I'm a CPA and I have met CPAs who became financial advisors.................you know what they told me? They said financial advising is easier ..........that says a lot.
This is so INCREDIBLY helpful, I'm in my 50's with a modest savings who realizes I need to get the ball rolling fast for retirement and I'm meeting with an advisor for the first time ever and this gives me so much info I didn't know I needed to know. THANK YOU
I use a hybrid approach. I have about 40% of my investible portfolio managed under an AUM fee, which has been doing very well after fees (thank you very much). The rest, I DIY. I get 2 meetings a year, I get an updated financial plan each time which includes a wholistic picture of my entire financial situation including assets that aren't under management. This way, I get the comfort of having a knowledgeable second opinion, but I know that I call the shots and that I'm not being taken advantage of. I love channels like this one (especially this one) because they give me information and ideas that I can use.
Thanks for covering this subject. I know NOTHING about financial advisors and have recently been wondering if I should be working with one. I'd love to see a few more videos on this subject.
LOVE your blooper sections!!! You do come across very well prepared and polished, just great to see that you are like most people before you get there!
There’s so much good information out there. Erin is a perfect example. It’s hard to justify a 1% commission especially if you’re willing to put the work in and take control of your money and educate yourself. But some people don’t want to be bothered. That’s when an advisor makes sense.
Hi Erin. This was a well balanced discussion on an important topic, that your viewers will find beneficial. I have always been a life long learner who was interested in finances and been a DIY investor. I've been retired now almost 13 years. The internet offers an abundance of financial channels to sift through and has made this much easier in recent decades. People do need to be very cautious when they filter through and select the content they are willing to be exposed to. I'm with you, and feel most can DIY if they are serious and educate themselves somewhat. ETFs make things a whole lot easier nowdays and can be a wise choice. The advent of target date funds is yet another step for DIY to make it a little easier. I feel it comes down to a personal choice, but it is important enough that people need to respect it and carefully consider the long term. It comes down to the individuals temperment, goals, ability and confidence. There gets to be a point where you have complexity in your situation and you need some help which is available on the fee structures you discussed. Keep up the great content Erin and I'll see you on the next one. Larry, Central Valley, Ca.
The thing I like about assets under management vs. flat fee is that it gives you the same goal. The more money they make for you, the more money they make for themselves. With flat fee, they only need to perform well enough to keep you as a client. Beyond that, they don't get any more compensation. I like the idea of having aligned incentives.
Except vast majority of “advisors” look at it differently. You do well, they get paid well. You do poorly, they get paid well. With these advisors it is a race to sign up as many clients as possible, not try to eek out 1 or 2 % more for each one. Mainly because vast majority cannot beat the market and they know this. Plus advisors are disincentivized to take risk because clients will fire them if things go poorly. If they advise easy, middle of the pack ideas, then they get to keep the cash cow client forever. So thinking advisors are incentivized to perform above average is a fallacy.
Great advice. I will watch this video multiple times with my notepad to record the important details to bring when I research and interview a financial advisor. Muchas gracias.
Financial advisors are good at protecting you from yourself. They can reassure you when the market is down to stay in the market (if you are an emotionally reactive person).
For years I have told friends and family they don't need an advisor, just go with an index fund. As I get older with more complicated finances and time that i value more than anything, I now see the benefits of a good advisor and how they can reduce your stress. I still don't entrust my whole portfolio though.
I totally agree that an advisor for only investing is unnecessary with all the index funds these days. However, I remember when my great aunt passed away her financial advisor even brought his truck to help move furniture from her apartment, so I think there can be benefits of a good financial advisor. Thanks for another great video Erin!
Paying a one-time flat fee for a comprehensive financial plan and for periodic check-ups makes perfect sense for a lot of people but, in my opinion, most investors won't benefit from paying an ongoing money management fee. That 1% annual fee comes directly off of your bottom line, and it will add up to a HUGE loss in growth over time. I think that money would be far more useful staying invested and working for you. If you have no idea what to do, consider paying a reputable advisor a one-time flat fee for a comprehensive plan. Once you have a plan that has been explained to you in detail, you can probably take it from there. All of that said, high net worth individuals who simply don't want to be bothered with portfolio management, might be good candidates for a money manager, but that is a very small number of people in my opinion.
i agree now you might have to pay more a few time over the year for more information, say you want to buy a house and they show you some tax trick to save you money , or tax harvest this year, but year more year you do nothing. and just have the market go up.
Wow!!!! It is refreshing to hear someone point out that advisors imply a "cause" whey they are talking about a correlation..... People who drive BMW's are generally richer than people who don't. So... let's all drive BMW's so that we'll get rich. There are a few really good reasons why some people "should" hire an advisor... 1) if they're not good with math, 2) if they tend to react based on emotions, 3) if they'd rather be doing something else with their time than thinking about money. Thanks for your video.
Erin you nailed it when the benefit (albeit at a cost) is the holistic view our financial advisor provides. They are our initial stop (and often final stop) for a wealth of life planning, finance, medical, estate, etc… While one can certainly do this on their own it is convenient having this source ( a large financial institution) available and in my mind worth the 1% burden.
@ErinTalksMoney Great advice! Been thinking about this. I like your suggestion about a flat fee person. Before I take any step I need to better educate myself, then I might dip my toe into an advisor relationship. Thanks again for another super useful vid! You're a 'must watch' channel! 🙃
Great video! I had and moved on from 2 financial advisors. The first didn't do anything wrong, just wanted to go a different route. The second, while a good person and managed my father's portfolio for years, didn't do much outside invest and move on. I knew more than they did and cared more than they did. At that point I realized I focused more and learned more than they did so I moved on. I love reading and learning about investments, tax law, etc.
I can’t say it enough, God bless Vanguard! Simple cost effective performance DYI. My friends who use planners seem to be more lazy towards understanding financing and believe they are paying a pro or worry about that stuff. I pay a guy to cut my grass but I have to worry about the weeds😊.
I have been using a AUM fee financial professional for over 18 years. What people don't get is that they typically have access to & can invest your money into institutional grade funds & investments that are NOT available to retail investors. The good ones will also be proactive in watching your investments and move $$ into or out of funds based on performance or market shifts. Additionally the amount of time it would take you to research and determine which investments to put your $$ in is much better spent focusing on making $ and life in general. Lastly when the markets go south like they inevitably do, your advisor will work to minimize your losses in a down market.
This is a classic "it depends" decision. For so many with very little financial knowledge and who foolishly choose not to educate themselves, a fee only advisor would give them structure and could set up a diversified investment comprised of index funds and dollar cost average monthly contributions. However, anyone who has any interest in learning and applying basic financial knowledge is most likely better off saving the fees and going it alone.
Exactly. It's a sad trap, actually. Only people who know how to do this stuff will realize that asset-under-management advisors are basically scams at this point, but since most people don't know any better, they keep falling into the trap. Fortunately it's not *actually* a trap. It's just paying a boatload of money for very little actual value.
I have thought about this kind of from a different perspective. I don't want or need an advisor. My ex-wife who got half+ or my son who will get it all, I hope will get a good fiduciary advisor. As far as trusts, I have seen how bad managing money from the grave can go.
Paying an advisor for a financial plan is like paying a personal trainer to give you a generic workout routine that you could easily find yourself online. I'm referring to the typical employee that's just looking to invest in the market. Owning and investing in businesses, real estate, etc, is a little more complicated.
As a financial advisor I completely agree with you - the value is in the implementation. Knowing what to do and actually doing it, and continuing to do it, are two entirely different things. Why do you think only 20% of gym members go on a weekly basis?
Such a good point. The fact they force an AUM model in most cases is kind of a joke. It's people who got wealthy through business but never learned any financial planning so they just pay someone 1% of their net worth and are none the wiser.. Meanwhile those advisors will try to add more fees through the funds they choose AND that won't even be their only client. They'll have like 30+ clients and they barely do any work for them but just collect all their money.
I think is it important to understand how much help do you need. If you don't have the aptitude to manage your assets and do your planning. Get help. But if you can do it yourself investigate how much a 1% fee is costing you over 20 or 30 years. And if you subscribe to a 4% withdrawal rate then the 1% fee is the first % taken out of the 4% so now you are down to 3%.
I lost more money with CFP. I am up 879% on my own. I learned to research on my own and make prudent decisions. I trust myself now. I would never use a CFP.
Over what period of time? That should take about 20 years using good investing principles. If you did it in a shorter period of time, that's more akin to gambling.
I've been with Jazz Wealth for a bit and I justified some of the fee because I was learning quite a bit in different classes that they hosted each week. Lately they've been more disconnected and the communication seems to be minimal or non-existent... I'm not sure if they're just trying to figure out investments right now, focused on their sponsorships, or if they've outgrown their smaller investors now... But it definitely has me rethinking whether I need a financial advisor! I agree that once you get a basic understanding, you can do a lot by yourself if your advisor isn't creating value elsewhere!
Thank you for this video. Most people hear "1% fee" and think, well that's not very much. The reality is if you are paying someone 1% to manage your money, it almost guarantees that you will not keep up with the market returns. Over the long term, this 1% fee is a huge drag on returns no matter what services are being provided. I do understand that a 1% (or even 1.25%) fee is normal in the fund management business. But that doesn't mean it's right.
