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Subject:  Re: Talk me out of a Financial Advisor Date:  6/2/2013  12:42 PM
Author:  Watty56 Number:  72364 of 88775

...His 10 year return for a portfolio size I'm looking at was 9.79% ending in March with a lower dip in 2009. Again, after fees. By my calculations, that's over a percent better than the S&P with dividends..
Most likely he was not just invested stocks that are in the S&P 500. Compare his returns to a combination of a total (US) stock market index fund and a Total International Stock Market index fund. Comparing performance to the incorrect index is a common way to mislead people.
...I've often heard this, but the 4% rule is based on historic returns of a simple portfolio. If a more complex portfolio can be structured to either increase the average annual return or smooth out the valleys at the same return, both after fees, wouldn't the SWR be higher?...
Mutual funds try to beat the simple index funds and especially after fees very few of them succeed over the long term. If this advisor could do this then he would be making a seven or eight figure salary working on Wall Street.

...I guess I'm having trouble accepting the prevailing wisdom here that ALL FAs are bad...

Not at all. It is just that most of the people who call themselves financial advisors are really salesmen that are misleading you.

There are many times when a financial advisor is a good choice but there problem is that they have a huge conflict of interest when there are so many ways for them to get paid for putting you in less than ideal investments. When I get ready to retire I will likely hire one that I pay by the hour to review my situation. A good financial advisor would be willing to ;

1) Provide an understandable written statement of how they are compensated that states that they will not take any compensation other than what you are paying them. Remember "fee based" is not the same as "fee only".

2) Provide a written statement that they have a "fiduciary responsibility" (Google this) to do what is in your best interest.

Financial advisors can do a lot of good things like;
1) Setting up the right asset allocation.
2) Helping to minimize your taxes.
3) Helping you decide on the right amount to save or spend each year.
4) Making sure that you have things like the right wills, estate plans and working with a lawyer when needed.
5) Help figure out when to start social security and which pensions options to take

Unfortunately picking superior performing stocks and mutual funds is not something that you can expect them to do.

Since you want to use one I would highly suggest that you interview several real financial planners that charge by the hour and pick one to draw up a financial plan for you. You can then use them as needed in future years to update the plan each year. This is assuming that you have a fairly large portfolio where cost would be in the same ballpark as paying a 1% fee for a year or two.
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