Should the average investor use an investment advisor? I used to think no, but now I would say yes.
I thought no because investing well isn’t that hard on the surface. In its simplest form, you invest in a Vanguard Target Retirement fund closest to the year you will retire. Done deal.
If you can’t invest in a Vanguard Target Retirement fund because it’s not in your 401k, you can mimic it. Look at how much it invests in stocks versus bonds, and how much in the US versus international. You will end up with three mutual funds in your 401k: a US stock fund, an international stock fund, and a bond fund, like this:
How hard can it be?
However, the average investors don’t invest that way. My co-workers sitting next to me sometimes talk about their stocks. They talk about when they bought this or that stock and whether it’s time to sell. When I went camping with a group of people, a woman told the group around the camp fire she switched everything in her 401k account to money market because she thought a crash was coming.
If you ask random people at your workplace “what’s your asset allocation for your retirement?” How many do you think will be able to tell you? If you get to see the investments in their 401k and IRAs, what percentage do you think have a risk-appropriate portfolio that’s within plus or minus 10 percentage points of a Vanguard Target Retirement fund?
These average investors will be better off if they use an investment advisor. Not just any random investment advisor, but a good one at an affordable price.
That’s the other hurdle of using an investment advisor. If you don’t know where to go, it’s very easy to find a salesperson as an investment advisor. You can’t just go by who appear to be knowledgeable and trust-worthy. When you don’t know much, a good salesperson who talk a good talk will appear to be knowledgeable and trust-worthy. Their training makes them master the art of making you trust them.
You can use a robo-advisor such as Betterment or a human-robo hybrid service such as Vanguard Personal Advisor Services or Schwab Intelligent Advisory. Fees run in the neighborhood of 0.25% – 0.3%. The problem is their computers are a little too quick in coming up with a recommended allocation, based on very limited inputs. The number of questions asked before they return a recommendation is as few as two! Computers are fast and efficient but I don’t think they can know things they don’t ask.
The best model is to use an advisor who only provides advice (“advice-only”). You then take the advice and follow it. See Advice-Only: The Best Model For Financial Advice People Need And Want. If you don’t know where to find this type of advisors, I can help. See Find Advice-Only Financial Advisors.
Although most don’t like to admit, it’s very easy to be overconfident in one’s ability to resist behavioral mistakes. The hidden cost of such behavior can be many times the fees we pay to an advisor. I think most investors will be better off if they get advice from an advisor. Only the advisor has to be advice-only.
[Photo credit: Flickr user SalFalko]
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Dennis J Liverett says
As an advisor who works on commission, I agree with many of the comments already made. Most clients are simply too busy living life and earning their savings to set aside yet another block of time to devote to their financial education. And that is not anything to be shameful of. There is a lot of information, good and bad, out there. For the average saver to be on top of it and have the knowledge and experience to filter it is to ask alot! Not to mention, when you need the answer to a question, a highly individualized, specific question, based on your circumstances, you don’t have time to search for the answer – call your advisor. Again, most people have good intentions and want to do the right thing – when? During lunch, between homework and showers and getting the kids to bed, and cutting the grass, etc etc. And I agree with Ev Luecke – its a personal choice and price doesn’t always define the relationship. Find an advisor you feel comfortable with, who has a good reputation in the community. Dennis J Liverett
Dennis J Liverett says
I should add, my “commission” is never on the front, and I earn every bit of it on the back-end. DJL
pippy says
@TFB: Thank you for a good analysis. After all of the discussion have you decided to use an advisor? If so, can you say which one and why? Thanks.
Munir says
I’m not sure if this last comment from Pippy was directed to me or not, but I did decide to use Bill Schultheis of the “New Coffeehouse Investor”. I had heard about Bill and read his book and his comments on the Boglehead Forum. He has been recommended by a number of people whose opinion I respect. He follows the low-cost, passive, and index philosophy of investing. He was described by more than one person as a “standup” guy.
As to cost, I will not presume to classify him in any one group. He has an AUM arrangement and I would have preferred a fixed fee, but I relaized I’m not going to get everything I want. He has partners & associates which was reassuring as far as succession is concerned. I appreciated the phone interview I had with him. I felt we clicked- an important characterisitc that I was looking for. In my situation, where I also need someone to connect with my widow after I “pass on”, I felt he would be a good fit. These were the main reasons I didn’t just choose the lowest-cost advisor.
To sum it up, the factors that mattered were philosophy of investing, size of advisor group, cost, and maybe most importantly that I felt we would be a good team together. One last factor, which may seem silly to some, is that he is from the Northwest and from an adjoining state (I’m from Oregon).
Harry Sit says
@pippy – As to me, I decided to get a financial plan from Vanguard first to see if I’m on track toward my retirement goal.
V5 says
@TFB — Can you let us know how it goes once you get your plan from Vanguard?
Karan Batra says
How can I find an Investment Expert who does not charge a Fixed Fee?
