Questions to ask a prospective financial advisor

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000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

unclescrooge wrote: Tue Sep 15, 2020 12:20 am
000 wrote: Tue Sep 15, 2020 12:05 am
unclescrooge wrote: Mon Sep 14, 2020 11:44 pm A simple Google search takes you to SEC website, and a much more informative article from Kitces:
https://www.kitces.com/blog/performance ... sk-taking/
Well that was easy. I guess it's not illegal in all cases after all.
It only covers registered investment advisors. Most FAs are not RIAs
Thanks for providing citation and clarification.

In light of this information, I will suggest that this might be the most important question of all:

"How much in dollars will your firm receive in fees from my account this year?"
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

000 wrote: Tue Sep 15, 2020 12:42 am
unclescrooge wrote: Tue Sep 15, 2020 12:20 am
000 wrote: Tue Sep 15, 2020 12:05 am
unclescrooge wrote: Mon Sep 14, 2020 11:44 pm A simple Google search takes you to SEC website, and a much more informative article from Kitces:
https://www.kitces.com/blog/performance ... sk-taking/
Well that was easy. I guess it's not illegal in all cases after all.
It only covers registered investment advisors. Most FAs are not RIAs
Thanks for providing citation and clarification.

In light of this information, I will suggest that this might be the most important question of all:

"How much in dollars will your firm receive in fees from my account this year?"
No. You should ask for an ADV and read it fully before asking any questions.

It should have investment strategy, fees and conflicts of interest listed. Also have some information about the FAs education and work experience.

Then you ask questions.

The questions should revolve around value you get, not just fees.

When you buy a car, do you walk into a used car dealership and ask to see thr cheapest car? No. You list the features you want and see if there is anything in your budget.
Last edited by unclescrooge on Tue Sep 15, 2020 12:56 am, edited 1 time in total.
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

unclescrooge wrote: Tue Sep 15, 2020 12:52 am No. You should ask for an ADV and read it fully before asking any questions.
It should have investment strategy, fees and conflicts of interest listed. Also have some information about the FAs education and work experience.
Then you ask questions.
I didn't say that should be the first question, just that it might be the most important.

What is wrong with asking about the dollar amount of fees after studying the ADV?
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

000 wrote: Tue Sep 15, 2020 12:56 am
unclescrooge wrote: Tue Sep 15, 2020 12:52 am No. You should ask for an ADV and read it fully before asking any questions.
It should have investment strategy, fees and conflicts of interest listed. Also have some information about the FAs education and work experience.
Then you ask questions.
I didn't say that should be the first question, just that it might be the most important.

What is wrong with asking about the dollar amount of fees after studying the ADV?
The ADV will list the fees.
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

unclescrooge wrote: Tue Sep 15, 2020 12:57 am The ADV will list the fees.
Yes... but not the dollar amount (other than for a flat fee advisor).

And you really think the parties OP asked about are going to be scouring the ADV and calculating that?

A reputable service provider in any profession should have an answer for how much things will cost up front.

It's a reasonable question. Not sure why it can't be discussed in a meeting with the advisor. Is there too much embarrassment for all parties involved?
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celia
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Re: Questions to ask a prospective financial advisor

Post by celia »

Swimmer wrote: Fri Sep 11, 2020 1:03 pm I asked him about fees, and he said that when he told this person what his NW is, the advisor told him that with that much, there would be no fees. Hmmm.
Hmmmmmmmmm. There are likely no "fees" because each fee can be called something else. For example, at Edward Jones there are different lists of fees, depending on the type of account:
https://www.edwardjones.com/disclosures/account-fees/

There can be:
Account opening fees
Account closing fees
Low balance fees
Transaction fees/loads/commissions, which are usually a percentage of the buy or sell transaction
Dividend Reinvestment fee
Advisory Fee
and fees they collect from third parties whose products they sold to you.

Edward Jones's web site says (https://www.edwardjones.com/images/LGL-8944-A_Final.pdf):
We encourage you to:
  • Read all disclosure information and understand the fees, commissions, potential conflicts and costs for our services before you invest or borrow money
  • Ask your financial advisor questions to help you understand the fees, commissions, and costs you may pay
OP, My suggestion to your friend is to take his wife to the meeting, just to listen. Later ask her for her gut reaction. Did something feel "wrong", sleezy, or deceptive? If anything, if this turns out to be a good advisor, she will have some familiarity with him, from the beginning.
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

000 wrote: Tue Sep 15, 2020 1:00 am
unclescrooge wrote: Tue Sep 15, 2020 12:57 am The ADV will list the fees.
Yes... but not the dollar amount (other than for a flat fee advisor).

And you really think the parties OP asked about are going to be scouring the ADV and calculating that?

A reputable service provider in any profession should have an answer for how much things will cost up front.

It's a reasonable question. Not sure why it can't be discussed in a meeting with the advisor. Is there too much embarrassment for all parties involved?
you are right. The FA should be able to tell you in the meeting.

But it should be trivial to calculate. If you read the adv and still can't figure it, then you should move on to another advisor. Why waste time on a meeting?

Or, if you suffer from such cognitive decline that you can't do simple math, then no amount of prep will shield you from unscrupulous salesmen.
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

unclescrooge wrote: Tue Sep 15, 2020 1:48 am you are right. The FA should be able to tell you in the meeting.

But it should be trivial to calculate. If you read the adv and still can't figure it, then you should move on to another advisor. Why waste time on a meeting?

Or, if you suffer from such cognitive decline that you can't do simple math, then no amount of prep will shield you from unscrupulous salesmen.
Well, what percentage of people who (1) know what an ADV is, (2) know how to read it, and (3) can calculate the fees need a financial advisor?
kiwi123
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Re: Questions to ask a prospective financial advisor

Post by kiwi123 »

Telling a potential client that there are no fees is concerning. Just re-iterating others advice, and also adding that you shouldnt insert yourself too much into other's financial situations. A nice thought would be to buy them the Bogelheads investing book, ask that they read it before they commit to anything, point them to the forum, and then step away.

1) don't sign anything on the first meeting, it is purely a... "i'm here to get to know each other, understand your investing and risk philosophy, and ask lots of questions... i will need some tie to think through this and also meet with a couple of other potential advisors before i make a decision"...
2) Ask lots of questions including:
a) "how do you get paid?"... if i'm not charged a fee then how do you get paid... "so if you're paid a salary, do you also make commission from your firm based on what i invest in?" ... "and do you make a commission from the firms you invest my money in?". <<Note: directly or indirectly they are likely to be making a commission based on your investment and trades...>> If there is any ambiguity take that as a bad sign.
b) "what type of funds do you recommend for me?" <<Note: they should have FIRST asked YOU lots of questions about your risk tolerance, income needs, etc. etc. If not that is a huge concern.
c) "What do you provide me that is different than investing with Vanguard's advisory services?" <<Note: they will likely say that they are more experienced/professional/better track record/etc. than Vanguard. This is again a chance for them to sell themselves so can also work against your friend...>>
d) "Can you guarantee a higher return than if i invested with Vanguard's services?" "How much higher than Vanguard will my return be?" "How can you guarantee that?" "If the fees i incur are 1% and you're aiming for an average 6% return, that means you need almost a 20% higher return for me to break-even. How is that possible?". Any implication of a guarantee is concerning. It's mathematically impossible over a long enough time period to recoup fees from higher returns.