Look up "the behavior gap". Humans are emotional, not robots. They panic sell, try to time the market, and chase performance by trying to pick stocks or hot funds. This leads to underperformance by a much wider margin than 1% based on numerous studies. Then there's full scope financial planning that many advisors including myself provide that can easily make the fee pay for itself via tax planning, estate planning, risk management, retirement income planning, etc.
The fee is actually worse than 1%, because it will require having taxable income in order to pay it.. So now it actually complicates your taxes, makes you in a higher tax bracket, just to pay them. So ultimately the cost can be closer to 1.2 -> 1.5% thanks to the tax increase.
I have *never* had a financial guy. I am now retired and really in a -good- great position. Through watching videos I have learned so much. Erin is one of my favorites though at times I find it difficult getting financial advice from a girl in high school. *ONLY KIDDING!*
Hi Erin! Love your videos! What you may have missed is that most financial advisors I've spoken to won't take you on as a client unless you have at least $500k in a stock portfolio. To them, anything less, their 1%-2% isn't worth it to them. Most financial advisors don't beat the market. So the articles are skewed.😎🏆
I had an advisor for one year, it was Edward Jones. Every single thing they suggested were things I would have done myself anyways. If you just stay invested I don't see the need for an advisor. If you lack control and have bad impulse then it's probably worth it
Great video Erin. There is a lot of hype trying to justify the assets under management fee. When you look at the long term impact of that fee - it can be huge. HOWEVER - while most of us who watch your channel are naturally into/interested in investing, retirement, financial planning - there are many who are not. My wife is one of them. At some point in the future I will need to engage a financial planner - as there is little chance that after I am gone she will be confident in what she should be doing. Two fantastic points you make - 1) this is something that as you get towards decumulation becomes very critical. It is much easier/more straight forward in the accumulation phase. 2) I absolutely agree that a Flat Fee advisor is the way to go in most situations. Pay them for the time spent.
Agreed! Definitely using a flat fee advisor is the way to go. Paying a percentage of your AUM compounds the other way just as rate of return on investment. It may not seem like a big deal in one year, but throughout the course of your investing career, it is HUGE!
I have about 60% of my portfolio with an advisor who charges about .6%. That plus management fees from the investments increase total fees to about .8%. He is a fiduciary and provides a full range of services as outlined in the video. I manage the other 40%, mostly through individual investments and low fee ETF’s in a Schwab account at a much lower fee rate. My living expenses are covered through both the advisor and personal portfolios. Having both gives me the benefit of the advisors advice with lower overall fees of the combination.
As pointed out, though, outperforming a passive ETF is not a reason you should consider a financial advisors and if that is what they try to sell you on, run (do not walk) away. Also, one of the basic reasons you want one is to stop you from doing stupid.
@@glensmith491 people invest to make money. Full stop. If they want advise, they Google it. It's free and available 24/7. Financial advisors should look for a new, more "hands on" career in 21st century.
That is a good point. For myself I have reached a point that I can be comfortable without needing to outperform the market. It seems to me that any attempt to outperform increases the risk of underperforming.
@@RomanVarl Things get more complicated when trying to live off a set amount for 30 years. Budgeting, taxes, risk exposure, and estate planning all add layers of complexity. During the wealth accumulation phase of life, I 100% agree that a simple strategy of index funds / ETFs is more beneficial.
Wife and I both retired two years ago. We are in our late 50s. We couldn't justify the 1% of assets fee structure as we basically put most into index funds. We did pay a one time $1,000 for an advisor to look everything over prior to retire. She put it plainly by saying "if you want to keep working go ahead, but you have enough saved to not need to keep working."
I will go against the grain here. I have grown over 35+ years of investing. Because of that, I have outgrown 2 advisors. The previous advisors were good for the stage of life I was in. I also never paid them anything (because all the fees were hidden in the funds). I moved to a fee only advisor in 2018 and get all the services I need to position my estate and tax plan. They are also a great teammate in reviewing my strategies for retirement. I have outperformed the market significantly 5 of 6 years with this advisor. The cost is transparent as I am invoiced quarterly. I do not have the time or resources to do the trades, tax loss harvesting, and position my portfolio for the strategic environment. I find a lot of value in what I pay at this stage. I have made a lot more money with this advisor than I would have on my own with a strict S&P 500 portfolio. Having an expert is worth it in my case.
@@jefferya.meixner8540 after. I am still beating the market average gains with the fees deducted. Again, not for everyone. This is why personal finance is so personal. Not going to lie, 2022 was the year that was hard to pay, but I got it all back since then.
Great points. I want to enjoy retirement and let someone else manage the stuff. I don’t want to be stressed out thinking about all the moves that I need to make. A consultation monthly to keep me informed is all that is required. I worked hard all my life and I don’t want to have to work on my retirement daily. To each his own.
I've always looked at financial advisors as for older folks with a lot of accumulated wealth looking for that copilot to sanity check their plan and educate on tax optimizations as they transition to depending on that nestegg. Not sure if I'll need/want that when I get there but I do think financial advisors can largely pay for themselves by helping the under informed with things like roth conversions and other optimization strategies as they enter that stage.
I honestly think having an advisor is more so about not having enough time to do it yourself at least that is true for my wife and I. We use an advisor through my wife's company, but they do not manage our investments, however, we still get a financial plan out of the deal so it helps in that way. But I cannot see having them manage our portfolio and paying 15,000 a year in fees.
As a retired corporate financial executive, I know about taxes and investments but not much about estates and trusts. The first thing I did before I retired is found a good estate attorney and got my wills and estate planning done. This is an area where a mistake can be very costly. I manage my own investments with mostly index funds and cash. I learned a great deal about Medicare and long term care insurance from TH-cam and made informed decisions on my own. I now find managing my own finances is a hobby for me that I enjoy. I will pay an hourly fee to have my plan reviewed but will never pay a percent for assets under management. Now, if someone is willing to manage my portfolio and only be paid a share of the returns that exceeds the SP500, I’ll consider it, but we know That will never happen. 😂
I did put about 50% of my savings to an Advisor years ago, I do about the same thing with the rest of the money that he invests in but now in retirement he has moved a lot to Bonds and yes when the market goes up I outperform him now but the reason I did this was to establish someone that would work with my wife if I was to pass away. My wife and I meet with him once a year and she feels confident he has her back. And that does mean a lot to me.
Same reason I did for my wife as well. She was honest and said I know how to spend it, but I don't know how to make it. I negotiated our fees. Less than 1%
As an estate planning attorney I recommend my clients consider a fee only advisor (if they want an advisor), which at least eliminates conflicts of interests. NAFPA is the database for these advisors.
Also I would say there are a number of few only advisors who would work on a flat fee. Fee only denotes that their compensation comes from you, not kickbacks for selling product. There could be a flat fee advisor who has conflicts, like selling you an annuity in exchange for compensation on the back end.
I agree with you, a 1% advisor fee is not worth it. I am a DIYer (Do It Yourselfer) when it comes to my finances, so thus a little bias. However, if a person doesn't want to learn about personal finances and be a DIYer, then a flat fee advisor would be best. By the way, I like the beginning where you mentioned correlation vs. causation. I teach a research course and talk about the differences. Thanks Erin for this video!
My grandparents had advisors for over 30 years, I don't believe they ever outperformed the market nor even got market gains. In fact, I think the returns were abysmal and they paid a boatload in fees.
My big advise is to avoid long term commitments. Don't let them tie up your money is some sort of annuity or other financial product for 5 or 6 years, leaving you unable to leave without a heavy penalty.
I still read all the comments that are posted on this channel 😊 I definitely recognize your handle - you've been here for years! I appreciate you hanging around for so long! And a big thank you for sharing the video 🙏
I think it also depends on the type of advisor/account. I just started with one and get a perk through my job which lowers the rate to 0.5. They only charge whats in the account you open with them, but advise on all assets. Its a decent deal
@@larryzettlmeier2661 Bank advisors work for the bank. That said, I have done my backing at a credit union for decades. I moved a big chunk of savings to 53rd when they offered a high interest rate on MM. I knew I had to watch 53rd but, simple account. It really wasn't worth the worry I was doing and I talked to my credit union for advice on getting my money back to the credit union without paying as many fees and penalties. The credit union insisted I talk to their advisor. There was no way I was going to buy what he was selling but, he did get me to thinking enough to move most of the money I was keeping locally to a Vanguard brokerage account not associated with the credit union. Hindsight 20/20, I was keeping too much money locally. I knew I was getting a lower return but, thought better, quicker access was worth it. Getting money from a brokerage account doesn't take long at all anymore.
Tax planning is hard because taxable events cause your budgeted expenses to change which cause your taxes to change and laws will change. I also have multiple options that have a lot of potential to either make things better and worse at the same time. I don't have time now and don't want to have a new full time job in retirement simply managing my finances. I also know that cognitive decline can happen to almost anyone, emotions can get the better of everyone and even one's beliefs are an issue.
