Financial Advisor?

[glitzy07]

At what point does it make sense for someone to work with a fee-based financial advisor? What specifically will that kind of advisor help you do?

Essentially I'm wondering if a financial advisor would be a good place to start to see how we should be best saving for our futures as H and I are newly interest-incurring debt free (aside from our mortgage). Should we be throwing more at our retirement? Should we be opening 529s for the kids now that we can potentially contribute to them monthly? Should we be investing in another way?

Our details:
- The only debt that H and I currently have that is incurring interest is our mortgage, which we just refinanced down to 2.875% and will still be paid off in the 20 years we had remaining on the original mortgage term. (We got a better interest rate with 30 year loan, but we calculated out an amortization schedule with additional payments to see how much extra to pay to still be paid off in 20 years.)

- We do have a small CC debt that we moved to a 0% balance transfer LY that is on track to be paid off prior to the 0% interest term ending.

- We have a small emergency fund that we're slowly adding to now that interest-incurring debt is gone.

- Both of us are contributing to retirement accounts through our jobs, split between 401k and Roth 401k, though not maxing out. I think I'm at about 15% of my income and H is about 12% currently.

- We have three kids (two together). H pays child support for our oldest (14yo), so we have another 4 years of that expense. We're looking at having the support order revised now that he's old enough to not be incurring any daycare costs. This would potentially save us an additional ~$300/month. The other two are pre-school and elementary aged. Due to COVID, our childcare expenses are up this year ~$450/month more than normal, as the school ager is in full day care vs before/after care.


For now I'm throwing any extra monthly income and any bonus money in a regular savings account rather than rushing to pay off the 0% CC (cash is king during COVID, right?). Once I feel good about our emergency fund being sufficient, I just don't know what the best things for us to do are. Both H and I got new jobs this year and our income has increased significantly due to raises and bonuses that we never had before. That has been a huge help in getting rid of the debt, and someday once the world goes back to normal, we'll have that extra $450/month from those daycare costs.  

WDYT? Worth seeking out a financial advisor for this kind of thing? Waste of money?

[numbers]

We decided it was time to hire a financial advisor when we reached the point of:
-fully funded emergency fund (12+ months for us)
-maxed out 401ks
-no other debt besides mortgage
-sizeable amount ready to invest

In your shoes, I would probably work on paying off the CC, getting emergency fund fully funded, increasing retirement, and opening 529s for kids with automatic contributions.

Once all that was in place, if/when there's still extra funds, I would hire a FA at that point.

[gt7301b]

We haven't met with one, but I think it couldn't hurt to schedule some time and have them show you some numbers about your retirement and college savings options.

As a general rule I go by the mantra that there are no scholarships for retirement, so that would be my first priority.

I would follow these guidelines in your shoes:
-Make sure you are on track to pay off the zero % loan and it is paid off early
-retirement to 15%
-start 529s

[tcu2003]

Does your company’s 401k provider offer consultations? DH and I have done that as a sort of check-up on where we’re at and where we’re headed, and have found it beneficial. We’re at the point now where we probably need to think about one sometime soon, but I’ll likely punt it another year or two.

FWIW, I don’t think you need to see a FA for what you’re asking, but would take advantage of it if you could see a free one through work.

[raangoli]

First, congrats on getting out of debt - that is huge - and also for the new jobs/higher incomes.

I don't think I'd look at hiring a FA just yet. Basically I agree with gt7301b

While you said you're contributing to your 401k, you didn't mention of you're on track for retirement based on general rules. If not, I'd likely prioritize building that first. And also looking into a Roth for you both if you haven't already.

Then I'd look into contributing to a 529 for your kids. You said that the eldest is 14, not sure how old the other children are, but presumably you have some time to start saving. It doesn't have to be a lot, as compound interest is a beautiful thing.

Once those are done, then maybe I'd think about revisiting the need for a FA depending on what your goals are.

[k3am]

The firm we use for our tax returns also has a financial planning arm. I don't think they are fee only advisors, but they do offer a free consultation. We've sat with them a few different times just to have a third party review where we are and offer suggestions.

After the first time, we let them know that we were not likely to go with any of the investment options that they had and that we'd be willing to pay them for the time of the meeting, but they've been happy to do it anyways - they did attempt a sale in each meeting, but were okay with us saying no.

The advice we got from those meetings was really helpful for us, and definitely not what I expected to hear a financial advisor tell us. It may be worth it just to have a third party review and critique, even if you don't use them for investment.

