Hiring a Financial Planner...who to go with?
12-23-2010, 10:29 AM
#1
Fearless DIY Guy
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Hiring a Financial Planner...who to go with?
Well, I finally am in an advantageous position such that I can start to sock some real money away for the future, and I'd like to do it properly.
That being said, does anyone here have any experience with selecting a financial planner? It seems as though there's a billion of them out there, but I don't know which one to go with
That being said, does anyone here have any experience with selecting a financial planner? It seems as though there's a billion of them out there, but I don't know which one to go with
12-23-2010, 12:16 PM
#2
My advice to you would be to first familiarize yourself with the market and it's intricate workings. Learn the terminology, the way it works, and how managed accounts are handled. Also learn the fee structures involved. There are many good books out there, often geared to the first time investor, that explain the markets and how they function. Many community colleges also offer basic courses dealing with the same, usually during the evening hours.
Once you have a basic understanding of the markets and the responsibilities of financial advisors, the go looking for one. The knowledge you have will put you in a better position to find someone that will work with you and look after your needs. Ask questions, including the fees involved with managed funds. It may take some time, but eventually you will find someone you are comfortable with. A good financial advisor advises you and works with you. Advisors are numerous and what they do certainly isn't magical. Some are good, many others bad. Finding a good one takes time.
Terry
Once you have a basic understanding of the markets and the responsibilities of financial advisors, the go looking for one. The knowledge you have will put you in a better position to find someone that will work with you and look after your needs. Ask questions, including the fees involved with managed funds. It may take some time, but eventually you will find someone you are comfortable with. A good financial advisor advises you and works with you. Advisors are numerous and what they do certainly isn't magical. Some are good, many others bad. Finding a good one takes time.
Terry
12-23-2010, 05:41 PM
#4
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a) Check with parents and close relatives, accountant and peers/co-workers to see if they found planners that they liked.
b) Use a fee-only financial planner.
c) Make sure the planner is accredited.
G/L.
12-26-2010, 09:28 AM
#5
As Will Y mentioned, fee-only advisor is the only way to go. You do not want an advisor that will in any way benefit from selling you anything.
Also, I would really recommend you pick up a good personal finance book and familiarize yourself with basic concepts such as asset allocation, diversification, tax management, etc. I personally recommend this book:
Bogleheads' Guide To Investing
It covers all the major topics, it's not intimidating for a beginner, and the approaches it introduces are based on studies and calculations, not speculation. I would highly recommend you pick it up.
Also, I would really recommend you pick up a good personal finance book and familiarize yourself with basic concepts such as asset allocation, diversification, tax management, etc. I personally recommend this book:
Bogleheads' Guide To Investing
It covers all the major topics, it's not intimidating for a beginner, and the approaches it introduces are based on studies and calculations, not speculation. I would highly recommend you pick it up.
12-26-2010, 10:36 AM
#6
Team Owner
The ones that sell you stuff should not be allowed to call themselves advisors. They are salesman.
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12-28-2010, 08:40 PM
#9
Suzuka Master
Well, I finally am in an advantageous position such that I can start to sock some real money away for the future, and I'd like to do it properly.
That being said, does anyone here have any experience with selecting a financial planner? It seems as though there's a billion of them out there, but I don't know which one to go with
That being said, does anyone here have any experience with selecting a financial planner? It seems as though there's a billion of them out there, but I don't know which one to go with
2. My FA is only one part of the cog. Because of the complexity of my business, the intricacies of the tax code, etc. I actively involve my attorney, my CPA, and my FA with a separate administrator of the IRA/pension plan. My CPA is as invaluable as my FA, especially with more complex investment vehicles. Just make sure your accountant is on board with your investment plan. Sometimes it's prudent to sell a poorly performing equity at a loss if one can write the loss off against passive income gain for example.
