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Is there some amount of money where you would consider paying for professional management for all or part of it ?
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I not only considered paying someone, I do.

The key issues/questions to consider are:

#1 Do you have enough money that professional management is reasonable? (If you have 100K, it does not. The amount where it makes sense will depend on what managers you consider and what you consider as professional management. Some people consider buying mutual funds as "hiring" professional management.)

#2 When you are not capable of handling/managing your money, who will?

#3 Have you considered the possibility the manager who will take over might not be as qualified or interested as you think they are today?

#4 Have you considered the possibility you will not recognize a decrease in your management abilities? i.e. creeping senility, failure to be aware of changing events/conditions.

No approach to the money management is perfect, but there is one thing we can be certain of. Eventually non of us will be capable of managing our money. We will die if nothing else - while proper estate planning will distribute the money, we certainly will not be managing it.

Gordon
Atlanta
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Me, too.

In additions to Gordon's points about creeping senility, you must also keep in mind that "I might be wrong." I am only one person, and that manager (me) might make a terribly wrong mistake and decimate my portfolio.

Far better to have part of my money managed by somebody completely different, investing it in a completely different way.

As far as an amount .....
Good question. I agree that $100k is too small. Somewhere between $250K and $500K is where it becomes reasonable, IMHO.

FWIW, Fisher Investments minimum account size is $500K. That's who I use.
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The safe answer to your question is, of course, it depends

For young people just getting started, a money management pro can make sure they are allocated correctly and rebalanced regularly. That service, over the long haul, is worth it regardless of the amount invested, although to keep up-front costs at a minimum, this service should be provided on an hourly basis (e.g. the Garrett Network)

For those with investable assets who simply don't want to commit to the time and energy of self-management, hiring an investment manager, paid as a % of assets, is a good choice. For most, this will begin in mid career with accumulated savings (taxable accounts + retirement plans + IRAs) of $200,000 and above.

Passive investment allocations makes the most sense, is the easiest to understand and the least costly (or it should be)

Active MF management is next. Better chance for higher returns, but more costly and perhaps more risk.

For the few with millions or tens of millions under management, hedging strategies to control core protfolio risk, very high risk strategies for a part of the assets and large individual bond holdings and even cash value life insurance when asset protection and inheritance is important.

Of course, how assets are managed really depends on the goals of the client....and as is the case with health care, the professional advisor needs to look at investment management as just part of the "whole person", for whom all personal financial matters need be considered in extablishing investment strategies....to include risk management, estate planning, education planning, etc.

BruceM
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Is there some amount of money where you would consider paying for professional management for all or part of it ?

No. I started with zero and steadily worked my way up to nice 7 figures with no help other than what I found here and reading/studying in general. Doesn't mean I haven't made mistakes, but at least I learned from them.

Biggest suggestion, you don't have to hit home runs every time. A bunch of singles and doubles will get you there with less strike outs.

Now I would pay/have paid to help with estate planning/inheritance. Tax laws in those areas just change way too often.

JLC
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Thanks -all helpful answers(although at 56, senility hadn't really crossed my mind). I have been managing money for my self and others(mother and children) since I was 25 and I actually think I would like a break.

Anything I should think about in terms of using a manager for taxable vs pretax investments ?

(Apparently the first thing I need are some goals - I have run out ;)
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When I started investing, I thought I'd be actively investing until I died. Lately, it seems too much like work and when I retire, I definitely don't want to be working.

Instead of hiring a manager, I'm planning on switching to mutual funds and ETFs. The only work will be determining asset allocation and annual re-balancing. For asset allocation, I found this book:

http://www.amazon.com/Investment-Answer-Protect-Financial-eb...

It confirmed a lot of what I already knew and offered several asset allocation scenarios. My plan is to start converting my portfolio over the next several years, once I decide which funds to invest in. After retirement, it will be on cruise control with maybe a small pot for individual investments. No manager involved in this (except the fund managers).
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We pay someone to manage a portion of our assets. We had a couple of reasons for doing this.

- Since I manage all the finances, I wanted to be sure that DH would be covered if something happens to me, so I wanted someone on board so that I could do the test drive and make sure that he would have someone that would be suitable.
- As the numbers have gotten larger and we have gotten closer to retirement, I didn't want to mess up, so I wanted someone to help me.
- I'm getting tired of doing this, and I don't want to have to keep doing it to this extent in retirement, so it's a break for me.


We test drove one guy a couple of years ago who we picked over the guy I'm using now. It didn't take me long to figure out that was a mistake, so I took the account back for a few years, and then finally gave our IRAs to this guy to manage. He's got about 1/3 of our investable assets, and it's all tax-deferred money so that there are no tax consequences now when he moves money around.

I have been very pleased with this services, and can see myself moving taxable money to him at some point as well.

He works for one of the major brokerages, but his office is separate and I like his hands-on approach. If you were closer, I would recommend you talk to him.
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When DH and I got our will done, our Lawyer was kind of appalled at the fact that we had a pretty good sized estate but neither financial manager nor CPA (just a tax person).

I tried the CPA. Waste of money. My regular tax person finds more and saves us more, the CPA just charged more but didn't point out any way for us to save on taxes. So I dumped him after a year and went back to my tax person.

After a YEAR I decided to give the financial planner my lawyer recommended a shot. If nothing else maybe they could find something I was missing or had done wrong or rebalance the 401K. I liked her. Her diplomas included an engineering degree and she was more math-geek than pushy salesman. She said we didn't have any "disasters" in our planning but she just tweaked it a little - showed me how to open ROTHs even though we make too much and moved our 529 accounts into one that gives us a state tax break. Balanced my 401K. Talked about how I need to move towards ROTHs rather than taxed from here on out because of forced distributions at 70-ish and the possibility of higher taxes in the future...

