help with investing

[Scanner]

Oh, another possibility - just have us help you at Saving Advice.

You could form a Board of Advisors.

DisneySteve: Chairman of the Board (of course )
Broken Arrow: In charge of your risk management
Scanner: Contrarian Investor Consultant
Gambler: Trader Consultant
JimOhio: Forum mathmatician

Of course, you have to feed your Board of Advisors once/year. . .and DisneySteve doesn't like Appplebees. He likes Atlantic City tho

If you think about this, we all kind of do this in life anyway, we just formalize it into a "Board."

[KTP]

It would work like this - you hand over $20,000 to me to invest at my "house". I get a 1% commission per year on assets, so I get $200 per year to start. I then make co-decisions with you after getting to know you and maintain that relationship. I get you to automatically deduct from your checking into my "house" and together we build wealth.

THis is more like a "real estate agent" relationship.

I like this one because let's say we have built $1,000,000 together and I am getting $10,000/year managing your wealth.

To me this is a pretty horrible choice. If you accept that a 4% withdrawal rate is about the max you want to aim for in retirement, then handing over 1% of your assets each year to a financial advisor is the same as having a 25% tax added to your earnings. If you were to ask someone if they would be ok with having an additional 25% tax on their withddrawals, I bet you don't get too many takers.

Now if your FA will agree to GIVE you 1% of your assets if you get a negative return, then I would say go for it.

[Scanner]

It's not about return - it's about building wealth OVER time, establishing a relationship, knowing goals, and eventually, extracting/spending that wealth.

As Yogi Berra said, "Forget the return on my investment. I worry about the return OF my investment."

Truth is, someone with only 20K doesn't need much attention. Just put it in stocks/bonds/commodities and get them regularly investing. PRetty simple. I've earned my $200 and then some getting her to do that. A person with 800K usually does need more attention so I think would earn more but deserve more too.

Yes, you can sell your house too on your own too. WIth that, I won't argue, if that's what you are getting at.

And a negative return (if let's say I was her FA), isnt' very attractive to me either. If let's say her wealth drops from 800K to 400K - my $8000/year from her just dropped to $4000/year. My paycheck is tied to her wealth (as it should be).

All of the sudden cash and bonds are exciting to me, aren't they?

[KTP]

It takes about 30 minutes to log onto Vanguard, set up an account, then pick 2 or 3 funds to park your money such that risk is spread out how you like it.

For a 1M portfolio, the advisor would be making $10,000 a year, or $20,000 an hour if he just did this (parked the investor's money in 2 or 3 Vanguard funds), and most likely he would end up getting the investor a pretty decent return.

If people really do go for FA advisors like this, I gotta quit studying to be a EE...I am in the wrong field.

[Scanner]

PS: You got me thinking about this ( a 2nd career dream of mine ). . .another advantage of this is you'll also find financial planners too "product focused."

The marketing genius of Suze Orman is she focuses on behavior in her talk show.

So, let's just say I land 10 Swampthings for my fist 10 clients. I got $120,000 and now making $1200/year with my practice (do you call it a practice? not even sure).

Well, the key again, is to get them to change their behavior to think long term. So, I think what's lacking in the financial advisor community is just simple stuff - where to cut spending and save more. . .now I am incentivized to get her and her 9 cohorts to behave like investors.

There are downsides to this though. . .what's to stop her when she gets $1,000,000 and I have been good to her all these picking up her toys and switching her money into a no-load mutual fund or going down the street to Merrill Lynch (are they still around)? Nothing.

That's why a relationship is so important. I get this in my chiro. business every once awhile though. I fix a patient up just fine and they go elsewhere becuase of their HMO.

That's business.

[Scanner]

KTP:

You are missing the point and perhaps you can't see it (no offense meant) becuase you work with wires and mother boards and not people.

