Jump to content


Photo

How To Find The Right Financial Pro


  • Please log in to reply
51 replies to this topic

#16 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 01 August 2014 - 11:47 AM

Dave,

What do you think the future of the adviser/client relationship might evolve too?

Steve


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#17 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 06 August 2015 - 07:21 AM

I was re-reading this discussion (Its gotten almost 4,700 views in the last year!).

 

I think it’s needed discussion about changing the dynamics of the relationship of clients and financial advisers. Dave said above that we hire a plumber to do a job we are ill-equipped to do ourselves--I took exception by talking about what I did when our plumber came to change a faucet in which I am ill-equipped to do myself. HOWEVER, just because I am not a professional plumber (see previous post when I answer Dave's plumber example), we can take some responsibility for our plumbing and used it as an example for our finances too.

I find this issue controversial with professionals as they see clients who want no responsibility at all. I agree that most people who do not want to take responsibility as those folks who want to do nothing to prevent another water pipe leak, in the plumber example. Those folks are going to pay a lot even for a fiduciary financial adviser, including Dave, and pay for an expensive water damage bill and all of that hassle. A 1.0% AUM plus the investments is a huge price even for fiduciaries. That’s why people need to insist that all they want is for the adviser to look at their portfolio once or twice a year and pay the adviser's hourly fee. But the caveat is that people have to take more responsibility.

I think people who find this site or email the webmaster a question want to take more responsibility and they should be able to find what they are looking for, somebody who might try and help them learn the basics, and only pay the hourly fee.

I wrote a blog piece almost a year ago and called it "Did Garrett Planning Network Pass the Smell Test? and have gotten hundreds of views. Just like this discussion thread, it’s the most viewed post I wrote. It’s about an LAUSD teacher who called a fee only financial adviser in the Los Angeles area and was turned away! He already had a plan and wanted the adviser to look it over. He was already taking responsibility! You would think advisers would love the fact that some of their clients want to learn. Here is the entire story:http://latebloomerwe...-the-smell-test


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#18 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 07 August 2015 - 08:25 PM

Dave or anybody else,

 

I was wondering if you could comment on this table. This only applies to LAUSD 457b plan, the Award Winning Plan. It shows the costs if an employee were to also hire a fee only adviser that also charges an AUM. I know you don't charge AUMs but a retainer. Still as you can see with an AUM of 1.0% plus all of the other charges that the plan costs, the fees add up. The red data shows .75% and 1.00% AUM.

 

NOTICE TO LAUSD employees: The plan does not have nor charge fee only advisers. I created this table for illustrative purposes only to give you (and myself) an idea of just how high the cost of hiring a fiduciary adviser can get!

457_b_Fee_only_adviser_AUM_fees.png
 


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#19 davegrant82

davegrant82
  • Members
  • 80 posts
  • Gender:Male
  • Location:Cary, IL

Posted 09 August 2015 - 03:38 PM

Just so everyone knows, I'm not ignoring Steve. I'm headed out on vacation tomorrow so will post a response when I return.



#20 davegrant82

davegrant82
  • Members
  • 80 posts
  • Gender:Male
  • Location:Cary, IL

Posted 13 August 2015 - 02:06 PM

Steve - taking some time to catch up on writing while sat by the lake.

 

I have many clients and friends who are jealous of the fund choices and overall fees that are outlined in the table above. Many of them don't have these options, and are limited to using insurance companies, with limited (and often expensive) investment choices. The all-in cost for these plans, with no advice from an advisor, can be over 3% of their account balance per year.

 

Looking at your table, all of the investments are great choices, with very reaonsable fees. If someone were knowledgable about investments, it would not be hard to choose an appropriate allocation and not pay much for it. But if someone doesn't have the knowledge - and has no desire in attaining it - even if they were to hire an advisor who charges a 1% AUM fee, they are still better served than if they were to select an inapproariate allocation and spending less money than using an insurance annuity. By choosing an innappropriate allocation, they could be giving up 2-4% in return per year, and by using an expensive annuity with poor investment choices, it could be even more. Paying 1% for advice seems to be the cheapest, and most valuable, option at this point.

 

I think it's important to remember that in choosing a fiduciary advisor, you are getting the most unconflicted advice. But that doesn't mean it will be the cheapest advice. It's at that point you have to understand what you want - do you want the best advice but are willing to pay more for it, or do you want to "wade through the weeds" and find the advice that could be conflicted but may be cheaper.



#21 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 13 August 2015 - 09:18 PM

Steve - taking some time to catch up on writing while sat by the lake.

 

I have many clients and friends who are jealous of the fund choices and overall fees that are outlined in the table above. Many of them don't have these options, and are limited to using insurance companies, with limited (and often expensive) investment choices. The all-in cost for these plans, with no advice from an advisor, can be over 3% of their account balance per year.