3. I eschew "advisors" affiliated with Insurance companies such as Guardian, Principal, MetLife, etc. They will force annuities on you as investment vehicles which pay handsome commissions for them but preclude you from breaking even until you've had the annuity for 10 or 20 years. Examples include whole life insurance policies. Caveat emptor.
01-04-2011, 03:56 PM
#11
Suzuka Master
30% life insurance? Term, whole life, cash value?
99% energy stocks?!?!? Yes, I would recommend diversification although she may have taken advantage of oil's recent run up last year or two.
01-04-2011, 10:40 PM
#13
0.5% = $70,000 lost over 30 years on a portfolio that grows at 9% and gets a $5,000 annual contribution. If you contribute more, and over a longer time period, the difference becomes much larger ($225,000 for same returns/time period but with $16,500 annual for max 401k). Also, if there are commissions involved, then the investments are probably expensive.
01-05-2011, 10:56 AM
#14
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That commission is pretty low. Are there additional commissions on transactions or is it the net value of her portfolio? There are additional transaction commissions, and I agree that 0.5% asset mgt fee is low.
30% life insurance? Term, whole life, cash value? Don't know, she gave them a pile of money up front that is supposed to yeild 7%. Don't know how this is possible in the current credit market.
99% energy stocks?!?!? Yes, I would recommend diversification although she may have taken advantage of oil's recent run up last year or two.
30% life insurance? Term, whole life, cash value? Don't know, she gave them a pile of money up front that is supposed to yeild 7%. Don't know how this is possible in the current credit market.
99% energy stocks?!?!? Yes, I would recommend diversification although she may have taken advantage of oil's recent run up last year or two.
01-05-2011, 01:44 PM
#15
Suzuka Master
0.5% = $70,000 lost over 30 years on a portfolio that grows at 9% and gets a $5,000 annual contribution. If you contribute more, and over a longer time period, the difference becomes much larger ($225,000 for same returns/time period but with $16,500 annual for max 401k). Also, if there are commissions involved, then the investments are probably expensive.
01-05-2011, 08:33 PM
#16
2. The contributions are kept at $5,000 a year. $2,000 a year average = 40% of your contributions to the FA.
3. I think it's fair to pay per hour for consultation and otherwise manage your own money. It's really not that hard to manage a portfolio of 3-8 low cost funds once you've learned a little bit and done some homework. If you're willing to pay 0.5% for someone else to do the work for you, you either have too much money, or need to keep learning about fees.
4. What does 'managing' entail? Sending an e-mail with returns every 3 months? If the FA is any good he/she won't fiddle with it aside from minor adjustments/re-balancing maybe once a year.
01-06-2011, 12:17 PM
#17
Suzuka Master
1. The FA has been managing the portfolio from $0, until it was that large, it did not start with $500,000.
What about when the portfolio is underperforming? The FA makes less at that point. You make the false assumption that the networth of the portfolio will increase over time, clearly incorrect based on the last 5 years.
Personally, I agree that a FA should be paid a flat fee as I do in my case to eliminate incentives for secondary gain.
2. The contributions are kept at $5,000 a year. $2,000 a year average = 40% of your contributions to the FA.
When did OP say the contributions are only $5000/year? What if the contributions are 50K a year?
3. I think it's fair to pay per hour for consultation and otherwise manage your own money. It's really not that hard to manage a portfolio of 3-8 low cost funds once you've learned a little bit and done some homework. If you're willing to pay 0.5% for someone else to do the work for you, you either have too much money, or need to keep learning about fees.
Incorrect again. My FA overseas my Roth IRA/401K and my personal holdings. It's actually more like 20 different funds (8-10 each).
4. What does 'managing' entail? Sending an e-mail with returns every 3 months? If the FA is any good he/she won't fiddle with it aside from minor adjustments/re-balancing maybe once a year.
What about when the portfolio is underperforming? The FA makes less at that point. You make the false assumption that the networth of the portfolio will increase over time, clearly incorrect based on the last 5 years.