Biggest hassle I had, was trying to get out. All my funds were tied up in proprietary funds, had to be liquidated, transferred to my bank account, then moved to where I wanted them. Ultimately, it was a pain in the ass, luckily, I had less than 1200 in gains, less if you count the mgmt and cancellation fees, (severely underperformed). Never again! Self managed etf funds, fee based advisors in the future. The plus side, the guy got me saving money, I probably would have started way later if he hadn’t approached me when he did. Now I’m still playing catch-up, interested in investing and developing a plan for my future.
AUM always has an argument for why they should be paid as such. And some of them are slick sales pitches. But ask them this, "If I have 1 million under management, explain to me what advice you will give me that is worth $10,000 a year?" After they give you their sales pitch, say, "OK. When my assests under management grows to $1.5M you will be charging me $15,000. What additional advice would you give me to justify an additional $5,000 a year?" Considering that, generally speaking, the financial advice needed by a person with $1.5M is pretty much the same as a person with $1M, they are either ripping you off on the extra $5K by not providing any meaningful additional advice or they were intentionally withholding advice from you when you just had $1M.
Thanks for the PSA on the youtube comment scammers. I report them at every moment but not sure if it actually does anything to get it off the comments section.
The fact they are so common and youtube can't develop an AI to see that it's an obvious fake comment is a joke. They get massive numbers of upvotes, all have comments that go to recommend to ultimately recommending a random person, which ultimately leads to a scam website or video.
I had an advisor at a big brokerage house. When interest rates started going up he did not have the ability to buy a mutual fund with just short term treasuries. The lowest was 3-5 years. So basically I was guaranteed to lose money. His other option was, “well you can put more money in the stock market.” Because this was so frustrating I started managing my money two years ago. I bought treasury bonds at auction or CD’s myself. I realize this strategy will not always work. However it was frustrating the brokerage house did not have a strategy for when bond funds were tanking.
If someone understood the process well enough to build a nest egg of $500,000 or more, they are clearly capable of learning. How much is someone willing to learn, in order to save $5,000 a year, every year, and even more as their balance goes up? I've tried it both ways and no longer pay AUM fees. I have paid a financial advisor a one-time fee to assess my situation and offer some thoughts on what comes next. I will probably do that again, periodically, but I won't be paying someone a percentage of my wealth...to build their wealth.
I had an advisor show up where I work (University) and offer their fee of 3% to manage my University retirement plan. That 3% was on the base and moving forward. I was like, wait what? i have to give you $60,000 and then 3% on top of it? I passed, too hefty. They told me I was a fool Maybe I was, IDK.
No you were not. Its very rare to need an advisor. I began investing at the age 16 with my father owning the account. I actually told him to do it. I didn't have an advisor. Later in life, people said I needed one. I got one because of peer pressure. A totally waste of money. I have no advisor now.
I agree with one, perhaps there are others, commenter that said that it depends on the stage of life you are in. I think to invest conservatively in an ETF, US and/or global will serve you well until you retire, while seeking a fee based financial adviser advice once every couple of years. Once you retire, in my opinion a reputable AUM type of adviser who will look after your money and issue you a monthly paycheck, minimize tax paid, plan for an estate transfer, and advise on decumulation, would be a good investment. I think a more detailed look at sources of advice and money help at various life stages would be great!
I'm with you. I found out that Edward Jones won't even talk to me about ETFs or other investments. I also found the 'commission' charged for each transaction would take me a long time to make up in the stock or mutual fund I bought / sold.
@@rdgale2000 exactly! It's been 19 months since I got rid of them. I put their investments vs mine in Portfolio Visualizer and I've way outperformed them since.
A $1 Million dollar portfolio under management at 1% is $10,000/per year or $833.00 per month. That is probably more than most people are contributing to their 401K per month. Fee only. No way.
The real question is -- can the advisor provide more value than it costs? I managed my own investments for about 25 years. I hit a brick wall about four years ago where I just couldn't get to the next $100,000 level for three years although I didn't change my investment style very much. Around the beginning of this year I decided to use an investment manager. They charge 1.25% because I have less than $1,000,000. They invested into various stocks, bonds, and ETFs and have changed some of the holdings this year. So far it's been worthwhile since they do the research on when to move investments from one sector to another and when to move more into bonds vs. stocks.
@@gmc9753Like you I have managed my investments for many years. But sometimes I think I don’t know, what I don’t know and am I missing out on the full impact of a good financial advisor because I don’t want to shell out 1-1.5%? I think I read an article years ago about how working with a financial advisor over the years increases the average portfolio by at least 3%/yr? I guess if true that should cover it! 😊
Depends on your age. As a young person looking for aggressive growth, it doesn't make sense. The fees over a 40 year period can really impact returns by retirement age. An older person may have more complicated needs, such as optimizing taxes, estate planning, and nuanced risk exposure. My father in law was a president of a fortune 500 company, but he wasn't very good with investments. When he was 57, he realized that he had ~$4million in his company stock, comprising ~70% of his total assets. I strongly advised him to get a financial advisor, because he did not know how to manage his retirement assets.
The only wealth management service I'd be interested in for anyone in my family would be an advisor who would brow beat and discourage my dad from abandoning his plans and withdrawing his money from index funds every time the market goes down. Said advisor could make an exception if my parents actually had some massive medical bills or other non-market-timing reason to unexpectedly withdraw money.
I pay 0.75%, or roughly $9k per year. It's 100% worth it because I deal with some challenging tax and estate planning issues along with investing. I started with my advisor about 7 years ago and am now almost three times (3x!) what I started with in 2017. I also contribute a lot more (my wife and I add $4500 per month) because we have accountability in the process with the advisor that we were lacking on our own. It's like having a trainer at the gym or a Pilates instructor. You can do it on your own or learn to to it on your own in theory, but it's much better to pay to have professional guidance. And I say this as someone with an MBA in Finance. At least that's my experience. Oh, and I did it 100% on my own for over 25 years before engaging an advisor. I wouldn't bother with an advisor until you hit about $300 - $400k, at minimum.
They tripled your money in 7 years? Does that increase include your $54,000 that you add to every year? We just hired a wealth advisor, it makes me nervous. I handled our finances and investments (in real estate) my entire adult life. Now selling them off to retire. We have been selling 2 a year for the past 7 or so years and will continue until we're down to 0-5 houses. I am not sure how much we will contribute to it though, as I want to split our wealth into separate baskets, but, it would be nice to see this kind of growth.
@@Monipenny1000 This includes my contributions, which were $25k-36k per year (most years) until 2024 when I upped it to $54k per year. My growth has been average to slightly better than average.
Hi Erin, great video and great advice! And I love your bloopers 😊 Do you and your husband have an advisor and is he/she a fiduciary? Could you give a me recommendation? Hope you have a blessed week 😊
I understand the whole concept of taking 1% from your portfolio to take it to to an advisor who can get me into funds that I never would have to access to otherwise.
Hi Erin. Your work is great. We've been following your channel for a few months. On this video, please check from minutes 11:32. There is a spelling error on the slide. "Charge" is misspelled.
Darn! Unfortunately, I can’t fix it. Once the video is posted, the only way to fix it would be to take the video down and then repost it. But thank you for letting me know!
I had always did my own investing then went with a Big Box firm. Fees were 2k a year plus 1.2%. Went back on my own after 2 years and constantly strive to educate myself.
I used to do this on my own, following advice from family, friends, and "experts" online. The problem with following generic advice is: nobody else has the exact same finances or goals as I do. What works great for one person, is probably not be the best option for someone else.
Working with CFP who charges 1% AUM can be okay as long as the financial professional is a Feduciary. Getting referred to a financial professional who has a good track record by a trusted person is also an ideal position to start from.
It is like the wild west out there. Frontline makes in my opinion very good documentaries. I still remember seeing the documentary called "The Retirement Gamble". The information is still relevant today. It aired in 2013 over 11 years ago.
I find your videos very good both helpful and well presented. But at 9:50 the situation where someone is withdrawing funds and the client complains of "browbeating". Your reply that is that "the advisor is definitely not there to tell you how spend or not spend your money". I can think of situations where the advisor might well question a withdrawal(s). As someone in my last year as a septuagenarian I hear stories about single individuals, in my age bracket, who become involved with someone on-line and that someone starts asking for money. Of course its just some lowlife pulling a scam on a naive and lonely senior. I don't think a advisor questioning withdrawals is unreasonable, but it does depend on how much and how often and the mental acuity of the client.
Nice video. My CFP and his group have changed over the years. I am kind of expecting the pitch to move to AUM to come soon. Thanks for perspective that I am not alone in my instincts about AUM. I don’t think it is worth it. I’m interested, a bit knowledgable and involved in my finances. I’ll continue with my traditional advisors then seek out flat fee advisor when needed. Thanks!
Reading the comments, I think people who watch videos like this are interested in looking after their portfolios themselves! I.e. a self-selecting group. I use an advisor, they charge about 1.2% of assets under management. When I retired I tried looking after my own portfolio and quickly discovered that I don't have the temperament for it! I'd much rather pay someone else and not have to worry about it. Our advisors provide a full range of services - insurance, long term care insurance (annuities), withdrawal and tax management. Basically complete retirement wealth management. Far from browbeating us, they actively encourage us to draw down our savings and spend it! Remember, if you're doing your own investment and using mutual funds or etfs, you're still paying a fee. To manage your own portfolio properly takes quite a lot of work, which I'm not interested in doing. I'm retired!
