AggiEE said:Baby Billy said:AggiEE said:
Their fees before looking at mutual funds are around 1.5%
This is enormous. On a $1M portfolio that's $15,000 per year. If your real returns are estimated at 4%, they are taking nearly 40% of your expected returns every year. Highway robbery unless without them you'd be unable to stay the course or know how to allocate to basic index funds.
Are you getting that level of service?
There's a hell of a lot more that goes into your total return over the course of your life than baseline account performance. Asset location, tax efficiency/loss harvesting, distribution order, avoiding planning mistakes, behavior during down markets, etc. All of these things impact your total return and are completely separate from how the actual investments performed. If any combination of these is at least 1% better than you could do on your own, then a 1% AUM fee could make sense for that person.
Time, record keeping, and coordination with your CPA and Estate Attorney on your behalf is also worth something to some.
Again, if you want to stick everything into the S&P 500 and are capable and have the desire to do all of these things yourself, then don't bother with an FA. If you want that type of advice but want to handle all the execution on your own, find someone that charges a flat fee.
Bottom line, there is plenty of value in a *good* FA that is actually doing all of these things. Some people are willing to pay for that and others aren't. Just like any other service on the planet.
The biggest driver of returns will be asset allocation, behavior, and time.
These other factors such as tax optimization, tax loss harvesting, etc come nowhere close to 1.5% annually.
Secondly, why should advice on what accounts to prioritize and funds to use cost an annual fee if all you need advice on is how to set things up?
It is not difficult to tell somebody to prioritize tax sheltered accounts and invest in index funds and don't market time….and that is one sentence that covers almost all of what you actually need to know
Yes, the overwhelming majority of people on the Texags Investing board are fully capable of making rational decisions, which is why the conversation always goes this way when it's brought up here. The average person is not. There are plenty of studies that prove this.
