OT choosing financial advisor

[johnniecakes]

I am approaching retirement age and thinking about getting some financial help. How do you choose a financial advisor? Seems really complex. We have no debt and a nice 401K and some other savings but no comprehensive plan. Where to start?

[shovelhd]

I will warn you that this is a polarizing topic. You will get strong opinions from all sides. Some will say that anything other than fee for service is a rip off. Some will say that anyone that is capable of selling you something has a conflict of interest. Others will say buy ETF's and do it yourself. Every option has their pros and cons.

I chose my FA about 10 years ago (I am 7 years from retirement) because he lives in my town and manages pension funds for local businesses. My portfolio was a mess. It took several years to diversify it to minimize risk, and lots of work for both of us. I value this relationship. He has sold us products that have worked out great. I can have a discussion with him at any time.

[xlbs]

I am a Canadian financial advisor of some 17 years. My suggestion would be to ask some of the people you know who have similar amounts of money invested to see who they work with. Put together a list of 3 or 4 and then interview them. Ask them how they get paid. Ask what kinds of clients they work well with (remember, your advisor is a human being too and will work well with some clients and not so well with others...) Ask whether they encourage their clients to monitor their own investments (the first thing that any ponzi schemer will do is to control absolutely the information that you have access to. Stay far away from any advisor who will not provide you ways to see your holdings independently). Have your expectations clearly articulated before you see anyone. Ask a prospective financial advisor for references too. Ask them how much money they have under management, their years of experience, and when they plan to retire...an advisor a few years younger than you are is a good fit---same age? Not so much. Finally, lots of letters after a name doesn't necessarily mean that the advisor is a good advisor. It may only mean that they like to write exams!

[fuzzalow]

I'm normally of the view to trust no one but yourself. But in many many more cases, especially for those later in life and hence their diminished flexibility in their investment horizon, I'd say you might have to find a reliable, competent and trusted professional. There's a whole lotta risk in doing this too.

Depends the variance between what you have now and what you think you'll need and in how many years hence from now you will need to start drawing down some of it. That plugs your target internal rate of return based on that time duration which drives some of your resultant investment portfolio allocations and hence your risk profile.

I'd always tell somebody to learn for themselves first and foremost. Trust no one. But sometimes it isn't wise to be messing around with things you don't know much about or don't have an interest in. A big mistake taking on a improper risk/reward investment at a later age can be fatal and stupid if the ease at buying a SPY would have been enough risk to keep you in the game for the upside.

Among Warren Buffet's biggest rules of investing includes the admonishment to never lose capital. Good luck with this. When in doubt - go conservative. Trust no one.

[JasonF]

Since your 401(k) is still domiciled with your employer, I would recommend consulting with a CFP that charges on an hourly basis. Garrett Planning Network (no relationship whatsoever) is a good source to start with. You can search for advisers in your area (if that's important) and it provides tools that any well-informed consumer should use.

The benefit of using a planner that charges by the hour is that they're completely free of conflicts. For example, an adviser that claims to be 100% conflict free (i.e., doesn't charge commissions) but does charge you a fee based on your assets may steer you away from paying down a mortgage early or any other activity that may be in your best interest based on your particular circumstances, but reduces the assets they manage and by extension, fees they charge you.

[biker72]

Good financial advisers are very hard to come by. I was faced with the same dilemma. Do I want to give someone that I really don't know control of my retirement portfolio. The answer was no!!!

I wound up investing in low cost index funds with Schwab and Vanguard. This is not rocket science. I've sold most of the stock that came with my company 401k and invested the proceeds in index mutual funds or ETF's.

A lot of the guys I used to work with have financial advisers. Not one of them can tell me what their management fees are.

Google Scott Burns. Look up his couch potato portfolio.

[Peter P.]

I will warn you that this is a polarizing topic. You will get strong opinions from all sides. Some will say that anything other than fee for service is a rip off. Some will say that anyone that is capable of selling you something has a conflict of interest. Others will say buy ETF's and do it yourself.

I'm inclined to agree with almost all shovelhd says, as I'm going this some financial advisor turmoil now.

Fee for service: My financial advisor persuaded me to move my mutual fund to under whatever it is his umbrella of control is. I specifically asked him if my fund fees would go down (I currently have a back load fund). He says yes. Now I get notices that he will be charging me 1% of my total assets per year to "manage and advise" my fund, AND those fees will be deducted from my fund shares. Needless to say, I'm furious and will either switch to a fee for service plan or leave him altogether.

