financial advisor: costs?
 

Hi folks,

We've found a well-recommended financial advisor, but have no basis for understanding the associated costs. Those of you who have been through this (or are advisors!): what are typical costs? I was told to make a plan was free, to implement it would cost between 1-2% of the money they would manage.

I'm not sure what this means, as we're seeing one to determine how much of a house we can afford (i.e., will have considerably less money to manage in 6 months than we do now), how to best handle stock options and money that's sitting in bank savings accounts, and if there's any advantage to waiting until next year to get married officially. 2% yearly would be quite a premium, no? Can they really outperform ING savings accounts by that much? (my 401ks certainly haven't)

What if we decide all we want is the plan? Isn't that kinda rude - what would be the best way to compensate them for their time in that case? We're meeting with them next week, and I'd appreciate thoughts.

Thanks,

Babak

Ask them specifically how they get paid. If you are paying a %, generally they also make $$ selling their funds only. In my mind that's not the best situation.

If you all want is planning that usually is a flat or hourly fee.

If all you want to do is beat a ING money market account you dont need to pay anyone. Just look here: http://bankrate.com/brm/rate/mmmf_highratehome.asp?params=US,416&product=33&ec_ id=brmint_brm_large_new_mpro_invest_all

Either way, do some reading or you could be taken by an 'expert' looking to pay his rent.

Good luck

IMO, you want your advisor to be a fiduciary. I also would want an advisor that has no interest (fees!) in the products he/she sells; this is a major conflict of interest.

A good financial advisor might charge around 1% of amount invested, annually.

Check out www.dfaus.com - Dimensional Fund Advisors - these guys are "Chicago School" and my favorite fund group. Individuals who invest in DFA funds must do so via an advisor. To get a list of advisors, go here: http://dfaus.com/find_advisor/

Your advisor should only charge you an annual fee on your money invested, not for "buying" his/her products. Did I say that already? :D

FWIW.

Thanks guys - they did mention that we'd have access to thousands of mutual funds, not just theirs (Bear Sterns). So is 2% high-end? Is a financial advisor the right person for helping us do this, or should we be looking for a CPA?

We really need someone to help us take stock of what we have, what we should be aiming for house-wise, and what sorts of gotchas we haven't thought of.

Babak

They still may make a cut when you buy other funds. Ask the advisor of they are a fiduciary.

It's only my opinion, but I think 2 points is high. You might consider consulting with a CFA on an hourly basis.

2¢

Unless you have so much money that you need to hire someone to keep track of it all, you have no reason to pay someone a percentage of your portfolio (wrap fee) for managing your investments. With that kind of a fee on top of comissions, you'll have to significantly out perform the market to break even. More studies than you can shake a stick at prove that about one money manager beats the S&P 500 on a consistent basis. That gentleman lives in Omaha. Seriously, over a five year period, the S&P 500 outperforms somewhere between 95anf 99% of all fund managers. That means that if you buy a low-fee S&P 500 index fund, you'll do better than 95% of all the professionals, and better than 100% of the semi-profressionals who want to charge you a percentage of your portfolio to put you into the S&P 500.

The only investment advisor worth going to charges by the hour and tells you how to allocate your portfolio, explains your options, and helps you get set up to manage your own money. This is not a stock broker. Stock brokers want to charge you fees for trading, or for holding your portfolio, as this gentleman wants to do.

Go to a certified financial planner who charges by the hour and does not trade on behalf of his clients and you'll get the straight story. Go to a stock broker who makes money off your trades, and guess what his advice will always be? Hint: it will involve trading in ways that will result in a commission for him. You want to remove any intentional or unintentional bias from your financial advisor by eliminating the profit motive from his advice. That's why you pay by the hour. That way the financial advisor has a profit incentive to give you the best advice possible so you make money and keep coming back to him.

Do not pay a percentage of your portfolio to anyone. You can buy your own mutual fund and have a professional manage it for you for almost free. Or, if you want the best return on investment, buy an S&P 500 index fund and forget about it.

I just re-read your last post. 2% to put you into mutual funds?!!?!?!?!?!?! So you can pay him a fee to give you the privilege of paying the mutual fund managers fees? You have access to every no load mutual fund in the world all on your own. DO NOT PAY THIS PERSON A DIME! If you insist on getting into mutual funds, do some reasearch on your own and buy it direct from the fund. Look at Morningstar.com. You can do your research and buying online. That way at least you're only paying the mutual fund's fees. The best bet is still buying an S&P 500 index fund because their fees are the lowest. The lower the fees, the less gets taken out of your investment, leaving you with a better return. A juicy prospectus showing a 20% yearly return before fees, but a 4% return after fees doesn't do you much good. Less fees = better return for you.

Absolutely.

Or do it yourself - you can do a better jib and pay YOUR damn self 2%. Call Vanguard and ask them to send you all their info for a 'new person who knows nothing'

You can learn more than a "financial adviser" knows in about 2 months.

2% is an incredibly ripoff. Ask if they guarantee results!

Gee...you must have listened to Cindy while you were here. Bottom line:

FEES NATTER!

Wow, thanks all. So is a financial adviser nothing more than someone who "connects" you to various funds? If so, 2% is indeed a rip. What do you call someone who'll go over your assets and income and help you figure out how much house you should be thinking about? Or how/if to exercise options with a minimum of tax issues in the same year as buying the house, rolling over 401k->IRA and getting married?

Babak

You can either say "I do", or "I don't"...those are your two options :)

FWIW I pay 1% to a professional. I use the saved time to drive my Porsche.

And my logic, right or wrong, is that if can earn 7% while I would earn 6% it costs me nothing. Except that I pay in after tax dollars, so I guess he has to earn me 7.5%.

I don't think CFAs would agree with your conclusion. :D

I would think a CFP (Certified Financial Planner) would meet your needs.

FWIW.

Best,