Anyway, hope everyone's feedback is helpful. Not all advisors are bad. If your friend is all in cash and bonds, even if they got charged 1%, they are likely to generate higher returns... and if they ensure your friend doesn't panic or get greedy that is also worth 1%.

What really annoys me is when i see friends who have been sold into funds with 5% front-load fees and 1% annual expense ratios :-(
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Re: Questions to ask a prospective financial advisor

Post by LiterallyIronic »

Greenman72 wrote: Mon Sep 14, 2020 3:46 pm
LiterallyIronic wrote: Mon Sep 14, 2020 3:10 pm
Greenman72 wrote: Mon Sep 14, 2020 10:17 am I don't hate them, but I won't work with them if the only thing they see is a price.
What is there beyond price?
Did you read anything that I just wrote? (The first post. Not the second.)
I think so, if I'm looking at the right post.

The one that includes the text: "I recognize the fact that not all people want what I have to offer. That's fine. I wish you good luck, and I want to part as friends. But this is what I do, and this is what I charge. Either you accept that, or you reject it." and "At the end of the day, I (like most advisors) only want to work with clients who see the value we provide (relative to what they can do themself) and want to pay me accordingly."?

If it was that post, it talks about the value you provide, but it's unclear (to me) how that value is provided. Some kind of tailored advice? Availability to answer questions 24/7? Something? I couldn't figure out from your post what good/service was being provided in exchange for the higher price.
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

^The post about "this is what I do when it comes to Roth Conversion time...."
If you think none of that adds value, then we probably don't have any common ground to have a conversation.

We might be able to debate whether or not that is worth the extra advisory fee. But that would be an opinion, and would differ from person to person.
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arcticpineapplecorp.
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Re: Questions to ask a prospective financial advisor

Post by arcticpineapplecorp. »

unclescrooge wrote: Tue Sep 15, 2020 12:57 am
000 wrote: Tue Sep 15, 2020 12:56 am
unclescrooge wrote: Tue Sep 15, 2020 12:52 am No. You should ask for an ADV and read it fully before asking any questions.
It should have investment strategy, fees and conflicts of interest listed. Also have some information about the FAs education and work experience.
Then you ask questions.
I didn't say that should be the first question, just that it might be the most important.

What is wrong with asking about the dollar amount of fees after studying the ADV?
The ADV will list the fees.
and any infractions. To the OP, definitely check the adv part 2:

https://adviserinfo.sec.gov/
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

000 wrote: Tue Sep 15, 2020 2:13 am
unclescrooge wrote: Tue Sep 15, 2020 1:48 am you are right. The FA should be able to tell you in the meeting.

But it should be trivial to calculate. If you read the adv and still can't figure it, then you should move on to another advisor. Why waste time on a meeting?

Or, if you suffer from such cognitive decline that you can't do simple math, then no amount of prep will shield you from unscrupulous salesmen.
Well, what percentage of people who (1) know what an ADV is, (2) know how to read it, and (3) can calculate the fees need a financial advisor?
Is it my fault the average person spends more time researching a refrigerator than a financial adviser?

I believe the regulations require this to be given to all prospective clients. They need to read itand ask for clarification where they don't understand.

If it's deliberately written in a way that is confusing, or a font size of 5 on onion skin paper, then you should avoid working with such a person.
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

It's not written in a way that's confusing. Clients are required to sign and initial next to the advisory fee. (at least at my B-D).

Is it my fault if the client can't do 4th grade math? I mean, 1% of any number simply means "move the decimal to the left two places". THAT'S NOT A HARD NUMBER TO CALCULATE.

And you guys are saying that they can manage their own affairs? The same people who can't move a decimal place?
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

Greenman72 wrote: Tue Sep 15, 2020 2:26 pm

And you guys are saying that they can manage their own affairs? The same people who can't move a decimal place?
😂😂
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meowcat
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Re: Questions to ask a prospective financial advisor

Post by meowcat »

To the non-Boglehead, fees that are visible in any documentation appear small, reasonable. There are no advisors/brokers that will divulge to a client just how damaging 1% can be to a portfolio. The advisor will convince his clients that 1% is reasonable, and in fact, lower than his competition. I've always believed that full disclosure is not enough. 2.5% sounds tiny to most people. Investors need more. Total dollar amounts withdrawn from an account don't work either because it doesn't draw a long term picture. In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

^Actually, I'm being serious. The people on this board constantly say "The client is getting screwed and they don't know how. They don't know how much they're paying when they pay a 1% fee." Really? And you think they can make decisions about which of the 5000 different mutual funds they should purchase, in what proportion, and in what type of registration type?

And IF (and that's a very big IF) they manage to not screw that up, do you think they can successfully navigate the Internal Revenue Code so that they don't get [deleted -- mod oldcomputerguy] by Uncle Sam on a yearly basis?

If you say, "Clients can't calculate 1% of any number, but they can manage their own investments", I'd say you're crazy.
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

meowcat wrote: Tue Sep 15, 2020 3:16 pm In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
Imagine how crippling it must be to do it yourself IF YOU CAN'T CALCULATE 1% OF ANY GIVEN NUMBER.
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

In order to be fair, a lot of advisors do try to hide their fees, or otherwise mislead clients.

EG - "I only charge a 1% fee to manage your assets." What they mean is, "I charge 1%. Plus there's a program fee of 0.3%, plus a strategist fee of .25%, a custodian fee of .1%, a technology fee of .05%, a trading fee of .1%, a $50 per year "document delivery fee", plus a $75 per year IRA fee."

When I quote a price to my clients, this is what I tell them: You pay 1.5% on the first million, and 1% after that. That's all-in pricing. You will not pay any other fees. (Except the fees of the underlying investments, which have nothing to do with my platform, my B-D, or in any way accrue to me or my B-D. So there's no reason to put the client in high-ER fees. Of course--that's just my .02. Other advisors feel differently.)

edit - and for the record - the fees of the underlying funds range from 0.05% for a Vanguard portfolio to 0.53 for the highest-ER American Funds portfolio. We do have strategists available who charge up to 1.22%, but I don't use them.
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arcticpineapplecorp.
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Re: Questions to ask a prospective financial advisor

Post by arcticpineapplecorp. »

i heard this podcast the other day "We buy a junk bond" on Planet Money:

https://www.npr.org/2020/09/09/91116269 ... -junk-bond

It was interesting to hear about it. They did it for educational/journalistic purposes.

spoiler alert: they lost almost all of their investment (invested $573.00 but only got back $5).

what I found interesting was as they were talking about their investment I was hoping they'd talk about the commission/fees to get into the bonds, but I was disappointed because they completely left it out as if it wasn't important.
RAFIEYAN: Good yield for sure. So these bonds are $286.50...

