Investment Adviser - worth the fee?

[PierreBear]

Hi PSers,

Does anyone have guidance or personal stories on whether it's worth it to hire an investment adviser? Is the fee charged to have someone manage your investment portfolio worth the gains or is it more about paying someone not to worry about it and to reduce losses? I believe most advisers charge a percentage basis points on the amount of investments and the incentive is that the gains that you would achieve through their management of stocks/bonds/etc would be more than the fee charge. So you ideally would be in a better position with an investment adviser than what the average person can do or is willing to do.

Any thoughts or in the end, it's still another form of "gambling" and no one has a crystal ball?! Would love to know how others try to maximize their investments/savings etc. Thanks in advance!

 

[ksinger]

We use one. We have a lot of stuff with Fidelity, and got some recommendations from friends in the financial biz, that they're pretty solid. We had gotten to the point where we finally admitted have no real clue (and no desire/ability to spend the time - as in to get the masters necessary to have that financial clue) how to invest with anything other in mind than being buffeted by the winds of "what now???". And we're at an age where being overly aggressive is not the best strategy. There is just too much advice out there, and it's all over the stupid map.

So far so good though. They have listened to our needs and goals and are investing and balancing accordingly. The fee is a flat percentage, and has nothing to do with how many transactions are done. Really, it depends on your goals. If your goal is to be as aggressive as possible, well heck, anyone can do that. If it's to be balanced and look to smooth things out, that's a lot trickier.

As for it being a crapshoot? Yes, I believe it is. But it probably is a bit smoother if someone who plays craps all day, is playing your rounds.
It has seemed so to us so far. The highs are less high but seem more steady, and the lows are less low.

Of course, that said, a market correction or two is long overdue. Ask me again when we have our next crash.

 

[Karl_K]

The biggest problem with putting you money under management is that in general its managed in groups.
So if people panic and call demanding to get out, your money goes with it.
Where smart money will be holding and buying for the most part.
That will happen if you money is in a pool of panicky investors.
On of my clients at the time, who is one of the richest people in my area on paper lost $200+ million in the crash
but within a year was up several multiples of that with the buys made during the crash.

 

[ksinger]

The biggest problem with putting you money under management is that in general its managed in groups.
So if people panic and call demanding to get out, your money goes with it.
Where smart money will be holding and buying for the most part.
That will happen if you money is in a pool of panicky investors.
On of my clients at the time, who is one of the richest people in my area on paper lost $200+ million in the crash
but within a year was up several multiples of that with the buys made during the crash.

With 200 million of monopoly money to lose, your guy clearly had both the luxury of not panicking, and enough remaining cash, to buy when the market was way down. Most average people don't have that mindset or resources.

And not sure how managed accounts are different in their sensitivity to panic, than the market at large...panic means deeper losses. For someone, usually the one panicking. Selling when you're down is to be avoided if possible, but that is hardly new advice. After all, talking panicked investors off the ledge and saving you from yourself is part of what you buy with a managed account.

 

[Elizabeth35]

We use an advisor and he does well for us. We have semi-annual meetings to review the state of our investments and our overall financial picture. He has the education and expertise to craft a plan for us that meets our goals and takes into account the global economy and markets---as well as US tax system. His fee is % based and he does not make any commissions on products nor does he churn investments.

Keep in mind that you are not just paying for a (hopefully) higher return, but for the whole package of financial planning and expertise.
This includes portfolio balance, tax implications, advice on when to take SS and which spouse (if married) takes SS at which age.
Which investments do you tap first when you start to withdraw---investments that have, or have not, had taxes paid? What is your anticipated tax rate in retirement? How can you save now and also reduce your current tax burden? Best way to plan for college or a vacation home?

So I don't view it as simply a better return, because the whole picture is fairly complex. I will say that he knows far more than I do. He has modeling software that allows us to easily change one or two levers (return, inflation, taxes, health care costs, etc.) to see the impact on our retirement. We review market returns and global economic patterns in our meetings--and adjust if necessary.


