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Young and rich and not focused on a legacy- do we need a financial advisor?

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  • Young and rich and not focused on a legacy- do we need a financial advisor?

    Salient facts: we just sold my wife’s business and have a mind-blowing $15m sitting in our bank. We are young (she’s 40 and I am 42). We want to enjoy life with our four little kids and building up a legacy is not a big priority. We are the first in our families to graduate college and don’t know that much about money. That’s where you wonderful people come in.

    Question: Do we need a financial advisor? I have heard people like Warren Buffett say to just put the money in a low cost global index fund, with some bonds to hedge risk. That of course is much cheaper than advisors; the two I met with charge about 1% of invested assets.

    These guys have said we need an advisor because (1) stocks and bonds can’t give you the diversity you need, (2) they are a buffer for people like me who would want to run when the market stumbles, (3) they have access to opportunities like hedge funds, and (4) the last 10 years have been unrepresentatively lucrative for index funds and with the bottoming out of interest rates, that is likely to change.
    This makes sense, but our focus on enjoying the money and not exponentially growing it, combined with the expense, makes me ask- do we need an advisor? Is the big amount such that an advisor is a given?
    Thanks so much,

    D

  • #2
    Congrats. You need a great accountant. Maybe there is a way to minimize the tax on that lump sum. I would put the money into money fund while you figure this out. What you do not need is an AUM advisor. 1% of 15 million is a chunk of change. You could use a fee only advisor. You could get a financial plan from Vanguard. They will manage your money for 0.3. The poster Tangler just got advice from Rick Ferri (google him) for $750 dollars. There is no need to panic. You need to take your time and do this right. There are plenty of people who will try to take this from you. You need to be skeptical. There is no reason to buy a bunch of complex hedge fund type products. If this was me I would do plain vanilla indexes VTIAX, VTSAX, and VTEAX. Consider a nicer house. My neighbor just sold his company for 30 million. He bought a beach house and is still working.

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    • #3
      Congratulations on winning the financial game. Young, beautiful, and rich...quite a combo!

      OK, seriously, great question. My simple answer is that you do need an “advice/ fee only” advisor to listen to you, help you define goals, and set up an appropriate plan. You need an estate plan to cover the kids in case something happens to both parents. You need to decide on an appropriate asset allocation for your investments to kick off the income you need while only taking the necessary amount of risk. You may need or want to consider how to protect your assets from a lawsuit. You probably want to invest in 529s for the kids college. Etc. etc. Here is a link to get you started. https://www.whitecoatinvestor.com/be...ce-only-model/ but also many good recommendations under the Find a Pro tab.

      What you probably do not need is an assets under management plan (this is your 1% model) to actually deploy, redeploy your funds, sell you commission based financial products, or churn your funds. As I imagine your advice/fee only advisor will tell you, it is possible to separate the management from the advice. And a portfolio of low cost index mutual funds or ETFs does not require much management.

      This site is a great resource. Use the search function to ask most any financial question. You might also consider buying the WCI book or taking the financial boot camp course for a quick ramp up of knowledge. Free advice: do it just for self defense against sharks.

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      • #4
        With $15 million, you have a lot more room to negotiate fees and no advisor or firm that I’ve seen, who charges based on AUM, would charge you 1% on that full amount. You could probably get something like a .50% blended all in fee. Or, obviously find a flat fee or hourly advisor as others mention.

        As you mentioned, you’ve “won the game”. The only way you’d get in trouble, at least financially, would be if you dramatically increased your lifestyle or tried to get overly creative with investments and permanently lost a significant amount of money, which you’d avoid by keeping a vanilla investment portfolio. People often think they should be in new investment vehicles just because they have more money and access to them, which I just don’t see the logic there. In some cases, yes, certain Private Equity funds may be able to have better long-term returns, but it won’t impact your day-to-day and it sounds like you want to avoid complexity.

        That’s just on the investment side, which I wouldn’t hire an advisor to try and get significantly better returns or “access” to certain hedge funds, etc.