VANEK SMITH: OK.

SANZGIRI: OK.

RAFIEYAN: ...And a minimum of two. And so - yes.

VANEK SMITH: So that would be $600...

RAFIEYAN: So we got two bonds from Hornbeck Offshore Services, maturity date March 1, 2021. It's going to cost us $612.28...

source:https://www.npr.org/transcripts/790000078
See that? The two bonds cost $573.00 total ($286.50 per bonds X 2) but to purchase those two bonds it cost them $612.28. So that means the commission was $39.28 on a $573 investment. What did those bonds cost them? 6.7% commission on $573 investment or 6.5% of the $612.28 amount which left $573 to invest.

not even mentioned...on a journalist exploration into an investment.

wow. just wow.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. get a plan: www.bogleheads.org/wiki/Investment_policy_statement
NotWhoYouThink
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Re: Questions to ask a prospective financial advisor

Post by NotWhoYouThink »

arcticpineapplecorp. wrote: Tue Sep 15, 2020 3:49 pm i heard this podcast the other day "We buy a junk bond" on Planet Money:

https://www.npr.org/2020/09/09/91116269 ... -junk-bond

It was interesting to hear about it. They did it for educational/journalistic purposes.

spoiler alert: they lost almost all of their investment (invested $573.00 but only got back $5).

what I found interesting was as they were talking about their investment I was hoping they'd talk about the commission/fees to get into the bonds, but I was disappointed because they completely left it out as if it wasn't important.
RAFIEYAN: Good yield for sure. So these bonds are $286.50...

VANEK SMITH: OK.

SANZGIRI: OK.

RAFIEYAN: ...And a minimum of two. And so - yes.

VANEK SMITH: So that would be $600...

RAFIEYAN: So we got two bonds from Hornbeck Offshore Services, maturity date March 1, 2021. It's going to cost us $612.28...

source:https://www.npr.org/transcripts/790000078
See that? The two bonds cost $573.00 total ($286.50 per bonds X 2) but to purchase those two bonds it cost them $612.28. So that means the commission was $39.28 on a $573 investment. What did those bonds cost them? 6.7% commission on $573 investment or 6.5% of the $612.28 amount which left $573 to invest.

not even mentioned...on a journalist exploration into an investment.

wow. just wow.
In keeping with recent journalistic standards, but yes, appalling.
NotWhoYouThink
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Re: Questions to ask a prospective financial advisor

Post by NotWhoYouThink »

Greenman72 wrote: Tue Sep 15, 2020 3:19 pm ^Actually, I'm being serious. The people on this board constantly say "The client is getting screwed and they don't know how. They don't know how much they're paying when they pay a 1% fee." Really? And you think they can make decisions about which of the 5000 different mutual funds they should purchase, in what proportion, and in what type of registration type?

And IF (and that's a very big IF) they manage to not screw that up, do you think they can successfully navigate the Internal Revenue Code...?

If you say, "Clients can't calculate 1% of any number, but they can manage their own investments", I'd say you're crazy.
Keeping it family friendly -
Yes, I agree that people who are comfortable managing their money and doing their taxes aren't your client base. And that people in your client base aren't the regular posters on this board.

It's weird. I don't know why it's hard for some people to understand that we don't all have the same capabilities to manage money. And that paying someone to do it is better than doing a spectacularly terrible job of it, which a large proportion of people do.
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

Greenman72 wrote: Tue Sep 15, 2020 2:26 pm It's not written in a way that's confusing. Clients are required to sign and initial next to the advisory fee. (at least at my B-D).

Is it my fault if the client can't do 4th grade math? I mean, 1% of any number simply means "move the decimal to the left two places". THAT'S NOT A HARD NUMBER TO CALCULATE.

And you guys are saying that they can manage their own affairs? The same people who can't move a decimal place?
No, I'm saying such a person can't actually effectively evaluate the financial advisor.

In other words: there is no point generating a list of questions.

It all comes down to trust.
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

000 wrote: Tue Sep 15, 2020 4:21 pm
Greenman72 wrote: Tue Sep 15, 2020 2:26 pm It's not written in a way that's confusing. Clients are required to sign and initial next to the advisory fee. (at least at my B-D).

Is it my fault if the client can't do 4th grade math? I mean, 1% of any number simply means "move the decimal to the left two places". THAT'S NOT A HARD NUMBER TO CALCULATE.

And you guys are saying that they can manage their own affairs? The same people who can't move a decimal place?
No, I'm saying such a person can't actually effectively evaluate the financial advisor.

In other words: there is no point generating a list of questions.

It all comes down to trust.
I bet they will go the guy that "guarantees" the highest return. :oops:
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Re: Questions to ask a prospective financial advisor

Post by RyeBourbon »

meowcat wrote: Tue Sep 15, 2020 3:16 pm To the non-Boglehead, fees that are visible in any documentation appear small, reasonable. There are no advisors/brokers that will divulge to a client just how damaging 1% can be to a portfolio. The advisor will convince his clients that 1% is reasonable, and in fact, lower than his competition. I've always believed that full disclosure is not enough. 2.5% sounds tiny to most people. Investors need more. Total dollar amounts withdrawn from an account don't work either because it doesn't draw a long term picture. In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
If I'm being charged 1% by an adviser, the way I look at it is, I'm paying myself 4% a year out of my portfolio and I have to give someone else (that's not Uncle Sam) one-quarter of it?
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

RyeBourbon wrote: Tue Sep 15, 2020 9:53 pm
meowcat wrote: Tue Sep 15, 2020 3:16 pm To the non-Boglehead, fees that are visible in any documentation appear small, reasonable. There are no advisors/brokers that will divulge to a client just how damaging 1% can be to a portfolio. The advisor will convince his clients that 1% is reasonable, and in fact, lower than his competition. I've always believed that full disclosure is not enough. 2.5% sounds tiny to most people. Investors need more. Total dollar amounts withdrawn from an account don't work either because it doesn't draw a long term picture. In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
If I'm being charged 1% by an adviser, the way I look at it is, I'm paying myself 4% a year out of my portfolio and I have to give someone else (that's not Uncle Sam) one-quarter of it?
If people can do that math they probably don't need an advisor.

