Why I Fired My Financial Advisor
Like most busy young professionals, I convinced myself that I had little time to worry about my finances. My young adult mind argued that my energies were better spent building my career, pumping up my salary. So I outsourced it. I asked a few questions, leaned on a family friend that I trusted, and hired a financial advisor.
The advisor was kind, knowledgeable, and seem to understand the ebb and flow of the market.
Fast forward fifteen years, I found the financial independence community. I delved deep into blogs and podcasts, and started to understand that there was such thing as simplicity in investing. I learned about the lazy portfolio and the benefits there in. It was amazing how little work it took to become proficient.
I went a step further, I ran to the library and found the ten most referenced financial books in the blogs that I was following. I read. For months. Book after book. Just to be sure that I wasn’t oversimplifying.
I wasn’t.
So I went back to my advisor and asked for him to chart my returns over the last decade. They looked something like this:
Overall returns 9%
AUM Fee: 1%
Average expense ratio for mutual funds: 0.75%
Stock to mutual fund balance 50/50
All things being equal, these were not horrible returns. My money had grown nicely over the years, I might have left everything as is, but I had a control experiment. MY wife’s 401K.
Ten years ago my wife allocated her 401K based on a simple decision tree provided by her company. She then left it completely alone for 10 years.
Overall returns: 10%
AUM Fee: 0%
Average Expense ration: 0.30%
Stock to mutual fund ration: 0/100
Ding! Ding! Ding! We have a winner! I fired my advisor and moved everything to Vanguard and managed it myself.
Have I made a few mistakes? Definitely! But overall, I understand my money and investments better than ever. In fact, there were a few finer points that my advisor completely missed.
1)He thinks an expense ratio of 0.50 percent is cheap
2)He had me contribute to a non deductible traditional IRA but had no idea about Back Door Roth conversions.
3)He told me he always tries to hold some of the investments that he suggests to his clients. I wonder what he does with the rest? Maybe Vanguard index funds?
This is not to put down financial advisors. I think mine actually treated me fairly well, and allowed me to outsource something that was causing distress. I now know that distress was a sign that I should have dug in deeper, not backed off. I had to do hours of research and studying to figure it out. You may not.
The White Coat Investor has put together a wonderful course called Fire Your Financial Investor.
This is yet another resource in bringing everyone up to speed with minimal cost and time commitment.
I fired all my advisors too. Over the years, I’ve interviewed or worked with over 20 advisors. The worst ones are the ones who make buy/sell recommendations on individual stocks. That has cost me millions.
After all these years, I have come to realize what you mentioned in another tongue-in-cheek post as the best investment move. Only buy, never sell.
How did you deal with the tax burden of selling everything in taxable accounts and moving to Vanguard?
When I moved to Vanguard, I was heavy in stocks so I was able to balance the capital gains and losses. I also donated some very appreciated funds. Lastly, I decided not to liquidate some and move over in-kind.
I want to clean up my portfolio of all the junk that’s accumulated over the years. Hard to do so because I have no losses to offset. Donated some highly appreciated stock but that only gets me so far.
I think you have to do it slow and steady. Donate here and there, sell appreciated stocks here and there. If the market drops, when the market drops, you will have your opportunity.
They are in a tough position. They may like finance and want to help people but they also have the problem of wanting to make more money and keep their job like all of us. The profession needs to evolve or it will die. Well, I’m gonna immediately take that back. There are so many people that just don’t understand the fees they are paying. I tend to get myopic being immersed with liked-minded FIRE walkers.
It’s amazing how far a little knowledge goes!
I agree. Lots of conflicts of interest!
Good post! Once you understand the ins and outs of investing in the right stuff, there is really no need any longer for a FA. Sounds like you made a great decision.
This was the exact post I was looking for! I almost feel kinda bad for the financial advisor, but yeah, investing is something you can totally do yourself and get as good or better results. Sad, but true. I’m glad you figured it out!
Thanks Luxe for stopping by. Love your blog!
I also just fired my advisor. It took me over a year to come to the decision, but I’m very happy with it. After analyzing fees I found that I will save $3,500 this year by switching to Vanguard index funds. I knew it would be substantial, but had no idea that I was paying over 1.9% in mutual fund expenses and management fees! It made me sick to my stomach after finding that out.
Hey 6 Figure, thanks for reading. The expenses can be staggering and the financial advisors won’t tell you how much your losing. You just saved yourself a lot of money!
Well I know I’m losing $95 per account just to close them! I’ll just call it stupid tax…oh well.
I paid it too. Cost of doing business!
My wife and I hired an advisor a few years ago and sat back and watched as everyone around us made money but we were somehow losing it! We found the FI community, fired the advisor and have been seeing great returns ever since. I like simple.
Me too. Cheap. Simple. Effective.
I left my advisor in stages. First, my non-retirement assets in 2012 and then the retirement assets in 2014. When I left my advisor in the first stage (2012), I had paid about $60k in expenses, and my portfolio was approximately flat (largely secondary to the 2008-9 bear market).
The retirement plan was managed through my group for an AUM of about 0.35% and was comprised of primarily DFA funds. I was able to convince my group to let me manage my own retirement plan assets and have done so ever since, with no regrets, but without the ability to add to the DFA holdings (not a big deal).
I think gradualism with investment changes is good.