Let's take my field - a chiropractor. Honestly, you could learn to "crack a back" in about 10 minutes. Many monkeys at the gym do it to each other every day (especially thoracics). The key is knowing when and where to do it and not only that, the 1 or 2 minutes of doing that procedure on my patients is not where "The money is at."

The money is at developing a relationship and for that, a relationship is valuable. I know their health goals, I understand when they do want drugs and surgey and when they don't and I coordinate with the PCP and for that, they come back and back and pay and pay (and yes, the back crack offers pain and mobility management).

Honestly, I am not in the spine business. I am in the people business.

A financial advisor isn't in the Mutual Fund business. They are in the people business.

It's the same thing with a FA. Yes, it only takes 3 minutes to set up a Vanguard mutual fund acount. Hell, if I was a FA, I would see if I could hold them at "my house."

But choosing products doesn't build wealth; altering behavior, having motivation to do so. . .they build wealth.

I am not trying to prop up the FA industry here. I know at Saving Advice it doesn't have a great rep. But I wouldn't villify it either. The key is to develop a collaborative arrangement that is fair to all parties.

[KTP]

I shouldn't say that I dislike FA. I think Jimohio is a great guy with some good advice. I think a one-time fee to evaluate a person's finances is better than a % of the assets though. It should include recommendations on how to reduce taxes, make sure the risk/reward ratio is satisfying to the investor, and detail plans on future allocation of investment money based on the investor's retirement timeframe. If you do all of this, and spend several hours on it, then something like $1000 to $3000 one time fee does not seem unreasonable. Paying a FA $10K a year just to have them earn about the same as an index fund does not seem reasonable.

[Scanner]

I didn't say you didn't like FA's. I only said I know the culture here is "anti-FA." That's not to point at any one person. . .even I have gone off on annuity salesmen here (I do think that's a horrible product - I'll tell you - give me your money and I'll promise to send you a check every month. Really. I promise )

Like I said, it's like any other business. Yes, when a person has $1,000,000. . .that person would have to think, "Well, what's in it for me at this point?"

Well, as you point out, spending can have as much tax consequence as saving. When do you call in an estate attorney? What about gifting? Etc.

Really, with Swampthing. . .just stick it in a Target Fund and add to it.

But yes, I agree, like any other business, you have to prove your worth everyday. Sooner or later, I imagine a client who you've help build their wealth to $1,000,000 is goiong to say, "See ya."

Sometimes though, they are thankful and will just continue to reward you with their business.

I know the culture here better than anyone and let's just say, well. . .I know a lot of people here are um. . .frugal.

But I am a firm beleiver in joint ventures even though they are not alwyas frugal. Even at $100,000 and paying $1000/year, if that person supplied me with some motivation I do occasionally need a pearl of wisdom here and there, it may be worth it.

I just got done a divorce.

Wanna know the most valuable service my attorne offered was?

The advice. Advising me where I was exposed. Advising me where to surrender and what not to surrender. ANd let me tell you when it comes to divorce you aren't thinking right. At the end, on the last day, I had turned over 90% of decisions to him. And he was awesome. I hve a good parenting schedule and a decent payout and okay child support payment. I had to make some concessions, like where i wanted to live, and perhaps surrender alimony and a little house equity, but I am happy.

With money, you aren't always thinking right either. (esp. with money)

Like some knuckleheads would put 33% of their portfolio in silver and speculate on silver mining stock

[jIM_Ohio]

Focus on needs of the client and it becomes clear whether a client is charged for one thing or another:

1) Client could pay for a fee only plan. That plan could include what mutual funds to buy. If you pay $1000 for such a plan in 2010, then things change and a new plan is needed in 2012, you need to pay another $1000 for a new plan then. If things change again in 2016 and a new plan is needed, its possible that plan costs $4000. The client still needs to take the time to to implement the plan. The fee for the plan is the "hourly rate" to pay for the planner's time. You cannot expect a plan to be infinite in length- it is more a snapshot in time of that client's situation.