        I think the reason you’d hire an advisor is to save yourself time and headaches because you can afford to outsource pretty much everything in your life that you don’t want to do. You have the luxury of having to not worry as much about the financial side of the decisions - obviously you want to be prudent here, but you don’t need to penny pinch. A good advisor can help create more of a proactive legacy plan too. Setting up an overall plan with any intentions on giving to charity, gifting strategies, how to gift to your kids without overly spoiling them, saving on taxes/estate taxes through estate planning. There is a lot of value you could get there given your net worth will just continue to grow over time.

        The other luxury though is that you can just keep things simple, manage your own investments using index funds and not worry about “missing out” on any tax or estate plan savings, especially if you want to give your kids a set amount and plan to give the majority to charity.

        I’d say you’re doing the most important thing though, which is not letting the money change you and what you want to do in life and how you raise your family
        Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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        • #5
          Nothing to do with the original post directly, but one thing with the approved “recommended” advisor list here is that the advisors have to pay to be listed as a recommended advisor and I also believe ongoing as well - which I’m not sure what that exact dollar amount is.

          I certainly don’t fault WCI for getting paid for his vetting process of the advisors or for advisors wanting to potentially get referrals and spending on “advertising”, but I’ve just struggled with the slight conflict of interest of a “recommended” advisor only being so because they are paying for that privilege.
          Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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          • #6
            No, I don't think an advisor is necessary. But you do need a written plan. If you can't reasonably come up with one, then meeting with a financial planner would be helpful, at least once.

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            • #7
              First in your families to graduate college - keep it stealth unless you want everyone knocking on your door.

              At a minimum educate yourselves, whether or not you ultimately feel you need an advisor. Seeing one with the right questions in hand and an understanding of potential conflicts of interest in advance can make you more vigilant and benefit more from the consultations. Preferably a fee only, or possibly advice only FIDUCIARY advisor if you are comfortable opening and funding brokerage accounts on you own. AUM advisor is a hard pill to swallow - even 0.3% annual fee is $45,000 on $15M AUM. Honestly if you're leaning toward an advisor I think jfoxcpacfp would be highly qualified, but she's closing to new clients soon (for a few months). Andrew Musbach also seems well qualified with a similar fee structure. Given you age and assets, a tax attorney may potentially need to be a part of the mix at some point.

              Agree with Hatton regarding a good accountant/CPA (which you may already have) at a minimum. I rely heavily on mine (and I have similar assets at a similar age to you - just still invested in the business as well as the markets but also diversified in commercial RE (works well for me, it's not for everyone). That's one place where an advisor can come in - it's easy to choose a few index funds but a bit harder to decide how to make those investments (lump sum vs. DCA) and how to diversify beyond of the markets. You may want to include some tax free muni bonds in taxable given your anticipated tax burden on investment returns. Surely you've considered the tax burden coming next April from the business sale, unless you already paid the taxes this past tax deadline. What are your aspirations between now and "retirement age"(needs, wants, wishes)? Do you want to work again and if not, what is the right draw down rate for you (likely less than the usual 4% given your age)? Are you appropriately insured to protect your financial and hard assets? 529 plans for the 4 children to tax shelter some income, and possibly other nieces/nephews to gift tax free? Donor advised funds for philanthropy (if that's an interest to you)? Are you prepared to ride out bear markets or do you need mentorship/reassurance to avoid costly emotional mistakes? Will you need help re-balancing to you desired AA at regular intervals? Do you prefer capital preservation with smaller gyrations in investment value, moderate growth with the goal of market returns, or aggressive growth with better potential returns but higher risk/gyrations in investment assets?

              There are lots of considerations beyond what funds to choose. I manage myself with limited feedback from professionals, but I sure spend a heck of a lot of time educating myself because I enjoy it - not everyone does. I may ultimately do very well...or maybe not, only time will tell. You have to decide what you are comfortable doing and what may need delegating. It's a personal decision. You've already made the most important decision - prioritizing the family above all else. You clearly have the ability to make great decisions, this is just another.