Personally, I agree that a FA should be paid a flat fee as I do in my case to eliminate incentives for secondary gain.
2. The contributions are kept at $5,000 a year. $2,000 a year average = 40% of your contributions to the FA.
When did OP say the contributions are only $5000/year? What if the contributions are 50K a year?
3. I think it's fair to pay per hour for consultation and otherwise manage your own money. It's really not that hard to manage a portfolio of 3-8 low cost funds once you've learned a little bit and done some homework. If you're willing to pay 0.5% for someone else to do the work for you, you either have too much money, or need to keep learning about fees.
Incorrect again. My FA overseas my Roth IRA/401K and my personal holdings. It's actually more like 20 different funds (8-10 each).
4. What does 'managing' entail? Sending an e-mail with returns every 3 months? If the FA is any good he/she won't fiddle with it aside from minor adjustments/re-balancing maybe once a year.
I doubt you have the tax law knowledge to manage my portfolio. Are you competent enough to liquidate an underperforming fund to offset passive income gained from rental property?
What you are failing to acknowledge is a penny saved is a penny earned. Especially for investors like myself in the highest tax bracket. It took time within my fiscal team to even decide whether Roth conversion was the right move, whether I should pay off taxes within a year or over 2, etc. I for one wouldn't be comfortable making all these decisions by myself
01-06-2011, 04:45 PM
#18
1. The FA has been managing the portfolio from $0, until it was that large, it did not start with $500,000.
What about when the portfolio is underperforming? The FA makes less at that point. You make the false assumption that the networth of the portfolio will increase over time, clearly incorrect based on the last 5 years.
Personally, I agree that a FA should be paid a flat fee as I do in my case to eliminate incentives for secondary gain.
What about when the portfolio is underperforming? The FA makes less at that point. You make the false assumption that the networth of the portfolio will increase over time, clearly incorrect based on the last 5 years.
Personally, I agree that a FA should be paid a flat fee as I do in my case to eliminate incentives for secondary gain.
3. I think it's fair to pay per hour for consultation and otherwise manage your own money. It's really not that hard to manage a portfolio of 3-8 low cost funds once you've learned a little bit and done some homework. If you're willing to pay 0.5% for someone else to do the work for you, you either have too much money, or need to keep learning about fees.
Incorrect again. My FA overseas my Roth IRA/401K and my personal holdings. It's actually more like 20 different funds (8-10 each).
Incorrect again. My FA overseas my Roth IRA/401K and my personal holdings. It's actually more like 20 different funds (8-10 each).
In any case, once you set up your portfolios, you should not be tinkering with them constantly. We both agree the FA should be paid to do the consultation/setting up of the portfolio, but we disagree on the annual percentage fee.
4. What does 'managing' entail? Sending an e-mail with returns every 3 months? If the FA is any good he/she won't fiddle with it aside from minor adjustments/re-balancing maybe once a year.
How about meeting me in person every 3 months, meeting with my corporate attorney and CPA once a year, advising on non-equity investments such as Act 221 techonology credits, alternative fuel tax deductible vehicles, etc? Your oversimplification of the whole process belittles FAs and the roles they play.
I doubt you have the tax law knowledge to manage my portfolio. Are you competent enough to liquidate an underperforming fund to offset passive income gained from rental property?
What you are failing to acknowledge is a penny saved is a penny earned. Especially for investors like myself in the highest tax bracket. It took time within my fiscal team to even decide whether Roth conversion was the right move, whether I should pay off taxes within a year or over 2, etc. I for one wouldn't be comfortable making all these decisions by myself
How about meeting me in person every 3 months, meeting with my corporate attorney and CPA once a year, advising on non-equity investments such as Act 221 techonology credits, alternative fuel tax deductible vehicles, etc? Your oversimplification of the whole process belittles FAs and the roles they play.
I doubt you have the tax law knowledge to manage my portfolio. Are you competent enough to liquidate an underperforming fund to offset passive income gained from rental property?
