Are financial planners worth it?

[boiler717]

Do you think financial planners are worth it? I am interviewing one this week and it seems so expensive. They charge 1% of investable assets with a minimum of $5k a year. That really seems like a lot of money to me and I’m wondering if they really make a difference over index funds.
My purpose in meeting one is determining how on track we are for retirement, if we should contribute less to 401ks than we currently do, and if we should consider more non-retirement investments.

[carmenere]

If you're primarily looking for advice and don't want to pay for asset management, you could look for a financial planner that charges a flat fee or hourly rate.

[minzy]

I fully admit we have not really investigated this. I am certain planners would love to have us as clients, but my better, more frugal half has no interest in one. I am not sure what they could tell us that we (ok, mostly my husband) have not already figured out. My FIL does have a financial background and suggested a couple of general mutual funds once, way back in the day, but that’s the extent of our outside instruction. We’re pretty much solid on the basics. No debt, save, invest in retirement/529s, and then outside of them. They obviously can’t guarantee rates of return and would take a small chunk of our net worth to manage it, a process we are currently handling just fine on our own. Would a one time check up be the worst thing? No, probably not, but we really don’t think we’re missing anything (and don’t want to pay exorbitantly to find out we’re right).

[awkwardpenguin]

I think it really depends on your goals and the nature of what you want the planner to do. An assets under management or % of investable assets compensation model really only makes sense in my opinion if what you are looking for is to hand over the reins and have someone else take care of your investments. And even then, 1% is higher than I would want to pay. For that amount, you can expect a full financial plan when you start and ongoing advice and asset management. But I think that compensation structure really benefits the advisor more than you, especially if your needs are not complicated.

If what you are really looking for is someone to answer some specific questions about your investment plan but you'd like to manage the assets yourself, I'd look for a fee only planner that uses an hourly compensation structure. I'd still expect to pay somewhere in the $1500-$4k range for a full financial plan when you establish a relationship with them, because they can't give you recommendations without a full understanding of your finances. But then you should be able to get ongoing advice and updates where you pay on an hourly basis. This should come out to much less than $5k a year, even if you update the full financial plan as needed. There are a lot of people who offer this structure, but there may not be anyone local to you. I'd check out www.xyplanningnetwork.com/ for a list of advisors who use this model.

That said, I have personally found that I can't really outsource this part of my life, because I really want to understand my finances and not do anything financially that is above my knowledge and level of sophistication.

We once went to a well respected fee only firm for a financial plan and asset management advice. It turned out to be a huge waste of money because I had not done my due diligence that what they would recommend was a) something I would understand and b) something that was in line with my investment philosophy. It turned out to be neither, and we didn't end up using it. If I were to use and advisor again, I would make sure that the services they were offering were exactly what I was looking for.

[isabel]

DH and I went back and forth on this and struggled with the cost of it. For how much we have invested, it felt like a lot of money. We don't have millions of dollars, so to go spend $3k to basically tell us we're doing ok or where to correct felt like a lot, especially since there would have been additional fees (to the tune of $300-400 an hour) to check in with them once or twice a year.

We ended up going with Vanguard's advisory services. There's a minimum amount you have to have invested with them, but the fee is .3% of invested assets up to the first million and you can set up unlimited appointments to chat with a personal advisor. They don't manage funds outside of Vanguard, but will still advise on them and tell you where to invest the money based on funds available. So far, I am very impressed with the service and really feel like it has answered all the questions we would have posed to someone wanting $2-3k from us for a fraction of the cost.

If you have money invested in Vanguard or that you could easily move over, I highly recommend looking into their services.

eta: Our experience in looking for a financial advisor is essentially what awkwardpenguin is saying. Nobody would talk to us for less than $2k because they won't comment on your financial situation without looking at all the information and drawing up a full plan. Then to pay somewhere between $500 and $1k per year for ongoing advice to make sure we were on track just seemed somewhat unreasonable to me, especially since there was no way to know if I needed to correct without spending a couple hundred bucks to talk to the advisor. I knew it would be a deterrent to me getting advice and essentially just wanted someone to make sure my money was growing like it should.

With an investment of $500k, you're only at $1,500 a year on an annual basis. The long term cost of managed services will be more than going through an advisor, but I'm fairly confident we will earn more too. They've already made significant changes to our investments that have netted us well in excess of the .3% we paid last year.

One more thing I want to mention... we are receiving a trust distribution next month, so we had a half hour call with a CPA we've used before to discuss the tax implications. He was more than happy to offer advice on what to do with the money as well. I think we will use him as a check/second opinion on the Vanguard services for this and possibly other things down the line. I don't know if he's in line with other CPAs, but his hourly rate is about half that of the financial advisors we spoke to. I think his advice will be very helpful in conjunction with the Vanguard financial advisors from a tax perspective.