I read a study that said a high percent of low- income people throw away 8% of their income on lottery tickets. Do you these people would be better off paying someone 2.5% a year?

Of course, except no one would take them on as a client.
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Brianmcg321
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Re: Questions to ask a prospective financial advisor

Post by Brianmcg321 »

How big is your boat?
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
Katietsu
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Re: Questions to ask a prospective financial advisor

Post by Katietsu »

The no fee model if your assets are at least X dollars is popular in my hometown. The advisors charge no AUM. They use American funds with the sales loads waived due to the X dollars exceeding some number. (This used to be 1 million dollars. Don’t know if that has changed or not.) The couple of portfolios that I have seen, seem to have ER fees that average out to .8%-1%. The advisor gets their cut from American funds and by selling life insurance and annuities.
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Re: Questions to ask a prospective financial advisor

Post by usagi »

I would suggest that your friend ask the "financial advisor" what areas of "finance" he advises on. That is a simple and direct question. If the answer is investments only I would tell your friend that he should look elsewhere.

I think it is an excellent idea for someone heading into retirement sit down with a competent financial planner/advisor to review all aspects of retirement, investments being only a portion of the total picture(note I would prefer people do this 15 years out, so you have time to make corrections and then again 7 years out, and finally before retirement as things often change).

I suspect, based on your post that this particular advisor is a clown, but that remains to be seen and like all people he should be given a chance to show his merit.

However I would think very carefully about advising your self-professed fiscally naive friend against seeking competent counsel and going the DIY route. It is easy enough to DIY the actual investment side of the house using Boglehead principles, but once again that is only a tiny part (albeit important) part of the equation. He really needs to consider his estate, tax planning in retirement, when to take SS, long term care options, general insurance, a will, likely an estate plan, possible asset conversions, if he is leaving a legacy there may be tax consequences to each heir based on their finances, a living will, power of attorney for healthcare and finances, health insurance, medicare and supplemental insurance reviewed, withdraw strategy (which is different than an investment strategy) and plethora of other things.

In the end, for most people, retirement marks the beginning of a marked, progressive state of entropy in regard physical and mental well being. You never really know when you lose your fastball until it is lost, and then it is too late. Hence, this is why retirement time is the right time to get your house in order, while you are still sound enough to evaluate the advice you are given and not in a state where you have no recourse other than believing what you are told. And it is appropriate that at retirement you reviews all aspects of life, once again while you still have full control of your decision making faculties.

I would suggest you advise your friend to spend a little coin and get a full review. Often this comes from a financial planner, who should work in conjunctions with a number of specialist in each discrete area. No one person knows it all. At a minimum I would expect A CPA to be involved, a health insurance specialist, SS specialist, Medicare specialist, investment advisor, estate planner, a lawyer among others. If your friend needs to work and extra month or two to pay for it, then so be it. The peace of mind should be worth it.
Luckywon
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Re: Questions to ask a prospective financial advisor

Post by Luckywon »

Sorry if this is covered above, but my two questions:

1) Which way to the exit?
2) Do you validate parking?
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dogagility
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Re: Questions to ask a prospective financial advisor

Post by dogagility »

Greenman72 wrote: Tue Sep 15, 2020 3:20 pm
meowcat wrote: Tue Sep 15, 2020 3:16 pm In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
Imagine how crippling it must be to do it yourself IF YOU CAN'T CALCULATE 1% OF ANY GIVEN NUMBER.
I'd say nearly all people with money to invest can calculate the percentage. What Meowcat is trying to convey is the impact of that fee compounded over a lifetime of investing on a portfolio. That number is not easily calculated by most people in their head when signing a document.

For kicks and giggles, how about you try an experiment with your next ten prospective clients. Give 5 of them your typical fee presentation and give the other 5 information on the effect of fees over a lifetime of investing. As in the first graph shown here: https://investor.vanguard.com/investing ... t-of-costs

I suspect you might have a different conversation and outcome with these two groups.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
snowox
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Re: Questions to ask a prospective financial advisor

Post by snowox »

This is when I have no problems telling people to get started use a Vanguard Advisor for a year. This way its off you and Vanguard isnt going to try and sell you a bunch of things you dont need.
tibbitts
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Re: Questions to ask a prospective financial advisor

Post by tibbitts »

RyeBourbon wrote: Tue Sep 15, 2020 9:53 pm
meowcat wrote: Tue Sep 15, 2020 3:16 pm To the non-Boglehead, fees that are visible in any documentation appear small, reasonable. There are no advisors/brokers that will divulge to a client just how damaging 1% can be to a portfolio. The advisor will convince his clients that 1% is reasonable, and in fact, lower than his competition. I've always believed that full disclosure is not enough. 2.5% sounds tiny to most people. Investors need more. Total dollar amounts withdrawn from an account don't work either because it doesn't draw a long term picture. In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
If I'm being charged 1% by an adviser, the way I look at it is, I'm paying myself 4% a year out of my portfolio and I have to give someone else (that's not Uncle Sam) one-quarter of it?
Yes, but if you weren't fairly familiar with investing, you would have no idea you could take 4%. If you read Bogleheads, your head would be spinning with the arguments around 4%, 3%, 2%... and you might withdraw your investments in a sequence where you would pay federal and state taxes that would cost you easily 4% annually more than withdrawing them in a different manner. Bogleheads really tend to underestimate the difficulty of learning about investing, but through skill or luck they've arrived at what they perceive to be the correct conclusions. Other people can put in some effort to learn, but by reading the "wrong" books or listening to the "wrong" experts, arrive at a completely different place.

In the past, investment returns have been sufficient to support the investment fees and adviser models the industry has today. That may not be true going forward. Basically there has been enough food on the table for everyone to eat a comfortable amount, as long as the adviser has been reasonably competent.
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

tibbitts wrote: Wed Sep 16, 2020 8:14 am Bogleheads really tend to underestimate the difficulty of learning about investing, but through skill or luck they've arrived at what they perceive to be the correct conclusions. Other people can put in some effort to learn, but by reading the "wrong" books or listening to the "wrong" experts, arrive at a completely different place.
It's actually worse than this. Most clients (and by "most", I mean 95%) have no freaking clue what they're doing. And even with an advisor's help, they still make stupid mistakes. Let me tell you a true story:

I am a CPA, and I am also assistant treasurer at my church. As such, I know who gives how much money to church. I have a client, (let's call him Jake), who is 75 years old and gives around $25,000 a year to church. Coincidentally, Jake also takes an IRA distribution of $25,000 a year.

Year 1 - I give a class on "how to give to charity more efficiently" to our Wednesday night bible class. And when I talked about the QCD (if you don't know what it is, then look it up), I LOOKED DIRECTLY AT JAKE AND MADE EYE CONTACT WITH HIM. Do you think he took my advice? No.

