Investment Advisor or do it ourselves

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
rory535
Posts: 18
Joined: Wed Mar 09, 2011 8:21 pm

Investment Advisor or do it ourselves

Post by rory535 » Sun Sep 25, 2011 3:28 pm

So after a couple of meetings with a financial investor, he has given us valuable topics on life insurance, kids college fund and 401k/Cash account investing etc.

He is looking to get us into a combined Avatar/Vanguard portfolio investment for our cash account. To oversee our accounts and investing, this is going to cost us 1.6% of our return and whilst I valua the upfront advice, not sure whether this is worth it, to merely have someone re-look at our portfolio every so often. The college and life isurance fund pretty much takes care of itself so its just the company 401K and cash account. Nowdays Vanguard seems to make it real easy with their retirement funds so I struggle to potentially see the benefit of paying this total 1.6% fee yearly to someone to move some stuff around.

Im leaning towards paying the one time fee for the upfront advice but then monitoring things myself....but looking for advice from members here whether this fee is worth the money.
Thanks.

ResNullius
Posts: 2091
Joined: Wed Oct 24, 2007 3:22 pm

Post by ResNullius » Sun Sep 25, 2011 3:36 pm

Maybe he's unusal, but the 1.6% fee usually covers your entire principal, not just the investment return for the year. In other word, the 1.6% fee is huge, particularly over a period of years, plus that doesn't even count the expense ratio for the funds he's going to put your money in, and those charges/fees will be extra. You'll likely end up payint something between 2% and 2.5% of your total principal each year for your fee. Personally, I would do it myself and keep my money for myself, and not his country club fees.

User avatar
dave66
Posts: 324
Joined: Mon Sep 05, 2011 5:38 am

Post by dave66 » Sun Sep 25, 2011 3:41 pm

I would never pay a single individual a percentage of anything I do... Ever. Unless maybe they could 100% guarantee me they could make me a multi millionaire.

User avatar
soaring
Posts: 1440
Joined: Sun Nov 18, 2007 9:09 am
Location: North Central Florida

Post by soaring » Sun Sep 25, 2011 3:47 pm

If in fact you are being charged JUST for your return and you earn 6% are you willing to pay 25%+ of that amount? I hope not.
Desiderata

retiredjg
Posts: 34415
Joined: Thu Jan 10, 2008 12:56 pm

Post by retiredjg » Sun Sep 25, 2011 4:17 pm

1.6% is a lot. Why don't you look into doing it yourself? If that leaves you uncomfortable, find someone who does the job for less. MUCH less.

If you use the link below and post your situation, you will learn a lot and someone here could give you some insight into whether your situation is complex enough to really need an advisor.

User avatar
Dale_G
Posts: 3125
Joined: Tue Feb 20, 2007 5:43 pm
Location: Central Florida - on the grown up side of 81

Re: Investment Advisor or do it ourselves

Post by Dale_G » Sun Sep 25, 2011 4:23 pm

rory535 wrote:To oversee our accounts and investing, this is going to cost us 1.6% of our return and whilst I valua the upfront advice, not sure whether this is worth it, to merely have someone re-look at our portfolio every so often.
Thanks.
It is not likely that the fee is 1.6% of return, i.e. profits. More likely the fee is 1.6% of assets under management - or assets under "advice".

While the one time advice may have been valuable, I bet rory can handle things on his own in the future. It is a lot cheaper (and better) to read a few books and spend some time on self education rather than paying anyone 1.6% of assets.

Dale
Volatility is my friend

User avatar
Taylor Larimore
Advisory Board
Posts: 27636
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Avatar Associates.

Post by Taylor Larimore » Sun Sep 25, 2011 4:39 pm

Hi Rory:

Welcome to the Bogleheads Forum!
He is looking to get us into a combined Avatar/Vanguard portfolio investment for our cash account. To oversee our accounts and investing, this is going to cost us 1.6% of our return.
I assume your advisor is Avatar Associates which uses market timing (they call it "tactical allocation). If so, I would avoid them because there are many market timing studies showing it seldom works.

I Googled an early 2008 issue of The Avatar Advisor. They state: "We have moved up our (equity) exposure approximately from a 50% weight to a 75% weight for the group."