2) Pay loads for mutual funds. If most of the advice the client needs is which mutual funds to invest in, then paying loads might be cheaper than paying for plans. For example if above case had a person starting out working ($1000 plan) then getting married (new $1000 plan) then having kids ($4000 plan) but most of assistance was with what investments and risk to take and that person was investing 10k per year (5k for each IRA), a 5.75% load would pay the advisor about $2875 over that same 6 year period ($287+$287+$575*4). Clearly better to pay for loads than lots of new plans each time. But it is up to client to what they pay for and how much work they want to do (do they want to know HOW to invest on their own, or just have someone pick the right investments for them?).

3) Pay a wrap fee (1% of assets under management- AUM). This means clients get plans for free as well. This means if client has $5000 in an IRA, they pay $50 for that investment. In year 6 they would pay the least of above situations ($53 year 1, $1766 over 6 years). But some firms might have a minimum investment (like 500k) not 5k like I used in this example. Clients like this are more work, so client should expect to pay more for the service (they get planning and investment advice ongoing while paying the fee).

Wrap fees go down as assets go up (as a percentage). AUM start around 1% and usually drop to about .5% once assets reach $500k or $1M. Check for minimums- when I did a search some "financial planning" firms start at .5% and a $500k minimum net worth, others might have 1% and 100k to invest (for example).


This has nothing to do with PRODUCTS sold (for example). This was mentioned above.

It's not about return - it's about building wealth OVER time, establishing a relationship, knowing goals, and eventually, extracting/spending that wealth.

As Yogi Berra said, "Forget the return on my investment. I worry about the return OF my investment."

Truth is, someone with only 20K doesn't need much attention. Just put it in stocks/bonds/commodities and get them regularly investing. PRetty simple. I've earned my $200 and then some getting her to do that. A person with 800K usually does need more attention so I think would earn more but deserve more too.

Yes, you can sell your house too on your own too. WIth that, I won't argue, if that's what you are getting at.

And a negative return (if let's say I was her FA), isnt' very attractive to me either. If let's say her wealth drops from 800K to 400K - my $8000/year from her just dropped to $4000/year. My paycheck is tied to her wealth (as it should be).

All of the sudden cash and bonds are exciting to me, aren't they?

But choosing products doesn't build wealth; altering behavior, having motivation to do so. . .they build wealth.

and

It takes about 30 minutes to log onto Vanguard, set up an account, then pick 2 or 3 funds to park your money such that risk is spread out how you like it.

For a 1M portfolio, the advisor would be making $10,000 a year, or $20,000 an hour if he just did this (parked the investor's money in 2 or 3 Vanguard funds), and most likely he would end up getting the investor a pretty decent return.

If people really do go for FA advisors like this, I gotta quit studying to be a EE...I am in the wrong field.

If the only thing needed was an allocation, the appropriate action for the client is a PLAN, and the cost of the plan is NOT proportional to the size of the assets.

Different people have different situations, and the situations are fluid- meaning if the person is dealing with a large estate (like $20 M family business), they want to make sure as much of that wealth transfers to either charities or family (and not taxes), and those laws change every year. These people also do not have much spare time- so they will hire someone to manage assets and use their expertise in transferring assets to children. It is not a one hour (one year) fee then a repeated fee collected the following year without more service. These are clients which need to meet 2-4 times per year to review things as income changes or tax laws change.

There are products which preserve wealth or spending power. For example as I research my career change more, I can see the value of variable annuities- they can maintain spending power more than a regular annuity, even though I am fuzzy on the details right now. They can also transfer wealth effectively, so that is another reason to use a specific product in a given situation.

Scanner is right- financial planning is about managing the relationship more than managing the product sold or choosing investments. As the relationship evolves, a client might need advice about college savings, buying a retirement home or second home, refinancing, retiring, passing wealth onto charities or family members. Each of those requires time from an expert.

[financebanter]

Re: help with investing

Generally investing for retirement which would be like... 38-40 years out.