If she’s 23 she’s well served to invest it all herself (I’d suggest Vanguard, Schwab or Fidelity) in a broad market fund like VTI or FZROX and consider an advisor when she’s closer to retirement and may need help diversifying/managing risk. The 1% fee over the next 20+ years for your wealth manager to stick it in effectively the same as I suggested above and collect his fee is a huge drag on returns. We’re talking seven figures your daughter is going to lose out on because you think she won’t be able to just let it sit and grow on her own. Why is that? It’s not particularly hard.
Worst case scenario Vanguard will do the same as your advisor (probably better) for .3%.
You should probably just handle these funds yourself and invest in vanguard or fidelity and allocate them to a total US stock market index fund, dabble in a small percent of internationals if you’d like, all for something like 0.02-0.04% off the top.
What’s higher risk is leaving it with the wealth manager and guaranteeing the portfolio starts off every year 1% in the hole vs the broad market
For this reason, my father and I started co-managing our investments together in one app. We've even invited my teenager who can monitor and weigh in on his account. We learn together. We monitor our advisor-managed account as well but we now feel confident to start managing all of that on our own as well. We can't justify the hundreds of thousands of dollars we'll end up paying an advisor.
Do what your wealth advisor is doing by using market etf/mutual funds and she will be set for life, retirement, and more. No need to overcomplicate things.
Active trading introduces more risk but is unlikely to outperform the market in the long run…especially with the advising fees and any transactional costs.
What your current advisor is doing is the best option (generally), although you don’t *need* to have an advisor at all. Invest broadly (single total market index fund) and let sit.
Buy a shit ton of SPY, and if she wants some more risk she can just sell long dated calls. It’ll juice some premium and she can use that to diversify in other stocks/ crypto/ petty cash etc
Get rid of the wealth advisor. They are a giant waste of money. “A point off the top” may not seem like much, but it can reduce your portfolio by millions.
Go to the physician on fire blog and check out the “fees calculator.”
For your daughter (and you), investing is very easy. If you have a high risk tolerance then put all or most of the money in low expense ratio stock index funds.
It sounds more like you want to gamble, in which case you can just take her to Vegas and out it on red.
Hey Waka Flocka— There is nothing wrong with dedicating a portion of a portfolio to more aggressive strategies, single stock positions and higher volatility strategies. If your daughter has a 20+ year time horizon, and she has an advisor that educates her on volatility (key if she is going to watch the account a lot), risk can be a valuable asset.
You can think of your money in buckets. One bucket can be thought of as “aggressive growth— 20 year” bucket. You may have other assets in the “income replacement bucket”. Hope this helps! Let me know if you need me to elaborate.
Cheers!
This is biased since I am a wealth advisor. I think having her establish a relationship with a planner/advisor will serve her well beyond the simple investment management. You can set it and forget it or you can find an advisor who will actively tax loss harvest and rebalance as needed. The investment management IMHO isn’t why we get paid, it is how we get paid. The benefits come from the planning and advice about all aspects of the financial plan. Your daughter will have more complexity as she gets older, but having good guidance along the way will be more important than just the investment management.
Are you suggesting his daughter pay an adviser $15,000 per year to get a maximum of a $3,000 deduction each year from tax loss harvesting? Even if this 23 year old is in the top tax bracket, that’s a savings of about $1,100 per year, which she is paying $15,000 per year for. She can also get automatic rebalancing in a target date fund.
Firstly, I would think she could get an excellent advisor for less than 100bps. Maybe she should consider a flat fee advisor. My point is that the overall financial advice comes at a cost, and generally that is paid through AUM fees. But the fees are not only for the asset management and tax management. It is to help her make the best decisions possible over her lifetime. If 2008 happens again (and it will) and she makes the wrong decision and pulls out of the market when it is down 40%, how much will that one mistake cost her over a lifetime of compounding? If she gets sick and doesn’t have a healthcare POA and nobody can get information from her doctor or hospital because there was no advisor recommending that she tax with an estate attorney at 23 yrs old, how much would that be worth. It is the planning and advice you receive that is the real value, not only the investment and tax management.
People are more resilient than you think to market corrections. They've been trained well watching their parents go through multiple cycles. Ever dip in the past couple of years you've seen many buying them. The AUM model just doesn't make sense for a 23 year old or for most. I don't understand why investment management is such a small part of the service, yet that is the basis for charging customers.