Plus one thing that had been holding me back from IRA accounts was having to decide where to invest it. Full time job, two kids, too tired to keep an eye on everything money-wise right now in my life. Maybe in 10 years I'll take it all back over....

So I'll take my new 529 tax break, see how she does with the ROTH investing and if she does well with a little money, maybe she'll get to manage more as time goes on. Start 'em out with a small pile and see what they do with it. Like that bibical parable about the master who gives the servants different amounts of money and comes back to see how they did....
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With any financial advisor, fees are a huge cost. If you're taking a 4% withdrawal from a retirement account, paying an advisor 1% of assets is 25% of your income. That's likely a lot more than the IRS is taking from you.

Here's an example of what you'd have left from a 4% withdrawal after fees & costs for several DFA-approved financial advisors.

http://www.retireearlyhomepage.com/dfa_2010.html

intercst
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I truly don't see the case for so-called professional management of a stock portfolio. The best argument is that a professional might help transition things for my spouse at my death, but I've take care of that by leaving her a specific written explanation of what we're doing and why we're doing it. At some point down the road, I'll involve our son and DIL, but that's still some time off in the future. The only way a so-called professional would do better than we're doing for ourselves is through just dumb luck. We don't do antyhing fancy, keep fees low, and watch our bond funds/stock funds allocation. I can't see paying someone else good money to do it in our place. I try to involve my wife, but she prefers leaving it to me. I think she won't look at things seriously as long as I'm around to keep an eye on things.
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Everyone should pay close attention to what intercst has posted. He knows his stuff about fees.
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Anything I should think about in terms of using a manager for taxable vs pretax investments ?

Make sure your advisor is familiar with tax considerations such as tax efficient placement of investments and tax loss harvesting.

Bob
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With any financial advisor, fees are a huge cost. If you're taking a 4% withdrawal from a retirement account, paying an advisor 1% of assets is 25% of your income.

And if you are withdrawing 0% ?
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An import and consideration to keep in mind is that you may find a professional manager that work well for you and plan to use them long term, but they are human too and they may very well die or retire while you are still alive. Even if it is a company with multiple people the company could be bought out or merge with a very different company.

You would then either have to find another one or hope that whoever takes over their accounts is just as good. By then you may not be up to making a big decision like this or your spouse might have to decide what to do. This could leave you vulnerable to being taken advantage of.

I’m in the camp of having a simple assortment of index funds that are basically on auto-pilot that a spouse or relative can help you with as you age.


Greg
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"And if you are withdrawing 0% ? "

A 1% assets under management fee on top of any high ER's and/or loads for active funds the advisor places you into can take a massive blow to retirement income safe withdrawl rates. At 56 and all of your goals taken care of then withdrawls are probably not terribly far off. Even if you are not making any withdrawls yet these fees can drastically undercut any returns you earn on your portfolio. If inflation averages 3%, AUM fee of 1%, ER on the active funds at an average of 1-1.5% and you would need a return of over 5% to just break even (God help you if there are loads).

This doesn't mean active managment doesn't have it's place, only that you need to be aware of potential pitfalls so you can avoid them. BruceCM mentioned the Garret network and finding an advisor that charges by the hour. I would say this is probably the best way to go if you have a large portfolio (7 figures) and no longer want to take the time to manage them yourself. I've always scratched my head at the Assets Under Managment fee schedule. If I had two million with an advisor he would charge me $20,000 a year to control my investments (1%). If I had four million that fee would increase to $40,000 and for what? It's the same advisor, same skill and experience level, similar tax considerations, almost the same investments (maybe a few more muni's?), and he'd probably spend almost the same amount of time working on the two portfolios. Good financial advice deserves to be well paid but I can't stomach the idea that the bigger the whale the more blubber that can be squeezed out.
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An import and consideration to keep in mind is that you may find a professional manager that work well for you and plan to use them long term, but they are human too and they may very well die or retire while you are still alive. Even if it is a company with multiple people the company could be bought out or merge with a very different company.

And I could get killed by a car trying to cross the street, but that doesn't mean I should stay in the house forever and never cross the street.

I think the OP's question is reasonable, and I definitely understand wanting to have someone else handle managing the finances. The guy we are using has his own office that is just him and his assistant. He was part of one major brokerage when we first talked with him, and has changed twice since that first conversation and when we started using him due to various acquisitions. Yet he is still the same person using the same model and with the same assistant. Apparently, even the large brokerages have figured out that they should just leave their top earners alone to keep doing what they have been doing.

You would then either have to find another one or hope that whoever takes over their accounts is just as good. By then you may not be up to making a big decision like this or your spouse might have to decide what to do. This could leave you vulnerable to being taken advantage of.

And for this, I go back to the risk I take every day that I might get hit by a car crossing the street. There are always risks that something could happen, but I think the OP is probably pretty good at managing various risks, and I certainly wouldn't see this as a deterrent.
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A 1% assets under management fee on top of any high ER's and/or loads for active funds the advisor places you into can take a massive blow to retirement income safe withdrawl rates. At 56 and all of your goals taken care of then withdrawls are probably not terribly far off. Even if you are not making any withdrawls yet these fees can drastically undercut any returns you earn on your portfolio. If inflation averages 3%, AUM fee of 1%, ER on the active funds at an average of 1-1.5% and you would need a return of over 5% to just break even (God help you if there are loads).