Whatever you decide---good for you for being fiscally responsible

 

[kenny]

I don't like conflict of interest.

Some get a cut/commission from the investments they recommend.

 

[boerumbiddy]

Before I retired, I hired a high-end, fee-only investment adviser to look at my finances for two hours. Best thousand dollars I ever spent. She set me up with a balanced retirement portfolio that has weathered the minor market storms since the 2008 crisis and will start providing an income stream now that I am old enough to take the required minimum distributions later this year.

But before that, I had invested my 401K money in two balanced index funds at Vanguard, which does all the management you really need: one for stocks and one for bonds. Their management charges are minimal. Index funds like these almost always match or exceed the market average. And you can get plenty of advice about risk tolerance, goals, etc., from their website.

Stock and bond prices go up and they go down. I believe the long-term outlook, even with our crazy politics, is going to balance out eventually. The average person does not need management, and does not need to play investor on his/her own. The average person needs to assess risks/make long-term investments/and just let the market do its thing over a period of years.

If you are fabulously wealthy, maybe an adviser is a good idea. But for an ordinary person, I would strongly suggest signing up with Vanguard.

BTW, I consider fabulously wealthy to be $2 million or more, which I understand barely gets you in the door with most investment advisers.

 

[boerumbiddy]

Kenny makes a good point about advisers who get commissions from your investments. That is why you should look for a certified fee-only adviser. They can get thrown out of the club if they take commissions.

 

[PierreBear]

We use an advisor and he does well for us. We have semi-annual meetings to review the state of our investments and our overall financial picture. He has the education and expertise to craft a plan for us that meets our goals and takes into account the global economy and markets---as well as US tax system. His fee is % based and he does not make any commissions on products nor does he churn investments.

Keep in mind that you are not just paying for a (hopefully) higher return, but for the whole package of financial planning and expertise.
This includes portfolio balance, tax implications, advice on when to take SS and which spouse (if married) takes SS at which age.
Which investments do you tap first when you start to withdraw---investments that have, or have not, had taxes paid? What is your anticipated tax rate in retirement? How can you save now and also reduce your current tax burden? Best way to plan for college or a vacation home?

So I don't view it as simply a better return, because the whole picture is fairly complex. I will say that he knows far more than I do. He has modeling software that allows us to easily change one or two levers (return, inflation, taxes, health care costs, etc.) to see the impact on our retirement. We review market returns and global economic patterns in our meetings--and adjust if necessary.


Whatever you decide---good for you for being fiscally responsible

Elizabetth35 - Thanks for sharing your input. I would be more interested in the "whole package" and though I only remember a conversation in passing with an individual we met, I think he only focused on the investing side and not the tax implications, retirement etc... as you mentioned. Is this the difference between a financial adviser or financial planner? How did you find your advisor? I appreciate the help!

 

[boerumbiddy]

Here is an article about fee-only financial planners, plus a link to the certifying organization, so you can look for one:

http://www.forbes.com/sites/davidmarotta/2012/06/11/fee-only-financial-planner-whats-the-difference/#3ba09aa36292

http://www.napfa.org/

 

[PierreBear]

Here is an article about fee-only financial planners, plus a link to the certifying organization, so you can look for one:

http://www.forbes.com/sites/davidmarotta/2012/06/11/fee-only-financial-planner-whats-the-difference/#3ba09aa36292

http://www.napfa.org/

Boerumbiddy - Thanks for sharing the resources. My husband and I have so far been taking your approach of investing our funds that are balanced with the least amount of fees and believe in long-term outlook especially as we are not close to retirement age. We are just average people who are hoping that our small amount of funds can grow a bit more. With that said and with all the useful commentary, I feel like I'm still confused. Are financial planners and financial advisors interchangeable terms? I read through the article and then on the bottom there were also "retirement advisors" and "investment advisors." If we are in our 30s and want to make sure we are on the right track and want to consider consider all those things that Elizabeth35's advisor does, who should we be looking for? Thanks in advance for setting me straight!