 

Looking at your table, all of the investments are great choices, with very reaonsable fees. If someone were knowledgable about investments, it would not be hard to choose an appropriate allocation and not pay much for it. But if someone doesn't have the knowledge - and has no desire in attaining it - even if they were to hire an advisor who charges a 1% AUM fee, they are still better served than if they were to select an in approariate allocation and spending less money than using an insurance annuity. By choosing an innappropriate allocation, they could be giving up 2-4% in return per year, and by using an expensive annuity with poor investment choices, it could be even more. Paying 1% for advice seems to be the cheapest, and most valuable, option at this point.

 

I think it's important to remember that in choosing a fiduciary advisor, you are getting the most unconflicted advice. But that doesn't mean it will be the cheapest advice. It's at that point you have to understand what you want - do you want the best advice but are willing to pay more for it, or do you want to "wade through the weeds" and find the advice that could be conflicted but may be cheaper.

 


Hi Dave,

Thanks for the comment. No fee only genuine fiduciary and knowledgeable teachers here would disagree with your statement: "I think it's important to remember that in choosing a fiduciary advisor, you are getting the most unconflicted advice. But that doesn't mean it will be the cheapest advice." (genuine fiduciary is defined as an adviser AND his or her supervisor who BOTH sign fiduciary oaths--a simple oath can be downloaded here)

The cheapest fiduciary non conflicted advice is either from Vanguard or TIAA CREF because they do not sell conflicted products. But the problem is that people have to know the basics to take advantage of  these two great low-cost companies and save a bundle of money for advise. Clients have to be "do it yourselves." You point out correctly that most need assistance. 

 

I have known what I wanted for over a decade, and I think it could help people. My question: At what cost does using any tax deferred retirement plan from an employer is so high that it renders the power of the tax deferred benefit mute? In other words, fiduciary or not, if the advisory cost is high enough, by the time the client pays the taxes in retirement, what actually gets in their pocket is less than if the client just invested in a low cost after tax investment portfolio. The stock market only pays returns and dividends up to 9.5% over long periods of time. By the time inflation, taxes and the costs of investments, employer TPA and 1.0% AUM take its toll, the client may end up losing money. The capitalistic system simply cannot pay enough for all to make money and for the client to pay taxes, costs, keep pace or beat inflation and end up better off than not using the tax deferred benefit. I asked that question everywhere on the web including the Bogleheads. With all of the computing firepower that the brilliant quants have at their disposal, nobody knows, cares or has done the calculation. Its an empirical question that has an empirical answer.

 

Examining the costs of our 457b plan above, the average total cost of all the funds when paying a fiduciary advisory 1.0% AUM is 1.7%. .75% AUM average cost is 1.4% and the .50% AUM is 1.1%.

 

In my amateur investigation, I came up with about 1.1% from the excel program on this website (https://docs.zoho.co...411b243fd7a923a). Costs over 1.1% are so high the tax deferred benefit may not be as beneficial as it should be. It would be more beneficial to hire a fiduciary and begin an after tax portfolio plan because of the fees that the employer's TPA. In the districts 457b plan the TPA charges .37% and that's too high if one were to pay either .75% or 1.0% AUM.

 

My results suggest that the highest a client can pay while still benefiting would be .50% AUM. Anything higher would put their money at risk for losing to costs of inflation, investment costs, TPA costs and taxes.

 

Steve


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#22 davegrant82

davegrant82
  • Members
  • 80 posts
  • Gender:Male
  • Location:Cary, IL

Posted 14 August 2015 - 09:29 AM

By definition, a Vanguard advisor is not a fiduciary. They are still a salesman of products, but their products are good. Vanguard could implement a 3% cost annuity, remove all others, not change their structure and it would be obvious they are not a fiduciary. While they are not technicially a fiduciary, they only sell good products so they are a "fiduciary" by default.

 

I think your question is a good one, but with so many variables it would be hard to place a definitive answer on it. Tax situations change by family and state taxes vary when it comes to drawing retirement income, to name a couple. Putting one empirical answer on your question would require a lot of caveats! For example you couldn't review whether the tax-deferred plan would be beneficial just looking at the AUM fee, when comparing someone in a 10% tax bracket versus a 39.6% tax bracket. Even if the later didn't receive a high return, the current savings they would receive on avoid income taxation is very high. If they were then to drop into the 15% tax bracket in retirement, their instant savings/return has been 24.6%, without factoring in any type of investment rate of return. Is this scenario typical? Not really, but that doesn't mean it doesn't happen.

 

In your last comment, when you say "the highest a client can still pay while still benefiting" focuses solely on the financial benefits of AUM. It doesn't look at the time savings of having someone manage the account versus doing it yourself, the peace of mind of having a professional involved, or the knowledge that someone is taking care of things for you. While this may not be a benefit to you as you are well versed in this area, someone may find that paying 0.5% extra in AUM fee is well worth the cost.

