I get on my self-advised portfolio every year for the next 30 years. In addition, the advisor would have to guarantee to make up the difference in any year that s/he failed.

The studies show that no advisor can perform that way in the former and no advisor in his/her right mind would guarantee the latter.

Through the 2000s I had a series of 4 advisors. Each promised me that they could do better than I had done. Each did worse than I did and each did worse than the preceding advisor with the last one's portfolio management losing me about 50% over three years where my portfolio self-management went up 40% during the same period. (NB: the advisors still took their 1% fees regardless of portfolio performance!)

I've been happily using Taylor Larimore's BH framework for investing since 2010 and doing it without any advisors except for the BH forum.
Same experience with advisors. Worse performance, lost money to fees. I was not smart. Hoping you will be smarter than me.

Dinosaur Dad
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Re: Why (or why not) use an advisor

Post by Dinosaur Dad » Thu Mar 08, 2018 1:09 pm

The answer for me was simply that I don't feel that an advisor can guarantee better results than I can do on my own.

The caveat is: are you willing to invest time to educate yourself and stick to the principles that many of us have discovered (e.g. low costs, diversification, understanding your risk tolerance). If so, then I believe most people can do it on their own. BUT you have to be able and willing to put in the time investment, and beyond that, be open to continuous learning. I learn something new every time I read posts on this site...I'd like to think I'm pretty knowledgeable, but then you read a few posts by these incredibly smart people and you realize you have a ways to go. :happy Keeps me humble I guess!

To illustrate further: a few years back, I interviewed about 4 different advisors, from robo-advisors to several who do an "assets under management" percentage. I learned a ton, and then I asked the question: do I really believe that the "tweaks" they would do to my portfolio, and their continuous management, would justify the added costs? My answer is no.

And finally: one of the key principles is to just keep it simple. You can easily add complexity, but all of that doesn't necessarily mean better performance.
"Take calculated risks - that is quite different from being rash." | General George S. Patton

BogleMelon
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Re: Why (or why not) use an advisor

Post by BogleMelon » Thu Mar 08, 2018 1:13 pm

SS84 wrote:
Thu Mar 08, 2018 11:43 am
For those of you who don't use an advisor, could you help me understand why not?
Because:
1- He can not beat the market which means, without him, I make much better returns
2- While working with me, his interest will be making money for his own retirement, while my interest would be saving money for my own retirement, obviously a conflict of interest!
3- My knowledge in the field is enough, investing is really simple.. (would you go to a mechanic to change your cabin air filter costing you $100 if you can buy the part and do it yourself in 5 mins and pay only $15?)
SS84 wrote:
Thu Mar 08, 2018 11:43 am
What would an advisor have to do differently to make you reconsider your decision to not use one?
Nothing he could do, sorry!
SS84 wrote:
Thu Mar 08, 2018 11:43 am
When looking for an advisor - how important is it that the advisor have a local presence?
How important is it that the advisor be affiliated with a well known brand (e.g. Vanguard)?
Vanguard products are already there, why would I need affiliate to buy the same thing? :oops:

Op, have you read this? https://www.etf.com/docs/IfYouCan.pdf
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ruralavalon
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Re: Why (or why not) use an advisor

Post by ruralavalon » Thu Mar 08, 2018 1:43 pm

For a nice chapter on this subject, from a free on-line book, just Google "on your own or hire an advisor?"
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Re: Why (or why not) use an advisor

Post by pkcrafter » Thu Mar 08, 2018 1:57 pm

The paradox of using an advisor is once you know enough to choose a good advisor, you also know enough to manage your own accounts. :happy I would go as far as to say it's risky and irresponsible not to understand good investing principles and yet turn over your savings to someone without understanding what he's doing.

Honestly, once you understand the fundamentals, it is not difficult.
When looking for an advisor - how important is it that the advisor have a local presence?
I don't think a local presence is necessary.
How important is it that the advisor be affiliated with a well known brand (e.g. Vanguard)?
It's not so much the well known brand as it is overall cost. Fidelity, which provides very low cost index funds also has an advisory service that uses high cost funds plus a 1% advisory fee. That is not good.

Mid way alternatives to full service advisors are options like robo-advisors. Vanguard has PAS, which is a robo system that has advisors available for consultation, although their help seems to be limited and somewhat inflexible. Cost is 0.3%.