What you are failing to acknowledge is a penny saved is a penny earned. Especially for investors like myself in the highest tax bracket. It took time within my fiscal team to even decide whether Roth conversion was the right move, whether I should pay off taxes within a year or over 2, etc. I for one wouldn't be comfortable making all these decisions by myself
The FA is used for setting up a long-term investment portfolio.
The OP said he/she has some money and would like to begin investing. To me, that sounds like learning about the basics of investing, and meeting with a FA to set up a reasonable long-term portfolio. What does this mean? Combination of one or more of: 401k, IRAs, and taxable accounts.
What you describe in your situation goes beyond a long-term investing portfolio - immediate tax needs and business income. Aside from general information that your FA might make you aware of, such as tax deductions and credits, you have not mentioned anything you could not handle yourself worth 0.5% annually of your investments. For example, selling an under-performing fund to offset rental income. At the end of the year, look at the tax burden from your rental, compare that with the sale of the poorly performing fund, taking into account the investment loss deduction ($3,000 currently if I am not mistaken), and see if it makes sense to sell the fund to offset the taxes from the rental. Furthermore, see if you can do some tax loss harvesting on the fund, i.e. invest into a similar (but not considered a wash sale) fund to avoid fully locking in losses, and yet still have the ability to claim the deduction for the loss on the sale. In any case, just a rough example, I surely don't know all the details of your financial life.
Regardless, the point is, annual asset percentage fees of 0.5% is bad. Period. Percentage paid annually is compound interest lost. Anything that drags down your returns compounds to a lot of money over decades of time. If you pay flat fees, you take the hit immediately, but your investments can grow without the extra drag.
Also, I never said FA's are useless and I am not belittling their work. By all means use your FA if it helps your finances. However, always be mindful of the costs. Education is also key. Even if you are not comfortable in dealing with some of your financial issues, you should always know enough about investments, taxes, etc. to be able to see what exact value your FA is delivering for you. Not to mention that knowledge of the financial issues will help you know what is happening with your finances, and whether your FA is doing a good job.
01-06-2011, 06:24 PM
#19
First, let's start off with the assumption I am making based on this thread:
The FA is used for setting up a long-term investment portfolio.
The OP said he/she has some money and would like to begin investing. To me, that sounds like learning about the basics of investing, and meeting with a FA to set up a reasonable long-term portfolio. What does this mean? Combination of one or more of: 401k, IRAs, and taxable accounts.
What you describe in your situation goes beyond a long-term investing portfolio - immediate tax needs and business income. Aside from general information that your FA might make you aware of, such as tax deductions and credits, you have not mentioned anything you could not handle yourself worth 0.5% annually of your investments. For example, selling an under-performing fund to offset rental income. At the end of the year, look at the tax burden from your rental, compare that with the sale of the poorly performing fund, taking into account the investment loss deduction ($3,000 currently if I am not mistaken), and see if it makes sense to sell the fund to offset the taxes from the rental. Furthermore, see if you can do some tax loss harvesting on the fund, i.e. invest into a similar (but not considered a wash sale) fund to avoid fully locking in losses, and yet still have the ability to claim the deduction for the loss on the sale. In any case, just a rough example, I surely don't know all the details of your financial life.
Regardless, the point is, annual asset percentage fees of 0.5% is bad. Period. Percentage paid annually is compound interest lost. Anything that drags down your returns compounds to a lot of money over decades of time. If you pay flat fees, you take the hit immediately, but your investments can grow without the extra drag.
Also, I never said FA's are useless and I am not belittling their work. By all means use your FA if it helps your finances. However, always be mindful of the costs. Education is also key. Even if you are not comfortable in dealing with some of your financial issues, you should always know enough about investments, taxes, etc. to be able to see what exact value your FA is delivering for you. Not to mention that knowledge of the financial issues will help you know what is happening with your finances, and whether your FA is doing a good job.
Sound advice dmikon.