 

You've done LAUSD agreat service with all of this analysis and pushing for better options. Much respect!

 

Dave



#23 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 15 August 2015 - 08:14 AM

I have been doing a lot of thinking about costs over the years, since I paid dearly for horrible plans and rip off annuities. I want people to understand that even in low cost plans and hiring a fiduciary financial adviser can be costly if you are not paying attention. I shutter to think what people are paying in reality!

 

Below is a best case scenario and it is a bit unorganized. This is where a professional could help, but nobody has shown up to clear up my amateurish analysis to answer my question. So I tried. 

 

Thank you, Dave, for acknowledge that my question, "At what cost does using any tax deferred retirement plan from an employer is so high that it renders the power of the tax deferred benefit mute?" is a good one. I'll say! Let me repeat, the financial system does not return enough to cover all of the go-betweens: ordinary income taxes of deferred plans, inflation (a huge issue!), cost of the third party administrator of the company to record keep the 401k, 403b, or 457b plans, and then the cost of hiring a fiduciary financial adviser paid by the hour and AUM costs, up to 1.0% (or as you charge, Dave, by retainer). 

 

Lets break down the costs and add them up using my chart from our very low cost LAUSD 457b plan as an example:

3.1% inflation

+ .37% (our TPA TIAA CREF fee on our 457b plan)

+ .05% (Vanguard S&P 500 Index, from the chart above showing our 457b investment costs)

+ 1.0% AUM (fiduciary adviser)

+ (perhaps an hourly fee $250)

4.25% so far. And this is a very reasonable cost plan. What we don't know is how much taxes will be paid in retirement. We know that ordinary income taxes will have to be paid, not capital gains, which is lower in after tax account.

 

The system return over decades about 9.5%. More than half of the returns are lost to costs and taxes (TBD), even though our plan is an award winning low cost plan.

 

Obviously this is not a workable plan because investing only in the S&P 500 index is not a broadly diversified stock and bond portfolio! But just trying to call attention to all of the potential costs of a low cost plan and hiring a fiduciary financial adviser.

 

I believe those folks who learned to do this themselves are extremely lucky! The cost are significantly lower. 1% is a lot of money over time that DIY can enjoy.

 

Below is an analysis I did using the zoho excel program. I ran a few assumptions and here are the results:

 

 

Cost_Analysis_of_taxable_vs_tax_deferred
 

Don't try and interpret the results until you have played with the spreadsheet. It is confusing at first.

However, the clearest and easiest take away from this spreadsheet is the Roth IRA! Wow! If an investor can DIY and invest in a low cost ETF or index fund they will be way ahead of tax deferred retirement plans. Look at "Cost: .75%" Even at the extremely low cost plan, the Roth IRA is 19% better than any of the tax deferred plans because no taxes on capital gains! For starters, invest in Roth from the beginning of your career! And if your total costs are .75%,  the tax-deferred plans are better than both the non-deductible IRA and taxable accounts.

 

Steve


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#24 shirley

shirley
  • Members
  • 125 posts

Posted 15 August 2015 - 06:40 PM

Steve,

Don't overlook the value of eliminating the RMD's!!!! Bob

#25 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 17 August 2015 - 08:51 PM

Bob, are you talking about converting IRAs to Roths? Otherwise I don't know how you eliminate RMDs.


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#26 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 17 August 2015 - 08:57 PM

Listen to Ron deLegge examine an $800,000 portfolio (https://www.youtube....campaign=buffer . The couple are paying 1.0% for advice and their average investment costs were .90%. This adds up to almost 2.0% costs! Yikes, that is way too high. Plus, the portfolio was not diversified and the portfolio had sub-par performance.

 

This happens all to frequently and is counter intuitive to the cliche from the pros, that "you get what you pay for."

 

We need to pay attention to how portfolios are constructed with low cost funds and then hire a fiduciary you pay by the hour and have him or her help you stay the course. So many brokers and agents are not investment skilled. We need to be skilled and let the adviser help with the emotions of investing.

2 cents


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#27 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 18 August 2015 - 08:36 AM

Not sure if this will address Bob's comment above.

Here is a RMD worksheet found by our long time 403b fighter Ted Leber: http://www.irs.gov/p..._rmd_wksht.pdf


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#28 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 31 August 2015 - 08:51 AM

Paul Merriman discusses the complexity of hiring a financial professional that genuinely looks out for our best interests.

 

Paul writes in his introduction his answer to this frequent question from investors: “Where can I get the best, most unbiased financial advice?” This is one of the most common questions from investors. But, Paul asks, do we really want unbiased advice?  How do we tell if the advice is in our best interest, or that of the salesperson? Will we follow it and, most importantly, have peace of mind? Exploring different aspects of the question of investment advice, Paul returns to the importance of learning how investing works in your best interest."