Unfortunately this was a very bad move. The S&P 500 Index plunged -37% by the end of 2008.

http://www.btginc.org/AvatarAdvisorJanuary2008.pdf
"Simplicity is the master key to financial success." -- Jack Bogle

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Investment Advisor or do it ourselves

Post by YDNAL » Sun Sep 25, 2011 4:46 pm

rory535 wrote:So after a couple of meetings with a financial investor, he has given us valuable topics on life insurance, kids college fund and 401k/Cash account investing etc.

He is looking to get us into a combined Avatar/Vanguard portfolio investment for our cash account. To oversee our accounts and investing, this is going to cost us 1.6% of our return and whilst I valua the upfront advice, not sure whether this is worth it, to merely have someone re-look at our portfolio every so often.
Ask the "financial investor" to show you an example of how this fee works.

You will soon find that he wants 1.6% of portfolio value and after all is said/done, you are very likely getting really so-so investing advice (just my guess :) ).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

User avatar
bertilak
Posts: 6165
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Investment Advisor or do it ourselves

Post by bertilak » Sun Sep 25, 2011 5:09 pm

rory535 wrote:Im leaning towards paying the one time fee for the upfront advice but then monitoring things myself
That's a better idea than paying the ongoing 1.6% but I would guess even his one-time fee is probably not worth it. Check out this site's Wiki for a list of books that will give you lots of good advice. Actually more than advice -- they will teach you how to invest, not just give you a list of things to buy then come back later to tell you to buy something else (to prove an on-going fee is paying for *something* and perhaps collect a transaction fee or two).

There is no hurry! Take a month or more to teach yourself. Leaving your funds wherever they are now for a while will not make any appreciable difference in the long run and may save you hundreds of dollars in unnecessary fees. It will be a good investment of your time.

After that education you may actually decide you DO want or need an adviser, but by then you will know how to judge his worth and hopefully take the time to find someone cheaper!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

User avatar
BolderBoy
Posts: 4185
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Post by BolderBoy » Sun Sep 25, 2011 5:59 pm

Do it yourself. Remember that these sorts of investment advisors *always* make money on you, even if your portfolio is going DOWN. 1.6% is outrageous and merely tells me "he saw you coming." Crook.

I tried the investment advisor experiment from 2003-2009. 4 different advisors all promising me they could way beat my results. None beat me and one, using some "coded" verbage for market timing went down 40% while my own experimental portfolio went UP 53%. I took it all back in 2009 and will never look back.

As far as I'm concerned, most of them are just out to vampire your assets under the guise of knowing something mysterious which you can't possibly know.

It is nonsense. Follow the Bogleheads' wiki and forum advice and you'll do just fine yourself. They've helped me.

B

dodonnell
Posts: 415
Joined: Wed Oct 29, 2008 6:48 pm

Post by dodonnell » Sun Sep 25, 2011 6:37 pm

To check out your adviser:

1. Go to www.adviserinfo.sec.gov
2. Select "Firm" (you can also check out the specific person you are dealing with in addition)
3. Type in "avatar" or use CRD # 127498.
4. Select the appropriate firm you are dealing with
5. Now the most important part ... pay careful attention:

Scroll down until your find "Part 2 Brochures" on the left hand side - click it!

6. Download the newly required (2010 law) pdf file detailing in plain English everything about how the adviser manages money, especially their fees and all costs. It should be dated 3/31/2011.

enjoy

rory535
Posts: 18
Joined: Wed Mar 09, 2011 8:21 pm

Post by rory535 » Sun Sep 25, 2011 6:46 pm

Wow, thanks guys for the advice. Let me break that down in what he told me...... .6% is the expense ratio fees of those investments and then he gets the other 1%.

retiredjg
Posts: 34415
Joined: Thu Jan 10, 2008 12:56 pm

Post by retiredjg » Sun Sep 25, 2011 7:02 pm

rory535 wrote:...6% is the expense ratio fees of those investments and then he gets the other 1%.
Better, but still too high. :wink:

If you do this yourself, your expense ratio for your entire portfolio could be in the neighborhood of .15% to .3% depending on what you want to hold. And there would be no 1% on top of that.

I do not mean to imply that do it yourself is the only way to go. I just want you to know how it could be if you choose to go that route.

Remember this. If your investments make 8%, he takes 1.6% leaving you with only 6.4%. If your portfolio requires a LOT of work all the time, he might earn his money. But most portfolios only require a few hours a year unless you just like to tinker.