I think you are making a lot of assumptions with this statement. Nowhere did the OP say that she was going to do high ER's and/or loaded funds. All planners, even those that are paid on commission, do not sell loaded funds. The guy I'm using has us in a bunch of ETFs, and I certainly don't mind paying his percentage fee, even as the account value goes up, because he is doing a good job in getting me great returns.

This doesn't mean active managment doesn't have it's place, only that you need to be aware of potential pitfalls so you can avoid them. BruceCM mentioned the Garret network and finding an advisor that charges by the hour. I would say this is probably the best way to go if you have a large portfolio (7 figures) and no longer want to take the time to manage them yourself. I've always scratched my head at the Assets Under Managment fee schedule. If I had two million with an advisor he would charge me $20,000 a year to control my investments (1%). If I had four million that fee would increase to $40,000 and for what? It's the same advisor, same skill and experience level, similar tax considerations, almost the same investments (maybe a few more muni's?), and he'd probably spend almost the same amount of time working on the two portfolios. Good financial advice deserves to be well paid but I can't stomach the idea that the bigger the whale the more blubber that can be squeezed out.

I've talked to lots and lots of folks when choosing our financial planner, and that has included fee-based who are paid by the hour and those who are paid a percentage of the assets. I even talked to one guy who wanted to charge us a percentage of all our assets, even those that we wouldn't be transferring to him, so there are all kinds of models out there. I did run from that last guy, but obviously there are people who pay his prices as he has been in business for a long time.

I have been very happy sharing a percentage of assets managed because his performance even after his fees has been better than mine. That's what I am paying for, and between that, less stress for me, and knowing that DH won't starve if I am gone is well worth the fee for me.

As always, YMMV, but the OP seems to be in a place where some help would be welcome, and so I don't understand all the pushback on why this is a bad idea, especially for someone who I think is known to a lot of us as being fairly advanced in terms of financial savvy.

But that doesn't mean she wants to manage everything forever. And I'm in that same boat.
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At 56 and all of your goals taken care of then withdrawals are probably not terribly far off.

Actually they are. Some time ago on this board I asked about calculating the impact of different income streams beginning to pay at different times. I think someone posted a link to intercst's web site which was really not helpful for my situation. His work is good stuff for most people. But I'm not in that situation.

If I had two million with an advisor he would charge me $20,000 a year to control my investments (1%).

One thing I've learned over the past couple of years is that the actual experience of things can turn out very different that what you think it might be like - both bad and good things.

What would you do if you earned $1200/day ? Would you give it back because it's incredible to earn that much ? For me, managing more is definitely different and for some reason right now, a financial misstep is a big concern. The more is marginal but it does make a difference in how I feel about it.
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But that doesn't mean she wants to manage everything forever. And I'm in that same boat.


Amen.

So we shouldn't hire a money pro because they aren't immortal? If mine goes toes-up I'll shop again. If I'm senile I won't know to care, will I? By the time I'm old and feeble it'll all be in boring and safe crap anyway....

I think a professional can be a big help even to someone who's already saavy because you can discuss the pro's and cons of your investment options using the same language - mine is happy she doesn't have to explain every single term to me, your advisor should LOVE it that you know the market! If they don't, that's a bad sign. When I talk to mine we just short-hand it. WHERE did one poster get some outrageous 4% figure? I pay mine $120 a year in fees to manage my funds. And answer the occasional question and balance my 401K.


My pro saved me more on taxes my first year than she charged me.
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...since I was 25 and I actually think I would like a break.

Like another poster said, there are plenty of "couch potato" type portfolios out there that only require rebalancing ETFs once a month/quarter/year. Its not that hard and definitely not worth paying someone to do for you.

JLC
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Like another poster said, there are plenty of "couch potato" type portfolios out there that only require rebalancing ETFs once a month/quarter/year. Its not that hard and definitely not worth paying someone to do for you.


There are lots of things that are not that hard that people choose to pay someone else to do for a variety of reasons.

I know lots of people who take their car in to a shop to have the oil changed, but in my house, DH does all of that. Some people choose to have a housekeeper. Some pay someone to mow their lawn. My DH has an entire winter business where people pay him to plow their driveway instead of them using a snowblower or shoveling.

I think it comes down to your own priorities and where you want to be spending our own time and resources. In the OP's case, I think she has decided that she'd rather spend her time elsewhere, and that is worth something to her so she is willing to pay for the services of someone else doing this chore.

It has nothing to do with how hard it is, and deciding the worth of the service is really up to her.

As always, YMMV, and I think we all sometimes forget that what works for us may not work for someone else. I think this is one of those times.
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Like another poster said, there are plenty of "couch potato" type portfolios out there that only require rebalancing ETFs once a month/quarter/year. Its not that hard and definitely not worth paying someone to do for you.

My concern going forward is what if I am unable to do it myself? Senility creeps up on most of us. My mother became unable to even balance her checkbook (3 pension deposits and 2 bills a month) 3 years before she died.

But where do you find an FA to do that for you, when/if you can't? For a reasonable (i.e., small) fee.

I guess maybe a fee-only financial planner? Give them your detailed instructions and pay them $500 annual fee to rebalance once a year. Kinda hard to build a successful business when your clients pay that little. You'd need 100 such clients to take in $50k a year.

Maybe a trusted child or other realtive? And hope they don't steal you blind.
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My concern going forward is what if I am unable to do it myself? ...

Maybe a trusted child or other realtive? And hope they don't steal you blind.



Both of these points are good ones and having been the responsible one forever, it hadn't occurred to me. Having been the youngest child who ended up with the responsibility of managing money for my mother after my father died when I was 25, I have a very good idea of the time and effort(although things have generally gotten easier since then-internet and whatnot).