I understand some people simply want someone else to handle their money and that's OK, but that person is still stuck with the responsibility that any employer has of evaluating performance vs what's being paid for the service.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Blister
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Re: Why (or why not) use an advisor

Post by Blister » Thu Mar 08, 2018 2:04 pm

Several years ago I hired an advisor to manage our profit sharing plan for a small business I owned. He was independent (not associated with any major financial firm). He basically invested our monies in individual stocks that did not beat the market averages, in fact was several percentage points below. Needless to say we fired him and let all the employees manage their own funds. Jumping ahead since following the BH philosophy I feel more comfortable managing my own funds. I did have a free consultation with a CFP from TIAA who basically presented a plan that mirrored what I had been doing. It was nice to have that confirmation I was on the right track. From what I read on this forum it seems the people that "need" an advisor have a more complicated situation or just don't want to manage their investments on their own.
Everthing works out in the end. If it doesn't then its not the end.

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goingup
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Re: Why (or why not) use an advisor

Post by goingup » Thu Mar 08, 2018 2:12 pm

Welcome here!
Great question. Most here are DIY'ers. Advisors add cost and complexity. This is the BH philosophy:

The Bogleheads® Philosophy
*Develop a workable plan
*Invest early and often
*Never bear too much or too little risk
*Never try to time the market
*Use index funds when possible
*Keep costs low
*Diversify
*Minimize taxes
*Keep it simple
*Stay the course

It's not easy to find an advisor who endorses all of the above. It is easy just to build a tax-efficient portfolio out a few index funds and stick with it forever. :happy

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Re: Why (or why not) use an advisor

Post by Fallible » Thu Mar 08, 2018 2:27 pm

SS84 wrote:
Thu Mar 08, 2018 11:43 am
Hi Everyone,

I've been enjoying reading through the forum to learn more about investing and financial advice. I'm trying to get smart about this space and have a few questions that I'd love opinions on

I see a lot of discussion on the forum on the pros and cons of advisors. For those of you who don't use an advisor, could you help me understand why not? What would an advisor have to do differently to make you reconsider your decision to not use one?

When looking for an advisor - how important is it that the advisor have a local presence?

How important is it that the advisor be affiliated with a well known brand (e.g. Vanguard)?

Since most of the local firms aren't from well know brands - I'm trying to understand how to think about those two factors.

Thanks in advance!
Welcome to the forum.

You don't say if you're trying to decide whether to use an advisor, but since you've already seen forum threads on them, you already know that fees and other expenses are a main concern. Here's an article on the subject written by Dan Solin for advisors titled "The Test Most Advisors Fail: How Do You Justify Your Fees?" "One question posed is:
How can you justify charging the same fees to a widow who may be clueless about investing and financial planning as you charge to a do-it-yourself investor who only needs your investment advice and is comparing your fees to those charged by Vanguard for index funds?
https://www.advisorperspectives.com/art ... -your-fees
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Re: Why (or why not) use an advisor

Post by livesoft » Thu Mar 08, 2018 2:54 pm

A friend of mine uses an advisor. I think the reasons for them to use an advisor are compelling and the advisor has been worthwhile for them. Here are some of the reasons:

1. They are fearful of using any online accounts, so they have never logged in to their bank.

2. The assets under management charge is under 0.6%.

3. They can have face-to-face meetings a few times a year.

4. They really are intimidated by math and terms like asset allocation, rate of return, taxes, and so on. They don't want to read up and learn about anything having to do with investing or with money in general.

5. They lucked into using a DFA advisor who has them invested tax efficiently in DFA funds and Vanguard ETFs. If they did not have an advisor, then they would probably have left all their money in a checking account. But they could have easily unlucked into using one of those other kinds of advisors with high-fee funds and a much higher AUM charge.
Last edited by livesoft on Thu Mar 08, 2018 3:03 pm, edited 1 time in total.
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Re: Why (or why not) use an advisor

Post by htdrag11 » Thu Mar 08, 2018 3:03 pm

I would conjecture that most of us have advisors before. After my 1st successful CFP from the last century retired (burned out), the next 3 was either bad or average. It took me a bit of courage to wean from the last 2, but I'm glad I did it last year. I feel very comfortable with my 50-50 AA.

Since you have the knowledge to asked these questions, you could do it yourself once you established your ISP, goals and risks. Unlike buying luxury items (that is debatable also), you do not get better returns from millionaire or high priced CFP's, CFA's or CPA's. It's nothing to brag about either.