As in I’m looking for an Investment Expert to whom I can pay percentage of profits, in case their is any and no fee in case of loss. Are there such Investment Experts who are willing to work on these Terms ?
DIY Investor says
@Karin You may want to find someone who will work with you on an hourly basis. The problem with sharing profits is that it creates an incentive to take inordinate risk. Give me $500,000. If i double it by putting it in risky investments I hit a home run. If I lose it all it would be no big deal – from my viewpoint.
The regulators recognize this and frown on it. You can of course, if you have enough, go the hedge fund route. I personally would review the story of Long Term Capital Management before I did that.
Diane says
No one has commented on this subject for eight months – is anyone still watching? I have comments but don’t want to send them to no one!
Harry Sit says
Diane – I wrote the article. I watch all new comments.
pippy says
@tfb: It’s been a few months and I was wondering if you were happy with the Vanguard Plan or have decided to use an advisor. If you’ve chosen an advisor can you share which one and why in general terms.
I have been using a “low fee” advisor for about 5 years but am not particularly happy with the situation. I retired early (mid 50s) and have a somewhat atypical split between taxable (75%) and tax deferred (25%) assets. My priorities are net income after taxes and fees, capital preservation and modest growth. The advisor is not pro-active. Yes, I get the quarterly report but it is just numbers and an overall market commentary, nothing specific to my situation. I already know all the numbers from Quicken. My desire is to find an advisor who “earns their keep” so to speak. I am not hung up on the % of compensation as much as the net returns and service provided. Any guidance is welcome.
Ev Luecke says
I was surprised when this topic popped up in my email. I’m not TFB, but will comment.
Interesting you noted your experience with a low cost advisor – not that its right or wrong, good or bad. Reinforces my view that chosing an advisor is a very personal thing – none can be all things to all people, What one person see’s as value added, the next sees it as unnecessary cost. Further, one person that is very pleased with a particular advisor low cost, or higer cost – the next might not be satisfied.
I might suggest make a short list of fee-only advisors you might be interested in and interview them with well thought out expectations, etc.
Perhaps of help – Larry Swedroe has written on principles for selecting an advisor:
http://www.cbsnews.com/8301-505123_162-37840505/11-principles-for-selecting-an-advisor/
Ev
Steve says
I haven’t used an adviser for over 20 years since my last two only sold me annuities for my 403b plans. After a $6000 surrender fee, I have learned to invest myself and have never looked back. The skills to find a truly fiduciary adviser are the identical skills to be a DIY. Why should I pay somebody else to find a low cost index fund? In that situation, a good adviser can help people stick with their plan should the market start acting up (or down).
pippy says
Thanks Ev. You are certainly right about everyone having different priorities. I’ve followed Larry Swedroe on the Bogleheads forum for years and his list is a good starting point. Having used a passive oriented advisor and an active oriented advisor in the past I have seen quite a spectrum. My experience is that the advisors I have spoken with all seem to have their recommended portfolio for everyone and simply change the allocations. That does not seem appropriate as all situations are different, but when you have a hammer everything looks like a nail.
Another challenge these days is balancing the advisor fees vs. portfolio return, particularly when the investments are one’s sole source of income. If a portfolio were earning 8%, a 1% management fee is effectively a 12.5% hit to gross return but with returns these days at 4% or less that same 1% fee eats up 25%+ gross returns. Passive investing preaches keeping costs low yet passive advisors’ management fees are typically more than that of the investments they recommend. Maybe it is me but this does not seem right.
Anyway I’m going to start my list of interview questions. Thanks again for your feedback.
Ev Luecke says
You hit the nail Pippi –
“Another challenge these days is balancing the advisor fees vs. portfolio return”
To me doesn’t matter if someone is retired trying to generate portfolio income or still working – its still huge question.
I wrestled with this time and time again – even after I was working with my advisor. After a couple yrs. I shopped/considered getting a low cost advisor – spoke with 3. One wanted to sell my entire portfolio and start completely over, one was a fixed portfolio that you chose one that fit your risk profile, the other I can’t remember what the concern was.
Finally decided if its not broke for me leave it alone. Different things have helped me that the advisor has provided beyond the actual investments.
One big example – I will get a teacher retirement pension – I had several years in the system that I could buy back – it never dawned on me that it could be in my best interest to purchase these years. Advisor spent considerable time contacting the retirement system gathering the info – and calculating if I would be better off continuing to invest that amt. or buying the years. Bottom line it would have been foolish for me not to buy these years of pension credit. They completed the paperwork and facilitated the transfer of funds. They also did some research on the financial stability of my pension system.
The advisor initiated all of this – it wasn’t me questioning anything.
The point – the effort will be more money in my pocket with no risk. This was the emphasis – I could probably make a little more but would take a lot more risk.
I’ve also gotten hand-holding on a variety of other things – that either helped me save some money, or reassured me on one thing or another.