Year 2 - I prepare Jake's tax return, and when he comes in, I tell him about the QCD. He says, "I didn't know you could do that." (Can't blame him--I mean, I looked right at him when I explained it last year.) I explain it to him again, and he says, "I'll have to tell my advisor at Merrill Lynch about that. Can you explain it to him?" (Remember--this is a 100% true story. And I didn't really know what to say. "You want to pick my brain and have me do all the heavy lifting and save you thousands in tax so you can go line Merrill's pockets?")

Year 3 - Guess who didn't do a QCD. I told him about it again. This time, I literally prepared two tax returns--one with a QCD and one without it. The difference was $6,000 in tax. Jake says to me, "You know--my advisor at Merrill Lynch has heard about this before. But we still haven't done anything about it." (What? Are you telling me you can't be bothered to take 30 minutes out of your day to go down a fill out a piece of paper that will save you $6,000 per year? That's only $12,000 per hour. Or is the advisor dragging his feet because there's no benefit to him?)

Year 4 - Haven't done his 2020 taxes yet. But I know he's still writing checks to the church.

4 years. $24,000 down the drain UNNECESSARILY. And this client knows what to do. He just won't do it. (Even worse--he's paying a salesman who has no interest in doing the right thing. But that's beside the point. I don't compare myself to wirehouse guys.)

If a client can't be bothered to save $24,000 in taxes, imagine how much worse off he would be if he DIDN'T have an advisor. You people keep saying "advisors are thieves and crooks who steal old ladies' pensions. Old ladies would be better off reading a book by Jack Bogle and following his advice." No--they wouldn't. They cannot comprehend it. Even when their CPA literally writes down instructions for them. (Three times!!! I told the dude three times!!!) And this, my friends, is why I have absolutely no problem charging 1.5% (all-in) for my services. Because you're better off paying me than doing it on your own.

In fact--I'm even willing to bet that the majority of posters here have made serious mistakes trying to DIY that they don't even know they're making. There's no way to ever prove that. But I'd be willing to bet my next greedy/evil/unscrupulous/crooked 1% fee on it.
illumination
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Re: Questions to ask a prospective financial advisor

Post by illumination »

For people "wired" to want an advisor, the PAS service at Vanguard sounds like the least bad option. A relatively low management fee but you still feel like your hand is being held, they will put you in Vanguard funds, and they won't sell you garbage. That being said, my experience at Vanguard for their brokerage wasn't great.
SxSW
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Re: Questions to ask a prospective financial advisor

Post by SxSW »

Greenman72 wrote: Tue Sep 15, 2020 3:19 pm ^Actually, I'm being serious. The people on this board constantly say "The client is getting screwed and they don't know how. They don't know how much they're paying when they pay a 1% fee." Really? And you think they can make decisions about which of the 5000 different mutual funds they should purchase, in what proportion, and in what type of registration type?

If you say, "Clients can't calculate 1% of any number, but they can manage their own investments", I'd say you're crazy.
I agree completely. In order to manage your own money, you need the time, ability, and willingness. 95% of the people I speak to are lacking at least one of those traits. All too many self-managed investors are in a combination of cash and individual stocks. Or they'll have a third of their money in a target fund, a third in Tesla, and a third in cash, or something equally heinous. They sell at the bottom because their buddy at the water cooler told them to. They stop making 401k contributions because the market is volatile, and they take a loan against it to pay off credit card debt.

As bad as it can be with some high-priced advisors, most of them are still an improvement over your average self-managed investor.
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Swimmer
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Re: Questions to ask a prospective financial advisor

Post by Swimmer »

Greenman72 wrote: Thu Sep 17, 2020 8:46 am
tibbitts wrote: Wed Sep 16, 2020 8:14 am Bogleheads really tend to underestimate the difficulty of learning about investing, but through skill or luck they've arrived at what they perceive to be the correct conclusions. Other people can put in some effort to learn, but by reading the "wrong" books or listening to the "wrong" experts, arrive at a completely different place.
It's actually worse than this. Most clients (and by "most", I mean 95%) have no freaking clue what they're doing. And even with an advisor's help, they still make stupid mistakes. Let me tell you a true story:

I am a CPA, and I am also assistant treasurer at my church. As such, I know who gives how much money to church. I have a client, (let's call him Jake), who is 75 years old and gives around $25,000 a year to church. Coincidentally, Jake also takes an IRA distribution of $25,000 a year.

Year 1 - I give a class on "how to give to charity more efficiently" to our Wednesday night bible class. And when I talked about the QCD (if you don't know what it is, then look it up), I LOOKED DIRECTLY AT JAKE AND MADE EYE CONTACT WITH HIM. Do you think he took my advice? No.

Year 2 - I prepare Jake's tax return, and when he comes in, I tell him about the QCD. He says, "I didn't know you could do that." (Can't blame him--I mean, I looked right at him when I explained it last year.) I explain it to him again, and he says, "I'll have to tell my advisor at Merrill Lynch about that. Can you explain it to him?" (Remember--this is a 100% true story. And I didn't really know what to say. "You want to pick my brain and have me do all the heavy lifting and save you thousands in tax so you can go line Merrill's pockets?")

Year 3 - Guess who didn't do a QCD. I told him about it again. This time, I literally prepared two tax returns--one with a QCD and one without it. The difference was $6,000 in tax. Jake says to me, "You know--my advisor at Merrill Lynch has heard about this before. But we still haven't done anything about it." (What? Are you telling me you can't be bothered to take 30 minutes out of your day to go down a fill out a piece of paper that will save you $6,000 per year? That's only $12,000 per hour. Or is the advisor dragging his feet because there's no benefit to him?)

Year 4 - Haven't done his 2020 taxes yet. But I know he's still writing checks to the church.

4 years. $24,000 down the drain UNNECESSARILY. And this client knows what to do. He just won't do it. (Even worse--he's paying a salesman who has no interest in doing the right thing. But that's beside the point. I don't compare myself to wirehouse guys.)

If a client can't be bothered to save $24,000 in taxes, imagine how much worse off he would be if he DIDN'T have an advisor. You people keep saying "advisors are thieves and crooks who steal old ladies' pensions. Old ladies would be better off reading a book by Jack Bogle and following his advice." No--they wouldn't. They cannot comprehend it. Even when their CPA literally writes down instructions for them. (Three times!!! I told the dude three times!!!) And this, my friends, is why I have absolutely no problem charging 1.5% (all-in) for my services. Because you're better off paying me than doing it on your own.