GL.

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Re: Why (or why not) use an advisor

Post by greg24 » Thu Mar 08, 2018 3:26 pm

Like everyone here, I am strongly in favor of DIY.

But, if you would like an advisor, my two requirements would be:

* The person be local. The #1 thing you're getting is a personal connection that can help you calm your fears. Much better to have the face-to-face option than doing everything remotely.
* They're low-cost in the fees they charge, and have a low-cost mind set about the investments they select.

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Re: Why (or why not) use an advisor

Post by galeno » Thu Mar 08, 2018 3:36 pm

Two reasons we don't use an advisor:

1. Cost. Our total portfolio costs (ER, taxes, and misc.) = 0.4% of port. We use a GROSS AWR (annual withdrawal rate) = 4.0%. Subtract 0.4% from 4.0% allows us to live on 3.6% of port per year. An advisor will cost 0.5%. We're not willing to share 14% of our NET AWR with an advisor who takes absolutely NONE of the risk.

2. Returns. Over the long term. An advisor WILL LOSE to our DIY portfolio. He needs to beat me running on a 14% grade while I run on a 0% grade. Naturally he/she will have to take at least 14% more risk to get the same return as me. He/she cannot do this over the long term.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Re: Why (or why not) use an advisor

Post by Meg77 » Thu Mar 08, 2018 3:50 pm

Many people DO need and benefit from having a financial advisor. Here are some reasons:

1. No interest in managing their money (too busy with managing a company or career or family, would rather outsource the activities, etc.)

2. No aptitude for managing their money (don't know what you don't know, don't want to take time to learn, feel more confident with a professional stamp of approval, cognitive impairment or disability, tend to be overly nervous and easily overwhelmed by financial news and need coaching/hand-holding to stay the course)

3. Complex financial situation requiring ongoing legal/estate/tax/investment advice and activity (making sure trusts are funded annually, cash flows through entities properly, annual exclusion gifts are documented properly, insurance plans are constantly updated, bills are paid, quarterly taxes are estimated and paid, tax losses are continually harvested, asset allocation is balanced and shifted tactically when optimal, etc.)

4. You know what you're paying for the service, and the fees are worth it to you.

Brand and local presence don't necessarily matter. I know financial planners who meet primarily via skype or other online meeting platform or travel to visit their clients a few times a year if they aren't local. Depends on whether face to face meetings are important to you.
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Re: Why (or why not) use an advisor

Post by MO MAN » Thu Mar 08, 2018 3:59 pm

Had enough of my last 2 Advisors steering me into crap that made them money and me less! I am at Vanguard now, lowest of some of the lows for expenses. Should have dumped those advisors 25 years ago!

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Re: Why (or why not) use an advisor

Post by GerryL » Thu Mar 08, 2018 4:17 pm

pkcrafter wrote:
Thu Mar 08, 2018 1:57 pm
The paradox of using an advisor is once you know enough to choose a good advisor, you also know enough to manage your own accounts. :happy I would go as far as to say it's risky and irresponsible not to understand good investing principles and yet turn over your savings to someone without understanding what he's doing.

Honestly, once you understand the fundamentals, it is not difficult.

Paul
Yes, This is how I got to DIY. Never did get around to hiring an advisor, although I have used Vanguard's CFP service to review my plan.

This is also what I tell high school students when I present Fundamentals of Investing in classrooms. I also tell them that if they decide to use a financial advisor to be clear with themselves about what they hope to get from that person. Do they want someone to create a plan for them that they can manage themselves? Do they want someone who will manage their investments? Are they looking for someone who can help them take the emotion out of investing (hand-holding)? Know what you want to buy -- and know what you are paying.

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Re: Why (or why not) use an advisor

Post by Katie » Thu Mar 08, 2018 4:51 pm

I have a hard time believing the services I get from an FA would justify an annual assets under management fee. I like the idea of the Boglehead investment philosophy - low cost index funds with little turnover. I could perhaps justify an "engagement fee" where I paid on an hourly basis (or paid a fixed fee) for a review and consultation in setting up an investment portfolio that I could manage on my own. But once that is set up, I don't think I'd get sufficient value from their managing things on an ongoing basis.

I do wonder what might happen as I get older and perhaps get less able to handle things on my own. In that case, I have a relative who might "oversee" things, but may not want to do detailed management. In that case, I might want (or need) to engage someone for more detailed services.