My children are all good at managing finances but they are all in their 20s, busy and establishing their own lives. Even in 10 years, I wouldn't want them to have to deal with it.

I talked to a planner this week and liked her. She also "got" me. Someone else mentioned having someone knowledgeable to talk to about different options and I find those people hard to find in general. It's almost like listening for code to find them(I'm talking about people who actually have significant money to manage.) I think there's a specific chunk I may give her to manage.

I am also talking to a tax person in a week or so. Same deal. I have been doing it but there are now too many complications as well as I think it's probably time to get my business off of Schedule C.
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...An import and consideration to keep in mind is that you may find a professional manager that work well for you and plan to use them long term, but they are human too and they may very well die or retire while you are still alive. Even if it is a company with multiple people the company could be bought out or merge with a very different company.

And I could get killed by a car trying to cross the street, but that doesn't mean I should stay in the house forever and never cross the street.

I think the OP's question is reasonable, and I definitely understand wanting to have someone else handle managing the finances......



Figuring out a succession plan isn't a show stopper but it can't be ignored. There are lots of people out that that would have no qualms about putting an 85 year old widow into very bad investments in order to get a large commission.
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Figuring out a succession plan isn't a show stopper but it can't be ignored. There are lots of people out that that would have no qualms about putting an 85 year old widow into very bad investments in order to get a large commission.

Age and gender don't really matter, since putting people in bad investments in order to get a large commission is the central purpose of financial advisors, brokers, and other such crooks.
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Age and gender don't really matter, since putting people in bad investments in order to get a large commission is the central purpose of financial advisors, brokers, and other such crooks.

This definitely helps put perspective on your posts.
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Age and gender don't really matter, since putting people in bad investments in order to get a large commission is the central purpose of financial advisors, brokers, and other such crooks.
=====
This definitely helps put perspective on your posts.


Sorry, I know there are some honest and competent financial advisors out there, but they are few and far between in my opinion. I hope I'm wrong, but I doubt it.
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Age and gender don't really matter, since putting people in bad investments in order to get a large commission is the central purpose of financial advisors, brokers, and other such crooks.


Holy painting-with-a-broad-brush, Batman!
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Holy painting-with-a-broad-brush, Batman!

He has been doing this for years here. I ignore him on this subject.
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Some pay someone to mow their lawn.

Yep, for good reason - MDH has severe allergies.

In the case of professional management, we use a fee-only planner. She has access to various load-waived funds and a really good bond trading desk that provides access to bonds long before they come on the open market of a place such as Fidelity.

PM
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In the OP's case, I think she has decided that she'd rather spend her time elsewhere, and that is worth something to her so she is willing to pay for the services of someone else doing this chore.

Thats all fine and dandy. Just remember, NO ONE will care about YOUR money as much as you will.

JLC
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Thats all fine and dandy. Just remember, NO ONE will care about YOUR money as much as you will.

Perhaps true for you but right now I think just about anyone else would care more about it than me. Call it financial fatigue but over 30 years has been a long time to care.
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StockGoddess asks,

I think a professional can be a big help even to someone who's already saavy because you can discuss the pro's and cons of your investment options using the same language - mine is happy she doesn't have to explain every single term to me, your advisor should LOVE it that you know the market! If they don't, that's a bad sign. When I talk to mine we just short-hand it. WHERE did one poster get some outrageous 4% figure? I pay mine $120 a year in fees to manage my funds. And answer the occasional question and balance my 401K.

</snip>


The 4% isn't a fee. It's the generally accepted "safe" rate of withdrawal from a retirement portfolio if you want your money to last at least 30 years. The point I was making is that if you're paying your advisor the typical management fee of 1% of assets, he's taking 25% of your annual retirement income.

What kind of financial advisor are you getting for $120 per year? Is it something like the Financial Engines telephone assistance program offered by many employers?

http://corp.financialengines.com/helping_you/managed_service...

intercst
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What kind of financial advisor are you getting for $120 per year? Is it something like the Financial Engines telephone assistance program offered by many employers?



Edward Jones
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StockGoddess writes,

<<<What kind of financial advisor are you getting for $120 per year? Is it something like the Financial Engines telephone assistance program offered by many employers?>>>

Edward Jones

</snip>


Edward Jones will manage a portfolio of low-cost Vanguard index funds or ETFs for $120/year? Or do they want you to invest in other funds with much higher expense ratios and/or loads?

intercst
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Edward Jones will manage a portfolio of low-cost Vanguard index funds or ETFs for $120/year? Or do they want you to invest in other funds with much higher expense ratios and/or loads?

intercst


Your mind's made up, so this is pointless. To each their own.
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I think it comes down to your own priorities and where you want to be spending our own time and resources. In the OP's case, I think she has decided that she'd rather spend her time elsewhere, and that is worth something to her so she is willing to pay for the services of someone else doing this chore.

It has nothing to do with how hard it is, and deciding the worth of the service is really up to her.


I would second that.

I work with many clients....some wealthy, some comfortable, some with modest holdings (I have no 'poor' clients)

What I've found is that the willingness to take on the management of their assets has virtually nothing to do with how much $$ they have to invest, their income level or their level of formal education. It has to do with what they enjoy doing with their time.

Yes, target date funds and a simple ETF portfolio can be selected and periodically rebalanced by a high school student. But that is not the point....these clients simply DO NOT want to do it.

Now, let me quickly say....this doesn't mean they don't want to see results and have explained to them, in clear and unambiguous language, why they are being invested as they are and why the results are as they are. Here, I've found through experience that those clients who demand such reporting from their advisor tend to be more affluent, older and have greater assets under management...and I agree with what they are asking for and encourage them to ask.

