So let's say we have a $5MM portfolio at 1% AUM.

Ignoring market profits, where is the $50,000 of annual value coming from?

Proposition Joe said:

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So let's say we have a $5MM portfolio at 1% AUM.

Ignoring market profits, where is the $50,000 of annual value coming from?

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1% is too high for that size portfolio, 50 BP's is more like it for an a dedicated advisor.
I was a Merrill FA for 28 years and have my stuff with them still not because I don't know what to do, it's for my 3 kids who absolutely don't know what to do (I'm widowed). And my FA gives suggestions but I have to approve the investments, so what I'm actually paying for is someone who will tell my kids what to do once I exit. And to stop me from doing something really stupid if I start "slipping."

Ignoring market profits why? I'll ignore any alpha we may be able to provide ie access to SpaceX pre-IPO for example. Most investors come to us not properly allocated. That could mean hundreds of thousands in cash in a Roth IRA for example, or too much in bonds or trying to be a stock picker/timer. We absolutely add value there immediately and ongoing. I think you are naive to the reality of most people's portfolios and the real cost of them not knowing what they are doing and being talked into buying annuities. See Vanguard study called advisors alpha, and Vanguard was a trailblazer in lowering fees

Ag00Ag said:

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Baby Billy said:

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Proposition Joe said:

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If it's a better return on your money, data says over time they are unlikely to do better than you just investing in market index funds..

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Unlikely to beat the indexes. Highly likely to beat the average investor buying those indexes

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Actually, as stated before, highly unlikely to beat individual investors buying index funds/etfs.

See "The little book of common sense investing "-Jack Boogle, "The psychology of money "-Morgan Housal, and "A random walk down Wall Street "- Burton Malkiel, if you need proof.

An individual investor buying index funds /etfs, will do better than 85% of financial managers, and that's before fees!

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Funny you mention Jack Bogle. Here's a study Vanguard puts out twice a year. The data suggests that you're wrong.

https://www.ch.vanguard/content/dam/intl/europe/documents/en/putting-a-value-on-your-value-quantifying-vanguard-adviser-alpha-eu-en-pro.pdf

neutics said:

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Ignoring market profits why? I'll ignore any alpha we may be able to provide ie access to SpaceX pre-IPO for example. Most investors come to us not properly allocated. That could mean hundreds of thousands in cash in a Roth IRA for example, or too much in bonds or trying to be a stock picker/timer. We absolutely add value there immediately and ongoing. I think you are naive to the reality of most people's portfolios and the real cost of them not knowing what they are doing and being talked into buying annuities. See Vanguard study called advisors alpha, and Vanguard was a trailblazer in lowering fees

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Ignoring market profits because if the data out there is to be believed, advisors aren't going to beat a simple index fund long-term. So it's a likely negative long-term (especially with fee included), but for sake of example we're just considering it a wash.

Portfolio balancing is absolutely a value add that CFP's provide and customers need. Most major brokerage accounts have a tool that will do it for you, but we'll ignore even that (as I'd trust my CFP's guidance on that over the auto-tool so don't take this as me being in favor of just "trusting the website").

But is that worth $50,000 annually? No, it's something that definitely needs to be done initially, then revisited every 5 years or so and/or when there's a major financial change.

But with AUM, that $50,000 is still coming out annually.

I fully believe people need guidance. They don't need annual guidance in the form of a % of their investable assets. Again, if the value is in the advice then why is the fee tied to the portfolio size?

Because it's lucrative for the advisor because once they get the "sale" of the customer, they get those residual profits into perpetuity.

Correction - you don't think you need it and that's fine, but I see the impact and results firsthand every day and we do not lose clients due to fees. The allocation decision is fundamental, not to mention things like asset location. You are ignoring or ignorant of so many elements and are not asking questions in good faith so I will disengage.

I self manage most of our accounts/money other than an old rollover account that is in some kind of Schwab robo-investor deal. I'm generally buy and hold (primarily index funds and a few large cap and FAANG stocks) and have done really well - as most have over the past x years.

I always read these threads, am genuinely interested in this subject and often wonder if we should engage a financial advisor. I definitely would not get a percentage based advisor to do the same thing I can do. But I'm always interested in those that discuss all the "other benefits"...like tax planning, etc. Can someone give me a concrete example of that? I'm not worried about withdrawls as I've got 10+ish years to go before retirement. I consider myself to be pretty financially literate and aware, am tuned in to what we'll have/need for retirement and how that works, have owned my own business for 24 years, have a long term CPA I like, will/estate stuff relatively buttoned up with a probate lawyer I like (cost a one time couple grand - and will revisit again at some point). What actual benefits am I missing out on? I'm not trying to argue - just trying to figure out what I may be missing. I also realize this may be impossible to answer as every situation is different.