 

The complexity remains something like this: When an investor discovers for himself or herself the basics of a low cost, diversified portfolio covering the major asset classes worldwide, using a passive-indexed strategy, said investor has the best possiblity of knowing in an instant that the advice he or she is getting is biased to the investor's best interest. But, is it that simple? Yes, its simple but difficult for many people to do.

 

Paul says its the wrong question because there is no such thing as unbiased advice!

Paul explains why in this brilliant podcast. Its long, but its SOOOOOOOOOOO good! .

 

Padcast: http://paulmerriman....nancial-advice/

 

Tip for those that do not have time. I hate listening or watching anything from my computer: download it on your iPhone or android and listen to it while commuting or at the gym.


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#29 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 06 April 2016 - 10:31 AM

Sheryl Garrett is the "Right Financial Pro." Here's why.

 

The most popular blog posts I have written was a story of a LAUSD teacher who was rejected because the Garrett Planning Network adviser told him that "a lot of planners do not like the hourly fee." I asked Sheryl what she did with this "adviser" since that unethical comment is totally against the Garrett Planning Networks mission.

 

Original Story: http://latebloomerwe...the-smell-test/

Follow up message from Sheryl: http://latebloomerwe...or-of-advisers/

 

Stories of clients complaining about unethical adviser behavior are extremely rare. Please, PLEASE report any less than positive experience to Garrett Planning Networks, National Association of Personal Financial advisers, post your story here or send a private message Dan, webmaster here or me: www.latebloomerwealth.com and we can keep it anonymous.

 

These types of stories do two things:

1. These stories help get rid of the advisers who are not following the fee only mission of both Garrett Planning Networks or National Association of Personal Financial Advisers.

2: If you have a problem finding a fee only adviser, you will get an adviser by talking with Garrett Planning Network or the National Association of Personal Financial Advisers' staff directly. They are very accessible as I have called these organizations and got a real person each time.

 

Thus, the reporting procedure is a lot less complicated than trying to report an insurance agent through your state insurance commissioner's office! Good luck with that. 


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#30 sschullo

sschullo
  • Members
  • 4,306 posts
  • Gender:Male

Posted 15 February 2017 - 08:27 PM

UPDATE ON THE CONTINUING struggle with finding a financial adviser that is both reasonable and a fiduciary, and with becoming a DIY (do it yourself). Paying a fiduciary adviser is getting grim not because of the standards or the financial adviser, it's their costs. When you add it all up, it is still costly.  

 

Excellent Morningstar article on the major issues of the new DOL proposed fiduciary rules. However, there is good news and not so good news.

 

Good news: The commission-based model of selling and using the lower standard of "suitability" will be replaced with the Assets Under Management (AUM) model fiduciary standard of looking out for the best interests of clients.

Bad news: According to the article the AUM model of 1.0% going to cost clients more over ten years than the front-end commissioned based models (one caveat is that the commission based investments must have low annual expense ratios, such as American Funds). And according to the article, the industry knows they can make more money with the AUM model!  

 

It goes back to my point of putting all of the fees, taxes, inflation rate AND the 1.0% AUM is going to take a hefty chunk of your portfolio over time. 

Here is my example of what's at stake even with a low-cost plan: 

 

3.1% inflation

+ .25% (our TPA VOYA fee on our very low-cost 457b plan)

+ .05% (Vanguard S&P 500 Index, in our Award Winning LAUSD's 457b)

+ 1.0% AUM (fiduciary adviser)

+ (perhaps an hourly fee $250)

4.4% not counting ordinary income taxes that have to be paid upon withdrawal.

 

4.4% + taxes + higher expense ratio mutual funds. This is huge with a low-cost investment. Add on another 1.0% for a typical mutual fund that a fiduciary adviser is free to do, as long as it doesn't have a commission. 

 

PLAN A: The primary answer is to manage your money yourself by using indexing or the passive strategy. Portfolio construction is not difficult or complicated--it's sticking with your plan that's VERY difficult (see my portfolio: http://board.403bwis...?showtopic=6382)

Answer: Hire an adviser by the hour ONLY, help you stick with your low cost diversified boring portfolio when the market gets shaky or when its time to rebalance, and you will be just fine or PLAN B: hire a fee-only FA for a couple of years for one-on-one "tutoring", so you can learn to be a DIYer, and go on your on.   

 

M* article: http://news.morningstar.com/articlenet/article.aspx?id=780184#cpage=1 

 

The responses to the article are from the anti-government crowd who think they are h ot - sh ot active manager type investors or from the industry. Their comments are hilarious! 


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)