Terry
01-06-2011, 07:12 PM
#21
01-06-2011, 07:17 PM
#22
Suzuka Master
01-07-2011, 03:11 PM
#24
I can't promise that you'll learn something from it because I don't know what you already know. However, I can promise you it is a good book 
.
Main reason I recommend it, aside from the general knowledge it presents, is that it is not speculative. Most investing books you come across try to pitch the author's investing strategy, hailing it as the way to riches. This book focuses on solid fundamental long-term growth of wealth, backed by research and academic studies. There is zero speculation, zero stock recommendations, zero chasing of hot trends.
If you follow the advice given, you are practically guaranteed to outperform the vast majority of your peers. In fact, there was never a long period of time when the investing principles of this book failed to do just that.
In any case, hope you like it.
.Main reason I recommend it, aside from the general knowledge it presents, is that it is not speculative. Most investing books you come across try to pitch the author's investing strategy, hailing it as the way to riches. This book focuses on solid fundamental long-term growth of wealth, backed by research and academic studies. There is zero speculation, zero stock recommendations, zero chasing of hot trends.
If you follow the advice given, you are practically guaranteed to outperform the vast majority of your peers. In fact, there was never a long period of time when the investing principles of this book failed to do just that.
In any case, hope you like it.
01-08-2011, 03:38 PM
#25
Fearless DIY Guy
Thread Starter
iTrader: (2)
I'm about half-way through, I was quite happy to read that I'm doing everything correct, save the investing wisely portion of this. 
Really great read thus far.
I've been doing some more research, and from everything I've gathered at present, an FA is really not going to do a whole lot that you cannot do on your own, and perhaps cause more harm then good (as dmkion pointed out)
The other thing I need to figure out is the proper ratios of savings, retirement savings, and 'fun' money...seems like I need some time with a CPA more than an FA right now.
To all those whom have contributed in this thread, thanks - it's been highly informative!
Really great read thus far.I've been doing some more research, and from everything I've gathered at present, an FA is really not going to do a whole lot that you cannot do on your own, and perhaps cause more harm then good (as dmkion pointed out)
The other thing I need to figure out is the proper ratios of savings, retirement savings, and 'fun' money...seems like I need some time with a CPA more than an FA right now.
To all those whom have contributed in this thread, thanks - it's been highly informative!
01-14-2011, 11:48 AM
#26
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check out www.bogleheads.org
a lot of good info and a bit intimidating b/c of the amount of wealth there.
a lot of good info and a bit intimidating b/c of the amount of wealth there.
01-14-2011, 01:00 PM
#27
Suzuka Master
At the end of last month, I invested in a solar energy company that got a big contract to do military housing here. Basically, I get $1.8 return on $1 invested through state income tax credit, federal and state energy credit which I can apply for 2011. I had to raise a big chunk of cash but looks like a sound investment.
01-14-2011, 04:30 PM
#28
check out www.bogleheads.org
a lot of good info and a bit intimidating b/c of the amount of wealth there.
a lot of good info and a bit intimidating b/c of the amount of wealth there.
01-14-2011, 07:14 PM
#29
Yup, I've been actively posting on bogleheads.org for a while. I actually found out about the forum before I even knew about the book. By far the best online personal finance community.
There are quite a few "famous", relatively speaking, posters on there as well. Financial authors, known CFAs, Morningstar columnists, etc. Would recommend the site for anyone - it's pretty much a natural extension of the book I recommended earlier. The authors of the Bogleheads' Guide to Investing are regular contributors and moderators of the forum. Pretty cool to be able to read a book, and then ask the author(s) a question.
There are quite a few "famous", relatively speaking, posters on there as well. Financial authors, known CFAs, Morningstar columnists, etc. Would recommend the site for anyone - it's pretty much a natural extension of the book I recommended earlier. The authors of the Bogleheads' Guide to Investing are regular contributors and moderators of the forum. Pretty cool to be able to read a book, and then ask the author(s) a question.
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