[goldengirlz]

H and I met with a financial advisor and ultimately decided not to use one because we didn’t think it would be worth the money. Everything he mentioned to us, I felt like I already knew just from being on this board and doing some reading on my own.

I’m pretty sure that an advisor would tell you to max out retirement first to get the tax benefit (and to always take care of the fundamentals first.) After that, you could look into other tax advantaged accounts (like a 529 or Roth IRA) and then move on to a regular brokerage account.

Congrats on being debt free!

[steamboat185]

DH’s company is offering a FA as a benefit. DH has met with the guy 3-4x’s and it hasn’t been useful. Not sure if he’s just not a good FA or if we just don’t need one. We max everything out, use deferred comp, back door Roth’s, etc. I think we are just a more more advanced than their average client. They do want us to move money to them, but they charge .89%, which is way more than we want to pay.

[ssmjlm]

I would look at maxing or at least increasing retirement. Just a % can make a huge difference without feeling it a ton in your paycheck.

I would also get your efund to 3ish months and then put everything extra to the cc. I know it's 0%, but I would not want that debt hanging.

Once the CC is paid off, work toward increasing the efund. Once you're where you're ok with the efund, as you have more cash flow from paying off the cc, then put extra toward retirement, maybe go up another 1-2% and see how that feels.

[goldengirlz]

Oct 14, 2020 12:40:38 GMT -5 steamboat185 said:

DH’s company is offering a FA as a benefit. DH has met with the guy 3-4x’s and it hasn’t been useful. Not sure if he’s just not a good FA or if we just don’t need one. We max everything out, use deferred comp, back door Roth’s, etc. I think we are just a more more advanced than their average client. They do want us to move money to them, but they charge .89%, which is way more than we want to pay.

The person we spoke to also wanted 1% of assets under management for the first $500k and then a decreasing percentage from there. So you’re basically hoping that their advice will be worth several thousand MORE per year than you could earn just putting your money in a few ETFs that track the market.

Of course, there are some FAs who charge by the hour, and not by AUM, but it still seemed like the lower the fee, the more surface-level the advice, the more we can research this ourselves.

[steamboat185]

Oct 14, 2020 13:48:14 GMT -5 goldengirlz said:

Oct 14, 2020 12:40:38 GMT -5 steamboat185 said:

DH’s company is offering a FA as a benefit. DH has met with the guy 3-4x’s and it hasn’t been useful. Not sure if he’s just not a good FA or if we just don’t need one. We max everything out, use deferred comp, back door Roth’s, etc. I think we are just a more more advanced than their average client. They do want us to move money to them, but they charge .89%, which is way more than we want to pay.

The person we spoke to also wanted 1% of assets under management for the first $500k and then a decreasing percentage from there. So you’re basically hoping that their advice will be worth several thousand MORE per year than you could earn just putting your money in a few ETFs that track the market.

Of course, there are some FAs who charge by the hour, and not by AUM, but it still seemed like the lower the fee, the more surface-level the advice, the more we can research this ourselves.

That was our feeling too. I just don’t think I trust them to beat the market by more than 1%. We follow a pretty simple plan with index funds and have done fine. I don’t think their “magical blend” or whatever they are selling is that special. When we explained our strategy for paying for college and retiring before 50 they had no clue as it didn’t fit into the mold. Maybe some FA are better, but google is pretty good at finding advice if you have a few hours. And it will honestly take you at least a few hours to track down all your accounts and put them into whatever format the FA likes.

[minzy]

Congrats on being in a place to think about this question! That’s great! 🙂

I’ll add to the others that we don’t use a financial advisor, either. There was a very brief conversation many years ago with my FIL, whose career was as a company treasurer, but since then we have not really discussed strategy with anyone but each other (and me reading this board for like 15 years 😱, lol). It’s pretty simple, though. We paid off debt, invest in retirement through what’s now just the one 401(k) since I don’t work, invest outside of that in index funds, invest in 529s set to their ages, and we have term life insurance on both of us. If ever we have “too much,” we invest more. I almost wish it were a little more interesting, but that’s pretty much it. Also, one of us (me 😉) tries to give away more than the year before. In all, we’re in a great position. I’m sure firms would love us as a client, but I honestly think a check up would cost us more than it would be worth.