Should note – I am single and really don’t have anyone knowledgeable to work thru / figure out some of the different financial issues. Decided for ME preventing a few mistakes has the potential to pay for the advisor fee.
Good luck – again, its very individual. If I had the financial “know-how” and confidence to do it myself I would. In fact I did manage my financial stuff / portfolio myself for many, many years and did fine (I think) – near to retirement I can’t afford to make mistakes – so I have the advisor.
Ev
Harry Sit says
@pippy – I have not used Vanguard’s financial planning service yet. I’m hoping to get my asset level up soon to reach the next tier so the service will be free.
Nony Mas says
TFB– It’s been a half dozen years or so but I wasn’t all that impressed with Vanguard’s financial planning service. The planner seemed competent and all but it was fairly evident to me that it was pretty much a computer program that was making the recommendations and with limited options and it wasn’t much different than a portfolio one could have recommended by Bogleheads. It was free for me so I can’t complain but I really didn’t consider it “financial planning” in the true sense of the word.
Pippy said: “Passive investing preaches keeping costs low yet passive advisors’ management fees are typically more than that of the investments they recommend. Maybe it is me but this does not seem right.” Advisor fees are all over the map even with passive managers. I happen to believe the DFA premium argument and that pays my advisor fees. There are several recent Boglehead threads about picking an advisor. I’ve had experience with a half dozen advisors over the years (some were before I decided to go the passive route), all but two were AUM fee schedule and the one I have now, which I can highly recommend–Cardiff Park Advisors–is fixed fee, the lowest cost and yet has the best service, fewest errors, best communication and response time of any advisor I’ve ever had.
pippy says
@Nony Mas: Are you still in accumulation phase or distribution phase (retirement as my situation descried above)? I ask because my observation is that one needs a different approach in distribution. Firstly, I could fill my tax deferred accounts with bonds and that would not come anywhere close to filling my fixed income allocation. Second, I need reliable, spendable income on a monthly / annual basis. The notion that one sells equities in your taxable portfolio to generate cash doesn’t work so well when the market behaves how is has for the last several years. For example, equities could be down 30% when you need cash. While I generally agree with the passive investing approach, the studies and all are based on 30 year time horizons. As I mentioned, I need spendable income every month so predictability is important, particularly as I don’t have a pension (I don’t) or Social Security (I’m 7+ years away from that).
Can you share more about your experience with Cardiff and if you have spoken with them about structuring portfolios where income is higher priority than growth? Thanks, in advance for any insight you can provide.
Harry Sit says
@Nony Mas – Remember the post talks about the average investor. However inadequate Vanguard’s plan is, I believe it’s still better than what most people do on their own. Even if it’s a computer-generated output, there’s still a human being out there explaining, answering questions and maybe tweaking with additional inputs. Yes, people can get suggestions on the Bogleheads forum but it’s not definitive — you get many opinions, not just one you can jump into. I think for $250 at the $50k investment level, one-time or every 3-4 years, the Vanguard plan would be good enough for most people (I’ve seen many even though I haven’t got one myself yet). Most average investors will still find $1,800 a year from Cardiff Park expensive.
Nony Mas says
You make a good point about the “average” investor although I’m not sure I’d peg the level at $50K. Do you have any data? I found this but I know it includes home equity:
http://www.census.gov/compendia/statab/2012/tables/12s0721.pdf
As an older investor–and I must admit I’m thinking much more about those over 50 having enough investment assets to engage an RIA–the Cardiff fee is much less than 40 bps. I also agree with your assessment of BH advice.
Harry Sit says
@Nony Mas – The $50k number is just the cutoff where Vanguard reduces the fee for the financial plan from $1,000 to $250. Once you have $50k, I think it’s worthwhile to pay $250 for a plan. I agree Cardiff Park is a good choice for investors with $500k or more. I listed them in that category together with Evanson. FPL Capital aka financialplanning.com offers a service starting at $1,000 a year. I will add it to the middle category to join AssetBuilder.
Nony Mas says
Pippy:
I’m in the decumulation/distribution phase. My asset allocation is 25 equity/75 fixed and Cardiff and I worked that out together. What you’re speaking of is exactly what a good advisor should do. Determine your psychological/emotional risk level, determine the risk level you need to take based on your assets and how long they need to last, deal with income needed and your time horizon. The only real predictability I’m aware of is MM accounts, CDs or bonds held to maturity–one has to take some degree of risk (It’s also of huge concern to me especially in this environment with low interest rates and volatile markets. I think the most important thing a fin. adv. can do is assess how much risk you need to take with tools like Monte Carlo and others and then help you determine a portfolio that will allow you to sleep at night even when the market is trending down and not sell at the bottom and also having the knowledge and tools to rebalance, tax loss harvest and deal with asset correlation in order to further reduce the portfolio risk– two risky assets that are not correlated with each other if combined in a portfolio will have much less risk than either would alone.