I think JL Collins said it best if you have enough knowledge to pick out a knowledgeable trust worthy invest advisor you have enough knowledge to manage your investments yourself
I pay for knowledge or abilities that I lack. Most of you are paying approximately $150/hour for your auto repair and maintenance. $400/hour for attorney legal work. If you ask the mechanic and attorney most will tell you it's not hard. I'm a computer repair and network administrator charging $200/hour for some work. It's worth paying if your tire comes off the car 15 miles after you saved yourself $100 by doing your brakes on your own. I'll pay the fiduciary CFP to do what I'm not equipped nor educated to do. Without him/her I would screw up infinitely more than 1 percent.
I have almost 4 decades of investing experience and I've met with many advisors who have input my data and showed me my returns and I've averaged over 11% per year so I really do not need an advisor to help me grow my assets. And I've gotten well diversified over the years. The two areas I think I would need help on is really knowing when it's smart to retire, to stop making that income that we all have worked so hard for. And also help in planning my income stream, being tax efficient. Income and when to retire are the two tough areas for me.
Ok, What about advisors from the big mutual funds, just for example Fidelity or Vanguard. You get assigned an advisor, if You sign on to their services. You can Self invest with these companies, without an advisor.
IMO a 1% AUM fee is just way too expensive. If 4% pays for 2 retirements, a 1% AUM fee is paying for another half a retirement. Its just way too much. That said I would be OK with flat fee structure, depending on how much it is. I don't want anyone to manage my money but i think paying for advice on an occasional basis could be well worth it.
Agreed. I've actually tried to find flat fee advisors for some decisions I was about to make. Heck, I would have been happy to make it an ongoing business relationship -- pay an annual fee for access to the knowledge -- but no such people seem to exist anymore. I think those types are now embedded in banks and investment firms, but I haven't been able to find them yet. I tried calling Schwab about it, but they were only willing to offer generic advice, whereas my question required access to hard numbers.
@@bvoyelr That has been my experience as well. Given that I like keeping tabs on my accounts, and finding funds to invest in, I don't need much help there from an advisor. I really would like it if I could find someone I could pay to have a once a year (or twice) conversation, look over things, and point out areas of concern for the next 5-10 years. Then, I can go and make the changes myself. So, instead, I've gotten most of my information from things like this channel and others.
Advisory firm: Look, our clients have a median net worth of over $800,000! Also Advisory firm: We will decline to work with anyone who doesn't have at least $500,000.... Without knowing how the study was conducted, I try to never believe anything advertised in marketing materials. Overall I'd say that during the accumulation phase it's completely unnecessary for most people to use an advisor. During the decumulation/wealth preservation phase I could see it being very reasonable to at least meet with a flat fee advisor initially to double check that your plan is sound. I believe that if all financial advisors were required to work on a flat fee/hourly fee basis, the fee that would be necessary to continue their normal stream of income would cause many people to decide it's not worth it. Paying an advisor 1% sounds better than saying you have to pay $25,000 every year from a $2.5 million dollar portfolio.
If anybody try to dip into my life long saving with commission of 1% per year? Telling me to move my money? Charging me based on amount I have and selling me stuff. No thank you. Think about it.. You have 500k and 1% is 5k. That's $416 per month or equivalent to 2 French bull dogs per year. I want one of those cuties but 2.5k is too much.
Financial advisors are preferred over those who offer full planning services in low tax countries. That said, we have a slightly different model of still offering a wholistic planning service but it’s not hard due to no capital gains tax and is free to our clients. We only make on products sold. So the challenge for us to not oversell product .
No surprise, nearly everyone on here who is watching this video because we believe there is value in the source (Erin), is also hesitant to deliver our funds to an advisor. I tried an advisor early in life. After ten years of stagnant growth I decided to try it myself. Immediately saw above market returns though I do spend many hours studying the market so after paying myself for this time spent I am likely not very far ahead. On the other hand , the knowledge gained has led me to commodity trading and investing in other things such as real estate. For me, I will continue to manage my own resources.
I used an adviser up to 2008. I lost 60%. Never again. Now I'm dept free. And only need 18% of my retirement income for a bare-bones. budget. He said I was foolish buying so much gold bullion in 2008-9. Well over 100 oz. Some of my gold purchases have tripled all have more than doubled. I have no stock. But a large cash savings for immediate access to purchase whatever I chose. I threw everyting into properties. So glad I took charge. But I do say do what works for you.
I think an advisor or CFP is good for those that are not disciplined enough to manage their own money. I truly believe that there is a plethora of information out there to education yourself on investing you just need to set goals and achieve them. I've learned that managing your money is NOT a spectator sport, you need to be an active participant in order to be successful.
I pay Schwab about .9% and they have nearly the same amount in the IRA as I have in my ROTH. They do not manage the ROTH. So I get to nearly track their performance with the ROTH is is nearly all in Index funds. Always interesting.
We have been using Vanguard's Personal Advisory Services for many years. And we are assigned one single High Wealth Financial Advisor. The fee for this service is .03% of our portfolio. I can't stand the thought of paying 1% to an advisor. It's easy to do the math. That amount is exhorbitant.
If you’re following the 4% rule during retirement that means your AUM advisor is getting 25% of your retirement income. Did you work and save your entire life to give 25% to an advisor in retirement?
It's more than that, you have to include the taxes that you now have to pay because of the additional income you have to claim just to pay them and the fee is not tax deductible for an individual.
My advisors always seem to be late to a trend. The end result is over the 20 years we have had only a small increase in value of the money under their control. Thankfully we have most of our money under our direct control via individual stocks and those have done fantastic. Like Warren Buffet we only invest in a few companies, mostly tech companies, our area of expertise.
0:46 , some things to remember when firms specify a split like this is that those with more money with them get discounts on things like having a financial advisor... 🤫..🤔 So is it causation which way or correlation?
FIDUCIARY! You may have said it and I missed it but, I was listening for it and didn't hear it. It is important and I would get it in writing. It says that person is working for you 100% and 0% for themselves or their company. Legally your lawyer wants to see that. As far as advisors, some advisors are good for some people. I fall back to Warren Buffett. He pretty adamantly says when he dies, the portion left to his wife will be invested in a Vanguard S&P 500 fund not Berkshire Hathaway. I bet she'll get a special deal with an even lower fee but, that's where the money is invested. Nobody knows how laws will change so managing for taxes and other considerations may require some action.
Even then, there are ways around it where they can claim plausible deniability and still pick funds with higher fees because they 'think it's best' even if it isn't.
@@Lolatyou332 Well yes, there are always ways but, the word fiduciary legally defines guidelines. Funny story, I'm a retired GE employee with a 401k type account. The process is ongoing but, GE lost 2 cases in court; $200 million for failing to inform certain investors of information that would affect the value of GE stock and $61 million for ERISA violations on employee retirement accounts. Unusually, GE has paid the money. As usual, lawyers got a huge chunk and it's going to be years of waiting for the harmed parties to get their pittance. Hopefully it will be a deterrent to future wrongdoing.
I'm a CPA and I have met CPAs who became financial advisors.................you know what they told me? They said financial advising is easier ..........that says a lot.
My tax professional that I pay hundreds of dollars is the best spent money each year. No 1% to anyone
Erin, you're very generous when saying "confusion". I'd call it more like intentional obfuscation!
This is so INCREDIBLY helpful, I'm in my 50's with a modest savings who realizes I need to get the ball rolling fast for retirement and I'm meeting with an advisor for the first time ever and this gives me so much info I didn't know I needed to know. THANK YOU
I'm so glad to hear that!! Good luck!!
I use a hybrid approach. I have about 40% of my investible portfolio managed under an AUM fee, which has been doing very well after fees (thank you very much). The rest, I DIY. I get 2 meetings a year, I get an updated financial plan each time which includes a wholistic picture of my entire financial situation including assets that aren't under management. This way, I get the comfort of having a knowledgeable second opinion, but I know that I call the shots and that I'm not being taken advantage of. I love channels like this one (especially this one) because they give me information and ideas that I can use.
Love you Erin, for pointing out scammers that recmend a financial advisor in the comments section.
Thanks for covering this subject. I know NOTHING about financial advisors and have recently been wondering if I should be working with one. I'd love to see a few more videos on this subject.
LOVE your blooper sections!!! You do come across very well prepared and polished, just great to see that you are like most people before you get there!
Thanks so much! 😊
There’s so much good information out there. Erin is a perfect example. It’s hard to justify a 1% commission especially if you’re willing to put the work in and take control of your money and educate yourself. But some people don’t want to be bothered. That’s when an advisor makes sense.