Proposition Joe said:

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So let's say we have a $5MM portfolio at 1% AUM.

Ignoring market profits, where is the $50,000 of annual value coming from?

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If anyone is actually paying this high of a fee (if anyone is lurking take heed), then you are getting absolutely robbed. This is insanely high.

Our flat fee comes out to 0.1% for reference. When we started with our advisor it worked out to ~0.02%. Our net worth has doubled in that time frame, thus the decrease.

Regarding beating the benchmarks, I think people get dialed in S&P500 or one of the market indexes. We look at benchmarks within the fund family's or sectors that we have and monitor those. We change if one is consistently below benchmark, has a management change that is not aligned to the goal, etc. In that regard, we are consistently achieving or beating benchmarks because we stay on top of it.

We have taken some flyers on a few GS products when I had some extra capital that I didn't mention earlier on top of the muni bond fund they actively manage, but the money in these flyers is mostly rounding error. Those products have achieved the expected return that was advertised so far. They are more custom products hard to duplicate on the open market designed to hit returns between conservative and aggressive. We've been playing with a few different things designed to swim in that middle lane as we move more into a de-risk stance.

RogueAg said:

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Just curious if anyone here uses a wealth management firm or if the vast majority of the users are self managing their investments.

I use Fidelity as my primary brokerage house with some holdings in a couple other places and to this point have entirely self-managed my assets. Living in the DFW area you see ads for some wealth management firms like GDS and was interested if anyone had consulted with them or used their services for investment management.

The obvious downside is the fees associated with such firms which has always been a non-starter to me up to this point but wanted to see everyone's take on this.

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people think 1% AUM is very little

but a decade goes by quickly and you just lost 10% of your portfolio. and each year if your investments are doing well you are paying someone else more and more each year.

every book states that almost no hedge fund managers can consistently beat the market.

my plan is just to hire a retirement planner for the taxes and sequence of risk issues and pay a flat one time fee for a few hours of work

LMCane said:

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RogueAg said:

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Just curious if anyone here uses a wealth management firm or if the vast majority of the users are self managing their investments.

I use Fidelity as my primary brokerage house with some holdings in a couple other places and to this point have entirely self-managed my assets. Living in the DFW area you see ads for some wealth management firms like GDS and was interested if anyone had consulted with them or used their services for investment management.

The obvious downside is the fees associated with such firms which has always been a non-starter to me up to this point but wanted to see everyone's take on this.

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people think 1% AUM is very little

but a decade goes by quickly and you just lost 10% of your portfolio. and each year if your investments are doing well you are paying someone else more and more each year.

every book states that almost no hedge fund managers can consistently beat the market.

my plan is just to hire a retirement planner for the taxes and sequence of risk issues and pay a flat one time fee for a few hours of work

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That is my plan as well. I had an advisor for around 7 years and I never really saw the value, but my wife at the time insisted we have one. Once we split, I took my money and have been a buy and hold guy for the last 10 years. I am 7-10 years out from retiring or at least not having a job I hate and will consult a fee based planner when appropriate.

neutics said:

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Correction - you don't think you need it and that's fine, but I see the impact and results firsthand every day and we do not lose clients due to fees. The allocation decision is fundamental, not to mention things like asset location. You are ignoring or ignorant of so many elements and are not asking questions in good faith so I will disengage.

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I guess I'm not understanding how removing market profitability comparison (which doesn't favor CFP's) and simply asking what value adds are done/needed constantly throughout each and every year is acting in bad faith?

Citing that one doesn't lose clients due to fees doesn't clear that up, it supports the case that much of it is selling/gaining the customer. There's a gazillion insurance agents out there making residuals off of people they signed up, that doesn't necessarily mean there is annual value there.

LMCane said:

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RogueAg said:

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Just curious if anyone here uses a wealth management firm or if the vast majority of the users are self managing their investments.

I use Fidelity as my primary brokerage house with some holdings in a couple other places and to this point have entirely self-managed my assets. Living in the DFW area you see ads for some wealth management firms like GDS and was interested if anyone had consulted with them or used their services for investment management.

The obvious downside is the fees associated with such firms which has always been a non-starter to me up to this point but wanted to see everyone's take on this.