BruceM
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StockGoddess writes,

Edward Jones will manage a portfolio of low-cost Vanguard index funds or ETFs for $120/year? Or do they want you to invest in other funds with much higher expense ratios and/or loads?

intercst


Your mind's made up, so this is pointless. To each their own.


Thanks for the response.

For those that may be unfamiliar with Edward Jones, here's a review.

http://www.obliviousinvestor.com/edward-jones-ira-review/

If you need an hour or two of consultation with a financial advisor, it's much cheaper to pay for that service by the hour rather than load up your whole investment portfolio with excessive fees and costs to get "free" advice.

intercst
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Edward Jones will manage a portfolio of low-cost Vanguard index funds or ETFs for $120/year? Or do they want you to invest in other funds with much higher expense ratios and/or loads?

intercst


Your mind's made up, so this is pointless. To each their own.


What is "pointless"?

Perhaps he was wanting you to verify that Jones would so some simple management for $120/yr. I know that *I* certainly am.

I went to their site looking for some information, and didn't see anywhere anything that might answer this question. The fact that I couldn't find anything was troublesome to me. In fact, I couldn't even find anything about fees or commissions. Nothing but urging me to call a local office.
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If you need an hour or two of consultation with a financial advisor, it's much cheaper to pay for that service by the hour rather than load up your whole investment portfolio with excessive fees and costs to get "free" advice.

I don't have my account with Edward Jones, but I do have it with a similar large and well-known firm. I don't pay as low a rate as the person to whom you were replying, but I also need more than an hour or two of consultation with a financial advisor. I'm paying him to manage my money, and that includes the research as well as the actual trade executions. I do pay a percentage of my assets as an annual fee, but we negotiated that down for the starting point, and as the assets grow, the percentage decreases. I do not pay a commission beyond that percentage, and my advisor uses ETFs and not loaded mutual funds, so I don't find the fees to be excessive at all.

I also don't expect free advice, which is probably worth what I'd be paying for it. I have no problem paying for the advice that I am given, and as long as my goals are being met, I am happy.

Where we seem to diverge is that I have more than one goal. I do wish to grow my money, but I don't wish to spend a lot of my time doing that. My end goal is not to have a large pile of money. It is to retire when I want, living the lifestyle I have planned til DH and I both die, and to put both kids through college with no debt for either of us. Notice there is no goal to leave an inheritance at all to my kids.

I am certain that my goals are different from yours, as they should be. That doesn't make either of our goals wrong. It just makes them different. Similarly, if we choose to take different paths to reach our goals, there's nothing wrong with that.
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1. I found no better piece explaining the cost of "expenses" than Intercst's. Unfortunately you have to wade through the Matson piece to get to the heart of the matter. The charts on the percentage of your revenue that go to either taxes or cost are VERY important. If you added things like healthcare expense or food, you'd probably find that those are often lower than "professional" expenses too. I don't see much evidence in any data that advisor's increase return, but acknowledge that they can provide piece of mind and creditable advise.

2. Our 403b options are with TIAA-CREF. I'm satisfied with the cost of their options and they are relatively low. One feature TIAA-CREF has in my plan is personal consultation. Twice a year DW and I visit their counselor. She is VERY good, disagrees with me often (which I appreciate), and has an excellent rapport with DW. Should I take the dirtnap she is exactly what I want for DW, and we pay nothing out-of-pocket.

Free? Well, both TIAA-CREF and Vanguard are non-profit, but I'd estimate that CREF mutual fund fees are about .25% more than any similar Vanguard Fund, and I'd assume that Edward Jones funds are much more. Using the $1 million illustration that means we're paying $2,500 per year for that advice from TIAA. I don't have any choice at this point, and indeed am VERY satisfied, but I'll need to see if about $500 per hour is what we want to pay when we are both retired.

3. IMO investment costs are about the biggest factor related to investment success. The smaller, the better. However, my huge enjoyment in managing our portfolio is in NO way shared by my bright, successful, professional spouse. She a LOT better at more important things. But, we've got a plan to insure that the portfolio is largely "put into low-cost automatic" with a twice yearly review by someone we both trust and with whom she has rapport.

Also IMO, you could use Intercst's charts to find a guideline of say 1/3 of yearly retirement SWR income tax costs if you need personal consultation, using low cost Vanguard funds as perhaps a benchmark. That might be a useful measure to guage how much you're spending.

Interesting discussion.

Hockeypop
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The 4% isn't a fee. It's the generally accepted "safe" rate of withdrawal from a retirement portfolio if you want your money to last at least 30 years. The point I was making is that if you're paying your advisor the typical management fee of 1% of assets, he's taking 25% of your annual retirement income.


The OP isn't making any withdrawals, though.
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This whole thread has got me to thinking....

'course, one of the thoughts is "if only I had known 10 years ago what I know now." ;-(

First thought: If I wanted a minimal effort, low cost (no annual fee, no percent of assets fee) but very good method for growing my assets, I'd go with something like Faber's "Equal weighted 5 asset classes: US STOCKS, FOREIGN STOCKS, BONDS, REITs, COMMODITIES"
http://www.mebanefaber.com/2011/07/08/real-money-funds-face-...

or Merriman's "The ultimate buy-and-hold strategy"
http://www.merrim"an.com/bestofmerriman/ultimatebuyandholdstrategy/
Sample portfolios: http://www.fundadvice.com/portfolio.html

Rebalance every 5 years.