In fact--I'm even willing to bet that the majority of posters here have made serious mistakes trying to DIY that they don't even know they're making. There's no way to ever prove that. But I'd be willing to bet my next greedy/evil/unscrupulous/crooked 1% fee on it.
I think you and Tibbitts make a good point. Bogleheads know a lot, and I consider myself in the lower echelon. As a group, I think we enjoy investing and learning about tax implications, etc. and seeing results. In my experience, I find I know far more than I realize having accumulated so much information over so many years. This knowledge forms a foundation and is built upon daily. (Thanks, Bogleheads) I recognize this when I try to explain something to a friend.

They want to understand everything instantly before their eyes glaze over.

You’re either interested or you’re not.

So, yes, there is a place for an advisor even though I (and others) don’t need one. I sent my relative to this site. Frankly, I think all the excellent posts scared him. I hope he makes a wise decision. Thanks all again.
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meowcat
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Re: Questions to ask a prospective financial advisor

Post by meowcat »

Greenman72 wrote: Tue Sep 15, 2020 3:20 pm
meowcat wrote: Tue Sep 15, 2020 3:16 pm In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
Imagine how crippling it must be to do it yourself IF YOU CAN'T CALCULATE 1% OF ANY GIVEN NUMBER.
Anyone can do the math. To most investors, 1% is tiny. You and I know better. Yes, calculating 1% is simple. What's not so simple to calculate, and more difficult to understand is that 1% is forever compounding against you. It's difficult to convince someone that they'll lose 50% or more of their life savings because the number just sounds so fake, like a lie, impossible to believe. Seriously, If you told an active investor paying 2% (very real, by the way) that 2/3 of their portfolio will be owned by their broker when they retire, they will simply call you a liar. They would say that's impossible, no way. Hey, we know the truth. It does sound unrealistic and that's why we need more foolproof, ironclad disclosure. What we have now does not paint a picture to a client the damage and destruction over time of the fees they are paying.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson
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Shackleton
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Re: Questions to ask a prospective financial advisor

Post by Shackleton »

Along with all the good advice already given, I’d ask “what kind of boat (or car) do you have?” The answer will tell you a lot about how much money they’ll be making off you.
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

Greenman72 wrote: Thu Sep 17, 2020 8:46 am
tibbitts wrote: Wed Sep 16, 2020 8:14 am Bogleheads really tend to underestimate the difficulty of learning about investing, but through skill or luck they've arrived at what they perceive to be the correct conclusions. Other people can put in some effort to learn, but by reading the "wrong" books or listening to the "wrong" experts, arrive at a completely different place.
It's actually worse than this. Most clients (and by "most", I mean 95%) have no freaking clue what they're doing. And even with an advisor's help, they still make stupid mistakes. Let me tell you a true story:

I am a CPA, and I am also assistant treasurer at my church. As such, I know who gives how much money to church. I have a client, (let's call him Jake), who is 75 years old and gives around $25,000 a year to church. Coincidentally, Jake also takes an IRA distribution of $25,000 a year.

Year 1 - I give a class on "how to give to charity more efficiently" to our Wednesday night bible class. And when I talked about the QCD (if you don't know what it is, then look it up), I LOOKED DIRECTLY AT JAKE AND MADE EYE CONTACT WITH HIM. Do you think he took my advice? No.

Year 2 - I prepare Jake's tax return, and when he comes in, I tell him about the QCD. He says, "I didn't know you could do that." (Can't blame him--I mean, I looked right at him when I explained it last year.) I explain it to him again, and he says, "I'll have to tell my advisor at Merrill Lynch about that. Can you explain it to him?" (Remember--this is a 100% true story. And I didn't really know what to say. "You want to pick my brain and have me do all the heavy lifting and save you thousands in tax so you can go line Merrill's pockets?")

Year 3 - Guess who didn't do a QCD. I told him about it again. This time, I literally prepared two tax returns--one with a QCD and one without it. The difference was $6,000 in tax. Jake says to me, "You know--my advisor at Merrill Lynch has heard about this before. But we still haven't done anything about it." (What? Are you telling me you can't be bothered to take 30 minutes out of your day to go down a fill out a piece of paper that will save you $6,000 per year? That's only $12,000 per hour. Or is the advisor dragging his feet because there's no benefit to him?)

Year 4 - Haven't done his 2020 taxes yet. But I know he's still writing checks to the church.

4 years. $24,000 down the drain UNNECESSARILY. And this client knows what to do. He just won't do it. (Even worse--he's paying a salesman who has no interest in doing the right thing. But that's beside the point. I don't compare myself to wirehouse guys.)

If a client can't be bothered to save $24,000 in taxes, imagine how much worse off he would be if he DIDN'T have an advisor. You people keep saying "advisors are thieves and crooks who steal old ladies' pensions. Old ladies would be better off reading a book by Jack Bogle and following his advice." No--they wouldn't. They cannot comprehend it. Even when their CPA literally writes down instructions for them. (Three times!!! I told the dude three times!!!) And this, my friends, is why I have absolutely no problem charging 1.5% (all-in) for my services. Because you're better off paying me than doing it on your own.

In fact--I'm even willing to bet that the majority of posters here have made serious mistakes trying to DIY that they don't even know they're making. There's no way to ever prove that. But I'd be willing to bet my next greedy/evil/unscrupulous/crooked 1% fee on it.
Likewise I would guess that 95% of persons calling themselves advisors are not as competent and interested in client financial well-being as you claim to be.

I have seen many horrible advisor-built portfolios on this site and elsewhere. Examples:
  • Putting a client into 50+ individual positions in various funds and stocks.
  • Putting a client into concentrated individual bond positions (no upside in individual bonds).
  • Putting a client with no long stock exposure into a "bear" inverse stock fund.
  • Putting a client in low tax bracket into Munis.
  • Having a client open a taxable account who hasn't filled IRA space.
  • Many, many cases of misuse of insurance products.
  • Many, many cases of tax-inefficient account churning.
I could go on and on. You might say 'No true advisor would do that'. But how is an ordinary person to know which are the true advisors?

Conclusion: if a friend asks me for a list of questions to ask an advisor, I'm going to respond "have you heard of Target Date funds?".
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

meowcat wrote: Thu Sep 17, 2020 2:45 pm
Greenman72 wrote: Tue Sep 15, 2020 3:20 pm
meowcat wrote: Tue Sep 15, 2020 3:16 pm In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
Imagine how crippling it must be to do it yourself IF YOU CAN'T CALCULATE 1% OF ANY GIVEN NUMBER.
Anyone can do the math. To most investors, 1% is tiny. You and I know better. Yes, calculating 1% is simple. What's not so simple to calculate, and more difficult to understand is that 1% is forever compounding against you. It's difficult to convince someone that they'll lose 50% or more of their life savings because the number just sounds so fake, like a lie, impossible to believe. Seriously, If you told an active investor paying 2% (very real, by the way) that 2/3 of their portfolio will be owned by their broker when they retire, they will simply call you a liar. They would say that's impossible, no way. Hey, we know the truth. It does sound unrealistic and that's why we need more foolproof, ironclad disclosure. What we have now does not paint a picture to a client the damage and destruction over time of the fees they are paying.
While your math is correct, I never found this argument persuasive.