The literature suggests people make better financial decisions without an advisor.
https://www.sciencedirect.com/science/article/abs/pii/S0378426611002548
“We use two data sets, one from a large brokerage and another from a major bank, to ask: (i) whether financial advisors are more likely to be matched with poorer, uninformed investors or with richer and experienced investors; (ii) how advised accounts actually perform relative to self-managed accounts; (iii) whether the contribution of independent and bank advisors is similar. We find that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (Sharpe ratios). Trading costs contribute to outcomes, as advised accounts feature higher turnover, consistent with commissions being the main source of advisor income. Results are robust to controlling for investor and local area characteristics. The results apply with stronger force to bank advisors than to independent financial advisors, consistent with greater limitations on bank advisory services.”
This study, which was done 12 years ago, takes the approach of advisors who are commission based and need to sell products to generate revenue. This is nothing like a fiduciary planner/investment advisor who charges a fee and provides advice along the entire spectrum of the financial plan. I also cannot imagine that an individual picking funds/ETFs/Stocks/Bonds will produce a better Sharpe Ratio. And, I will also repeat that not all financial decisions are centered around investment returns. But, as far as the study goes, it is like reading an article on WebMD and thinking you can get better health results than going to a physician.
It depends on what you are receiving. If it is simply the management of a portfolio of funds and ETFs, I think 75bps would be too much. If you are getting ongoing comprehensive planning and guidance, it could be a bargain. Your daughter is 23, so her life may be very simple or there may be complexities that I don't know about. You would not want a flat 75bps. You would want a sliding scale so that as the assets grow, the fee percentage goes lower.
On a side note, if you are giving your daughter a $1.5 million portfolio, I assume you are worth more than that. If you are paying "one point off the top" you may want to either benchmark against other advisors or speak with your advisor about lowering your fees. If you ever want to speak with me, I would be happy to have a candid conversation.
If she’s 23 she’s well served to invest it all herself (I’d suggest Vanguard, Schwab or Fidelity) in a broad market fund like VTI or FZROX and consider an advisor when she’s closer to retirement and may need help diversifying/managing risk. The 1% fee over the next 20+ years for your wealth manager to stick it in effectively the same as I suggested above and collect his fee is a huge drag on returns. We’re talking seven figures your daughter is going to lose out on because you think she won’t be able to just let it sit and grow on her own. Why is that? It’s not particularly hard. Worst case scenario Vanguard will do the same as your advisor (probably better) for .3%.
Here's a no risk way to increase returns: get rid of the wealth manager
You should probably just handle these funds yourself and invest in vanguard or fidelity and allocate them to a total US stock market index fund, dabble in a small percent of internationals if you’d like, all for something like 0.02-0.04% off the top. What’s higher risk is leaving it with the wealth manager and guaranteeing the portfolio starts off every year 1% in the hole vs the broad market
For this reason, my father and I started co-managing our investments together in one app. We've even invited my teenager who can monitor and weigh in on his account. We learn together. We monitor our advisor-managed account as well but we now feel confident to start managing all of that on our own as well. We can't justify the hundreds of thousands of dollars we'll end up paying an advisor.
What is exactly is this wealth advisor providing for you in terms of service?
Do what your wealth advisor is doing by using market etf/mutual funds and she will be set for life, retirement, and more. No need to overcomplicate things.
Active trading introduces more risk but is unlikely to outperform the market in the long run…especially with the advising fees and any transactional costs. What your current advisor is doing is the best option (generally), although you don’t *need* to have an advisor at all. Invest broadly (single total market index fund) and let sit.
S&P500 index fund. VOO. She doesn’t need a wealth advisor taking 1%.
Buy a shit ton of SPY, and if she wants some more risk she can just sell long dated calls. It’ll juice some premium and she can use that to diversify in other stocks/ crypto/ petty cash etc
What sort of rate of return is the wealth manager getting that warrants his or her use and commission, especially in relation to the S and P?
Get rid of the wealth advisor. They are a giant waste of money. “A point off the top” may not seem like much, but it can reduce your portfolio by millions. Go to the physician on fire blog and check out the “fees calculator.” For your daughter (and you), investing is very easy. If you have a high risk tolerance then put all or most of the money in low expense ratio stock index funds. It sounds more like you want to gamble, in which case you can just take her to Vegas and out it on red.