[isabel]

Oh, one more note... if you want to try a DIY method, look at Personal Capital. It's a good tool once you plug in all your accounts to see where you sit on meeting your retirement goal. Vanguard has a similar tool and we like to compare them. I find it very comforting to see a percentage likelihood of meeting our goal. You can also plug in various assumptions to see how the numbers would change, like increasing or decreasing 401k contributions, IRAs, etc. Obviously this won't help with whether you should consider non-retirement investments, but it's good for getting an idea of where you stand.

[aprilsails]

We have access to our financial planner through our ILs. Basically they pay full price and we pay nothing since we’re just piggybacking on ILs large net worth. The financial planner indicated that we would be expected to start paying for our annual checkup ourselves in about 5 years time since we should exceed some threshold for assets.

I appreciate the (free) services because it takes something off my plate that I would have to research and spend time on. I do enough and already feel spread thin. I also have just enough fiscal anxiety from my own childhood than I would constantly worry if I was making the best choice. I anticipate that once we move to a fee based structure we will carry on. Our planner has also been fantastic about helping us arrange life insurance, wills, home purchases and basically adulting writ large.

[dcn]

We use vanguard’s advisory services too and have been happy. It’s been about 5 years now.

[Poppy]

I used to utilize a commission-based broker to manage an inheritance, which led to some high fee investments that I was unhappy with.

I started doing my own research (read some books and lurked at the Bogleheads forum) and converted to an index investing approach. I paid a flat fee for a one time consult about 8 years ago, which was really helpful. He served as a sounding board and helped me clarify and focus my strategy. Now I self-manage. I have considered the vanguard advisory services but I don't think we'll get the value out of that since index investing is pretty set-and-forget. I would be open to another one time tune up to adjust and ask a few tax questions, but there haven't been any pressing issues to push me to schedule that.

[steamboat185]

We’ve talked to two through a free work consultation and have been very unimpressed. We are fairly savvy (DH is head of financial planning and analysis for a large company), but the advice we got was just wrong and would have cost us a lot in taxes (they wanted us to move a Roth IRA the wrong way). In addition we would have spent a few thousand a quarter in fees. One company was Personal Capital and the other was Capital One. Honestly, if you use the free calculators and are willing to read the advice you can get online for free I think you are about as well off.
Edit they also seemed thrown by deferred comp, which surprised me.

[ohgillian]

Feb 1, 2021 23:05:08 GMT -5 dcn said:

We use vanguard’s advisory services too and have been happy. It’s been about 5 years now.

Same. I'm very pleased. They do what you asked about, OP - advise about how much to put away in what types of accounts for various goals, etc. 

[aspentosh]

We hired one last year and I don't regret it.

For so long we invested in index funds or target date funds and while they did ok, we knew it could be better. But neither H or I really felt like researching it and with the money we had invested we thought it was time. So we *wanted* the hands on investing help and maybe less of the budget help. So a FP that could do that (though our fees are a bit lower) was what we sought out.

I am sure there are FPs that can help you "budget" and look at where you're at and where you want to be for a flat fee. I know our life insurance agent does that every few years or every major life event change.

[lolalolalola]

We have an investment adviser who charges us a % fee. I can’t remember the % but it’s higher than what I’ve seen here. He manages our entire portfolio. He is DH’s friend from college. We don’t pay transaction fees with the fee based account so he can make individual stock decisions without having to factor that in. I don’t know if this worth it but DH has been a client for 25 years so we are not going anywhere. We have seven different registered accounts between the two of us worth 1.3 million so it makes sense for him to balance our investments across our portfolio.

If you’re just buying index funds than it would make absolutely no sense.

[goldengirlz]

When we heard how much they cost, we decided to stick it out ourselves. Our investment strategy is fairly simply, mostly index funds. Our thinking was that it’s hard enough to beat the market — and harder still to beat it by substantially more than what we’d pay in fees. Plus, when we interviewed potential FAs, neither of us was particularly impressed by them. I’ve seen my parents get bad investment advice over the years and the FAs we met just didn’t seem like they were smarter or more knowledgeable than we were. (As my FIL likes to say, I can’t afford the kind of investment management that would actually be an improvement over what I can do for myself.)

[awkwardpenguin]

I think there are (at least) two kinds of financial planning that people are talking about. The first is investment management, or turning over your investments to a third party to manage. Sometimes this is called "active management" (as opposed to index investing, which is passive), and I think there's a persuasive argument to be made that it doesn't make sense for the vast majority of people. There are exceptions, and everyone knows their own financial situation the best, but I have never been sold on the benefits.

The second is what I think of when I hear financial planning, which is someone reviewing your complete financial picture and giving advice based on that. This includes a review of your goals and figuring out a plan to most effectively meet those goals. For example, if your goal is to fully fund college for your kids, a financial planner can help you decide how much to save each year, and in what form (529/prepaid tuition/UTMA/taxable investments), and review how it's going with you periodically.

I think a lot of people could benefit from the second kind of financial planning. The problems is quality advice is expensive and you have to pay for it somehow. "Free" advice is often tilted toward certain products or strategies. In addition, financial planners have an incentive to keep you coming back for more advice, or they constantly have to be prospecting clients. So often the second kind of financial planning is often used to sell you on the first kind of financial planning.

