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OK to keep only portion of money managed with financial advisor?

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  • Andrew Musbach
    replied
    If you're going to hire an advisor, it should be based on a relationship of trust. If you don't trust the advice that they'd give you, then I wouldn't hire that advisor.

    A good financial advisor will look at your entire financial picture and tell you what's the best overall advice given your situation, regardless of their comp structure, because it's the right thing to do. It's up to you to decide if their fees, however they are charged, are worth their advice.

    I struggle with advisors that allow the client to dictate what they should or should not "manage" or give advice on. I wouldn't feel comfortable getting a single dollar of fees from a client that was hiding investments from us or didn't fully align with our investment approach or the financial planning advice we were giving.

    There is something for everyone though even if you don't want to pay ongoing for an advisor (resources to DIY, hourly planners or a one-time plan review). It's always a simple equation though - does the value you receive exceed the fee you pay. If you think you can get the same value for cheaper, you should try and get it, but don't focus exclusively on the fee at the expense of the value you receive.

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  • Gold Medal Waters
    replied
    Hi, biggie3201

    Nothing will stop you from keeping the $65k with this RIA and receiving whatever financial advice they give you.

    Will it be proper and holistic advice? No idea. As Peds requested, you can post the plan, and the group here will dissect it for you.

    Tim drew an important distinction, and it is worth mentioning and clarifying. Financial Advice deals with making decisions around investments, allocations, 401(k)s, ROTHs, risk, conversions, etc. Separately, Financial Planning, done well, should help you understand how much money is enough to live your best life.

    If it is financial advice that you are after, you'll find reliable answers on this forum, for free.

    However, the potential longer-term problem with your advisory relationship has more to do with what Lithium wrote. I encourage re-reading that post.

    Plato argued that you should not attempt to cure the part without treating the whole. Same here. If they are to provide proper holistic financial planning for you over the long term, it will be necessary to share everything with them, including the investments you have that they don't manage under that billing arrangement.

    Unfortunately, by billing for services in the way they do, this advisor has created some misaligned incentives, a conflict for the relationship, and a moral dilemma for you. While there is alignment on getting you to save more, you do so with a drag of 1%.

    As a result, you may feel like you don't want to disclose certain things over time. And, when this happens, any financial planning may not represent reality. This problem could lead to poor decisionmaking and a failure of the plan to help you live your best life. Conversely, if you do reveal the additional assets, as Tim wrote, the advisor may feel like they "are working for crumbs" and are not respected/valued. While they may move on from you as a client, it isn't likely. They work with your parents so that move would jeopardize that relationship too.

    It's not a great situation from a structural standpoint on either side.

    So, what do you do?

    IF you want to continue working with the firm, maybe set up a discussion with them. Share the thoughts that you outlined to us in your post. Encourage forthrightness and fairness on both sides to come to a more balanced arrangement. See if they'd be willing to set a fair, fixed price for a year's engagement based on the planning and advice work's value. If not, then the conversation will present a good point for you to disengage from their services.
    Last edited by Gold Medal Waters; 06-15-2020, 08:30 AM. Reason: Silly me, I bolded something that didn't need to be bolded...

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  • lmbebo
    replied
    We have a similar arraignment now. Wife received an inheritance a few years ago. We have that inheritance managed with a FA, including making sure we take RMDs from her inherited IRA and taxes are with held. I've kept this setup because it just kept another person in line with the money, so it wasn't a piggy bank for my wife to spend as she would like. Ultimately, its her money, but at least another person to ask her if this is really what she wants to do (and is not me saying it)...

    I've managed the other half of our assets myself (mix of TSP/solo 401k/work 401k/tax brokerage).

    Leave a comment:


  • Practice
    replied
    Originally posted by biggie3201 View Post
    I am a resident and a newbie in the financial world. Long-ago, my parents started for me and therefore have now gifted a brokerage-account that was created/managed through their own financial advisor--- ~65K is total. As a result, I have effectively gained their financial advisor as my own as this money is now mine. Based on what little I know about advisors, this FA group seems completely reasonable to use ---fee-only RIA (fiduciary), invests in low-cost/diversified index or mutual funds etc. They primarily 'specialize' in financial/retirement planning and I am planning to utilize their services to develop my own 'financial plan.' Fees are 1% AUM. I have only recently started discussing aspects of financial planning with them which has already resulted in conversion of ~24K of this into Roth accounts (wife and I).