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              • #8
                Whether or not you need a financial advisor depends upon your own knowledge of finance and investing. Do you have the ability to invest your money and the ability to develop a plan for how to grow it to provide for lifetime needs for the next 40 to 50 years of your life expectancy?

                A safe withdrawal rate on a well diversified portfolio of investments for 40 to 50 years is likely around 3%. That works out to 450k per year for taxes and everything else. If you can live on that amount or less, and you invest your portfolio in perhaps a 60/40 asset allocation, then you will quite likely be just fine. But you might want to diversify beyond stocks, bonds and cash. You might want some real estate assets. And hedge funds sound great in the abstract, but they are much more volatile than a plain vanilla market allocation. Some hedge funds lose huge amounts of money, others do very well, but the risk is higher than a plain vanilla portfolio.

                How sophisticated are you and your spouse financially? If she built a business worth 15M, then she likely has some degree of financial sophistication.

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                • #9
                  Congrats on selling the business and cashing out! This is the hard part of having 'won the game' -- finding someone to manage the sudden wealth and keep track of it over the following years to enjoy your goals both near term and long term.

                  No legacy can mean a lot of things. Does this mean - die broke or something else?

                  The very least is a base FA to lay out your goals and plans and roadmap to follow. And a very good CPA who won't embezzle you.

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                  • #10
                    Originally posted by Hatton View Post
                    Congrats. You need a great accountant. Maybe there is a way to minimize the tax on that lump sum. .
                    Thanks for your sage advice. We really looked at the tax angle but it seemed the ways to minimize it all were stressful and sketchy enough it was not worth it!

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                    • #11
                      Originally posted by Larry Ragman View Post

                      What you probably do not need is an assets under management plan (this is your 1% model) to actually deploy, redeploy your funds, sell you commission based financial products, or churn your funds. As I imagine your advice/fee only advisor will tell you, it is possible to separate the management from the advice. And a portfolio of low cost index mutual funds or ETFs does not require much management..
                      Thank you so much! I plan on reading this website cover to cover! I have learned just from you all that you can get help to design a plan that is separate and distinct from someone you pay continually to implement it.

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                      • #12
                        Originally posted by White.Beard.Doc View Post

                        How sophisticated are you and your spouse financially? If she built a business worth 15M, then she likely has some degree of financial sophistication.
                        Thanks so much for the response. Neither of us are that sophisticated to be honest. I hope to take advantage of resources and learn, especially considering if I kept working I would make less than what I would pay an advisor, so I could treat it like a job.

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                        • #13
                          Originally posted by Andrew Musbach View Post
                          The only way you’d get in trouble, at least financially, would be if you dramatically increased your lifestyle or tried to get overly creative with investments and permanently lost a significant amount of money, which you’d avoid by keeping a vanilla investment portfolio.
                          Wow, thanks, Andrew: this puts it in perspective. It seems we need to just stay grounded and on a budget and set amount (even if it is much higher than we ever dreamed of). I also see what you are saying about the headache. I am scared that if it is just me driving things, when the market stumbles, I will lose my cool.

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                          • #14
                            Originally posted by EntrepreneurMD View Post
                            . I manage myself with limited feedback from professionals, but I sure spend a heck of a lot of time educating myself because I enjoy it - not everyone does. I may ultimately do very well...or maybe not, only time will tell. You have to decide what you are comfortable doing and what may need delegating. It's a personal decision. You've already made the most important decision - prioritizing the family above all else. You clearly have the ability to make great decisions, this is just another.
                            Thank you for your kind encouragement. I feel like these next few months will determine the rest of our lives because we will have to define how the money will impact us. I think I might like running it all, but I am not sure I have the fortitude to ride it out when the going gets rough.

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                            • #15
                              Originally posted by StarTrekDoc View Post
                              .

                              No legacy can mean a lot of things. Does this mean - die broke or something else?.
                              Thanks for your time. We probably mean that we would want to help our children here and there in limited ways (education, down payments if needed, etc) and to leave the rest to charity, but our focus is to enjoy our lives with what we have.

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