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people think 1% AUM is very little

but a decade goes by quickly and you just lost 10% of your portfolio. and each year if your investments are doing well you are paying someone else more and more each year.

every book states that almost no hedge fund managers can consistently beat the market.

my plan is just to hire a retirement planner for the taxes and sequence of risk issues and pay a flat one time fee for a few hours of work

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While that is obviously cheaper than an ongoing fee, you will pay a lot for it. Someone recently posted a proposal from a firm that does this which was interesting because I see this question / request all the time on here, but I don't think too many firms actually offer it for obvious reasons.

I listen to Tyler Gardner's podcast and he promotes of facet.com Fees dont look too bad for the services offered.

(not arguing, just bringing up something I have been looking into)

I think this thread boils down to a few things, when you cut through the defensiveness and generalizing on all sides:

1. Advisors provide different kinds of services - we all agree there is some value to most of these services for most people.

2. The prevalent asset-based fee model, which almost all advisors use to some degree, causes a misalignment of value due to the sometimes artificial connection between an individual's asset base and complexity/fee-worthiness. It's why PropJoe and I don't want to use it - the prevailing pricing approach doesn't provide adequate value for fees, in our minds.

3. Why don't more advisors adjust their method to attract more savvy investors or "pick-and-choose" advice shoppers? Because they don't need to - - even with the huge supply of advisors, the de facto standard of an asset-based fee is so deeply ingrained in the market that for every PropJoe or I bleed maroon that turns away, there are dozens more who will accept the "standard" pricing - it makes sense for advisors to write us off rather than trying to change our minds.

I'd be interested in a purely a la carte approach if it were truly available, but I acknowledge that the biggest benefit of using an advisor is their 360 degree view of a client's financial picture, so I go without (probably sacrificing some opportunities and savings that I could benefit from). If one day, I feel lost enough doing it myself, I'll hire one of you.

Hoyt Ag said:

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I listen to Tyler Gardner's podcast and he promotes of facet.com Fees dont look too bad for the services offered.

(not arguing, just bringing up something I have been looking into)

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Interesting. I'm sure companies like this are popping up more simply because of technology and the overall move towards sub models on everything.

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I listen to Tyler Gardner's podcast and he promotes of facet.com Fees dont look too bad for the services offered.

(not arguing, just bringing up something I have been looking into)

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I follow him too and think his content is very good.

I'll also say AI is really good for this kind of stuff. I use Claude for work and have asked a few financial planning type questions and it's been excellent.

MAS444 said:

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I listen to Tyler Gardner's podcast and he promotes of facet.com Fees dont look too bad for the services offered.

(not arguing, just bringing up something I have been looking into)

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I follow him too and think his content is very good.

I'll also say AI is really good for this kind of stuff. I use Claude for work and have asked a few financial planning type questions and it's been excellent.

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This will be a legit disruptor of the industry for sure once the trust factor gets high enough. You are likely still going to have high net worth people wanting a human but the lower tiers could easily use AI for all of it.

YouBet said:

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MAS444 said:

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I listen to Tyler Gardner's podcast and he promotes of facet.com Fees dont look too bad for the services offered.

(not arguing, just bringing up something I have been looking into)

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I follow him too and think his content is very good.

I'll also say AI is really good for this kind of stuff. I use Claude for work and have asked a few financial planning type questions and it's been excellent.

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This will be a legit disruptor of the industry for sure once the trust factor gets high enough. You are likely still going to have high net worth people wanting a human but the lower tiers could easily use AI for all of it.

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I interviewed to be one of the founding advisors at facet over a decade ago…met with most of their leadership. As of a couple years ago I still do t think they were profitable. More importantly as an advisor or client that relationship looks very different when they expect each advisor to have hundreds of clients, typically 300-600. There is no way to provide personal service at that level even with AI

neutics said:

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YouBet said:

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MAS444 said:

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I listen to Tyler Gardner's podcast and he promotes of facet.com Fees dont look too bad for the services offered.

(not arguing, just bringing up something I have been looking into)

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I follow him too and think his content is very good.

I'll also say AI is really good for this kind of stuff. I use Claude for work and have asked a few financial planning type questions and it's been excellent.

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This will be a legit disruptor of the industry for sure once the trust factor gets high enough. You are likely still going to have high net worth people wanting a human but the lower tiers could easily use AI for all of it.

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I interviewed to be one of the founding advisors at facet over a decade ago…met with most of their leadership. As of a couple years ago I still do t think they were profitable. More importantly as an advisor or client that relationship looks very different when they expect each advisor to have hundreds of clients, typically 300-600. There is no way to provide personal service at that level even with AI

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Agreed. I'm 52 so I'm still going to want a human to talk to about this stuff but I'm sure I'm on the bubble. People younger than me are likely going to be fine with AI doing much of this at some point...again, assuming they aren't high net worth. Those folks are likely still going to want a human unless they are just tech forward folks.