User avatar
Majormajor78
Posts: 910
Joined: Mon Jan 31, 2011 9:13 pm
Location: Chicagoish

Post by Majormajor78 » Sun Sep 25, 2011 7:28 pm

rory535 wrote:Wow, thanks guys for the advice. Let me break that down in what he told me...... .6% is the expense ratio fees of those investments and then he gets the other 1%.
One percent for Assets Under Managment is pretty standard for the industry. Keep in might that the industry overall is expensive so that's not saying a whole lot. Let's be optimistic and say that the market yields 8% over the next 20 years. A 100K portfolio invested in Vanguard's total stock market admiral shares (VTSAX) with an ER of .07% would grow to $460090.83. Let's be generous and assume this guy managed to match the market for 20 years (I believe 85% of active funds fail to meet or exceed in this time frame). With fee's totaling 1.6% annually you would only get a return of 6.4% so your 100K would only grow to $345806.00. If this guy were better than 85% or all other financial professionalls he would cost you $114284 in that period. Odds are he would do much worse and of course a 15% chance of giving you superior returns. If your portfolio were 1 million dollars his underperformance would cost you about 1.14 million.

Read some books and do it yourself. Here's a suggested reading list http://www.bogleheads.org/wiki/Books:_R ... nd_Reviews

In the end you might want to consider one of the no-nonsense "lazy portfolio's." They range from moderately simple to stone axe simple. They'll never promise to outperform but will allow you to capture and keep as much of the market returns as are reasonably possible.

http://www.bogleheads.org/wiki/Lazy_Portfolios
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

lawman3966
Posts: 1119
Joined: Sun Aug 10, 2008 12:09 pm
Location: Tacoma WA

Post by lawman3966 » Sun Sep 25, 2011 7:38 pm

rory535 wrote:Wow, thanks guys for the advice. Let me break that down in what he told me...... .6% is the expense ratio fees of those investments and then he gets the other 1%.
Nice that that's cleared up. The next thing to be clear about is that this percentage is applied to your entire asset base each year, not only to the return.

If you want to see the effect of this over time, try running the savings calculator, linked below, for two rates of return: (1) a reasonable rate you think one would get from a combinatino of stock and bond funds (e.g. 6%); and (2) the rate selected in (1) minus 1.6%. Conduct this calculation for various time periods, while estimating your future investment contributions as closely as you can.

The savings rate and rate of return numbers don't have to be perfectly accurate, since this is for comparison purposes. As long as you use reasonable numbers, and use the same numbers, other than the rate of return, for each case, this approach can give you some idea of what you will lose to an intermediary over 20 or 30 years. Some people are surprised to find that high fees can cost them anywhere from 30% to 50% of their life savings over a lifetime of saving.

http://www.money-zine.com/Calculators/R ... alculator/

You are likely best off picking a reasonable allocation of low-fee stock and bond funds from vanguard and re-balancing with age. Your advisor would have to beat the investment returns of the above approach by 1.6% every year for you to get the same yield while using his services. Few advisors achieve this, which is why there is a Vanguard and a Bogleheads board.

User avatar
mhc
Posts: 3811
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Post by mhc » Sun Sep 25, 2011 8:13 pm

Rory,

in January 2011 I decided to get my retirement investments straightened out. Fortunately, I found this forum. I have read 1.5 of the recommended books, some of the Wiki, and a lot of the posts. I have probably spent 40-80 hours educating myself. I feel like I know enough now to be really comfortable with my AA choices and how to manage them. This morning I was thinking that investing is getting really boring because there is not really too much to do. The beauty of the boglehead approach is that it is really simple and does not take very much time to manage, while being a very solid approach to investing.

If you have the time to educate yourself and the confidence to manage your money, then you should do it. I would recommend spending some time educating yourself before committing to the advisor.

User avatar
LadyGeek
Site Admin
Posts: 49327
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Post by LadyGeek » Sun Sep 25, 2011 8:44 pm

dodonnell wrote:To check out your adviser:

1. Go to www.adviserinfo.sec.gov
2. Select "Firm" (you can also check out the specific person you are dealing with in addition)
3. Type in "avatar" or use CRD # 127498.
4. Select the appropriate firm you are dealing with
5. Now the most important part ... pay careful attention:

Scroll down until your find "Part 2 Brochures" on the left hand side - click it!