[Shreddingbetty]

I have a FA (fiduciary) since I got divorced. The amounts of all my retirement funds (maxed them out every year once I got married to my ex as he makes a lot of money) were too much for me to feel comfortable managing (good problem to have I know). I also got a chunk from my ex’s retirement in the divorce which was settled through a QDRO. Normally people would just roll, that over to an IRA they have but my FA recommended keeping it in the QDRO status so I can have access to it when needed without having to pay penalties (just taxes). It doesn’t get done much that way so not something I could’ve handled myself. My FA is a total nerd and numbers guys who worked in banking industry for years and has degrees in that so he really knows what he is doing. He is also planning for my retirement in ways that will keep my taxes to a minimum by having different “buckets” to pull from. He is very knowledgeable and has been a great help. On top of that he knows everything about building houses as well so he has been helpful for some house question ps I had as well. Most people do fine managing their retirement and such especially when the market is doing great ( I did until the divorce as well ) But any major crisis and it could be bad news. He helps with moving stuff to less aggressive things like when COVID happened and the markets crashed big time. I know you can read up on a lot but I just don’t t feel like I would get it enough to make smart decisions, he also has made recs for my work retirement accounts which are at a different company. He helped me with finding the best deal for my mortgage when I bought a house (taking rates and closing cost into account). So in my case he doesn’t just throw my money into a few funds and call it good. He actually has done a lot of advising and explaining about the best way to get the most out of retirement with the least amount of tax implications. He knows all the tricks of the trade so to speak to maximize income and minimize taxes post retirement. I have been very lucky to find this guy.
I am sure there is a very wide range of financial advisors out there. A friend of mine started selling insurance a few months ago and now will be trained to do some financial advising for his company as well. He has zero background in finance (And no college degree even) and isn’t financially savvy for his own finances (they have zero saving, live well above their means etc). So someone like that I would avoid like the plague but you also won’t necessarily know about that. My guy has degrees that pertain to his business and didn’t just take a few courses to do basic FA.
If you decide on a Fa make sure he or she is a fiduciary. When I talked to mine the first time he talked to me for like 30 minutes and advised me to interview others as well and told me what to look for. However my divorce lawyer recommended him and I got a very good and sincere vibe from him and he didn’t come across as a used car sales man. I have zero regrets. I get charged 0.25% per quarter. I also have my banking business with his company (Ameriprise). He also is a local guy which I love because I can meet with him in person when needed. A few of my friends that had recommendations were for Fa out of state which I didn’t want. I want to be able to meet in person when someone is handling a lot of my money.
When I talked to my guy I basically told him what my financial situations would be post divorce and went from there. He would’ve told me if he didn’t think it would’ve been worth it yet to get a FA because he does agree that it depends on how much total money is at stake. I think if you find a good FA they will be honest with you as far as if it will be worth it or if you should wait. If your work retirement company offers free FA you could start there to get an idea.
I think it is probably hit or miss as far as quality goes which is why you probably would want to get a referral from someone you know. I know a lot of people thing FA are a waste of time and money because you can read up on stuff and invest yourself. And that is true in a lot of cases. But at some point it makes more sense to have someone help manage your money.

[SusanBAnthony]

You need to be really careful because people race about their financial advisors but Ameriprise charges one of the highest fees. 0.25%/quarter is a lot! If you do go to one the only acceptable type IMO is a fee only one. Do NOT pay a percentage of assets.

[steamboat185]

Nov 9, 2020 7:08:45 GMT -5 SusanBAnthony said:

You need to be really careful because people race about their financial advisors but Ameriprise charges one of the highest fees. 0.25%/quarter is a lot! If you do go to one the only acceptable type IMO is a fee only one. Do NOT pay a percentage of assets.

Right that is about 1% a year! 5K dollars payed out on 500k invested every year. That is like an additional 400 dollar car payment every month.

[melmel48]

Nov 9, 2020 7:08:45 GMT -5 SusanBAnthony said:

You need to be really careful because people race about their financial advisors but Ameriprise charges one of the highest fees. 0.25%/quarter is a lot! If you do go to one the only acceptable type IMO is a fee only one. Do NOT pay a percentage of assets.

AW crap! I didn't know they charge one of the highest fees and my accounts are with them. I do not have a lot of $$ with them, but still!

Half of my family uses the same person from Ameriprise and we all love him. My aunt and uncle have a lot of $$$ being held at ameriprise.. they must pay a boatload in fees!

[ohgillian]

I’m happy with our PA at Vanguard and the fee there is 0.30%/year.