Second thought: For hands-off low-cost monthly withdrawals. This would be when I'm tired of managing it myself, or when I am unable to do so due to senility. (Obviously, you'd have to set it up BEFORE you got senile!)
Set up one of the 5-class portfolios with either Vanguard or Fidelity. If you want them to do some management, pay their fee (0.7% to 0.35% annually). Perhaps you could negotiate a fixed fee instead of a percentage fee, but it won't be anything like $120/yr. The minimum annual fee is going to be at least around $5000.

Otherwise set up an automatic periodic withdrawal plan. Pay no fees, and hope that the fixed amounts you specify don't need to change.

Note that there is no realistic no-fee or low-fee hands-off withdrawal methodology for under $1-2M portfolio size. That low of an account size requires some level of hands-on management.
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Note that there is no realistic no-fee or low-fee hands-off withdrawal methodology for under $1-2M portfolio size. That low of an account size requires some level of hands-on management.

And some people don't mind paying for a good manager - the trick is how to find a good one instead of getting stuck with someone churning your account for the product of the month bonus.
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Maybe we should define "management"

Dh and I still work, so the lion's share of our money is in our company 401K's. So we have maybe a dozen choices each of mutual funds in these. The Edward Jones lady was nice enough to look over my selections and help me balance my choices - she didn't make anything off that.

I manage a rental property myself.

We have various bank accounts - I found internet accounts with higher interest. So I "manage" those as well.

So far all Edward Jones manages is two Roths and two 529 accounts. The 529's are with a state-sponsered fund, of course, so it's basically the Roths. Although she helped me decide how aggressive I wanted the 529s to be invested.

I've been with EJ for about a year. I've spent all of $120. I think it was worth it, though because I learned about a better performing 529 with a tax break (I'll get a $10K deduction off state taxes next year and the following 4 years as I move the maximum each year). $50K in tax breaks - not bad! I found out how to get money into a ROTH even though we make too much, I got my 401K balanced, I got our ROTH's invested. I understand better about the problem of minimum distributions and as a result have started moving some 401K investments into Roth 401K investments where possible.

And I can, of course, walk away tomorrow if I don't like what I'm getting or how the funds perform or feel pushed to churn accounts (which I haven't).

One plus of EJ is they don't sell their own funds, which many management companies do. So they're not pushing EJ funds.

When it comes time to move the BIG money, the 401k's I'll interview several advisors, including fee-only ones because it'll be worth the $200/hr at that point.

But have I gotten my $120-worth? The advice I've gotten has been worth many times that. It'll make a big difference over the next 20 years.


I got a little defensive of the posters who lablel all advisors as "crooks" though. Just like all realtors and lawyers, right? I've been a Fool for 20 years. Yes, I understand index funds and bla-bla-bla. But I wanted a second opinion to see if I was on the right track or missing any steps. It was worth ever penny.

Did I mention the $50,000 tax deduction she found me?

I'm positive the effectiveness of any sort of advisor varies greatly, though. Your mileage may vary.
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StockGoddess: So far all Edward Jones manages is two Roths and two 529 accounts. The 529's are with a state-sponsered fund, of course, so it's basically the Roths. Although she helped me decide how aggressive I wanted the 529s to be invested.

I've been with EJ for about a year. I've spent all of $120. I think it was worth it, though because I learned about a better performing 529 with a tax break (I'll get a $10K deduction off state taxes next year and the following 4 years as I move the maximum each year). $50K in tax breaks."

What is the $10k limit of which you speak?

Annual gift tax exclusion per person has been $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after January 1, 2009.

http://www.irs.gov/businesses/small/article/0,,id=108139,00....

Thus, federal tax law would allow larger contributions without federal gift tax consequences.

Also, federal tax law allows for a 5-year acceleration for lump sum gifts. So you are allowed "to average gifts over $13,000 per beneficiary ($26,000 for married couples) over a five year period without incurring federal gift tax. So an individual can contribute up to $65,000 per beneficiary in one year and a couple up to $130,000 per beneficiary without incurring gift tax."

http://www.finaid.org/savings/529plans.phtml

Nonetheless, I am glad you satisfied with your EJ advisor.

Regards, JAFO
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What is the $10k limit of which you speak?

She did say it was a state tax break. Therefore, it isn't related to the gift tax exclusion that it part of the rest of your post. In my state (NC), there is a $5k state tax deduction.

PSU
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r.a.d.

For me, it is really not about some amount of money as much as what I like doing. I was a mechanic on a submarine and used to love doing mechanic stuff - now I may help my step son rebuild the 289 in the 68 Cougar I gave him. But I don't want to do that "all the time."

Currently through work I have access to some of the best research around and enjoy crunching some numbers. So, I manage my own and do OK. It doesn't matter if I had two or ten zero's as an amount - I am engaged and there is a challenge! Besides the casinos are a bit to far away.

While I dont agree that all brokers are scum, I have seen enough to understand the finding a trustworthy one can be a chore. My father has always paid a guy, cause he doesn't like doing figuring out this sort of thing. Not particularly fond of the guy Dad has as he has a bit of the churn mentality and thinks every one should be 100% equity, but Dad gets comfort and if spending an extra couple of basis points gets him comfort - do it! But as mentioned watch out for fees, churning, etc. While SG gets good service with EJ for $120 a year for some folks that would be equivelant to 1% of assets under management. So the point there is that using a fee only advisor is not a bad idea, just that some folks figure their "fee" is worth far more than it really is.

I would suggest, that just like keeping the transaction fees low, make sure the amount of money that you have the professional management fee only advisor review is enough to make the fee small in comparison.