 

[Elizabeth35]

Hi,
Maybe as someone else suggested--simply pay for a one-time review by a certified financial planner? Kind of an overall check-up? If you are younger you may not need the reassurance of someone who will worry about your tax rate and inheritances and trusts. your needs may be simpler now.

And you do need to decide if you are more comfortable turning your investments over someone else to actually manage (and trade on your behalf), or if you prefer to put it in some index funds. And if you are doing this strictly from a return perspective--consider how you would feel if, after fees, your advisor did NOT beat the S&P?

You could follow Warren Buffet's lead--he has directed the trustee of his trust for his heirs to put 90% of the proceeds in S&P Index fund with low fees. I wouldn't bet against Warren

 

[Dancing Fire]

I don't believe in investment adviser b/c if I'm gonna lose money I can lose it myself w/o paying an investment adviser. An investment adviser can't lose b/c he/she is playing with your money and receiving a commission along the way no matter what happens in the stock market. When the market crashes we all go down in the same boat.

 

[madelise]

YES. Our advisor works off of a fee- 1% of all capital gained from investments. It's definitely worth it. He knows what he is doing and advises us anytime we call about any large financial move we have. I wouldn't know what trends there are on my own and don't have the time to research companies and trends.

I dont like flat fee only providers as I don't feel they are working their best for your money, since they get their fee regardless of how it does.

 

[boerumbiddy]

One important distinction is that fee-only advisers (to whatever extent they advise) are pledged to act in your best interests, that is, as fiduciaries, not as salesmen of any product. They indeed get their fee but the fee is usually based on the amount of money managed, so they usually make more money if you do!

That said, consulting a financial planner and turning your money over for actual investment are two different things. And a smart financial planner (or investment adviser) can advise you on things like retirement/allocation of investments. Then you go out and buy the low-cost products yourself, index funds and such, from someplace like Vanguard. That, again, is what I would suggest for the smart "average" couple that is actually saving and investing for retirement. Sounds as if you are on the right track. If you want to consult with an adviser/planner, I would try that fee-only list I posted and see how much good advice you can get at an hourly rate.

 

[rubybeth]

I manage my own investments because it's an interest of mine. Read Bogleheads, Mr. Money Mustache, etc. and see lots of people are capable of making good investment decisions without an adviser. I recommend Jack Bogle's book for people who feel they don't know anything--Jack Bogle started Vanguard. This is the book: https://www.amazon.com/Little-Book-Common-Sense-Investing/dp/0470102101 This is also one of my favorite episodes of my favorite podcast, highly recommend anyone who has investments listen to this (hint: Warren Buffet is featured in this story): http://www.npr.org/sections/money/2016/03/04/469247400/episode-688-brilliant-vs-boring

All that to say, if I wanted financial advice, I would look for a fee based adviser and not a percentage based one, and I would also make sure they have a fiduciary obligation to make good decisions on my behalf--literally anyone can get a "financial adviser" certificate. I've even looked into it myself for a potential side job or thing to do after I retire if I get bored. I would probably not hand over all my money to be invested by someone else, but rather, ask them specific questions about my plan and have them explain anything I didn't feel I understood. There is never any guarantee that you will make money when investing, so it's in your best interest to do your homework and know what's really happening with your money. A common tip is "Don't invest in anything you don't personally understand." You wouldn't want something like this to happen to you: http://www.radiolab.org/story/radiolab-presents-ponzi-supernova/

If you go this route, use someone solid, like another poster recommended, like Fidelity's services. But you will find very low cost index options with Fidelity (some of their funds have even lower costs than Vanguard!). If you are in your 30s, I strongly believe you can do your own reading and make good decisions with the power of information. And better to be informed and still decide to use a professional, so you can understand what you're doing and what they are doing.