OT: Picking a financial advisor

[rounder]

I am nearing retirement and went to see a financial advisor the other day. It was Merrill Lynch and went there because they have a big sign and big office in town (not recommending that any of you go/not go to Merrill Lynch). The guy I spoke with is someone I already new from our bike club, who was a First VP from that office and we spoke for about an hour. I am a CPA but did not have any idea what could be done with my 401k funds or whether they would just continue to sit in the plan.


He told me that ML would roll over the funds into an IRA account, that way there would not be any tax consequences from what would otherwise be considered a distribution. He said that options could include an annuity account where I would receive an annual amount until I die, where the remaining funds would be distributed to my survivor. Another way would be to receive some percentage of my funds each year, again where the remaining funds would go to my survivor. He suggested 3% distribution per year that could be increased whenever I needed it such as for unexpected cash needs. I asked him about what a commercial bank could offer and he said that it would most likely be limited to CD accounts because most commercial banks either do not offer many similar retirement options or are not staffed with people who can offer that type of investment advice..


He told me that either way, I could invest my funds through ML in some combination of stocks, Treasuries, etc. He also told me that the funds could be reinvested whenever I like without an additional fee for performing that service. He told me that the annual ML fee would be 1% of the fund balance.

I also asked him how often I would meet with him going forward, and he told me as often as I liked but at least once per year.


I had walked into the office without an appointment and really had no idea what to expect. To me, it was time well spent and I learned a lot. I do not know if I would commit to ML at this point, but plan to meet with others in town to hear what they say.

Hope this is helpful.

[54ny77]

^^you walked in and he started telling you about in-house managed annuities? And that a commercial bank can't offer what you need? Yep he sure saw you coming. I would never return to that office! A 1st VP is low man on the totem pole, the equivalent of walking into a real estate agent offfice on a Saturday and getting the guy who got assigned to desk duty that day. Pls seek out recommendations for fiduciaries/advisors from a trusted friend or family.

[rounder]

Actually, he talked me out of an annuity because he did not think I needed one.

If I pick a different advisor it would not be because of him. It would be more like picking someone I felt I could trust even more who would offer a significantly lower annual fee.

[echappist]

1% AUM fee is huge. Say you have 1M right now. In 20 years, yep, you guessed it, it's $200k less, due to fees. Not so trivial anymore.

The same is true in the accumulation phase. When most managers cannot beat the market average but ending up charging at least 1%, 1.05^20 is quite a bit different from 1.06^20.

[paredown]

We helped set my MIL up with a financial advisor--mostly because her late husband had managed their financial affairs for their whole married life--she needed hand-holding, budgeting advice and other external discipline that a more conventional "investment" type group would not likely provide.

We took the recommendation of a long time family friend who had done a lot of will and trust work over the years--and it was a real boon for my MIL. She probably could have made more money with a more aggressive firm--but their style suited the situation and has worked out very well. Mostly it removed any potential for family friction on the budgeting front, and allowed us to rest easy knowing that she couldn't do anything crazy....

[JasonF]

Disclosure: I am a JD (former tax attorney) and CFP but do not work with new clients so here is relatively unbiased advice:

- NAPFA and XY Planning Network are good places to start. At least with XYPN, all members must be CFP's and whatever you do, a non-negotiable requirement is that they adhere to a fiduciary standard.

- The financial advisory industry is getting increasingly specialized and I would focus on those whose practices are in developing retirement withdrawal strategies. This is a personal interest of mine and it is surprisingly nuanced and technical. NAPFA and XYPN will have scores of specialists.

- With all due respect, I would avoid "financial advisors" affiliated with insurance companies. You'll be guaranteed to receive a pitch to buy an annuity. Most are really bad (at least the ones that you'll see a sales pitch for).

- Although I have personal accounts with Vanguard, and manage client assets custodied there, their Personal Advisory Service is limited in scope of what it provides. Although low-cost, they will not advise on assets held away from Vanguard and will not advise on issues that may be tangental to investment accounts. I have tons of respect for Vanguard, and their advice to you will to buy a 60/40 portfolio and withdraw between 3-4% depending on your age. Take a look at their Lifestrategy Moderate Growth Fund for an idea of the asset allocation breakdown. There, I just saved you 30bps a year

- I would lean toward hiring an advisor that charges by the hour rather than an AUM fee schedule. Also, do not be afraid to partner with a solo practitioner.

- No affiliation, but Larry Swedroe's new book "Your complete Guide to a Successful Retirement" is excellent. It will scare you but it has tons of useful information.

[Gummee]

Just like anything else, yeah, you CAN DIY, but there's something to be said for someone that does it every day.

Just like bike mechanics, there are some that are better than others.

...and that's all I'll say about that...

M

[fogrider]

Originally Posted by biker72

I think anyone with average intelligence can manage their own portfolio. I used some of the advice given by Scott Burns.

I built a portfolio of low cost index exchange trades funds, (ETF'S) and mutual funds. Mabe gamble a few bucks on some stocks here and there

I retired at age 59 and am now 80. I have quadrupled my retirement account value even after having to take the required minimum distribution starting at age 70.5.

Problem with financial advisors is that you never know if you have a good one until it's too late. There are good one out there.

Originally Posted by Gummee

Just like anything else, yeah, you CAN DIY, but there's something to be said for someone that does it every day.