I just had an extensive discussion with John Gorlow of Cardiff about small caps which have not performed well for me this year wondering whether I should reduce my exposure exactly because I probably don’t have a 30 year time frame. Go to bogleheads.org and search on Cardiff Park for more details. Also go to the CardiffPark.com website and read about the services they provide. Read the entire site but first look at the section on the front page “Full Service, Customized Solutions “
pippy says
Thanks Nony Mas. I will give John Gorlow @ Cardiff a call and re-look at the Cardiff Park postings on Bogleheads.
Nony Mas says
Another advantage of a fixed fee advisor is that you don’t have to pay a management fee for CDs, TIPS, Ibonds, etc. I know several advisors who have recommended CDs in the last year–perhaps yielding 2% or much less (.25% in the case of short-term CDs)–and then charging a management fee that eats away more than half of the interest or makes it a negative return.
Nony
shamann says
All these disparate kernels are fine& wonderful but let’s get go the bottom libe; how does one split hairs between the big name portfolio management services, eg. FIDELITY, Schwab, Smith-Barney, etc., etc. and choose one based on results?
Ev Luecke says
shamann,
Your Question arrived in my email because I had subscribed to discussion. No one else has responded so I’ll give a try. Typically the brokerage firms like Schwab, Fidelity, TD Ameritrade, etc. would be thought of as firms that would provide you a brokerage account to buy and sell things such as stocks, bonds, index funds, exchange traded funds (ETF). This discussion is centering on fee-only advisor firms that would manage your portfolio, i.e. perhaps help you define your risk tolerance, create portfolio, manage the portfolio to help you rebalance your portfolio based on your criteria, perhaps help with tax loss harvesting and so on. They would be considered as a wealth management or portfolio management service company.
To decide which of the brokerage firms you might want to open account with Schwab, Fidelity, etc. you could start with some of the various rankings like this one – there are others but this will give you an idea of services and help you decide one over the other:
http://www.kiplinger.com/magazine/archives/the-best-of-the-online-brokers-for-2011.html
How to select an investment advisor (wealth management firm) here are some criteria that might be helpful:
(from Larry Swedroe – Director of Research for Buckingham Asset Management a fee-only investment advisor service)
http://seekingalpha.com/author/larry-swedroe/comments/18
With all that said one of those brokerage service you recommended Smith Barney is considered a full-service brokerage that will gladly manage your portfolio – however, if wanting to consider a passive investing approach they will discourage you and the focus will be buying and selling a portfolio of expensive mutual funds or individual stocks / bonds.
If you could be a little more specific in regard to want you wish to accomplish I or someone could address your question better.
Its really not about splitting hairs – but rather what is it you want to do?
Ev Luecke
JN says
Sorry for starting up this thread once again but I found this thread interesting. It talks about the search for advisors, but where did people look for the advisor?
I think it would be good to revisit the idea of where do people find the advisors they are working with. It seems, from interviewing 2-3 different firms that most of the ones I’ve been able to find are fee-only AUM. Not necessarily a bad thing, several are also RIA, again not a bad thing. The problem I have is that they want you to hand over control of the assets to them to manage. The idea that they will sell stuff and leave me with capital gains at tax time is not something that i could bear (assuming there are gains). Perhaps I’ve been looking in the wrong place for the kind of advisor I think I want, essentially someone who could provide a second opinion and is not afraid to talk about individual stocks or mutual funds or bonds. Sounds kind of like the Vanguard opportunity, but who else is out there with similar programs? If I found an advisor I liked perhaps I’d even migrate to an AUM client, once they have become trusted, who knows…
So, where to find those advisors who will do the second opinion. Thoughts? Perhaps another blog topic?
Harry says
JN – I’m intrigued by the advice-only service offered by Dylan Ross, CFP of Swan Financial Planning. One-time $250 and then $40 per month, cancel anytime. You manage the assets and you just get your questions answered.
Some people just don’t want to deal with managing money at all or they are convinced by the advisor it’s too complex for them to handle themselves. I think that’s a very expensive way to hire help. Retaining an advisor only for questions makes a lot of sense. I wish more advisors offer this type of service. They don’t because they can charge more when they manage your assets and the revenue automatically grows every year as assets grow!
Ether says
Note that as of this week Portfolio Solutions has raised their fee from .25% to .37% for AUM of less than $3 million. For amounts greater than that, the fee is .20%. I plan to investigate Buckingham and Cardifff Park as soon as time allows.
Wolfpackjack says
I use Portfolio Solutions and am not thrilled by the nearly 50% increase in their fee although they are still one of the lowest cost investment managers to be found. My underlying fund costs is about .15 so combined cost is just over .50%. I have been vey happy with the services they provide and the communication I receive but I am a low maintenance investor. I have been looking at moving to Evanson or Cardiff Park.
Any comments would be appreciated.
Note-Buckingham fees are to high. Cardiff is lower than Portfolio Solutions and Evanson is the lowest.