The conflict of interest issue: I agree.

ETFs: The same financial advisor converted one of my 401(k)s to a Roth, invested in ETFs. Well, one of the stocks not only tanked, they filed for bankruptcy and my shares, formerly worth @$25/share, are now worth pennies. And he's advising and managing me? I would do better with an index fund.

I'm not financially savvy but my lousy indexed mutual fund is safer more trustworthy than most financial advisors.

So my only applicable advice is to interview several and understand their fee structures before you commit.

[Birddog]

My wife is nearing retirement and her employer sent her a statement and flyer touting VOYA Financial Advisers. Scanning the info it looks like they want $50 a month to manage her account. I think that is ridiculous.

[rnhood]

$50 per month is ridiculous. In fact its a rip-off.

I went with Morgan Stanley and they have been pretty good. I don't plan on changing. I recommend going to talk to a local office if you have one in your area. Good outfit.

[teleguy57]

Since your 401(k) is still domiciled with your employer, I would recommend consulting with a CFP that charges on an hourly basis. Garrett Planning Network (no relationship whatsoever) is a good source to start with. You can search for advisers in your area (if that's important) and it provides tools that any well-informed consumer should use.

The benefit of using a planner that charges by the hour is that they're completely free of conflicts. For example, an adviser that claims to be 100% conflict free (i.e., doesn't charge commissions) but does charge you a fee based on your assets may steer you away from paying down a mortgage early or any other activity that may be in your best interest based on your particular circumstances, but reduces the assets they manage and by extension, fees they charge you.

Good financial advisers are very hard to come by. I was faced with the same dilemma. Do I want to give someone that I really don't know control of my retirement portfolio. The answer was no!!!

I wound up investing in low cost index funds with Schwab and Vanguard. This is not rocket science. I've sold most of the stock that came with my company 401k and invested the proceeds in index mutual funds or ETF's.

A lot of the guys I used to work with have financial advisers. Not one of them can tell me what their management fees are.

Good counsel here. My wife is a Registered Investment Advisor (RIA) who works on a fee only basis. She's paid for the time she spends working on behalf of clients -- doesn't see products, doesn't charge an assets under management fee. The Garrett network above is a great referral source, although you'll find fee-only folks are still somewhat scarce. BTW, fee-based is not the same -- that's where you'll find the advisors who charge based on a percentage of your assets. That's not a bad model, but one that needs to be clearly understood.

Understanding how much you are paying in fees (upfront sales comissions, backend expenses in each investment [such as mutual fund expense fees] and asset under management expenses) is really important. You can end up paying a lot more in total with all the hidden fees than for someone who has a clear monthly or annual fee -- or who charges based on the time they spend on your behalf.

And don't underestimate the personal chemistry aspect either -- it's a relationship where you have to be able to trust the individual. That's my really making sure you understand the total picture of fees is important.

There are good folks out there; unfortunately, also a lot of "professionals" who are well-intentioned, but are semi-informed. Which actually makes them more dangerous....

[Louis]

First I'd say figure out what your goals are and determine what types of investments are most appropriate given those goals.

Then I'd say DIY using Vanguard. They have low fees and a wide enough variety of products for you to find something that meets your needs without being overwhelmed by a gazillion choices.

[SoCalSteve]

If you keep a $25,000 balance in a Merril Edge cash account, the trades are free. And their website is easy to navigate and you can do all the research you'll ever need there as well.

[flydhest]

To help the OP here is one question and one comment.

For those who advise DIY with Vanguard (understandable, you remain in control, low fees, transparency) why Vanguard versus Fidelity? I have no affiliation with either. They seem to do similar things, so how do you choose? Are there others who do similar?

Comment: someone referenced ETFs and contrasted them to index funds. All should realize that there are an array of ETFs and an array of mutual funds. There are ETFs that replicate the S&P500 and so are hard to differentiate from index mutual funds. There are forms of ETFs that are inscrutable. There are mutual funds that are the same. Caveat emptor.