If someone were very nervous about investing, I might encourage them to talk to an advisor on an hourly or engagement basis, but I would first suggest they do some reading to get familiar with the basic investing concepts.

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Re: Why (or why not) use an advisor

Post by LadyGeek » Thu Mar 08, 2018 5:08 pm

SS84, Welcome!

This thread is now in the Personal Finance (Not Investing) forum (advisor).

Be sure to understand the difference between an Investment adviser and a Financial planner.
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Re: Why (or why not) use an advisor

Post by JBTX » Thu Mar 08, 2018 5:23 pm

I’ve never had an advisor because my background was in finance and I’ve always been interested in personal finance subjects. The problem is most financial advisors have “knowledge” that is bogus and are motivated to make money by you conducting transactions and generating fees.

With a little bit of effort you can do this yourself. It is worthwhile because the knowledge you gain will help plan long term. Starting out, if you can simply max out your retirement accounts and put everything in a low fee target date or life strategy fund you are doing better than you would do with an advisor less fees.

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Re: Why (or why not) use an advisor

Post by Swansea » Thu Mar 08, 2018 5:51 pm

I have a friend who uses an advisor because he does not want to have to deal with financial issues.
His portfolio asset allocation and mine are both 60/40...stock bond...we compared performance over the last year, strangely it matched to the same % down to a tenth of 1%. However, I am ahead, as I estimate he pays about 12K annual to the advisor.

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Re: Why (or why not) use an advisor

Post by Sandtrap » Thu Mar 08, 2018 6:18 pm

I have played golf with many a retiree and retired business person who used a financial advisor, and other similar fee or AUM financial professional because they did not want to "bother" with all that "messy business". Or, were absolutely convinced (by the advisor) that their advisor was making them rich. Or, investment finance was such a complex field that only an expert, a master of financial matters, with certifications, could handle money properly.
That said, I have also met many folks who are not capable of handling personal investment finances let alone their own day to day personal finance matters. So in that case, a qualified advisor would be better than nothing.

Why to "not" use a financial advisor, wealth manager, etc?
Too long to list.

j

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Re: Why (or why not) use an advisor

Post by Fallible » Thu Mar 08, 2018 6:25 pm

pkcrafter wrote:
Thu Mar 08, 2018 1:57 pm
...
I understand some people simply want someone else to handle their money and that's OK, but that person is still stuck with the responsibility that any employer has of evaluating performance vs what's being paid for the service.
Paul
Agree this is a major concern. Also, good advisors are not easy to find, so how can people who don't want to learn how to invest or manage their money find a good one who is right for them? And how can they judge the advisor's fees, other expenses, and overall performance?
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Re: Why (or why not) use an advisor

Post by VictoriaF » Thu Mar 08, 2018 6:28 pm

SS84 wrote:
Thu Mar 08, 2018 11:43 am
I see a lot of discussion on the forum on the pros and cons of advisors. For those of you who don't use an advisor, could you help me understand why not? What would an advisor have to do differently to make you reconsider your decision to not use one?
SS84, Welcome to the Forum!

Your statements are inaccurate:
1. The vast majority of the Bogleheads discussions are about investing without advisers. Some discussions are about people who were harmed by their advisers. A small minority of the discussions are about reasons to use an adviser, and these are about needs of other people than the Bogleheads.
2. The correct question is not "Why not to use an adviser?" but "Why to use an adviser?"

Victoria
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Re: Why (or why not) use an advisor

Post by MathWizard » Thu Mar 08, 2018 6:39 pm

I'm my wife's advisor (she has said so to her family when they were naming who their investment "guy" was. Not
sure why it was always a "guy" but it was.)

You have to be actively involved in your finances, so why not investing as well. Nobody else is going to
care as much as you do.

Just like car or house maintenance, you will have financial maintenance.

I do almost all my own car and house maintenance, though I do farm out those part for which
I do not have the tools or expertise.

In financial area, I use an index fund rather than making my own "basket of stocks" and keeping them in balance with
an index, so that work is done for me. I had a lawyer make out wills rather than doing it myself. This was important, and
I could not fix it after I had died, so I paid a professional. However, passive investing is so easy, that I do not need someone
to help me with it.