Ether says
Wolf: Have you contacted Portfolio Solutions to voice your concerns? I too have been a low maintenance client who had been satisfied with the services provided until now. Apparently their recent survey of clients indicated that many wanted more direct contact and interaction with an assigned “Investment Specialist.” Perhaps Rick Ferri will revisit and comment again on this thread. The unanticipated substantial fee increase has driven me to look very closley elsewhere and I have been favorably impressed so far with Cardiff Park. Good luck in your decision and keep us posted!
Nony Mas says
Based on personal experience and that of others I trust, Evanson may be cheaper but their advisors work out of their own homes, may have other jobs (check their ADV and then LinkedIn profiles for advisors) AND you get a very, very limited amount of time–less than 2 hours for setting up portfolio and limited time going forward.
As I have written above, I am extremely impressed with Cardiff Park. John Gorlow is always available for consultation, he spends lots of time setting up portfolio and his ethics are above reproach. He’s always willing to discuss portfolio questions and spend time with clients. Once on the Boglehead forum a poster spoke so highly of John Gorlow and Cardiff Park, the poster was accused of being a shill for Cardiff Park which was absolutely untrue.
Dave says
Sorry, but the advice given by Vanguard is cookie cutter and a lot of added value is missed by only revisting a plan once every couple of years. A true RIA is proactively involved and able to employ strategies for reducing taxes, ensuring that you are properly positioned in the event of a lawsuit, and is there when the family is in need. You are missing an opportunity to develop a mutually beneficial relationship if you are not working with a local fee only investment advisor. A big institution serving hundreds of thousands of investors simply can not give you the personal attention you need and deserve.
"medium-fee" advisor says
I thought it would be interesting to update this thread from a few years ago.
Here’s what’s happened with low-fee firms of late: the firm mentioned that “builds assets” has completely blown up their model portfolios, removing their huge overweight to commodities (that performed terribly) and are now recommending huge overweights to US and non-US small cap stocks — in the case of Int’l, they are 100% small cap (!) So clients have paid a low fee but had no portfolio stability, just performance-chasing portfolio adjustments and paid a very high price in terms of poor performance.
Another low-fee advisor with a (formerly) 0.25% fee has increased his rate by over 50% to almost 0.4% per year, pretty much in-line with the 0.5% to 0.75% I referenced above. Clearly supporting my view. I guess that paycheck isn’t as small as it used to be.
Finally, and most importantly, on the portfolio side, small and value have continued to outperform and portfolios more tilted to these expected returns have benefited in a meaningful way. And a sampling of large & small value funds finds at the 3YR point, DFAs large and small value have bested Vanguard large and small value by about 3% per year. On the bond side, rates have started to rise, investors in intermediate/long-term bonds are panicking, and those who chose to keep it short and high quality and take risk in stocks are sleeping comfortably.
Remember, what matters with professional advice is not the top-line fee, but the net of fee end results that come from well-designed portfolios using the best-run mutual funds and well-timed discipline and counseling. Sure, you can find a lower fee, but the cost can be very high indeed.
Nony Mas says
Thanks for the update. Cardiff Park Advisors still continues to win praise from Boglehead forum members, hasn’t raised rates recently and continues to be a very good value and John Gorlow is an exceptional manager.
Take a read:
http://www.bogleheads.org/forum/viewtopic.php?f=1&t=117576
http://www.cardiffpark.com/
cowboy Mike says
Three years ago we used Vanguard’s services to build us a financial plan. We were very happy with the service and thought it was money well spent. We took their plan and massaged it a little.
One problem I had as a do it yourself investor was what Rick Ferri called “analysis paralysis”. http://www.rickferri.com/blog/strategy/agonizing-over-optimal/
As some what of a perfectionist I was making an effort to get the ‘perfect’ portfolio and asset allocation. Motivated by the feeling of great responsibility to me and my wife I had at times difficulty pulling the trigger, afraid to do something wrong. The Vanguard plan was an additional validation that we were on the right track which helped me.
I don’t know if you will allow this but one service we recently found very helpful was paying someone to map out our options with regard to when, as a married couple, to take social security. Jim Blankenship, a social security expert, did it for us just this last week. The Social Security Analysis Report results gave us 6 different scenarios and included for each scenario, year by year estimated monthly social security benefit summary, annual cash flow summary including total lifetime benefits.
The price was very reasonable and included a conference call with him to get answers to any questions we had. His website is http://blankenshipfinancial.com/
Happy trails, cowboy Mike
Harry says
cowboy Mike – Thank you for sharing. I link to Jim Blankenship’s blog posts from time to time. He’s good. AARP has a free Social Security strategy tool. Social Security Solutions offers various paid options from $20 to $250.
KD says
TFB, I think you can (read must) become a Vanguard Personal advisor in your retirement. 😉
Harry says
I’m not sure if they will allow me to work remotely, part-time. The pay won’t be much but it would be satisfactory to help the average investors.