My advice (worth twice what you paid for it) is if you are not sure you understand the product, don't buy it. Easy test: try to explain it to your mother/father/brother/sister/neighbor who is smart but not informed. If you can and they understand, then you understand

[SlackMan]

As mentioned in one of the first replies above, many will say do-it-yourself. I am very firmly in that camp because most people who need a financial adviser have absolutely zero ability to distinguish between competent and incompetent financial advisers. Making the choice more treacherous is the fact that there is a very large fraction of incompetent ones.

Firms like Vanguard made it very easy to do it yourself by having mutual funds that automatically adjust the mix of investments as someone ages. If you are very near retirement, choose the Vanguard 2015 or 2020 fund. Given your lack of debt, I would leans towards a bit more risk, going with the 2020 instead of the 2015. Simple, set and forget.

I have a PhD in Finance and decades of investing experience. Within reason, I'll be happy to help for free if you PM me.

[JasonF]

For those who advise DIY with Vanguard (understandable, you remain in control, low fees, transparency) why Vanguard versus Fidelity? I have no affiliation with either. They seem to do similar things, so how do you choose? Are there others who do similar?




In some ways I would recommend Fidelity over Vanguard, I have accounts at both and Fidelity has more robust planning tools and customer service is more responsive. For example, I manage and am co-trustee on multiple accounts at Vanguard for a client and his family. This person (no relation to me) has assets at Vanguard in excess of $15 million which entitles him to "Flagship Select" status. Although the reps assigned to his account are nice, it's sometimes difficult to get a call back and the responsiveness could be better. As a manager on the accounts and a co-trustee on others, I have the same authorizations to act as the client himself and therefore should be treated as an extension of the client. In short, there won't be a ton of handholding at Vanguard but in exchange, you get to keep more of your money in fee savings.

[biker72]

I have accounts at Vanguard and Schwab. I like Vanguard because they have more low cost funds/ETF's than Schwab does.

I like Schwab because they have a local office that I can visit. They me helped a lot last year when my wife passed away. There were a number of retirement accounts inside and outside of Schwab that were in her name that I was trying to roll into my retirement account. I expected a nightmare but the folks at Schwab made it pretty simple.

[Llewellyn]

We had one for quite a few years but got rid of them after they told us they would be raising their rates by 5% every year :mad: There's no way I can justify an annual 5% increase to my clients. Most advisers just tell you to put money into superannuation. Bollocks - since the GFC, the advice they should have been giving their clients with a mortgage was to pay as much off of it as possible while interest rates are as low as they have been.

There's more than enough information out there that anyone with a bit of time and inclination to do the research can find most of it out for themselves.

[johnniecakes]

I am the original poster and am grateful for all the input and feel a little bit overwhelmed. But a simple question for tonight. What is an EFT ?

[Louis]

ETF = exchange traded fund

Wikipedia has some info on them.

Google "ETF vs mutual funds"

[biker72]

I am the original poster and am grateful for all the input and feel a little bit overwhelmed. But a simple question for tonight. What is an EFT ?

Exchange Traded Funds (ETF) are funds that trade
like a stock. They are an easy-to-use, low cost and
tax efficient way to invest your money.

[Louis]

They are an easy-to-use, low cost and
tax efficient way to invest your money.

But they do have some down sides. Do your research before deciding that they are appropriate for your needs.

[oldpotatoe]

I am approaching retirement age and thinking about getting some financial help. How do you choose a financial advisor? Seems really complex. We have no debt and a nice 401K and some other savings but no comprehensive plan. Where to start?

As I retired I asked 3 people who were more knowledgable than me what they do, who they use. One was a very smart CPA, they all used the same guy..I went to see that guy, now he's 'my guy', couldn't be happier(in spite of market volatility.

Ask around locally, no shortage of opinions.

[Mikej]

Find a monkey, a dart board, and the financial section of the Sunday paper. Let that monkey work his magic...

[JasonF]

STRONGLY STRONGLY STRONGLY recommend you read the Bogleheads Wiki, at least the "Getting Started" section.

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

Spending some time familiarizing yourself with these concepts will put you in a much stronger position regarding your financial future. Many people spend more time planning their vacations (or whether to buy Chorus or Record) than organizing their financial life. Don't be that guy.

[fuzzalow]

I am a believer in DIY. In fairness, it is easy and unfair for me to give that as advice to others because it is in this field and industry I have been educated, trained in and have worked for my entire adult and professional life. And even saying this confers me no real expertise because there are so many products, specialties and foci for what people know and do within the breadth encompassed by the industry. Which in many ways makes me a one-trick-pony.