I'm not sure what an advisor could do to get me to use one. Better and stable returns sound good, but is too good to
be true, as Madoff's clients learned. The payment as a % of Assets under Management seems crazy to me.

How much harder is it to invest 2 million than 1 million? Just double what you invested the $1 Million in. However,
with the AUM model, you pay twice as much.

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Not!

Post by FraggleRock » Thu Mar 08, 2018 6:41 pm

pkcrafter wrote:
Thu Mar 08, 2018 1:57 pm
It's not so much the well known brand as it is overall cost. Fidelity, which provides very low cost index funds also has an advisory service that uses high cost funds plus a 1% advisory fee. That is not good.
True. This what my brother is doing. Paying someone 1% to tell him where to place his $1M+ in Fidelity funds.

My father, who died at 95.5 in January, had everything at Fidelity and effectively did day trading in the Roth. His net return for 2017 was only 27%. The only advisor he ever listened to was Peter Lynch.

For me, my money is at Fidelity in 4 low-cost (0.04%) index funds. I moved all my money from Janus to Fidelity to have low-cost funds after playing cfiresim and observing the effects of drag.. My free Fidelity advisor said I should have some international exposure. I said: OK, What is your recommendation? And she came back with a fund that has a 1% cost. Uh, no. What part of low cost did you not hear?

What added value is an advisor going to offer me?

SS84
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Re: Why (or why not) use an advisor

Post by SS84 » Fri Mar 09, 2018 11:47 am

pkcrafter wrote:
Thu Mar 08, 2018 1:57 pm
The paradox of using an advisor is once you know enough to choose a good advisor, you also know enough to manage your own accounts. :happy I would go as far as to say it's risky and irresponsible not to understand good investing principles and yet turn over your savings to someone without understanding what he's doing.

Honestly, once you understand the fundamentals, it is not difficult.
When looking for an advisor - how important is it that the advisor have a local presence?
I don't think a local presence is necessary.
How important is it that the advisor be affiliated with a well known brand (e.g. Vanguard)?
It's not so much the well known brand as it is overall cost. Fidelity, which provides very low cost index funds also has an advisory service that uses high cost funds plus a 1% advisory fee. That is not good.

Mid way alternatives to full service advisors are options like robo-advisors. Vanguard has PAS, which is a robo system that has advisors available for consultation, although their help seems to be limited and somewhat inflexible. Cost is 0.3%.

I understand some people simply want someone else to handle their money and that's OK, but that person is still stuck with the responsibility that any employer has of evaluating performance vs what's being paid for the service.

Paul
How do you recommend people find and measure good advisors? What makes some better than others and what metrics do you recommend people use to identify if they have a good advisor?
...and what are some ways you can actually tell if you have a good advisor?

You identify some rational reasons to use an advisor but what do you mean when you say to take the emotion out of it? Do people really get an advisor to manage their own emotions? That seems kinda weird - but I'm interested in learning more.

THANK YOU everyone for these great responses.

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Re: Why (or why not) use an advisor

Post by Dulocracy » Fri Mar 09, 2018 12:33 pm

Meg77 wrote:
Thu Mar 08, 2018 3:50 pm
Many people DO need and benefit from having a financial advisor. Here are some reasons:

1. No interest in managing their money (too busy with managing a company or career or family, would rather outsource the activities, etc.)

2. No aptitude for managing their money (don't know what you don't know, don't want to take time to learn, feel more confident with a professional stamp of approval, cognitive impairment or disability, tend to be overly nervous and easily overwhelmed by financial news and need coaching/hand-holding to stay the course)

3. Complex financial situation requiring ongoing legal/estate/tax/investment advice and activity (making sure trusts are funded annually, cash flows through entities properly, annual exclusion gifts are documented properly, insurance plans are constantly updated, bills are paid, quarterly taxes are estimated and paid, tax losses are continually harvested, asset allocation is balanced and shifted tactically when optimal, etc.)