KD says
Only one way to clear the doubt ..to ask and find out!
Harry says
Jobs site: https://careers.vanguard.com/vgcareers/jobs/explore/discover.shtml
No jobs if you check the box for part-time or remote office. I will leave the jobs to younger folks and be my own boss.
mike says
IMHO, in important things in life, one should have a backup, to review, what one has done, eg a 2nd opinion on a medical problem.
this grow in importance, with assets and age. i for one, inherited some positions, that i can’t undo, without being taxed, and even amonst Bogleheads, there are areas, of disagreement, eg international bond indexing, i personally am also wanting a structure whereby i can semi-retire, and even with a simple portfolio, and lots of reading, it seems unwise to do alone.
VG, please their heart, “plan” really is barebones, and in my case, had no real idea to tailor to my situation, i believe, the trouble is, the ‘advisor’ needs to also understand taxes, and various other aspects, and then to be available for questions, ongoing, and to be pro-active, to look for areas to polish, from what i gather, many advisors want to get in / get out or they want to manage one’s money fully …….
Stevi says
I spent over a year reading various investment books to try to “do it myself” after retirement. In the end, I just could not write the checks to do the investments. It was emotional – not a lack of being able to understand the relatively simple Vanguard concepts. I finally got an adviser and yes, I am paying him 1%. But he spent several hours talking to me before I became a client. We fully discussed my investment goals and needs as well as his approach to my situation. He does not do free lunches, dinners or presentations. He gets clients by referral. He spends at least a couple of hours a month discussing things with me. I am happy and comfortable with him. And I did not give him every penny. I still have about 25 – 30% of my funds locked in short term guaranteed vehicles so I sleep at night in case the financial markets as we know them all crash totally. It works for me. And I am watching other friends go through the same thing – thinking about investments but not doing them. The low cost options here do sound intriguing.
Steve says
Hi Stevi,
Good for you for learning how to invest. So it looks like you need a professional for the “emotional” part of investing because you already know what a diversified portfolio is like. Why wouldn’t your adviser work for an hourly fee? The 1% seems small but you also have the costs of the investments to add on. Not saying that what you are doing is wrong, just saying that you might get the same results, being able to sleep, with a fee-only Registered Financial Adviser with fiduciary standards as required for membership in the National Association of Personal Financial Advisers (NAPFA). Perhaps your adviser is a member.
Good luck,
Steve
Nony Mas says
I’m responding to a comment from “DK” which I received in my finance buff email subscription today but I don’t yet see it here.
DK– and others– you might be interested in a low cost *fixed fee* advisor. I used to use a 1% advisor figuring you “get what you pay for” but found it definitely was not worth it for a variety of reasons.
I’ve been using Cardiff Park Advisors for almost three years now and could not be happier. John Gorlow gives exemplary personal service, extensive *monthly* reports (not quarterly as do most advisors) and has an extensive website of information to educate yourself about the firm and investing. For client conferences he uses “go-to-meeting” software so you can have the same report up on your screen as he does and this really helps with client discussions and the worksheets he prepares for these discussions.
Yearly fees range between $3,000 and $6,000 and are based on the number of accounts (regular, IRA, Roth) and complexity and NOT on the amount in the account/assets under management/AUM. Cardiff uses passive and index portfolio management.
Take a look at the website and then send an email or give a call and see if you think John Gorlow is right for you. (He’s highly spoken of on the Boglehead’s forum).
http://www.cardiffpark.com/home
Phone – 888 332 2238
Nonnie
Harry says
Note from Editor: Link to DK’s comment.
Mainer says
I’m just reading this thread which seems to span several years.
Ev – Are you still happy with Purpose Wealth? I’d be interested in hearing more about why you left BAM, given all the good things you said about them. Was it mainly the cost? Do you still have DFA funds? Do you think Purpose Wealth would have invested you as well as BAM if you had gone with them initially?
Nonnie/Nony – you seem to spell your name both ways? Are you still happy with Cardiff Park Advisors?
Thanks.
Ev says
Mainer,
I have only been with Purpose Wealth since Dec. 2013.
It was difficult decision for me to leave BAM – the ONLY reason I left was cost.
Yes, I believe PW would have developed the portfolio similar to BAM had I gone with them to begin with . I am low risk person – 60% fixed and 40% equity with a moderate tilt to small value. In 2009 I was 50/50 and seems like it was 2011 I went 40/60.
Other reason seems to me I would have been invested similarly is that Derek saw no reason to sell a big % of the portfolio and reorganize.
BAM as well as PW as well as other fee-only low cost advisers mentioned in this discussion have the same philosophy – i.e. passive asset class investing.
My funds are DFA – with one Vanguard, one Bridgeway fund, one international that I brought to BAM that I’ve held for many years that has too big of tax consequence to sell.
I was aware of PW from 2009 when I was looking for an adviser – I had spoken with Derek and we had good discussion then which is why I remembered him.