Just like bike mechanics, there are some that are better than others.

...and that's all I'll say about that...

M

We all have our own abilities...I like to do most of my own wrenching on my bike and with my money. I'll be the first that there are still lots I don't understand but willing to learn. Vanguard started indexed funds concept and pretty much everyone offers indexed funds now. Fidelity has a whole range of index funds tied to your age...their designed to pull funds from stocks to safer investments as you get closer to retirement. but remember, many people live for 20+ years after their retirement. We have an adviser that comes in and talks to our office and typically the advice is regarding mutual funds and index funds. for the most part, they don't advise buying your stocks. They refer to funds as products and charge you a fee for buying in.

So, yes, mutual funds and index funds are certainly the safest way to invest and I have about 50% of my funds there. I have the rest in stocks and do some trading with about 10%. if nothing else, it makes me feel like I have skin in the game and keeps me on my toes.

[Aaron O]

This is something that I feel very strongly about...

You pick the lowest fee, indexed vanguard account.

The simple facts are that almost none of these people beat the market after fees over even two years. They have no fiduciary responsibility. The ones I know are sales guys. That’s all they are. I wouldn’t trust most of them with a dollar.

Morgan Stanley...in a law suit...claimed that their own adds were puffery as a defense.

As far as retirement strategies, you max IRAs, 529 plans, HSAs, and what your employers offer. Your accountant, if a CPA, does have a fiduciary duty to you (unlike your finance person, they’re an actual professional) can tell you what vehicles to use.

[Aaron O]

https://www.forbes.com/sites/robertb.../#42656c3e6f96

[veloduffer]

Originally Posted by JasonF

Disclosure: I am a JD (former tax attorney) and CFP but do not work with new clients so here is relatively unbiased advice:



- NAPFA and XY Planning Network are good places to start. At least with XYPN, all members must be CFP's and whatever you do, a non-negotiable requirement is that they adhere to a fiduciary standard.



- The financial advisory industry is getting increasingly specialized and I would focus on those whose practices are in developing retirement withdrawal strategies. This is a personal interest of mine and it is surprisingly nuanced and technical. NAPFA and XYPN will have scores of specialists.



- With all due respect, I would avoid "financial advisors" affiliated with insurance companies. You'll be guaranteed to receive a pitch to buy an annuity. Most are really bad (at least the ones that you'll see a sales pitch for).



- Although I have personal accounts with Vanguard, and manage client assets custodied there, their Personal Advisory Service is limited in scope of what it provides. Although low-cost, they will not advise on assets held away from Vanguard and will not advise on issues that may be tangental to investment accounts. I have tons of respect for Vanguard, and their advice to you will to buy a 60/40 portfolio and withdraw between 3-4% depending on your age. Take a look at their Lifestrategy Moderate Growth Fund for an idea of the asset allocation breakdown. There, I just saved you 30bps a year



- I would lean toward hiring an advisor that charges by the hour rather than an AUM fee schedule. Also, do not be afraid to partner with a solo practitioner.



- No affiliation, but Larry Swedroe's new book "Your complete Guide to a Successful Retirement" is excellent. It will scare you but it has tons of useful information.

+1 on the above. Also, you can also have a financial advisor for a portion of your money and you can manage the balance, so all your “eggs” are not in the same basket.







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[Ralph]

Originally Posted by Aaron O

https://www.forbes.com/sites/robertb.../#42656c3e6f96

Every investor should understand this. Especially if saving and investing for retirement.

[biker72]

Originally Posted by Aaron O

https://www.forbes.com/sites/robertb.../#42656c3e6f96

I have a friend that has no idea how much his financial adviser is charging him.
"He's making me money. That's all I care about".

Mickey Mouse could make money in the current bull market run.

[echappist]

Originally Posted by biker72

I have a friend that has no idea how much his financial adviser is charging him.
"He's making me money. That's all I care about".

Mickey Mouse could make money in the current bull market run.

Sad state of affairs that many don’t even know how to compare things

Investing in a CD makes money as well (and there’s no loss of principle), doesnt mean that one should be all in CDs

It’s all about marginal utility, oppurtunity cost, and risk, but those two concepts are poorly understood

The person you quoted may be miffed to learn that the advisors make money refardless of how the account is doing...

[JasonF]

The importance of having a fiduciary advisor act as your coach cannot be understated. Even Vanguard has calculated that a "good" advisor can add 200bps of alpha through helping a client not blow themselves up.

I find statements like "I'll only use an advisor that will beat the market" or "my advisor makes me money" to be relics. The real benefit is helping a client prioritize financial obligations, ensure that these obligations (including living expenses) are funded, and most importantly, keep the client away from their own worst instincts. The "why" is as important as the "how".

For better or worse, I have seen scores of highly educated, exceptionally intelligent people ruin themselves financially through poor decisions and bad behavior. It has actually changed my life. A "good" advisor can prevent this.

Since this post originally was asking about retirement withdrawals, I will say that a lot of people have no problem with the accumulation phase (max up to 401k match if not more depending on the sponsors investment choices, fund an HSA, fund a Roth if possible, etc, etc...). It's the transition to the withdrawal stage that is fraught with landmines. How do I manage the sequence of returns risk? Which strategy should I implement? How do I tell family members on the dole that I'm cutting back? What's the best Social Security claiming strategy? Are my non-investment affairs in order (estate, insurance, etc...).