For me with almost 6 figures in my account - 5 to be exact ($200.00)
you can see that paying the modest sum of $120 would not be a good idea.

The other ideas mentioned are a set it and forget it portfolio or a horizon fund. Both are also perfectly good options but neither are based on a number or an amount -
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My visible portfolio costs of expense ratios plus federal income taxes amount to 0.7% of assets per year. 0.2% in ERs. 0.5% in federal income taxes.

When I include my portfolio's hidden costs of internal commissions, spreads, and impact costs it adds another 0.3% of assets per year.

Thus, my rock-bottom cheap indexed portfolio of ETFs costs 1% of assets per year.

With a 4% annual withdrawal rate, this means DW and I will get to spend 3% of our assets per year.

Using any managed fund a/o investment advisor would add another layer of % costs on top of the 1% we already pay.

I agree with intercst. Using any advisor or non-indexed investment vehicle is just dumb.
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What is the $10k limit of which you speak?

Annual gift tax exclusion per person has been $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after January 1, 2009.


I'm probably just repeating PSU's point, but many states allow for a state tax DEDUCTION for contributions to their state's 529 plan (often totally unrelated to the Federal Gift Tax Annual Exclusion issue). Many states cap this at various levels. In Illinois, the maximum deduction allowed is 10K (20K if MFJ). At the current IL tax rate of 5%, that's $500 (or $1,000) in state income tax savings.

As a random aside for other peeps who might be reading this thread, I'll note that if you make an ESA contribution for a child that is also considered a gift, so if one were to contribute 2K to an ESA they could only contribute 11K to a 529 before hitting the annual exclusion limit (ignoring any potential "gift-splitting" issues with a spouse and/or the 5 year acceleration for lump sum gifts specific to 529s).

As for the main point of this thread...I don't know if I'd say there's a specific asset LEVEL at which I'd consider professional management (there probably is, somewhere) but rather that it comes down to personal preference in spending time managing assets personally vs. just not having to deal with it. In the latter case, I'd focus on A) the cost to have someone manage the assets, and 2) the level of comfort I would have with the person/entity doing the managing. Just like mowing my own lawn or doing my own cooking or whatnot. I may be perfectly capable of cooking quite well, but there may be a point in my life where going out to restaurants more often is appealing for various reasons, but I don't want to spend $100/meal and don't need that level of meals, even if I could "afford" it.

That last paragraph is, again, more of a general comment. Rad has demonstrated that she is more than capable of handling her own finances if she chooses to (hell, she'd do a better job with my finances than I do, most likely). If it were someone else I might try to offer advice on choosing a financial professional that is well qualified and a good fit for her personally, but I'm sure her ability to do so is at least as good and more likely better than my own. Plus, she's indicated that she has identified a likely candidate whose costs appear reasonable that she has an initial positive rapport with.

There's often a point at which the convenience of having somebody do something for you (at a certain cost) is more attractive than doing it yourself. Even top chefs eat out on occasion, heck sometimes they even go thru the Wendy's drive thru.

-synchronicity
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I agree with intercst. Using any advisor or non-indexed investment vehicle is just dumb.

The first part - Sometimes using an advisor is the absolute smartest thing that some people CAN DO!!

Just chose wisely and walk the thin line between the brokers and thieves that just want to make money charging way to much, and those that don't have a clue and give cookie cutter advice and are not worth the almost free price tag - no problem paying for what you get, just make sure you get waht you pay for.

The second part - a non-indexed investment vehicle is just dumb?

Well that seems like a rather biased opinion... And that is because? Please elaborate on how investing in all/any single non-indexed investment is dumb..........such as

a US Treasury / or investment grade Bond
some gold or silver
any individual stock
Swiss francs
REIT
Shorting lean hogs and going long coffee
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Dr Tar:
The second part - a non-indexed investment vehicle is just dumb?

Well that seems like a rather biased opinion... And that is because? Please elaborate on how investing in all/any single non-indexed investment is dumb..........such as

a US Treasury / or investment grade Bond
some gold or silver
any individual stock
Swiss francs
REIT
Shorting lean hogs and going long coffee


I would agree with all those investments.

What I don´t agree with is to hire some professional adviser at a cost of X% of portfolio assets so he/she can put your money into very costly managed mutual funds or worse, a fund of fund of very expensive managed mutual funds.

Nor would I agree with a manager who will put your money into individual stocks and bonds and then procede to turn your portfolio over X amount of times per year to pad his/her pockets with commissions, Wall Street´s with spreads, and Uncle Sam´s with short-term capital gains taxes.
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What I don´t agree with is to hire some professional adviser at a cost of X% of portfolio assets so he/she can put your money into very costly managed mutual funds or worse, a fund of fund of very expensive managed mutual funds.

Nor would I agree with a manager who will put your money into individual stocks and bonds and then procede to turn your portfolio over X amount of times per year to pad his/her pockets with commissions, Wall Street´s with spreads, and Uncle Sam´s with short-term capital gains taxes.


I've talked to lots of financial planners in trying to find the right one for us. I have used 2 of them, and both had the same commission model. I pay a percentage of my portfolio value, and that is the total commission. I don't pay a commission for each trade on top of that.

The first planner I used had me in individual stocks. This one has me in a lot of ETFs. Neither of these choices qualify as 'very costly mutual funds' or ' a fund of very expensive managed mutual funds.' I'm sure there are planners out there that do this, and perhaps I didn't get one of those because I was specifically avoiding such a model, but I do want to point out again that there are financial planners who don't get paid more commission on top of their management fee.