4. You know what you're paying for the service, and the fees are worth it to you.

Brand and local presence don't necessarily matter. I know financial planners who meet primarily via skype or other online meeting platform or travel to visit their clients a few times a year if they aren't local. Depends on whether face to face meetings are important to you.
DITTO. An advisor may not be right for you, or they may be. Find out the fees up front. As an attorney dealing with estate planning, probate, family law, and divorce, I see into a LOT of people's portfolios. MANY of them would have been much better off with a stay-the-course, low-fee advisor who would keep them from making stupid mistakes. Some people that post on this board also fall into that category. It is nothing to be ashamed of; it just exists. Some people (most, actually) would be better off with someone keeping them from jumping off the ledge at the wrong time or keeping them on track so they don't stop putting money aside for retirment when they have to get a Vacation home like their sister-in-law.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: Why (or why not) use an advisor

Post by Dinosaur Dad » Fri Mar 09, 2018 12:47 pm

MathWizard wrote:
Thu Mar 08, 2018 6:39 pm
I'm my wife's advisor (she has said so to her family when they were naming who their investment "guy" was. Not
sure why it was always a "guy" but it was.)

You have to be actively involved in your finances, so why not investing as well. Nobody else is going to
care as much as you do.

Just like car or house maintenance, you will have financial maintenance.

I do almost all my own car and house maintenance, though I do farm out those part for which
I do not have the tools or expertise.

In financial area, I use an index fund rather than making my own "basket of stocks" and keeping them in balance with
an index, so that work is done for me. I had a lawyer make out wills rather than doing it myself. This was important, and
I could not fix it after I had died, so I paid a professional. However, passive investing is so easy, that I do not need someone
to help me with it.

I'm not sure what an advisor could do to get me to use one. Better and stable returns sound good, but is too good to
be true, as Madoff's clients learned. The payment as a % of Assets under Management seems crazy to me.

How much harder is it to invest 2 million than 1 million? Just double what you invested the $1 Million in. However,
with the AUM model, you pay twice as much.
+1 on the $1 million versus $2 million. Some charge graduated fees that go down as the assets increase, but stilll...that "percentage" model leaves a LOT to be desired.
"Take calculated risks - that is quite different from being rash." | General George S. Patton

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Re: Why (or why not) use an advisor

Post by Dinosaur Dad » Fri Mar 09, 2018 12:54 pm

Warren Buffet has spoken out on this topic...and his comments really struck me. To quote the New York Times, quoting Buffet:

In his letter, Mr. Buffett offered an unusually cogent, honest and blunt appraisal of the human behavior that drives individuals with money to avoid index funds — and their willingness to pay huge fees.

“The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it,” Mr. Buffett wrote. “Their money, they feel, should buy them something superior compared to what the masses receive.”

He continued, “The financial ‘elites’ — wealthy individuals, pension funds, college endowments and the like — have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars.”

Mr. Buffett said that wealthy individuals get drawn in by consultants selling them big promises. “Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S. & P. 500?” he wrote. “That would be career suicide. Large fees flow to these hyper-helpers, however, if they recommend small managerial shifts every year or so.”

That advice, Mr. Buffett added, “is often delivered in esoteric gibberish that explains why fashionable investment ‘styles’ or current economic trends make the shift appropriate.”

Mr. Buffett’s index-loving advice may seem counterintuitive coming from a man who is considered the most successful investor in history — and who became so by actively making individual bets in the market.

It also may be hard to square given that millions of people follow Mr. Buffett’s words — and tens of thousands of them make an annual pilgrimage to Omaha to his annual meeting — looking for pearls of wisdom that they can use themselves to beat the market.

Mr. Buffett has long offered guidance about investing, and he often makes it sound easy. “Success in investing doesn’t correlate with I.Q. once you’re above the level of 25,” he once said — but it seems even he recognizes that some investors who follow his principles may not succeed.

“There are, of course, some skilled individuals who are highly likely to outperform the S. & P. over long stretches. In my lifetime, though, I’ve identified — early on — only 10 or so professionals that I expected would accomplish this feat,” he wrote.


Full link:

https://www.nytimes.com/2017/02/27/busi ... -fees.html
"Take calculated risks - that is quite different from being rash." | General George S. Patton

rixer
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Re: Why (or why not) use an advisor

Post by rixer » Fri Mar 09, 2018 1:32 pm

When you're invested in a low cost balanced index fund, what would be the purpose of paying for advice every year?

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Re: Why (or why not) use an advisor

Post by pkcrafter » Fri Mar 09, 2018 2:03 pm

SS84:
How do you recommend people find and measure good advisors? What makes some better than others and what metrics do you recommend people use to identify if they have a good advisor?
...and what are some ways you can actually tell if you have a good advisor?