Hi Erin. This was a well balanced discussion on an important topic, that your viewers will find beneficial. I have always been a life long learner who was interested in finances and been a DIY investor. I've been retired now almost 13 years. The internet offers an abundance of financial channels to sift through and has made this much easier in recent decades. People do need to be very cautious when they filter through and select the content they are willing to be exposed to. I'm with you, and feel most can DIY if they are serious and educate themselves somewhat. ETFs make things a whole lot easier nowdays and can be a wise choice. The advent of target date funds is yet another step for DIY to make it a little easier. I feel it comes down to a personal choice, but it is important enough that people need to respect it and carefully consider the long term. It comes down to the individuals temperment, goals, ability and confidence. There gets to be a point where you have complexity in your situation and you need some help which is available on the fee structures you discussed. Keep up the great content Erin and I'll see you on the next one. Larry, Central Valley, Ca.
The thing I like about assets under management vs. flat fee is that it gives you the same goal. The more money they make for you, the more money they make for themselves. With flat fee, they only need to perform well enough to keep you as a client. Beyond that, they don't get any more compensation. I like the idea of having aligned incentives.
Except vast majority of “advisors” look at it differently. You do well, they get paid well. You do poorly, they get paid well. With these advisors it is a race to sign up as many clients as possible, not try to eek out 1 or 2 % more for each one. Mainly because vast majority cannot beat the market and they know this. Plus advisors are disincentivized to take risk because clients will fire them if things go poorly. If they advise easy, middle of the pack ideas, then they get to keep the cash cow client forever. So thinking advisors are incentivized to perform above average is a fallacy.
Great advice. I will watch this video multiple times with my notepad to record the important details to bring when I research and interview a financial advisor.
Muchas gracias.
Financial advisors are good at protecting you from yourself. They can reassure you when the market is down to stay in the market (if you are an emotionally reactive person).
@@travisjames1263 shouldn’t cost $10,000 per million per year for that.
For years I have told friends and family they don't need an advisor, just go with an index fund. As I get older with more complicated finances and time that i value more than anything, I now see the benefits of a good advisor and how they can reduce your stress. I still don't entrust my whole portfolio though.
I totally agree that an advisor for only investing is unnecessary with all the index funds these days. However, I remember when my great aunt passed away her financial advisor even brought his truck to help move furniture from her apartment, so I think there can be benefits of a good financial advisor. Thanks for another great video Erin!
Wow, an actual answer at the end, I'm impressed.
Doesn’t happen all that often does it? I could’ve just said, well, it depends. 😂
One of the best videos yet! Absolutely spot on!
Paying a one-time flat fee for a comprehensive financial plan and for periodic check-ups makes perfect sense for a lot of people but, in my opinion, most investors won't benefit from paying an ongoing money management fee. That 1% annual fee comes directly off of your bottom line, and it will add up to a HUGE loss in growth over time. I think that money would be far more useful staying invested and working for you. If you have no idea what to do, consider paying a reputable advisor a one-time flat fee for a comprehensive plan. Once you have a plan that has been explained to you in detail, you can probably take it from there. All of that said, high net worth individuals who simply don't want to be bothered with portfolio management, might be good candidates for a money manager, but that is a very small number of people in my opinion.
i agree now you might have to pay more a few time over the year for more information, say you want to buy a house and they show you some tax trick to save you money , or tax harvest this year, but year more year you do nothing. and just have the market go up.
Flat fee only!!! I totally agree with you Erin Talks Money (ETM)
As always tremendous job on completely covering all side and angles of a topic.
Wow!!!! It is refreshing to hear someone point out that advisors imply a "cause" whey they are talking about a correlation..... People who drive BMW's are generally richer than people who don't. So... let's all drive BMW's so that we'll get rich. There are a few really good reasons why some people "should" hire an advisor... 1) if they're not good with math, 2) if they tend to react based on emotions, 3) if they'd rather be doing something else with their time than thinking about money. Thanks for your video.
Erin you nailed it when the benefit (albeit at a cost) is the holistic view our financial advisor provides. They are our initial stop (and often final stop) for a wealth of life planning, finance, medical, estate, etc… While one can certainly do this on their own it is convenient having this source ( a large financial institution) available and in my mind worth the 1% burden.
@ErinTalksMoney Great advice! Been thinking about this. I like your suggestion about a flat fee person. Before I take any step I need to better educate myself, then I might dip my toe into an advisor relationship. Thanks again for another super useful vid! You're a 'must watch' channel!
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Great video! I had and moved on from 2 financial advisors. The first didn't do anything wrong, just wanted to go a different route. The second, while a good person and managed my father's portfolio for years, didn't do much outside invest and move on. I knew more than they did and cared more than they did. At that point I realized I focused more and learned more than they did so I moved on. I love reading and learning about investments, tax law, etc.
My advisor has helped me tremendously and continues to do so.
I’m so happy to hear that!
I can’t say it enough, God bless Vanguard! Simple cost effective performance DYI. My friends who use planners seem to be more lazy towards understanding financing and believe they are paying a pro or worry about that stuff. I pay a guy to cut my grass but I have to worry about the weeds😊.
I have been using a AUM fee financial professional for over 18 years. What people don't get is that they typically have access to & can invest your money into institutional grade funds & investments that are NOT available to retail investors. The good ones will also be proactive in watching your investments and move $$ into or out of funds based on performance or market shifts. Additionally the amount of time it would take you to research and determine which investments to put your $$ in is much better spent focusing on making $ and life in general. Lastly when the markets go south like they inevitably do, your advisor will work to minimize your losses in a down market.
This is a classic "it depends" decision. For so many with very little financial knowledge and who foolishly choose not to educate themselves, a fee only advisor would give them structure and could set up a diversified investment comprised of index funds and dollar cost average monthly contributions.
However, anyone who has any interest in learning and applying basic financial knowledge is most likely better off saving the fees and going it alone.
Exactly. It's a sad trap, actually. Only people who know how to do this stuff will realize that asset-under-management advisors are basically scams at this point, but since most people don't know any better, they keep falling into the trap.
Fortunately it's not *actually* a trap. It's just paying a boatload of money for very little actual value.
I have thought about this kind of from a different perspective. I don't want or need an advisor. My ex-wife who got half+ or my son who will get it all, I hope will get a good fiduciary advisor. As far as trusts, I have seen how bad managing money from the grave can go.
Paying an advisor for a financial plan is like paying a personal trainer to give you a generic workout routine that you could easily find yourself online. I'm referring to the typical employee that's just looking to invest in the market. Owning and investing in businesses, real estate, etc, is a little more complicated.
Except you don't have to pay the trainer 1% of your assets
As a financial advisor I completely agree with you - the value is in the implementation. Knowing what to do and actually doing it, and continuing to do it, are two entirely different things. Why do you think only 20% of gym members go on a weekly basis?
@@SparkWealthAdvisorsautomation solves that. I.e. put $100/week into VFIAX every Friday into my Roth IRA. Done.
Such a good point.
The fact they force an AUM model in most cases is kind of a joke. It's people who got wealthy through business but never learned any financial planning so they just pay someone 1% of their net worth and are none the wiser.. Meanwhile those advisors will try to add more fees through the funds they choose AND that won't even be their only client. They'll have like 30+ clients and they barely do any work for them but just collect all their money.
I think is it important to understand how much help do you need. If you don't have the aptitude to manage your assets and do your planning. Get help. But if you can do it yourself investigate how much a 1% fee is costing you over 20 or 30 years. And if you subscribe to a 4% withdrawal rate then the 1% fee is the first % taken out of the 4% so now you are down to 3%.
I lost more money with CFP. I am up 879% on my own. I learned to research on my own and make prudent decisions. I trust myself now. I would never use a CFP.
Over what period of time? That should take about 20 years using good investing principles. If you did it in a shorter period of time, that's more akin to gambling.
I've been with Jazz Wealth for a bit and I justified some of the fee because I was learning quite a bit in different classes that they hosted each week. Lately they've been more disconnected and the communication seems to be minimal or non-existent... I'm not sure if they're just trying to figure out investments right now, focused on their sponsorships, or if they've outgrown their smaller investors now... But it definitely has me rethinking whether I need a financial advisor!
I agree that once you get a basic understanding, you can do a lot by yourself if your advisor isn't creating value elsewhere!
Thank you for this video. Most people hear "1% fee" and think, well that's not very much. The reality is if you are paying someone 1% to manage your money, it almost guarantees that you will not keep up with the market returns. Over the long term, this 1% fee is a huge drag on returns no matter what services are being provided. I do understand that a 1% (or even 1.25%) fee is normal in the fund management business. But that doesn't mean it's right.
Look up "the behavior gap". Humans are emotional, not robots. They panic sell, try to time the market, and chase performance by trying to pick stocks or hot funds. This leads to underperformance by a much wider margin than 1% based on numerous studies. Then there's full scope financial planning that many advisors including myself provide that can easily make the fee pay for itself via tax planning, estate planning, risk management, retirement income planning, etc.
The fee is actually worse than 1%, because it will require having taxable income in order to pay it.. So now it actually complicates your taxes, makes you in a higher tax bracket, just to pay them. So ultimately the cost can be closer to 1.2 -> 1.5% thanks to the tax increase.
@@Lolatyou332 That's not accurate. Fees deducted from pre-tax accounts are not treated as taxable distributions. Nor are they from any account.
I have *never* had a financial guy. I am now retired and really in a -good- great position. Through watching videos I have learned so much. Erin is one of my favorites though at times I find it difficult getting financial advice from a girl in high school. *ONLY KIDDING!*
😂 listen, I am taking it as a total compliment! PS, this year is my 20 year high school reunion!