I espouse DIY for the singular reason that it places the final and ultimate control for your financial life, future and well-being into your own hands. Assuming that you go about the process in as rational an approach as what is sensible and achievable by a process that is your own and reflects your own ideas, qualities and discipline. Which means you survive the ups and downs of the markets based on trust in your own capabilities rather than the sometimes blind trust you must have and place into a financial professional to do the right thing for you. And any sell-side financial professional will not look at your portfolio in the same way you do.

"They" are not often any smarter than you are. As a sensible, retail investor, you do not need to avail yourself to the full range of complex products The Street creates and KISS is not a financial strategy to be scoffed at. For many investors, discipline and methodical is the far better tactic and strategy to use instead of leverage, derivative products or other razzle-dazzle.

I know much of the advice here is from fellow retail investors. Of which I too am that. But I also know the other side and think that you should be cautious in dealing with any sell-side institution. Or KISS with exposure only with the buy-side. Good luck.

[Climb01742]

fuzzalow makes many good points.

For me, the greatest flaw in the investor-financial services industry relationship is that the incentives aren't aligned. The industry has structured the relationship to make money regardless of performance and how well their advice and the investor does.

It's a fair debate, I think, how nefarious the financial services industry is. Certainly, there is a mix of good, honest people and people who are in the game only for their enrichment. You can't paint the entire industry as either good or bad, but it is fair to debate the percentages and exactly how stacked the game is against individual investors.

What would be truly interesting and revolutionary is if the industry compensation model were based not on such things as % of assets under management, or trade commissions, or even straight up fees. What if the industry only earned money -- or earned the bulk of their compensation -- as a % of the growth/profit of their advice? Create a compensation model where the advisor only profits if the client profits. As long as an advisor, broker or manager can earn substantial sums without their clients earning/profiting too then investors should have well founded skepticism of the industry. Who trusts casino owners?

[JasonF]

What would be truly interesting and revolutionary is if the industry compensation model were based not on such things as % of assets under management, or trade commissions, or even straight up fees. What if the industry only earned money -- or earned the bulk of their compensation -- as a % of the growth/profit of their advice? Create a compensation model where the advisor only profits if the client profits. As long as an advisor, broker or manager can earn substantial sums without their clients earning/profiting too then investors should have well founded skepticism of the industry. Who trusts casino owners?

That's how the hedge fund industry works. Although they do get a flat management fee, the bulk of the comp are incentive fees - a percentage of the profits if an investor makes money. Should an investor lose money, the manager doesn't get his incentive fee until he surpasses the "high water mark" (i.e., client is made whole and is back to profitable).

[Climb01742]

That's how the hedge fund industry works. Although they do get a flat management fee, the bulk of the comp are incentive fees - a percentage of the profits if an investor makes money. Should an investor lose money, the manager doesn't get his incentive fee until he surpasses the "high water mark" (i.e., client is made whole and is back to profitable).

That's an interesting example. In theory, hedge funds attract 'more sophisticated' investors (or maybe just wealthier ones?). Who may demand a more aligned structure for management and client incentives. Does such a comp structure exist for investments that 'regular' folks have access to? Or is it another example of uneven playing fields?

My real point is, when selecting an advisor, scrutinizing their fee structure tells you where their real incentives are vs their sales pitch. Often, their best interests and yours aren't the same.

[biker72]

My biggest fear when I retired was having some financial advisor invest my entire portfolio in cat litter futures or something worse and have the market tank. The financial advisor gets paid whether I make any money or not.

At 77 I can't make that retirement money back.

[jlwdm]

That's an interesting example. In theory, hedge funds attract 'more sophisticated' investors (or maybe just wealthier ones?). Who may demand a more aligned structure for management and client incentives. Does such a comp structure exist for investments that 'regular' folks have access to? Or is it another example of uneven playing fields?

My real point is, when selecting an advisor, scrutinizing their fee structure tells you where their real incentives are vs their sales pitch. Often, their best interests and yours aren't the same.

Some years ago I think it was true that hedge funds only attracted wealthier investors. Now hedge funds are everywhere and the returns have been poor for most of them. It almost seems like any one of us could start a hedge fund tomorrow.

Although the payment structure is different the hedge funds generally take a significant portion of the profits.

Jeff