This is why the recommendation is to use a fee-only planner, but even that doesn't fully solve the issues. So you have to interview a bunch of planners and figure out who is aligned with your needs and how much that will cost. Many people are shocked by the price, but that is because you are paying the full price rather than having it subsidized by commissions and fees on products you are sold.

Anyway, I think whether it's "worth it" really depends on your goals and what you want help with. I think in many cases it is probably worth it to get a second opinion and avoid any blind spots. But I also think you can educate yourself pretty well these days and DIY most everything. But you need to make sure you've covered everything (taxes, insurance, estate planning, employee benefits, retirement planning). If that sounds exhausting and you have the money, it's worth hiring someone.

[boiler717]

I interviewed a fee-only planner this week, and I think I am going to decline. I have an appointment with Vanguard next week.
The fee-only planner is ongoing asset management only. They charge 1.05% on all assets they advise on (minimum of $5k/year, it would be about $10k/year for us), even on things like your current 401k with limited investment options. They do not provide a one-time look / plan option, it’s all ongoing management. They talked about how every trade costs you money so they aim to do as few as possible. I really didn’t understand why ongoing management was beneficial and frankly they couldn’t really articulate what the benefit was other than “we monitor the market and advise on any changes that need to be made” and they will also handle things like making scheduled charitable contributions. I asked in several different ways how they determine value to their clients and it was basically people stay with us a long time so that’s how we know.

[Shreddingbetty]

I got one when I got divorced because I had quite a bit in retirement and was getting more in the divorce and it was just an amount that I was not comfortable managing per se. He is a fiduciary which is important if you ever decide to get one. He has been an immense help to be honest and it has been worth it to me. It isn’t just about how to invest your money per se. All mine was sort of on autopilot really at fidelity and was doing well although I apparently was investing a little too aggressively for my age (luckily we figured that out before the covid crash). But when all goes well anyone can manage their own money. But then when things like covid happen and the market crashes big time it can be helpful to have someone to help you so that you can keep your losses to a minimum which is not unimportant as you get older and you have less time to recover from things like that. But he also really has helped me with actual financial planning including maximizing my cash (we all know regular saving accounts don’t make anything anymore) to where it is sort of invested but easily accessible when needed and low risk but higher yield than regular savings. Anyone can put money in but you also have to look at the other end of it when it is time to come out. We have come up with strategies to make it so that once I take money out that I do so while keeping my taxes to a minimum by taking out certain amounts of money out of certain accounts. He has really helped me with lots of different things. A lot of the divorce financials stuff and transfers (some of which was really complicated and had I done it on my own I would’ve lost a lot of the advantages for a couple of the accounts. He’s helped me when I bought my house and even has a lot of advice on house stuff in general. My work 401k is still with fidelity so he doesn’t manage that although he help me rebalance it and invest it appropriate for my age (as in not too aggressive but not too conservative either). So he is really helping me maximize with appropriate risk and also minimize taxes when the time comes to take it out. He is a local guy, he is a total numbers nerd and I trust him. He is really down to earth. Of course it costs me but in the long run that is worth it to me. I can text him any time I need to and he is very responsive. I like that I can meet face to face with him and he’s actually become a good friend as well so not just someone in a business suit on the phone which to me was important. I know who he is as a person outside of work as well.
I think it all comes down to how much you have and over how many and what type of accounts. If I just had my 401k through work I probably wouldn’t bother. But he has really helped me a lot during the divorce with a lot of the financial stuff. I don’t think that there I necessarily a specific amount set for when a financial planner would be beneficial. When I first called mine I spend 30 minutes on the phone with him for free and he did recommend that I interview other people as well and told me what to look for. So definitely not a used car sales man. I never did because my divorce lawyer used him as well and they went to college together so he came recommended.
I would see if friends or family use one and get recommendation and see if they are willing to basically have a brief free consult to see what they have to offer and that way you can get a feel for whether you might want to or not. Like I said, for me it was important to have someone local that I could meet face to face for it to be more personal as well. He is respected in the community so it is nice to know his reputation. So for me it wasn’t just about investing the money but actual financial planning well beyond that including how your spending shifts as you get older (for example people tend to forget that as they get older you tend to have more medical expenses and potential long terms care needs) . I feel like I really lucked out with him because he has done a lot for me. Glad he is a few years younger than me so at least I will retire before he does haha.
I have a friend who recently started selling insurance and who is now being trained to do financial advising through his company. He and his wife are terrible and somewhat clueless with money and so he really would be the last one I would want to get financial advice from (Hopefully he will learn for himself as well but not someone I would trust large amounts of money with). It just makes me wonder of the background of these advisors for places like fidelity and vanguard. I’m sure there are good ones but you honestly don’t know what you are getting. My guy has actual degrees in banking and finance. So it will really depend on the extent of your needs.