I just had my first full blown AI telephone conversation on the phone this week (I called Starlink). It was fine but damn it's odd to know that.

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I can't tell you the number of times we'll run into people that are tipping the IRS. I had a new client bring me a tax return and he had made 500k in charity gifts in 2024 all in cash donations when he was sitting on a massive unrealized gain in NVDA stock for example. Clearly would have been better to donate the stock but his professional CPA he paid thousands to never even asked or suggested it.

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That's a good, concrete example. I'm reaching out.

MAS444 said:

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I can't tell you the number of times we'll run into people that are tipping the IRS. I had a new client bring me a tax return and he had made 500k in charity gifts in 2024 all in cash donations when he was sitting on a massive unrealized gain in NVDA stock for example. Clearly would have been better to donate the stock but his professional CPA he paid thousands to never even asked or suggested it.

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That's a good, concrete example. I'm reaching out.

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Agreed. I'm blanking off top of my head with an example, but our advisor has brought tax savings ideas to me in the past that I didn't even know were a thing.

Probably not the best spot for it, but I believe I really need a CFP and a reality check. However, I don't have a ton of investments right now, only a 401K with a rather meager amount in it, and a small inheritance from my dad that passed away in December. I make a decent amount of money, but am extremely poor at managing it. Luckily I have no kids or anything to worry about, but still, I don't want to work until I'm 80. Anyway, long story short, are there "beginner" CFP's out there that could help someone like me? Forgive my ignorance, I just am really bad with money and want to hopefully change that if I had some help. I'm in Houston, but don't know that that matters...any help is appreciated in terms of where i should start or who I should talk to.

Echoes97 said:

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Probably not the best spot for it, but I believe I really need a CFP and a reality check. However, I don't have a ton of investments right now, only a 401K with a rather meager amount in it, and a small inheritance from my dad that passed away in December. I make a decent amount of money, but am extremely poor at managing it. Luckily I have no kids or anything to worry about, but still, I don't want to work until I'm 80. Anyway, long story short, are there "beginner" CFP's out there that could help someone like me? Forgive my ignorance, I just am really bad with money and want to hopefully change that if I had some help. I'm in Houston, but don't know that that matters...any help is appreciated in terms of where i should start or who I should talk to.

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I might recommend reading a book or two on basic financial acumen before you talk to someone. You should anyway so that if you engage with a CFP you have a basic understanding of what they are going to tell you.

And once you get that basic understanding, you might realize you don't need a CFP yet.

There are several great books to get this knowledge that I'm sure others can recommend.

YouBet said:

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Echoes97 said:

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Probably not the best spot for it, but I believe I really need a CFP and a reality check. However, I don't have a ton of investments right now, only a 401K with a rather meager amount in it, and a small inheritance from my dad that passed away in December. I make a decent amount of money, but am extremely poor at managing it. Luckily I have no kids or anything to worry about, but still, I don't want to work until I'm 80. Anyway, long story short, are there "beginner" CFP's out there that could help someone like me? Forgive my ignorance, I just am really bad with money and want to hopefully change that if I had some help. I'm in Houston, but don't know that that matters...any help is appreciated in terms of where i should start or who I should talk to.

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I might recommend reading a book or two on basic financial acumen before you talk to someone. You should anyway so that if you engage with a CFP you have a basic understanding of what they are going to tell you.

And once you get that basic understanding, you might realize you don't need a CFP yet.

There are several great books to get this knowledge that I'm sure others can recommend.

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Recent thread on books

https://texags.com/forums/57/topics/3577498/replies

Thank you!

I was just assuming that whoever he was with, he hadn't been with them for very long. Afterall, the S&P has made 20% gains 3 of the last 5 years, so a short timeframe with them would yield those results.

Those I suppose to the point of a few on here, I still self manage and have made 20+% annual gains in 3 of the last 5 years also.

CPA here, with so many investment advisory types looking in this is a good thread to remind you about irrma cliffs.

Keep them in mind when you are doing these trad to roth conversions. Sometimes you are leaving our client a few thousand dollars beyond the cliff. When I show him the combined tax/medicare premium increase on that extra amount beyond the cliff-- he is not happy with you.

ByrdEWhiteTrash said:

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CPA here, with so many investment advisory types looking in this is a good thread to remind you about irrma cliffs.