As far as taxes, both of the folks I have worked with, and in fact all of the planners we have talked to, handle my IRA money. That's what they where they typically want to start because there are no tax issues to worry about. At the time that I move over taxable funds, I will have to deal with taxes, but I'm working with someone who is definitely very sensitive to that.

I realize that the vast majority of responses on this thread are against using any type of financial planner, but the original question was about choosing one after you've made the decision to use one. For us, we made the decision to use one probably a good 10 or 12 years ago. I test drove one about 5 years ago for just over a year, and then it took me another couple of years to try another one. We've been with this guy just over a year and he's a keeper, but look how long it took me to find someone suitable for me. Part of that was just to find someone who isn't like what you described, and I can attest that good folks are definitely out there.
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What I don´t agree with is to hire some professional adviser at a cost of X% of portfolio assets so he/she can put your money into very costly managed mutual funds or worse, a fund of fund of very expensive managed mutual funds.

You really have no idea what you are talking about. At some level of money, managed money is institutional funds and the client knows exactly what funds. It's not like there are mysteries there.

Nor would I agree with a manager who will put your money into individual stocks and bonds and then procede to turn your portfolio over X amount of times per year to pad his/her pockets with commissions, Wall Street´s with spreads, and Uncle Sam´s with short-term capital gains taxes.

Not sure where this is coming from. Yet again, at a certain level, all the pros work together with you - financial adviser, tax person, lawyer. And you begin to talk about things like foundations.
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Perhaps true for you but right now I think just about anyone else would care more about it than me. Call it financial fatigue but over 30 years has been a long time to care.


I think your plan of giving the manager you recently met should work fine.

As an avowed index investor (all advisers are crooks!) I gave half my holdings - which is in an IRA that I don't expect to need for many years - to an adviser last year.

I maintained a shadow porfolio to benchmark his results and I'm very happy with this performance. As time progresses I imagine that I will stop benchmarking him so closely and perhaps will move more assets to him, we'll see. In the meantime I'm very happy to have relieved myself of some of the burden of managing the family's money.

The fact is that managing it all can be tiring; sometimes you just need a break. I felt for some time that paying someone to do this stuff would be akin to some kind of failure.....that is of course ridiculous.

You've clearly done very well for yourself and your family running this stuff to this point, you don't have anything further to prove and you definitely deserve a break from the day to day.

Good luck, rad.
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I maintained a shadow porfolio to benchmark his results and I'm very happy with this performance. As time progresses I imagine that I will stop benchmarking him so closely

wasmick - have you tried asking him to benchmark himself? Or shared your benchmarking results with him?

If you explained what you were benchmarking him against and how that was improtant to you it would serve a couple of good purposes to share that with your advisor. First, gets you on the same page as far as investments and could give some insight into the risk profile you may have in mind. Second, if he is a good advisor IMHO, he would track your established benchmark and provide detail on where he leads or lags that benchmark, eventually you would not have to track - you would still know and that is the plus side of using advisors. He is doing the worrying!
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What I don´t agree with is to hire some professional adviser at a cost of X% of portfolio assets so he/she can put your money into very costly managed mutual funds or worse, a fund of fund of very expensive managed mutual funds.

tesmike,

IF there is one item that is as close to consensus as you can get on this board - the above in totality is it!

But this is really a compound proposition made up of:

1) Hiring a professional manager
2) Paying X% AUM
3) Expenses, Expenses, Expenses


As this is broken down, it appears the OP asked about #1 and #1 only. And for some IMHO, hiring a professional manager is absolutely the best move they could make. For some - absolute mistake! And that leaves a spectrum between.

Number 2 - we all pay to be market participants. In varying forms and depending on the level paying based on portfolio size is a given. Buying individual stocks is about the only way to avoid paying a percent of position size. ETF's have expense ratio's and while must better than mutual funds they are still a %AUM. Some firms charge a percent and then provide free trading. In addition they can even provide specific equity baskets (think mini ETF) to replicate a strategy. Such as stocks that have favorable beta for coming out of a recession. Or precious metal plays but not fixating on miners! All of these are provided at no or low additional "cost"


The point brings us to number three - and again this is an item I suggest is near consensus on this board. Watch the expenses but remember you get what you pay for. Expenses are not good- never have and never will be but you pay to be a particpant and you pay iof you chose to have some professional help. Just like when you own a car every now and then you have to put on new tires.. Doesn't mean you have to go to the most expensive tire shop in the city, but you do need to put them on and to be safe driving through retirement some folks don't mind paying to have some one else put the tires on!
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wasmick - have you tried asking him to benchmark himself? Or shared your benchmarking results with him?

If you explained what you were benchmarking him against and how that was improtant to you it would serve a couple of good purposes to share that with your advisor. First, gets you on the same page as far as investments and could give some insight into the risk profile you may have in mind. Second, if he is a good advisor IMHO, he would track your established benchmark and provide detail on where he leads or lags that benchmark, eventually you would not have to track - you would still know and that is the plus side of using advisors. He is doing the worrying!



Sorry, Doc....I didn't see this reply.

I do share my benchmarking results with him. I also told him I planned to do so when I gave him the money. Firstly, because as avowed index investor I didn't believe he would out perform my index funds after expenses (although his expenses are pretty low). But also, because of the reasons you state above regarding risk profile.

As far as asking him to benchmark himself, that's a great idea. I didn't think of it but I will suggest it in our next sit down.

I didn't think the benchmark tracking was such a big deal since I simply created a shadow portfolio at the time I transferred the assets. It was a portfolio of index funds (about 8 funds in all) so there's no trading or maintenance needed to maintain it. But I like the idea of him doing that work. After all as you say, that's what I'm paying him for!
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