You identify some rational reasons to use an advisor but what do you mean when you say to take the emotion out of it? Do people really get an advisor to manage their own emotions? That seems kinda weird - but I'm interested in learning more.
Emotions are the No. 1 cause of losing potential returns. High fees are No. 2. Here's our page on Behavioral Pitfalls.

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

Here is some information on choosing an advisor.

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

Here's a link to Boglehead Mike Piper's site with information on checking out a potential advisor.

https://obliviousinvestor.com/checking- ... v-part-ii/

I'll finish by saying that a really good financial advisor would charge you a very low fee and put you in 3 or 4 or low cost index funds.

"Wait a minute" you would howl. "I'm paying good money and you give me only 4 funds? I'm not getting my money's worth,"
or, "4 funds?, I could do that myself!"

The advisor then says, "Yes, you're right. I don't do this for everyone, but I'm going to make an exception and give you 13 funds.
"Well, that's more like it," you say.

They don't do this or course, and the reason is they have to appear to provide something complex, and more importantly, most work for a financial company. Who does the financial company want them to make money for?


Paul
Last edited by pkcrafter on Sat Mar 10, 2018 12:37 am, edited 1 time in total.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Why (or why not) use an advisor

Post by Fallible » Fri Mar 09, 2018 2:16 pm

Dinosaur Dad wrote:
Fri Mar 09, 2018 12:54 pm
Warren Buffet has spoken out on this topic...and his comments really struck me. To quote the New York Times, quoting Buffet:

In his letter, Mr. Buffett offered an unusually cogent, honest and blunt appraisal of the human behavior that drives individuals with money to avoid index funds — and their willingness to pay huge fees.

“The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it,” Mr. Buffett wrote. “Their money, they feel, should buy them something superior compared to what the masses receive.”

He continued, “The financial ‘elites’ — wealthy individuals, pension funds, college endowments and the like — have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars.”

Mr. Buffett said that wealthy individuals get drawn in by consultants selling them big promises. “Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S. & P. 500?” he wrote. “That would be career suicide. Large fees flow to these hyper-helpers, however, if they recommend small managerial shifts every year or so.”

That advice, Mr. Buffett added, “is often delivered in esoteric gibberish that explains why fashionable investment ‘styles’ or current economic trends make the shift appropriate.”
... https://www.nytimes.com/2017/02/27/busi ... -fees.html

It seems some wealthy investors forget that wealth alone won't assure a good advisor. They still have to know what a good one is and how to find one, same as the small investor does.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

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Re: Why (or why not) use an advisor

Post by Earl Lemongrab » Fri Mar 09, 2018 2:28 pm

When I got serious about investing, I spent several months educating myself and developing an investment plan. I didn't need and adviser for that, as there is a wealth of material out there. Once I had the plan, then all I needed to do was implement it. I didn't need an adviser for that either.

Shortly after the plan was implemented, the crash of 2008 happened. I followed the plan, did tax-loss harvest and rebalancing. I didn't need an adviser for that.

So, why would I need an adviser? This is one area where DIY is not only possible, it's relatively straightforward and simple.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Why (or why not) use an advisor

Post by hoops777 » Fri Mar 09, 2018 2:31 pm

An advisor can be useful for someone with finance phobia and to save someone from themselves.An example...in 2008 someone who panicked and sold at a huge loss and stayed out of the market.Paying an advisor 1 pct who kept you in and fully invested since would have made a huge difference.
K.I.S.S........so easy to say so difficult to do.

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Re: Why (or why not) use an advisor

Post by Clever_Username » Fri Mar 09, 2018 2:36 pm

I don't use an advisor because I only really make enough money to fund one person's retirement, and I'd like that person to be me.

In about 2-3 years, I think I'll qualify for Voyager Select. That includes "[a]ccess to a financial advisor." I don't know what that means or if I'll use it. I'll reevaluate the decision then.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

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Re: Why (or why not) use an advisor

Post by cfs » Fri Mar 09, 2018 2:57 pm

Welcome aboard! Glad to see your post.

Advisers? As discussed on previous replies . . .

(1) Some have need for an adviser.
(2) Some have no need for an adviser.

I am with the second group.

Good luck with your investments, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

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Re: Why (or why not) use an advisor

Post by UpperNwGuy » Fri Mar 09, 2018 3:38 pm

I do not have an advisor because I am committed to the three-fund portfolio concept, and that is easy to self-manage. An advisor would cost me money and would add no value in my situation.
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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