Hi Erin! Love your videos! What you may have missed is that most financial advisors I've spoken to won't take you on as a client unless you have at least $500k in a stock portfolio. To them, anything less, their 1%-2% isn't worth it to them. Most financial advisors don't beat the market. So the articles are skewed.😎🏆
I had an advisor for one year, it was Edward Jones. Every single thing they suggested were things I would have done myself anyways. If you just stay invested I don't see the need for an advisor. If you lack control and have bad impulse then it's probably worth it
Great video Erin. There is a lot of hype trying to justify the assets under management fee. When you look at the long term impact of that fee - it can be huge.
HOWEVER - while most of us who watch your channel are naturally into/interested in investing, retirement, financial planning - there are many who are not. My wife is one of them. At some point in the future I will need to engage a financial planner - as there is little chance that after I am gone she will be confident in what she should be doing.
Two fantastic points you make - 1) this is something that as you get towards decumulation becomes very critical. It is much easier/more straight forward in the accumulation phase. 2) I absolutely agree that a Flat Fee advisor is the way to go in most situations. Pay them for the time spent.
Agreed! Definitely using a flat fee advisor is the way to go. Paying a percentage of your AUM compounds the other way just as rate of return on investment. It may not seem like a big deal in one year, but throughout the course of your investing career, it is HUGE!
But how do you find a flat fee or hourly advisor? They all want AUM.
I have about 60% of my portfolio with an advisor who charges about .6%. That plus management fees from the investments increase total fees to about .8%. He is a fiduciary and provides a full range of services as outlined in the video. I manage the other 40%, mostly through individual investments and low fee ETF’s in a Schwab account at a much lower fee rate. My living expenses are covered through both the advisor and personal portfolios. Having both gives me the benefit of the advisors advice with lower overall fees of the combination.
95% of financial advisors do not outperform passive ETFs.
As pointed out, though, outperforming a passive ETF is not a reason you should consider a financial advisors and if that is what they try to sell you on, run (do not walk) away. Also, one of the basic reasons you want one is to stop you from doing stupid.
@@glensmith491 people invest to make money. Full stop. If they want advise, they Google it. It's free and available 24/7. Financial advisors should look for a new, more "hands on" career in 21st century.
That is a good point. For myself I have reached a point that I can be comfortable without needing to outperform the market. It seems to me that any attempt to outperform increases the risk of underperforming.
@@D-day_203 we're in times when financial advise can be found free, such as on this channel. Why pay more?
@@RomanVarl Things get more complicated when trying to live off a set amount for 30 years. Budgeting, taxes, risk exposure, and estate planning all add layers of complexity. During the wealth accumulation phase of life, I 100% agree that a simple strategy of index funds / ETFs is more beneficial.
Wife and I both retired two years ago.
We are in our late 50s.
We couldn't justify the 1% of assets fee structure as we basically put most into index funds.
We did pay a one time $1,000 for an advisor to look everything over prior to retire. She put it plainly by saying "if you want to keep working go ahead, but you have enough saved to not need to keep working."
Can you share with us how do you handle your "income replacement" ?
In other words how do you pay your monthly bills and Estimated Taxes
I will go against the grain here. I have grown over 35+ years of investing. Because of that, I have outgrown 2 advisors. The previous advisors were good for the stage of life I was in. I also never paid them anything (because all the fees were hidden in the funds). I moved to a fee only advisor in 2018 and get all the services I need to position my estate and tax plan. They are also a great teammate in reviewing my strategies for retirement. I have outperformed the market significantly 5 of 6 years with this advisor. The cost is transparent as I am invoiced quarterly. I do not have the time or resources to do the trades, tax loss harvesting, and position my portfolio for the strategic environment. I find a lot of value in what I pay at this stage. I have made a lot more money with this advisor than I would have on my own with a strict S&P 500 portfolio. Having an expert is worth it in my case.
Did you outperform before or after fees?
@@jefferya.meixner8540 after. I am still beating the market average gains with the fees deducted. Again, not for everyone. This is why personal finance is so personal. Not going to lie, 2022 was the year that was hard to pay, but I got it all back since then.
Great points. I want to enjoy retirement and let someone else manage the stuff. I don’t want to be stressed out thinking about all the moves that I need to make. A consultation monthly to keep me informed is all that is required. I worked hard all my life and I don’t want to have to work on my retirement daily. To each his own.
I've always looked at financial advisors as for older folks with a lot of accumulated wealth looking for that copilot to sanity check their plan and educate on tax optimizations as they transition to depending on that nestegg. Not sure if I'll need/want that when I get there but I do think financial advisors can largely pay for themselves by helping the under informed with things like roth conversions and other optimization strategies as they enter that stage.
I honestly think having an advisor is more so about not having enough time to do it yourself at least that is true for my wife and I. We use an advisor through my wife's company, but they do not manage our investments, however, we still get a financial plan out of the deal so it helps in that way. But I cannot see having them manage our portfolio and paying 15,000 a year in fees.
As a retired corporate financial executive, I know about taxes and investments but not much about estates and trusts. The first thing I did before I retired is found a good estate attorney and got my wills and estate planning done. This is an area where a mistake can be very costly. I manage my own investments with mostly index funds and cash. I learned a great deal about Medicare and long term care insurance from TH-cam and made informed decisions on my own. I now find managing my own finances is a hobby for me that I enjoy. I will pay an hourly fee to have my plan reviewed but will never pay a percent for assets under management. Now, if someone is willing to manage my portfolio and only be paid a share of the returns that exceeds the SP500, I’ll consider it, but we know That will never happen. 😂
I did put about 50% of my savings to an Advisor years ago, I do about the same thing with the rest of the money that he invests in but now in retirement he has moved a lot to Bonds and yes when the market goes up I outperform him now but the reason I did this was to establish someone that would work with my wife if I was to pass away. My wife and I meet with him once a year and she feels confident he has her back. And that does mean a lot to me.
Same reason I did for my wife as well. She was honest and said I know how to spend it, but I don't know how to make it. I negotiated our fees. Less than 1%
@@davJanko8052 Good idea on negotiating the fees, I do pay 1%
As an estate planning attorney I recommend my clients consider a fee only advisor (if they want an advisor), which at least eliminates conflicts of interests. NAFPA is the database for these advisors.
Also I would say there are a number of few only advisors who would work on a flat fee. Fee only denotes that their compensation comes from you, not kickbacks for selling product. There could be a flat fee advisor who has conflicts, like selling you an annuity in exchange for compensation on the back end.
I agree with you, a 1% advisor fee is not worth it. I am a DIYer (Do It Yourselfer) when it comes to my finances, so thus a little bias. However, if a person doesn't want to learn about personal finances and be a DIYer, then a flat fee advisor would be best. By the way, I like the beginning where you mentioned correlation vs. causation. I teach a research course and talk about the differences. Thanks Erin for this video!
My grandparents had advisors for over 30 years, I don't believe they ever outperformed the market nor even got market gains. In fact, I think the returns were abysmal and they paid a boatload in fees.
My big advise is to avoid long term commitments. Don't let them tie up your money is some sort of annuity or other financial product for 5 or 6 years, leaving you unable to leave without a heavy penalty.
Great video Erin.
Great video. I am going to to share it with a friend. I agree with all your points. And if you remember me, sometimes I don’t 😅
I still read all the comments that are posted on this channel 😊 I definitely recognize your handle - you've been here for years! I appreciate you hanging around for so long! And a big thank you for sharing the video 🙏
I think it also depends on the type of advisor/account. I just started with one and get a perk through my job which lowers the rate to 0.5. They only charge whats in the account you open with them, but advise on all assets. Its a decent deal
Why pay an advisor when I get Erin for free?
😊
Erin isn't free, it's an addiction that can't be cured.
@@ErinTalksMoney love your videos. Hoping for your thoughts on banks advisor that are free with enough in assets.
Erin’s the best
@@larryzettlmeier2661 Bank advisors work for the bank. That said, I have done my backing at a credit union for decades. I moved a big chunk of savings to 53rd when they offered a high interest rate on MM. I knew I had to watch 53rd but, simple account. It really wasn't worth the worry I was doing and I talked to my credit union for advice on getting my money back to the credit union without paying as many fees and penalties. The credit union insisted I talk to their advisor. There was no way I was going to buy what he was selling but, he did get me to thinking enough to move most of the money I was keeping locally to a Vanguard brokerage account not associated with the credit union. Hindsight 20/20, I was keeping too much money locally. I knew I was getting a lower return but, thought better, quicker access was worth it. Getting money from a brokerage account doesn't take long at all anymore.
Tax planning is hard because taxable events cause your budgeted expenses to change which cause your taxes to change and laws will change. I also have multiple options that have a lot of potential to either make things better and worse at the same time. I don't have time now and don't want to have a new full time job in retirement simply managing my finances. I also know that cognitive decline can happen to almost anyone, emotions can get the better of everyone and even one's beliefs are an issue.