Yes, fees compound over time. But so does ALL money that is not invested.

The extra $40k, in college tuition sunk in a worthless degree, the extra $500/month in auto lease payments and higher insurance costs over a lifetime, the extra $30k you paid on a house for space you don't need, the extra $200 per year in auto maintenance because you never asked for a discount... Everything can be optimized and frequently isn't.

Just because investment fees can be easily measured doesn't mean the impact is worse than everything else people waste money on.

The impact of not saving enough is far, far worse than paying 1% in fees.
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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

000 wrote: Thu Sep 17, 2020 3:02 pm Conclusion: if a friend asks me for a list of questions to ask an advisor, I'm going to respond "have you heard of Target Date funds?".
Not a bad solution, except TRD funds start off very aggressive, stay aggressive for too long, and then become very conservative quickly.

Hopefully that's the ideal glide path for the investor.
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

000 wrote: Thu Sep 17, 2020 3:02 pm Likewise I would guess that 95% of persons calling themselves advisors are not as competent and interested in client financial well-being as you claim to be.
At least we can agree on something. I think 95% of all "personal financial advisors" know absolutely nothing about personal finance, and they don't give advice.

Not trying to be arrogant, but in all reality...I don't think there's anybody within a hundred miles of me that can do a better job than I can. I believe in myself, and I believe in what I sell--which is my time, energy, and expertise. And I expect people to pay for it.

Like Joe Kerr said, "If you're good at something, never do it for free."
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

unclescrooge wrote: Thu Sep 17, 2020 4:02 pm
000 wrote: Thu Sep 17, 2020 3:02 pm Conclusion: if a friend asks me for a list of questions to ask an advisor, I'm going to respond "have you heard of Target Date funds?".
Not a bad solution, except TRD funds start off very aggressive, stay aggressive for too long, and then become very conservative quickly.

Hopefully that's the ideal glide path for the investor.
Seeing as many advisors are just using model portfolios from major fund families (something I learned from Greenman72), it seems just as reasonable to trust Vanguard, Fidelity, Schwab, DFA, etc. as the average advisor.
000
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Re: Questions to ask a prospective financial advisor

Post by 000 »

Greenman72 wrote: Thu Sep 17, 2020 4:04 pm
000 wrote: Thu Sep 17, 2020 3:02 pm Likewise I would guess that 95% of persons calling themselves advisors are not as competent and interested in client financial well-being as you claim to be.
At least we can agree on something. I think 95% of all "personal financial advisors" know absolutely nothing about personal finance, and they don't give advice.

Not trying to be arrogant, but in all reality...I don't think there's anybody within a hundred miles of me that can do a better job than I can. I believe in myself, and I believe in what I sell--which is my time, energy, and expertise. And I expect people to pay for it.

Like Joe Kerr said, "If you're good at something, never do it for free."
Ok. I will say that combining tax and financial planning (as you do) may be able to put you in the 5%.

It seems many financial advisors don't know or won't talk about taxes. :?:

Taxes are half the battle for people with modest wealth and up. :oops:

Good luck.
antman50
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Re: Questions to ask a prospective financial advisor

Post by antman50 »

I would say that this decision shouldn't be like picking a TV at best buy or costco. While it is important to do your research and ask questions, I believe it's more important that you take the time necessary to feel confident about your decision.

Slowwww things down. Develop a relationship and get to know a few of these individuals that you're evaluating over the next several months. If they push you when you don't feel like being pushed, then use that intuition. If you feel comfortable and feel like you're learning more about your own financial situation in conversations with the advisor, then you're on the right track.

Remember, it's your money and your choice. No one is going to care more about your situation than you. So take your time, ask for letters of recommendation, learn what car they drive and if it matches their lifestyle, and find someone who's life philosophy mirrors what you're looking for.

Some ppl like their advisor to be a pinstripe suite, others like the guy/gal in business casual, others like people who enjoy the same hobbies. Don't kid yourself. It's important to slow things down and give yourself the ability to truly trust the individual who is handling your life's earnings. It's not about "if" but more about "when" things get tough, you need to know that you have a true partner.

A sub-optimal plan that you're able to stick with is much better than jumping advisors or investment philosophies or plans every few years.
Greenman72
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Re: Questions to ask a prospective financial advisor

Post by Greenman72 »

000 wrote: Thu Sep 17, 2020 4:06 pm Seeing as many advisors are just using model portfolios from major fund families (something I learned from Greenman72), it seems just as reasonable to trust Vanguard, Fidelity, Schwab, DFA, etc. as the average advisor.
I would bet that virtually all advisors are using model portfolios. I very rarely hear of an advisor who manages their own portfolios. And they're almost always CFA's or employ a CFA to manage that part of the business. (Dan Goldie and Lee Munson come to mind.)

When I started, I managed all my own portfolios. And I did it virtually idential to Rick Ferri's "Core-4". In fact, I think we had the same concept: Whatever your % in equities, you need to put 60% in Total US, 30% in Total international, and 10% in a diversified REIT. (I used Blackrock ETF's instead of Vanguard's.) The bond portion was 100% "aggregate bond", or if a client was particularly tax sensitive, I would allocate half to a "total municipal bond" fund. I used cash flows to rebalance, and only rebalanced when absolutely necessary. (I came up with that model before I ever heard of "Core-4". In fact, I even called it "Core Four", long before he did, and I can prove it. But that name and concept is better off in his hands than it is in mine.)

Later, I found out that Vanguard's model (at my B-D) was very similar to my own model, except:
1. They didn't use REIT's,
2. They allocated a little more toward international stocks,
3. They allocated some to international bonds, which I'm not a big fan of, and
4. They don't have a "tax-sensitive" option. (Which is okay, since very few people need tax-free interest).

After looking at it, I realized that they can do a lot better job of handling the actual trading and rebalancing than I can (because I just don't have the time), and there probably will be virtually no difference in risk or return. So I started using their portfolios.

Then I also discovered that we had a DFA portfolio that utilized their philosophy. I think their philosophy also works, but I couldn't a feasible solution for all the "portfolio creation". So when I saw that they were available, I started using them as well.

I also occasionally use American Funds, but that's generally saved for D&D plans or for "small" investors. You can cuss me out for using an "active" manager, and call me all the names you want. But the American Funds model has outperformed the Vanguard model for some time now--even taking into account the advisory fee and extra 30 bps for the expense ratio. This is an objective and verifiable fact. Whether it continues to be the case going forward is anybody's guess. (Most of the outperformance is due to American Funds' love of growth stocks, which have done well since 2008. The polar opposite investment philosophy from DFA.)