FWIW – I believe chosing an advisor is a very individual thing – its helpful to get ideas/recommendations from others; but what works for one does not necessarily work for another. The best is to speak with each one you might be interested in after you’ve established some basic ideas of what you are looking for.
Ev
Nony Mas says
Hi Mainer,
Yes, I spell my name both Nony and Nonnie (Bogleheads)–maybe happy Cardiff clients. Ity has to do with me email address and the different times I signed up for various websites.
I’m extremely happy with Cardiff Park Advisors and John Gorlow. I’ve recommended the firm to a number of folks and have gotten excellent feedback from them. A few folks have said they get double the service they had previously gotten with other low-cost fixed fee advisors and are very please. I found more than than with my 1% advisor. One thing about John Gorlow is that he’s very ethical and he will tell you what he doesn’t know. If you do need hand-holding, haven’t educated yourself as to passive and index investing, it might not be the firm for you. Another thing I get at Cardiff that I’ve never gotten at another advisor–even a 1%–or more AUM firm–is *monthly reports.* It allows you to see your target percentage range for various funds and lots of other things. I wanted access to DFA funds and that’s one of the main reasons I went with my previous advisor and then switched to Cardiff although they are open to Vanguard and other funds.
The best way for you to figure this out is to give them a call, talk to John Gorlow and see if there is a good fit.
Do take advantage of all the excellent educational and informative material on the website.
888 332 2238 http://www.cardiffpark.com/
Nony/Nonnie
Mainer says
Thanks Ev. In the past I’ve had some good talks with Larry Swedroe and I have no doubt that BAM would provide good service and provide help on the total picture, as they did for you. It would be comforting to think that one’s advisor is considering all the angles and not just narrowly focusing on asset allocation. But I couldn’t get past BAM’s cost. It seems to contradict everything I read about how important low cost is. Then again, Larry explained and others have written that the results of a more sophisticated allocation can make up for the increased cost. So after reading how pleased you were with BAM and how they recognized it’d be in your interest to buy back years from your pension (or whatever it was about), you chose to leave. Are you in accumulation or spend down phase? Does BAM have expertise in both, do you know? Any more thoughts on this would be appreciated. I have great faith in Larry but the annual cost is daunting, and I just don’t know that I need complex guidance, let alone year after year. I guess I could try them for a while and then leave if I want to (Larry’s suggestion), but there are costs for that, plus lots of disruption…. Do you think PW would have provided the same overall / big picture guidance that you got from BAM, or do they more focus on asset allocation? I wonder if Cardiff provides that overall guidance? Thanks for any more insight.
Ev says
Well Mainer you hit the nail – the idea behind working with an advisor for me in 2009 was there was a bigger picture than an asset allocation. I really don’t think my financial picture is or was complex. I probably could have gone with a low cost provider to begin with; for right or wrong I just clicked from the beginning with the advisor and because it was a step by step process to look at my financial picture, write a plan an Investor Policy Statement that drove the asset allocation based on my risk tolerance it just seemed right for me.
Another thing was at the time I just wanted to get my portfolio organized and the plan put in place. I had spent a year being mostly in cash – that needed to stop.
In 6 weeks I will be in withdrawal phase – however I shouldn’t have to withdraw from my investments very much for a good period of time – I live simple lifestyle and don’t have big spending needs except international travel once or twice a yr.
Personally I don’t think it would make much difference what stage you are in accumulating or withdrawal as far as BAM goes. They do have specialists on staff to turn to if needed for different things like social security and bonds – they have a bond desk which makes buying bonds cheaper. I didn’t have individual bonds. That situation with buying back years of my pension – what was also important to me about that was – that five figure amount to purchase these years – buying these yrs. was 5 figures less than BAM had as assets under management. It was about my best interests; not BAM’s interests – to me this is what you get with a fiduciary. You certainly get a fiduciary with a low-cost advisor; but that low cost advisor would not have contacted my pension office and figured it out. I did not ask BAM to do this – the thought never crossed my mind to buy these years.
Chosing an advisor is something not to take lightly. You’re right it is somewhat of a hassle to change – but if you are changing to another DFA advisor its relatively painless. If you are changing to Vanguard and would want to sell your DFA funds it is expensive – you get around that by selling the DFA funds while you still are under the umbrella of the DFA advisor.
You could also do the opposite – if a low cost advisor is not giving you enough service or you’re not comfortable then see BAM. So you’re clear – you know you will not have Larry as your advisor – you will have another BAM advisor.
I don’t know if I made anything any clearer – or just muddied it up for you. Everyone does not need an advisor – if you are able to write down why you need and want one in a paragraph or two – then talk to a couple of low cost advisors – you’ve already talked to Larry. See if things come clearer for you.
Ev
Ev says
Whether interested in having an advisor or comfortable and happy with DIY this piece last week from Charles Ellis – one of the greatest investment minds is timeless must-read advice. He offers a letter to his grandchildren on how to invest. Its one of those pieces to read more than once and save.