Biggest hassle I had, was trying to get out. All my funds were tied up in proprietary funds, had to be liquidated, transferred to my bank account, then moved to where I wanted them. Ultimately, it was a pain in the ass, luckily, I had less than 1200 in gains, less if you count the mgmt and cancellation fees, (severely underperformed). Never again! Self managed etf funds, fee based advisors in the future.
The plus side, the guy got me saving money, I probably would have started way later if he hadn’t approached me when he did. Now I’m still playing catch-up, interested in investing and developing a plan for my future.
AUM always has an argument for why they should be paid as such. And some of them are slick sales pitches.
But ask them this, "If I have 1 million under management, explain to me what advice you will give me that is worth $10,000 a year?"
After they give you their sales pitch, say, "OK. When my assests under management grows to $1.5M you will be charging me $15,000. What additional advice would you give me to justify an additional $5,000 a year?"
Considering that, generally speaking, the financial advice needed by a person with $1.5M is pretty much the same as a person with $1M, they are either ripping you off on the extra $5K by not providing any meaningful additional advice or they were intentionally withholding advice from you when you just had $1M.
Paying someone to tell you to invest in the s&p 500 and hodl seems pretty stupid
Thanks for the PSA on the youtube comment scammers. I report them at every moment but not sure if it actually does anything to get it off the comments section.
The fact they are so common and youtube can't develop an AI to see that it's an obvious fake comment is a joke.
They get massive numbers of upvotes, all have comments that go to recommend to ultimately recommending a random person, which ultimately leads to a scam website or video.
I had an advisor at a big brokerage house. When interest rates started going up he did not have the ability to buy a mutual fund with just short term treasuries. The lowest was 3-5 years. So basically I was guaranteed to lose money. His other option was, “well you can put more money in the stock market.”
Because this was so frustrating I started managing my money two years ago. I bought treasury bonds at auction or CD’s myself. I realize this strategy will not always work. However it was frustrating the brokerage house did not have a strategy for when bond funds were tanking.
If someone understood the process well enough to build a nest egg of $500,000 or more, they are clearly capable of learning. How much is someone willing to learn, in order to save $5,000 a year, every year, and even more as their balance goes up? I've tried it both ways and no longer pay AUM fees. I have paid a financial advisor a one-time fee to assess my situation and offer some thoughts on what comes next. I will probably do that again, periodically, but I won't be paying someone a percentage of my wealth...to build their wealth.
I had an advisor show up where I work (University) and offer their fee of 3% to manage my University retirement plan. That 3% was on the base and moving forward. I was like, wait what? i have to give you $60,000 and then 3% on top of it? I passed, too hefty. They told me I was a fool Maybe I was, IDK.
No you were not. Its very rare to need an advisor. I began investing at the age 16 with my father owning the account. I actually told him to do it. I didn't have an advisor. Later in life, people said I needed one. I got one because of peer pressure. A totally waste of money. I have no advisor now.
No you made the right choice. They can beat a simple S&P 500 index fund they were trying to rip you off.
Well, if they worked on the Pelosi Portfolio, it might have been worth it in the long run.😅😅😅
3% is criminally high.
I self manage and enjoy it. I’ll pay a “reasonable” rate for a CFP when I’m 75 years old. My wife has no interest in managing money.
With how easy it is to establish low cost or no cost index funds.....no thank you.
Erin is posting videos fast!
I agree with one, perhaps there are others, commenter that said that it depends on the stage of life you are in. I think to invest conservatively in an ETF, US and/or global will serve you well until you retire, while seeking a fee based financial adviser advice once every couple of years. Once you retire, in my opinion a reputable AUM type of adviser who will look after your money and issue you a monthly paycheck, minimize tax paid, plan for an estate transfer, and advise on decumulation, would be a good investment. I think a more detailed look at sources of advice and money help at various life stages would be great!
Regretfully, I was with Edward Jones for years. Finally fired them last year, and I'm so happy that I did. I felt like a complete sucker.
I'm with you. I found out that Edward Jones won't even talk to me about ETFs or other investments. I also found the 'commission' charged for each transaction would take me a long time to make up in the stock or mutual fund I bought / sold.
@@rdgale2000 exactly! It's been 19 months since I got rid of them. I put their investments vs mine in Portfolio Visualizer and I've way outperformed them since.
Good for you! That must be a big relief.
@@rdgale2000agreed! I've done better in my returns since then.
A $1 Million dollar portfolio under management at 1% is $10,000/per year or $833.00 per month. That is probably more than most people are contributing to their 401K per month. Fee only. No way.
The real question is -- can the advisor provide more value than it costs? I managed my own investments for about 25 years. I hit a brick wall about four years ago where I just couldn't get to the next $100,000 level for three years although I didn't change my investment style very much. Around the beginning of this year I decided to use an investment manager. They charge 1.25% because I have less than $1,000,000. They invested into various stocks, bonds, and ETFs and have changed some of the holdings this year. So far it's been worthwhile since they do the research on when to move investments from one sector to another and when to move more into bonds vs. stocks.
@@gmc9753great. Now you have 10 months of data did the financial advisors beat the Sp500?
@@gmc9753 You are being separated from your money. No one can time the market. It is all narrative to make investors feel they are in safe hands.
Exactly and if you pay that for 10,20 or 30 years look at how much you have spent and you will never get it back.
@@gmc9753Like you I have managed my investments for many years. But sometimes I think I don’t know, what I don’t know and am I missing out on the full impact of a good financial advisor because I don’t want to shell out 1-1.5%?
I think I read an article years ago about how working with a financial advisor over the years increases the average portfolio by at least 3%/yr? I guess if true that should cover it! 😊
Depends on your age. As a young person looking for aggressive growth, it doesn't make sense. The fees over a 40 year period can really impact returns by retirement age.
An older person may have more complicated needs, such as optimizing taxes, estate planning, and nuanced risk exposure.
My father in law was a president of a fortune 500 company, but he wasn't very good with investments. When he was 57, he realized that he had ~$4million in his company stock, comprising ~70% of his total assets. I strongly advised him to get a financial advisor, because he did not know how to manage his retirement assets.
The only wealth management service I'd be interested in for anyone in my family would be an advisor who would brow beat and discourage my dad from abandoning his plans and withdrawing his money from index funds every time the market goes down. Said advisor could make an exception if my parents actually had some massive medical bills or other non-market-timing reason to unexpectedly withdraw money.
I pay 0.75%, or roughly $9k per year. It's 100% worth it because I deal with some challenging tax and estate planning issues along with investing. I started with my advisor about 7 years ago and am now almost three times (3x!) what I started with in 2017.
I also contribute a lot more (my wife and I add $4500 per month) because we have accountability in the process with the advisor that we were lacking on our own.
It's like having a trainer at the gym or a Pilates instructor. You can do it on your own or learn to to it on your own in theory, but it's much better to pay to have professional guidance. And I say this as someone with an MBA in Finance.
At least that's my experience.
Oh, and I did it 100% on my own for over 25 years before engaging an advisor. I wouldn't bother with an advisor until you hit about $300 - $400k, at minimum.
They tripled your money in 7 years? Does that increase include your $54,000 that you add to every year? We just hired a wealth advisor, it makes me nervous. I handled our finances and investments (in real estate) my entire adult life. Now selling them off to retire. We have been selling 2 a year for the past 7 or so years and will continue until we're down to 0-5 houses. I am not sure how much we will contribute to it though, as I want to split our wealth into separate baskets, but, it would be nice to see this kind of growth.
@@Monipenny1000 This includes my contributions, which were $25k-36k per year (most years) until 2024 when I upped it to $54k per year. My growth has been average to slightly better than average.
Hi Erin, great video and great advice! And I love your bloopers 😊 Do you and your husband have an advisor and is he/she a fiduciary? Could you give a me recommendation? Hope you have a blessed week 😊
I understand the whole concept of taking 1% from your portfolio to take it to to an advisor who can get me into funds that I never would have to access to otherwise.
Don’t be afraid to break up with your advisor. And if you do choose an advisor, don’t pick a friend, neighbor or family member.
Amen!
Hi Erin. Your work is great. We've been following your channel for a few months. On this video, please check from minutes 11:32. There is a spelling error on the slide. "Charge" is misspelled.
Darn! Unfortunately, I can’t fix it. Once the video is posted, the only way to fix it would be to take the video down and then repost it. But thank you for letting me know!
I had always did my own investing then went with a Big Box firm. Fees were 2k a year plus 1.2%. Went back on my own after 2 years and constantly strive to educate myself.
I used to do this on my own, following advice from family, friends, and "experts" online. The problem with following generic advice is: nobody else has the exact same finances or goals as I do. What works great for one person, is probably not be the best option for someone else.
Working with CFP who charges 1% AUM can be okay as long as the financial professional is a Feduciary. Getting referred to a financial professional who has a good track record by a trusted person is also an ideal position to start from.
This one helps
Thanks
It is like the wild west out there. Frontline makes in my opinion very good documentaries. I still remember seeing the documentary called "The Retirement Gamble". The information is still relevant today. It aired in 2013 over 11 years ago.