---------------

I guess I said all that to say this--why would anybody want to manage their own portfolios? No matter what your investment philosophy is, somebody out there has the same philosophy, and has already built the model. Just find them and use their model. No need for me to spend a lot of time and energy to duplicate what somebody can do cheaper and easier.
pkcrafter
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Re: Questions to ask a prospective financial advisor

Post by pkcrafter »

Swimmer wrote: Fri Sep 11, 2020 1:03 pm I was just speaking with a relative who called to let me know he is retiring next month. He is 64 and wife is 62.

He’s been a saver all his life and has accumulated a substantial nest egg. I wasn’t aware, until today, that he has never learned basic financial/investing principles.

He mentioned that they are meeting with a prospective financial advisor next week. Uh oh. I asked who but he wasn’t sure but he got connected through friends at work. They talked briefly by phone and he’s “a really nice guy.” :oops:

Oh, and he got his clients’ money out of the market just before the 2008 crash. :shock: He’s got charts.

My relative is very interested in learning about investing and now has the time, but he’s skittish about doing it himself. I encouraged him to read this board and to be careful at next week’s meeting. I asked him about fees, and he said that when he told this person what his NW is, the advisor told him that with that much, there would be no fees. Hmmm.
No fees, uh? BRF - Big Red Flag!

The first problem your relative has is not having a good understanding of investing. A person in that situation can not only not invest properly, but he also can't select a good, trustworthy investment advisor. Here is some help, but there is no substitute for learning some basics, so introduce him to the Bogleheads and the Wiki.

Here's a little help on the advisor, but be sure to tell your relative that there are far more sharks out there than are advisors who will keep the clients best interest first.

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


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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unclescrooge
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Re: Questions to ask a prospective financial advisor

Post by unclescrooge »

Greenman72 wrote: Fri Sep 18, 2020 10:00 am
000 wrote: Thu Sep 17, 2020 4:06 pm Seeing as many advisors are just using model portfolios from major fund families (something I learned from Greenman72), it seems just as reasonable to trust Vanguard, Fidelity, Schwab, DFA, etc. as the average advisor.
I would bet that virtually all advisors are using model portfolios. I very rarely hear of an advisor who manages their own portfolios. And they're almost always CFA's or employ a CFA to manage that part of the business. (Dan Goldie and Lee Munson come to mind.)

When I started, I managed all my own portfolios. And I did it virtually idential to Rick Ferri's "Core-4". In fact, I think we had the same concept: Whatever your % in equities, you need to put 60% in Total US, 30% in Total international, and 10% in a diversified REIT. (I used Blackrock ETF's instead of Vanguard's.) The bond portion was 100% "aggregate bond", or if a client was particularly tax sensitive, I would allocate half to a "total municipal bond" fund. I used cash flows to rebalance, and only rebalanced when absolutely necessary. (I came up with that model before I ever heard of "Core-4". In fact, I even called it "Core Four", long before he did, and I can prove it. But that name and concept is better off in his hands than it is in mine.)

Later, I found out that Vanguard's model (at my B-D) was very similar to my own model, except:
1. They didn't use REIT's,
2. They allocated a little more toward international stocks,
3. They allocated some to international bonds, which I'm not a big fan of, and
4. They don't have a "tax-sensitive" option. (Which is okay, since very few people need tax-free interest).

After looking at it, I realized that they can do a lot better job of handling the actual trading and rebalancing than I can (because I just don't have the time), and there probably will be virtually no difference in risk or return. So I started using their portfolios.

Then I also discovered that we had a DFA portfolio that utilized their philosophy. I think their philosophy also works, but I couldn't a feasible solution for all the "portfolio creation". So when I saw that they were available, I started using them as well.

I also occasionally use American Funds, but that's generally saved for D&D plans or for "small" investors. You can cuss me out for using an "active" manager, and call me all the names you want. But the American Funds model has outperformed the Vanguard model for some time now--even taking into account the advisory fee and extra 30 bps for the expense ratio. This is an objective and verifiable fact. Whether it continues to be the case going forward is anybody's guess. (Most of the outperformance is due to American Funds' love of growth stocks, which have done well since 2008. The polar opposite investment philosophy from DFA.)

---------------

I guess I said all that to say this--why would anybody want to manage their own portfolios? No matter what your investment philosophy is, somebody out there has the same philosophy, and has already built the model. Just find them and use their model. No need for me to spend a lot of time and energy to duplicate what somebody can do cheaper and easier.
What are D&D plans?
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meowcat
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Re: Questions to ask a prospective financial advisor

Post by meowcat »

unclescrooge wrote: Thu Sep 17, 2020 3:59 pm
meowcat wrote: Thu Sep 17, 2020 2:45 pm
Greenman72 wrote: Tue Sep 15, 2020 3:20 pm
meowcat wrote: Tue Sep 15, 2020 3:16 pm In my opinion, we need something like this at the top of every page of your account statement.
BE AWARE: THE TOTAL FEES AND EXPENSES IN YOUR PORTFOLIO ARE 2.25%. OVER TIME, THESE EXPENSES WILL SEVERELY CRIPPLE YOUR LIFE SAVINGS.
This should be in bold red lettering.
Imagine how crippling it must be to do it yourself IF YOU CAN'T CALCULATE 1% OF ANY GIVEN NUMBER.
Anyone can do the math. To most investors, 1% is tiny. You and I know better. Yes, calculating 1% is simple. What's not so simple to calculate, and more difficult to understand is that 1% is forever compounding against you. It's difficult to convince someone that they'll lose 50% or more of their life savings because the number just sounds so fake, like a lie, impossible to believe. Seriously, If you told an active investor paying 2% (very real, by the way) that 2/3 of their portfolio will be owned by their broker when they retire, they will simply call you a liar. They would say that's impossible, no way. Hey, we know the truth. It does sound unrealistic and that's why we need more foolproof, ironclad disclosure. What we have now does not paint a picture to a client the damage and destruction over time of the fees they are paying.
While your math is correct, I never found this argument persuasive.

Yes, fees compound over time. But so does ALL money that is not invested.

The extra $40k, in college tuition sunk in a worthless degree, the extra $500/month in auto lease payments and higher insurance costs over a lifetime, the extra $30k you paid on a house for space you don't need, the extra $200 per year in auto maintenance because you never asked for a discount... Everything can be optimized and frequently isn't.

Just because investment fees can be easily measured doesn't mean the impact is worse than everything else people waste money on.

The impact of not saving enough is far, far worse than paying 1% in fees.
I agree completely, although, I'd like to keep personal finance and investing separate. My point about full disclosure really has nothing to do with personal finance. However, you do bring up a good point.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson
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