Relative to having an advisor or not he offers:
“What really matters most is figuring out—often best done with a professional investment adviser—the long-term investment program that is best suited to you: your financial resources, your spending objectives, your time-horizon and your ability to stay the course.”
http://www.forbes.com/sites/investor/2014/03/13/letter-to-the-grandkids-12-essential-investing-guidelines/
Ev
not2late says
I started my search for an advisor a few months ago, and came across this site by accident. The search turns out to be much more complex than I anticipated, and is still a work in progress. I would like to share my experiences with those in similar situations. I’ll begin with the reading materials.
I started out with google search results such as these, and there are plenty more. In no particular order:
http://guides.wsj.com/personal-finance/managing-your-money/how-to-choose-a-financial-planner/
http://www.pbs.org/newshour/making-sense/how-to-find-a-financial-adviso/
http://www.forbes.com/sites/laurashin/2013/05/09/10-questions-to-ask-when-choosing-a-financial-advisor/
Then I read a few books:
http://www.amazon.com/Getting-Started-Finding-Financial-Advisor/dp/0470538783
In much more detail, but still incomplete. However, learning the importance of ADV forms is worth the price of the book.
http://www.amazon.com/The-AARP-Retirement-Survival-Guide/dp/1402743416
While the book is mostly for retirees, the two chapters on advisors (7 and 20) are for everyone. Much better written than the entire book mentioned above.
These material helped me tremendously in knowing who’s who (i.e. the alphabet soup of titles), and what to look (out) for. But they failed me miserably when it came to implementing their suggestions.
I’ll save those for the next installment, should there be any interest.
CV says
So I came across this site while doing research. I’m also looking for advice on finding an advisor to get me started while I get more educated. I heard about Cardiffpark from this site, has anybody heard or had business with PortfolioSolutions or AdviserInvestments?
Jack says
I have used both Portfolio Solutions(PS) and Cardiff Park. I doubt you can go wrong with either one. Portfolio Solutions charges based on a percent of assets under management and that fee is currently .0037 while Cardiff Park charges a fixed fee. I will not quote a percent for Cardiff Park(CP) as it varies but my experience leads me to believe it is around .0025 of your initial investment. The fixed fee does not change as your assets change.
Both managers use the same concepts and there is only slight variations in funds used. Neither firm calls you. You have to call or e-mail both if you want information. John Gorlow at Cardiff Park will not make any changes to your portfolio without your consent. PS will make changes as they sees fit but that is rare but does occur if your portfolio needs rebalancing. They will also decide where to reinvest income and dividends.
PS is a bigger firm and has many more employees than CP. I like talking to the principle at the firms I am doing business with so in that regard I like CP much better. I only talked to Rick Ferri once, however he did reply to every e-mail I sent in great length which I greatly appreciated. I felt like I knew him quite well despite the lack of actual conversation. Having read most of his books and many comments on the internet, I knew what he believed. As to results managing your money, it is a tossup. You are the one that ultimately determines your own results as both firms provide guidance and suggest how to allocate your money based on your particular situation. I feel that any gain or loss that happened in one vs the other were based on my own decisions.
In summary, I like both firms and trust the integrity of both principals. One has a lower cost (CP) and is smaller than the other. That may or may not matter to you so go with your feelings and which firm seems to match your needs .
CV says
Great thanks Jack for the replay, concise and to the point. I did read a book by Paul Merriman “Live it up without outliving your money” that got me started on the road to lower fees. I will take a look at the books mentioned above.
Nony Mas says
I’d like to add a slightly different perspective to what Jack has said. I’ve posted before in this forum about Cardiff Park and I continue to be a satisfied client. Unless things have changed with Portfolio Solutions there is a fairly fixed offering of funds that they use in each category and this is NOT flexible. You are not able to say– how about we add Vanguard Bond Fund or DFA Small Cap. The funds they offer in each asset class are the funds you get. That may work very well for you. It didn’t for me and that’s why I turned to Cardiff Park. John Gorlow does have his favorite funds, mostly DFA but also some Vanguard but I’ve never found him unwilling to discuss a fund I bring up or want to talk about and he’s very open to my suggestions and I find Cardiff Park and their size just right for my needs as I don’t feel as though I’m getting pre-packaged advice.
Nony/Nonnie
Jack says
I will agree with Nony. Having said that, the fund selection from Portfolio Solutions did work fine for me. I never had a serious issue with Rick’s selection. When I did question him(via e-mail) about the use of certain funds he always responded thoughtfully as to why he uses certain funds and not others. Cardiff Park accepted my portfolio completely, rebalanced it as necessary, and made two changes to fixed income at my request. Only time will tell if the changes I made will be beneficial. So far they have not been but that is my fault not Cardiff Park’s. I am a relatively low maintenance customer but I do like to speak directly with John Gorlow when I have a concern.