I find your videos very good both helpful and well presented. But at 9:50 the situation where someone is withdrawing funds and the client complains of "browbeating". Your reply that is that "the advisor is definitely not there to tell you how spend or not spend your money". I can think of situations where the advisor might well question a withdrawal(s). As someone in my last year as a septuagenarian I hear stories about single individuals, in my age bracket, who become involved with someone on-line and that someone starts asking for money. Of course its just some lowlife pulling a scam on a naive and lonely senior. I don't think a advisor questioning withdrawals is unreasonable, but it does depend on how much and how often and the mental acuity of the client.
Nice video. My CFP and his group have changed over the years. I am kind of expecting the pitch to move to AUM to come soon. Thanks for perspective that I am not alone in my instincts about AUM. I don’t think it is worth it. I’m interested, a bit knowledgable and involved in my finances. I’ll continue with my traditional advisors then seek out flat fee advisor when needed. Thanks!
Reading the comments, I think people who watch videos like this are interested in looking after their portfolios themselves! I.e. a self-selecting group. I use an advisor, they charge about 1.2% of assets under management. When I retired I tried looking after my own portfolio and quickly discovered that I don't have the temperament for it! I'd much rather pay someone else and not have to worry about it. Our advisors provide a full range of services - insurance, long term care insurance (annuities), withdrawal and tax management. Basically complete retirement wealth management. Far from browbeating us, they actively encourage us to draw down our savings and spend it!
Remember, if you're doing your own investment and using mutual funds or etfs, you're still paying a fee. To manage your own portfolio properly takes quite a lot of work, which I'm not interested in doing. I'm retired!
Totally agree. We do the same. They also have found investments for us that I didn't know existed or into investments without paying loads.
Yep, your advisor has hit the mother load.
@@rajbeekie7124 That would be "lode". They perform a valuable service and should be paid for it.
Engagement comment. Keep up the great work, Erin!
I think JL Collins said it best if you have enough knowledge to pick out a knowledgeable trust worthy invest advisor you have enough knowledge to manage your investments yourself
I pay for knowledge or abilities that I lack. Most of you are paying approximately $150/hour for your auto repair and maintenance. $400/hour for attorney legal work. If you ask the mechanic and attorney most will tell you it's not hard. I'm a computer repair and network administrator charging $200/hour for some work. It's worth paying if your tire comes off the car 15 miles after you saved yourself $100 by doing your brakes on your own. I'll pay the fiduciary CFP to do what I'm not equipped nor educated to do. Without him/her I would screw up infinitely more than 1 percent.
I have almost 4 decades of investing experience and I've met with many advisors who have input my data and showed me my returns and I've averaged over 11% per year so I really do not need an advisor to help me grow my assets. And I've gotten well diversified over the years. The two areas I think I would need help on is really knowing when it's smart to retire, to stop making that income that we all have worked so hard for. And also help in planning my income stream, being tax efficient. Income and when to retire are the two tough areas for me.
Ok, What about advisors from the big mutual funds, just for example Fidelity or Vanguard. You get assigned an advisor, if You sign on to their services. You can Self invest with these companies, without an advisor.
IMO a 1% AUM fee is just way too expensive. If 4% pays for 2 retirements, a 1% AUM fee is paying for another half a retirement. Its just way too much. That said I would be OK with flat fee structure, depending on how much it is. I don't want anyone to manage my money but i think paying for advice on an occasional basis could be well worth it.
Agreed. I've actually tried to find flat fee advisors for some decisions I was about to make. Heck, I would have been happy to make it an ongoing business relationship -- pay an annual fee for access to the knowledge -- but no such people seem to exist anymore. I think those types are now embedded in banks and investment firms, but I haven't been able to find them yet. I tried calling Schwab about it, but they were only willing to offer generic advice, whereas my question required access to hard numbers.
@@bvoyelr That has been my experience as well. Given that I like keeping tabs on my accounts, and finding funds to invest in, I don't need much help there from an advisor. I really would like it if I could find someone I could pay to have a once a year (or twice) conversation, look over things, and point out areas of concern for the next 5-10 years. Then, I can go and make the changes myself.
So, instead, I've gotten most of my information from things like this channel and others.
@bvoyelr you need to Google NAPFA for a directory of Fee only financial planners.
@@jonmeilstrup5419you can Google NAPFA for a directory of Fee only financial planners.
Advisory firm: Look, our clients have a median net worth of over $800,000!
Also Advisory firm: We will decline to work with anyone who doesn't have at least $500,000....
Without knowing how the study was conducted, I try to never believe anything advertised in marketing materials.
Overall I'd say that during the accumulation phase it's completely unnecessary for most people to use an advisor. During the decumulation/wealth preservation phase I could see it being very reasonable to at least meet with a flat fee advisor initially to double check that your plan is sound.
I believe that if all financial advisors were required to work on a flat fee/hourly fee basis, the fee that would be necessary to continue their normal stream of income would cause many people to decide it's not worth it. Paying an advisor 1% sounds better than saying you have to pay $25,000 every year from a $2.5 million dollar portfolio.
If anybody try to dip into my life long saving with commission of 1% per year? Telling me to move my money? Charging me based on amount I have and selling me stuff. No thank you. Think about it.. You have 500k and 1% is 5k. That's $416 per month or equivalent to 2 French bull dogs per year. I want one of those cuties but 2.5k is too much.
Financial advisors are preferred over those who offer full planning services in low tax countries. That said, we have a slightly different model of still offering a wholistic planning service but it’s not hard due to no capital gains tax and is free to our clients. We only make on products sold. So the challenge for us to not oversell product .
No surprise, nearly everyone on here who is watching this video because we believe there is value in the source (Erin), is also hesitant to deliver our funds to an advisor. I tried an advisor early in life. After ten years of stagnant growth I decided to try it myself. Immediately saw above market returns though I do spend many hours studying the market so after paying myself for this time spent I am likely not very far ahead. On the other hand , the knowledge gained has led me to commodity trading and investing in other things such as real estate. For me, I will continue to manage my own resources.
Spot on. People who reach critical mass tend to think they will do better with a financial advisor. My biggest concern is tax strategies.
That is why you get a CPA for that.
I used an adviser up to 2008. I lost 60%. Never again.
Now I'm dept free. And only need 18% of my retirement income for a bare-bones.
budget.
He said I was foolish buying so much gold bullion in 2008-9. Well over 100 oz.
Some of my gold purchases have tripled all have more than doubled. I have no stock. But a large cash savings for immediate access to purchase whatever I chose.
I threw everyting into properties.
So glad I took charge.
But I do say do what works for you.
I think an advisor or CFP is good for those that are not disciplined enough to manage their own money. I truly believe that there is a plethora of information out there to education yourself on investing you just need to set goals and achieve them. I've learned that managing your money is NOT a spectator sport, you need to be an active participant in order to be successful.
I pay Schwab about .9% and they have nearly the same amount in the IRA as I have in my ROTH. They do not manage the ROTH. So I get to nearly track their performance with the ROTH is is nearly all in Index funds. Always interesting.
We have been using Vanguard's Personal Advisory Services for many years. And we are assigned one single High Wealth Financial Advisor. The fee for this service is .03% of our portfolio. I can't stand the thought of paying 1% to an advisor. It's easy to do the math. That amount is exhorbitant.
You probably have >5M
Vanguard charges 0.3% for their Personal Advisory Services, not .03%.
If you’re following the 4% rule during retirement that means your AUM advisor is getting 25% of your retirement income. Did you work and save your entire life to give 25% to an advisor in retirement?
It's more than that, you have to include the taxes that you now have to pay because of the additional income you have to claim just to pay them and the fee is not tax deductible for an individual.
@@Lolatyou332 depends on how much you’ve got converted to Roth. My income taxes in retirement should be very low effective tax.
My advisors always seem to be late to a trend. The end result is over the 20 years we have had only a small increase in value of the money under their control. Thankfully we have most of our money under our direct control via individual stocks and those have done fantastic. Like Warren Buffet we only invest in a few companies, mostly tech companies, our area of expertise.
0:46 , some things to remember when firms specify a split like this is that those with more money with them get discounts on things like having a financial advisor... 🤫..🤔 So is it causation which way or correlation?
FIDUCIARY! You may have said it and I missed it but, I was listening for it and didn't hear it. It is important and I would get it in writing. It says that person is working for you 100% and 0% for themselves or their company. Legally your lawyer wants to see that. As far as advisors, some advisors are good for some people. I fall back to Warren Buffett. He pretty adamantly says when he dies, the portion left to his wife will be invested in a Vanguard S&P 500 fund not Berkshire Hathaway. I bet she'll get a special deal with an even lower fee but, that's where the money is invested. Nobody knows how laws will change so managing for taxes and other considerations may require some action.
Even then, there are ways around it where they can claim plausible deniability and still pick funds with higher fees because they 'think it's best' even if it isn't.
@@Lolatyou332 Well yes, there are always ways but, the word fiduciary legally defines guidelines. Funny story, I'm a retired GE employee with a 401k type account. The process is ongoing but, GE lost 2 cases in court; $200 million for failing to inform certain investors of information that would affect the value of GE stock and $61 million for ERISA violations on employee retirement accounts. Unusually, GE has paid the money. As usual, lawyers got a huge chunk and it's going to be years of waiting for the harmed parties to get their pittance. Hopefully it will be a deterrent to future wrongdoing.