Keep them in mind when you are doing these trad to roth conversions. Sometimes you are leaving our client a few thousand dollars beyond the cliff. When I show him the combined tax/medicare premium increase on that extra amount beyond the cliff-- he is not happy with you.

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So just wait until their RMD's start and have them deal with IRRMA for the next 20 years?

No do the math.

Just make a 90K conversion instead of a 100K

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I can't tell you the number of times we'll run into people that are tipping the IRS. I had a new client bring me a tax return and he had made 500k in charity gifts in 2024 all in cash donations when he was sitting on a massive unrealized gain in NVDA stock for example. Clearly would have been better to donate the stock but his professional CPA he paid thousands to never even asked or suggested it.

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OK, been there, done that, but let me share the side from an investor who wasn't told the whole story.

My wife and I have done VERY well in our investments. Further, we are passionate about supporting charities that align with our values. Thank goodness for Schwab Charitable and Fidelity Charitable. We've made use of both.

Couple of years ago, (and about one year prior to my retirement), our Schwab representatives tells me we can donate stock to charities...and that it's a great way to get a tax deduction. So lo and behold, I offload quite a bit of Apple stock, that I'd purchased in 2007. My cost basis was about 7 cents for every dollar I donated.

Fast forward to my retirement. I'm thinking this is pretty neat, and want to continue this. My CPA then tells me I have a carry-over from the previous years because I'm limited to 30% of my Adjusted Gross Income. Of course, my Schwab advisor never told me (btw, that was one of many reasons why I left Schwab and am now at Fidelity).

We're now in calendar 2025 and I've got carryovers for a couple of years. I made the decision to take a Required Minimum Distribution out of my late brother's IRA (Inherited). I took the money and made cash donations to various charities.

Without question, tax laws are confusing. Thankfully, I'm about 15 months from turning 70 1/2.

My point...our Schwab guys were Account Mangers...if they understood tax, they would have enlightened me. I'm now working with a Tax Attorney. Crazy expensive...but at least I feel he has my back.

And I probably could use some advice on how I need to proceed. Thanks for the opportunity to 'vent.'

ToddyHill said:

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I can't tell you the number of times we'll run into people that are tipping the IRS. I had a new client bring me a tax return and he had made 500k in charity gifts in 2024 all in cash donations when he was sitting on a massive unrealized gain in NVDA stock for example. Clearly would have been better to donate the stock but his professional CPA he paid thousands to never even asked or suggested it.

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OK, been there, done that, but let me share the side from an investor who wasn't told the whole story.

My wife and I have done VERY well in our investments. Further, we are passionate about supporting charities that align with our values. Thank goodness for Schwab Charitable and Fidelity Charitable. We've made use of both.

Couple of years ago, (and about one year prior to my retirement), our Schwab representatives tells me we can donate stock to charities...and that it's a great way to get a tax deduction. So lo and behold, I offload quite a bit of Apple stock, that I'd purchased in 2007. My cost basis was about 7 cents for every dollar I donated.

Fast forward to my retirement. I'm thinking this is pretty neat, and want to continue this. My CPA then tells me I have a carry-over from the previous years because I'm limited to 30% of my Adjusted Gross Income. Of course, my Schwab advisor never told me (btw, that was one of many reasons why I left Schwab and am now at Fidelity).

We're now in calendar 2025 and I've got carryovers for a couple of years. I made the decision to take a Required Minimum Distribution out of my late brother's IRA (Inherited). I took the money and made cash donations to various charities.

Without question, tax laws are confusing. Thankfully, I'm about 15 months from turning 70 1/2.

My point...our Schwab guys were Account Mangers...if they understood tax, they would have enlightened me. I'm now working with a Tax Attorney. Crazy expensive...but at least I feel he has my back.

And I probably could use some advice on how I need to proceed. Thanks for the opportunity to 'vent.'

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I took the money and made cash donations to various charities. If you did that you paid tax on those donations. Charitable donations from IRA's have to be made by the custodian to become tax free. So unless I misunderstood your post you screwed up, and any competent advisor could have told you that. The problem with Schwab, Fidelity, etc, is you rarely get a dedicated advisor and the more junior they are, the more they get to man the phones.

You are spot on CT. I was in a position where I had to take an RMD. I took the RMD, and paid the tax. So now I have this money and I can keep it, or I can give it away. I opted to give it away. And the guys I worked with at Schwab had been in the industry for 20-30 years.

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Charitable donations from IRA's have to be made by the custodian to become tax free.

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At age 70 1/2?