Good Decision/Bad Decision: Financial Advisors
Good Decision/Bad Decision
Today’s subject will hopefully be part of a regular series of Monday posts. As you recall, I recently started Gratitude Wednesdays. This series will focus on my past decisions to shed light on some financial wins and losses. My hope is to discover what I did right, and help others avoid my mistakes. Whether epic fail or triumphant victory, these were my decisions. The topic for today is nothing other than the controversial subject of financial advisors.
We all need them in one form or another.
Good Decision
You may be surprised after my post about firing my financial advisor, that I actually have a long-standing counselor that I consult with constantly. I hired her when I was in my early twenties and she has been with me ever since. She has given me great advice, pushed me beyond my comfort zone, and I couldn’t imagine making it to financial dependence without her. Plus she comes at a highly discounted rate (just my unconditional love).
That’s right, I’m talking about my best financial partner as well as life companion. My wife. I can undeniably say that my net worth (our net worth) would be a fraction of what it is today without her. Although we don’t agree on everything, we agree on enough. Here are just a few of the many financial benefits she has brought to my life:
- She encouraged me to push for a higher income at the beginning of my career
- Our first foray into real estate was her idea
- She has an amazing eye for value, and knows when to spend
- Her income supported us through residency and catapulted our net worth
- She is great at teaching the kids about budgeting
I could go on and on. By far, the best decision I have ever made, is marrying the right person. She is smart and kind.
I could never have achieved financial independence without her.
Bad Decision
I hired a financial advisor at the beginning of my career because I thought I was too busy to manage my finances. He was a good guy, met with us quarterly, and truly tried to look after our best interests. This is not at all to criticize the character of the person I hired.
He charged me a discounted AUM fee of 0.5% because we’re family friends. And he managed my money for years. My returns were good, but slightly below the market. I was busy building my W2 income and beefing up my net worth.
Overtime, the AUM increased to 1%. When I decided to educate myself on personal finance, I found that there were some gaping holes in my allocation.
- I was too stock heavy
- Expense ratios on my mutual funds were too high (0.5% and higher)
- There was no understanding of the back door Roth IRA conversion
- Retirement planning was extremely basic
It took very little time to realize that I could do better myself. I moved all my assets to Vanguard In kind and the rest is history. My expense ratios are far below 0.10 %. I am now matching the market as a whole. All of this, and I only spend a few hours on my asset allocations a quarter.
In this case, KISS (Keep it simple stupid) is the best option.
In Summary
We all need our financial advisors. In my case, the best kind have been unpaid. My spouse, my parents, and the personal finance blogosphere, as a whole, have provided my greatest financial tailwinds
How about you? Do you use an advisor?
No financial adviser. But like you that doesn’t mean that I don’t receive a huge amount of financial insight (primarily via the Internet through sites such as your own).
I think now is a pretty good time to be an investor, armed with big data, an array of low cost index tracker funds and a huge amount of investment insight I think that almost anyone has the tools at their disposal to succeed as an investor.
What would be interesting to know is the reason why the deficiencies in your managed portfolio came to be. Was it a lack of understanding of your investment goals in the part of the adviser, or were they not aware of the low cost index tracking options out there.
I’m one who prefers to DIY….I’ve managed to avoid financial advisors so far, and now can’t see any benefit in paying for one.
Neither can I. Well done. You escape one of my biggest mistakes!
No advisor for me, but then again, I’m a hobbyist. Most middle to upper middle class can do it on their own if they put in some effort. The ultra wealthy on the other hand are at a whole other level. They use family offices to manage their wealth.
Funny to say, but I think the hobbyists are better than the professionals.
Not only do I not use an advisor, but I actively encourage colleagues to not use an advsior.
It’s a hairy subject as I think that fee-only advisors may serve serve some functions that are worthwhile: holding your hand through a bear market (if you require that) being the main one I can think of.
Fee-based advising is much easier to attack with AUM fees and how much that is guaranteed to cost you versus the theorhetical benefit it may provide.
I, fortunately, came to my financial senses prior to using a FA.
I think a one time consultation with a fee only advisor makes sense. Above and beyond that, there is no need. I would rather hold more cash than my advisors hand!