    Long-story short, at this point --negative net worth, low financial literacy -- it seems completely reasonable to utilize the relatively low-fees for financial planning and basic investing. My question is, what is stopping me from utilizing the FA benefits for this chunk of inherited cash but then simply keep future additional money in my own workplace 401Ks/HSAs or starting my own, personally-managed, brokerage account at later date? A lot of discussion on this site seems to revolve around long-term assets "lost" when utilizing a FA (particularly one with AUM fees as one's portfolio grows), but must one's entire financial portfolio be considered part of those AUM? If you separate your finance from him, are you effectively killing your relationship with the FA and, therefore, begging him to fire you in time??
    Begging him to fire you? There are a million financial advisors, but only a few are good. I manage my own money so I wouldn't let someone else manage any of mine. But if I was going to, they would only get to manage 4% of my investable assests maximum. You would only need to worry about him firing you if he was Warren Buffett. He's not Warren Buffett.

    Leave a comment:


  • Khart23
    replied
    As an RIA myself I can tell you it depends on who you are working with. Personally, I am fine with it unless we are handling a tax-managed strategy and the outside account is active in similar investments (it becomes a wash-sale nightmare). I work with plenty of people who need the planning depth that I can offer and are willing to hold onto the responsibility of trading/re-balancing. Other firms strongly believe (or require) that they would handle the accounts to ensure the process they believe in is followed.

    Leave a comment:


  • Tim
    replied
    A lot depends on what your expectations are as well. FA, FP, and PM are different. Forget about having a balanced allocation or advice if your FA can't see it. Likely, the advisor is not going to be happy if working for crumbs and giving free advice for the total portfolio.

    Leave a comment:


  • CM
    replied
    I ran a solo RIA prior to returning to cardiology. Several of my clients with substantial assets (including a pension plan) charged me with managing only a portion of their assets. This is common.

    The RIA was only a hobby for me, but most RIAs will make a business decision: "Is this guy/gal worth the effort?"

    For most, $65,000 in assets at 1%/year isn't going to be worth the effort, and they'll only continue if they expect to grow your business as your career progresses. It would be unethical to lie about your intentions, but you don't need to fire the RIA if you like working with him/her; let the RIA fire you if it comes to that.

    Leave a comment:


  • Peds
    replied
    Why don't you post the cost and actual plan The advisor has for you and will tell you whether or not to do it?

    Leave a comment:


  • dennis
    replied
    You can absolutely keep them for the inherited part and manage the rest yourself. They would have to agree to that and understand you want to do some it yourself. Be open with them about that. If they refuse then use someone else.

    Leave a comment:


  • Lithium
    replied
    In my opinion, financial planning doesn't work unless it's holistic. You can't expect a financial planner to be very helpful for you if you're maintaining secret side accounts he's unaware of, and chances are if he's compensated through AUM he isn't going to be very interested in your workplace plans that don't yield any fees for him.

    Now, if this $65k is all the money you have, then maybe there is not much downside. You also have to consider the conflicts of interest of AUM advisors in general. They are incentivized to put their clients in overly complicated portfolios, to encourage excessive risk-taking, discourage paying down debt, among other things. If you were to use a robo-advisor, you would save about $400 a year. Of course, just putting it in VTI, VXUS, and BND in your own brokerage account wouldn't cost you anything. Then again, this may be one of the minority of advisors that really adds value. The problem is, that by the time you have learned enough to perceive this, usually you are knowledgeable enough to manage investments on your own.
    Last edited by Lithium; 04-06-2020, 02:21 PM.

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  • OK to keep only portion of money managed with financial advisor?

    I am a resident and a newbie in the financial world. Long-ago, my parents started for me and therefore have now gifted a brokerage-account that was created/managed through their own financial advisor--- ~65K is total. As a result, I have effectively gained their financial advisor as my own as this money is now mine. Based on what little I know about advisors, this FA group seems completely reasonable to use ---fee-only RIA (fiduciary), invests in low-cost/diversified index or mutual funds etc. They primarily 'specialize' in financial/retirement planning and I am planning to utilize their services to develop my own 'financial plan.' Fees are 1% AUM. I have only recently started discussing aspects of financial planning with them which has already resulted in conversion of ~24K of this into Roth accounts (wife and I).

    Long-story short, at this point --negative net worth, low financial literacy -- it seems completely reasonable to utilize the relatively low-fees for financial planning and basic investing. My question is, what is stopping me from utilizing the FA benefits for this chunk of inherited cash but then simply keep future additional money in my own workplace 401Ks/HSAs or starting my own, personally-managed, brokerage account at later date? A lot of discussion on this site seems to revolve around long-term assets "lost" when utilizing a FA (particularly one with AUM fees as one's portfolio grows), but must one's entire financial portfolio be considered part of those AUM? If you separate your finance from him, are you effectively killing your relationship with the FA and, therefore, begging him to fire you in time??
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