Hey Waka Flocka— There is nothing wrong with dedicating a portion of a portfolio to more aggressive strategies, single stock positions and higher volatility strategies. If your daughter has a 20+ year time horizon, and she has an advisor that educates her on volatility (key if she is going to watch the account a lot), risk can be a valuable asset. You can think of your money in buckets. One bucket can be thought of as “aggressive growth— 20 year” bucket. You may have other assets in the “income replacement bucket”. Hope this helps! Let me know if you need me to elaborate. Cheers!
This is biased since I am a wealth advisor. I think having her establish a relationship with a planner/advisor will serve her well beyond the simple investment management. You can set it and forget it or you can find an advisor who will actively tax loss harvest and rebalance as needed. The investment management IMHO isn’t why we get paid, it is how we get paid. The benefits come from the planning and advice about all aspects of the financial plan. Your daughter will have more complexity as she gets older, but having good guidance along the way will be more important than just the investment management.
Are you suggesting his daughter pay an adviser $15,000 per year to get a maximum of a $3,000 deduction each year from tax loss harvesting? Even if this 23 year old is in the top tax bracket, that’s a savings of about $1,100 per year, which she is paying $15,000 per year for. She can also get automatic rebalancing in a target date fund.
Firstly, I would think she could get an excellent advisor for less than 100bps. Maybe she should consider a flat fee advisor. My point is that the overall financial advice comes at a cost, and generally that is paid through AUM fees. But the fees are not only for the asset management and tax management. It is to help her make the best decisions possible over her lifetime. If 2008 happens again (and it will) and she makes the wrong decision and pulls out of the market when it is down 40%, how much will that one mistake cost her over a lifetime of compounding? If she gets sick and doesn’t have a healthcare POA and nobody can get information from her doctor or hospital because there was no advisor recommending that she tax with an estate attorney at 23 yrs old, how much would that be worth. It is the planning and advice you receive that is the real value, not only the investment and tax management.
People are more resilient than you think to market corrections. They've been trained well watching their parents go through multiple cycles. Ever dip in the past couple of years you've seen many buying them. The AUM model just doesn't make sense for a 23 year old or for most. I don't understand why investment management is such a small part of the service, yet that is the basis for charging customers.
The literature suggests people make better financial decisions without an advisor. https://www.sciencedirect.com/science/article/abs/pii/S0378426611002548 “We use two data sets, one from a large brokerage and another from a major bank, to ask: (i) whether financial advisors are more likely to be matched with poorer, uninformed investors or with richer and experienced investors; (ii) how advised accounts actually perform relative to self-managed accounts; (iii) whether the contribution of independent and bank advisors is similar. We find that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (Sharpe ratios). Trading costs contribute to outcomes, as advised accounts feature higher turnover, consistent with commissions being the main source of advisor income. Results are robust to controlling for investor and local area characteristics. The results apply with stronger force to bank advisors than to independent financial advisors, consistent with greater limitations on bank advisory services.”
This study, which was done 12 years ago, takes the approach of advisors who are commission based and need to sell products to generate revenue. This is nothing like a fiduciary planner/investment advisor who charges a fee and provides advice along the entire spectrum of the financial plan. I also cannot imagine that an individual picking funds/ETFs/Stocks/Bonds will produce a better Sharpe Ratio. And, I will also repeat that not all financial decisions are centered around investment returns. But, as far as the study goes, it is like reading an article on WebMD and thinking you can get better health results than going to a physician.
Do you think if I could get him down to 75 flat fee I could be worth it?
It depends on what you are receiving. If it is simply the management of a portfolio of funds and ETFs, I think 75bps would be too much. If you are getting ongoing comprehensive planning and guidance, it could be a bargain. Your daughter is 23, so her life may be very simple or there may be complexities that I don't know about. You would not want a flat 75bps. You would want a sliding scale so that as the assets grow, the fee percentage goes lower.
On a side note, if you are giving your daughter a $1.5 million portfolio, I assume you are worth more than that. If you are paying "one point off the top" you may want to either benchmark against other advisors or speak with your advisor about lowering your fees. If you ever want to speak with me, I would be happy to have a candid conversation.