6. Download the newly required (2010 law) pdf file detailing in plain English everything about how the adviser manages money, especially their fees and all costs. It should be dated 3/31/2011.

enjoy
Thank you. Your suggestion is now in the wiki. Only the FINRA was previously listed.

Wiki article link: Tools and Calculators (Broker Check)

It seems that the FINRA's broker check is better for individuals, but the SEC is better for firms (especially for those who want to deep-dive into the details).
rory535 wrote:Wow, thanks guys for the advice. Let me break that down in what he told me...... .6% is the expense ratio fees of those investments and then he gets the other 1%.
I'm not so sure if it's actually split up this way, but you'll find out if you sign a contract. I'm thinking this is a wrap-fee account, which will take 1.6% of the total assets under management. There's no point to break down how the fees are paid. It's still 1.6% of your money, no matter who it goes to. What's important is that this money is compounded over time. It's not 1.6% every year; it's much, much more than that when you look over 20 years or so. That's why you need the retirement calculators.

Use the wiki tools to search for your investor's name directly. If he's going to manage your accounts, he has to be a registered broker and be listed with the FINRA. Get the full FINRA .pdf file and look for any complaints as well as verifying his qualifications.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

dodonnell
Posts: 415
Joined: Wed Oct 29, 2008 6:48 pm

Post by dodonnell » Sun Sep 25, 2011 9:28 pm

All "Investment Advisers" (people and firms) must be registered with the SEC or their state agency. They must serve their clients with fiduciary duty.

Anyone registered with FINRA typically makes commissions and fees from the products they sell (brokerage or mutual fund company). They must provide their clients products that are "suitable" (the suitability standard), but not necessarily the cheapest or the best.

Very big difference between the two.

You will find advisers like Larry Swedroe, Bill Bernstein, and Rick Ferri ... all registered with the SEC, but not FINRA. They are "Register Investment Adviser Representatives" or IARs. Their firms are "Investment Advisers" IAs. You can download their firms pdfs and review their individual regulatory profiles on adviserinfo.sec.gov detailing their management and fees.

If your financial adviser cannot be found in SEC's IARD database, but is found in FINRA, then you don't have an adviser ... you have a product salesperson.

Many people believe their "financial adviser" is a "Registered Investement Adviser", however, I have found very few are. Instead they are brokers or worse insurance agents. Neither have to disclose the fees they earn on your business. Investment advisers must disclose all fees and sources of compensation.

User avatar
cheese_breath
Posts: 8116
Joined: Wed Sep 14, 2011 7:08 pm

Post by cheese_breath » Sun Sep 25, 2011 10:34 pm

Definition of an Investment Adviser... "A person who takes your money and his experience, and makes it his money and your experience."

I won't deny there are probably some good advisers out there somewhere, but IMHO there are also a lot of crooks and incompetents. So how do you know which one to choose? You have to educate yourself on investing in order to adequately evaluate them. Then you have to monitor their preformance on a regular basis to be certain they are doing a good job. If you're going to spend all that time on educating and monitoring, why not just cut out the middle man and do the investing yourself?

But if you feel you must have an adviser use a fee-based adviser who charges for his advice, but never give anyone authority over your money.

User avatar
Random Musings
Posts: 5319
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Post by Random Musings » Mon Sep 26, 2011 10:27 am

1.6% is much too high for expense ratio and AUM fees. Also think about your bond portion of the portfolio. 10-yr bonds are yielding under 2% right now, so between the advisor and expense ratio, they would be taking over 80% of the current yields.

Shop around.

RM

User avatar
LadyGeek
Site Admin
Posts: 49327
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Post by LadyGeek » Mon Sep 26, 2011 8:55 pm

dodonnell wrote:All "Investment Advisers" (people and firms) must be registered with the SEC or their state agency. They must serve their clients with fiduciary duty...
Thanks. You clearly pointed out the "missing connection", so I rewrote the wiki section. Perhaps it should be in a stand-alone article, but it's better to get the content correct first. The regulatory details are footnotes to keep the main content concise and easy to read.

Wiki article link: Tools and Calculators (Broker check)

I don't want to hijack this thread, so if anyone has detailed comments / questions / corrections that are not related to the OP's question, please post a response in the Suggestions for the Wiki.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Post Reply