Am I paying too much?

[Miko]

My wife and I started working with a financial advisor soon after residency 6-7 years ago. We are paying 1% AUM. When we started, we had very little in savings, and this felt preferable to some of the advisors who were charging a flat fee of $5-6k/year. We're now paying over $8k/year in fees to our advisor. Most of our money is in our work retirement funds. Overall, we've been happy with our financial advisor. But I don't think our situation is complicated. We're parking the bulk of our money in work associated retirement accounts where it's invested in 3-4 funds. We have twice yearly meetings with our advisor to review our investments. Every now and then, we consult with our advisor about questions such as refinancing loans, how to plan for upcoming expenses, etc.

I don't have a good sense of what's normal in terms of what people pay. But looking forward another 20 years to retirement, this feels like too much to pay in fees.

I am going to reach out to our advisor to see if we can negotiate a different arrangement. But I’m not sure what to ask for, not sure what a fair arrangement might be. Should I ask to reduce the % of our AUM agreement or ask for a flat fee? Another idea I’ve considered is that my wife and I manage the bulk of our retirement savings ourselves and use the financial advisor for a smaller percentage of our overall savings. Our work related retirement accounts have a limited number of investment options and at least for now, I think the general strategy with those accounts is to ride the ups and downs of the market without too much tinkering. I would welcome ideas.

Thanks!

[Hatton]

1 % is a lot of money when you start getting more money. Think about it.

[bovie]

You’re essentially paying around $4000/hr for something that it sounds like you can do yourself.

And that rate is only going to increase over time.

If you are indeed comfortable doing it yourself, perhaps when you reach out to your advisor you should negotiate ending your arrangement altogether.

[Bev]

Yes, you are paying too much.

[CordMcNally]

My wife and I started working with a financial advisor soon after residency 6-7 years ago. We are paying 1% AUM.

Yes, you are paying too much.

I am going to reach out to our advisor to see if we can negotiate a different arrangement. But I’m not sure what to ask for, not sure what a fair arrangement might be. Should I ask to reduce the % of our AUM agreement or ask for a flat fee? Another idea I’ve considered is that my wife and I manage the bulk of our retirement savings ourselves and use the financial advisor for a smaller percentage of our overall savings. Our work related retirement accounts have a limited number of investment options and at least for now, I think the general strategy with those accounts is to ride the ups and downs of the market without too much tinkering. I would welcome ideas.

Thanks!

Why not just do it yourself? You could easily get great (and free) advice here for some of the questions you have been using your advisor for. If you had more in depth questions and didn't want a forum full of strangers giving you advice then you could get a few hours with a non-partial advisor.

[childay]

You could easily get great (and free and probably better) advice here for some of the questions you have been using your advisor for.

Fixed

OP: you don't need advisor for 3-4 fund workplace plan, certainly not $8K per year! Even worse AUM is coming out of your returns.
Caveat: may need advisor if you will panic sell, go to cash/gold/BTC or something

[Tim]

To some, the comfort of having an FA is like an insurance policy. The problem is the money you are paying your FA seems to be for semi-annual meetings, not to be confused with insurance. Your FA will not reimburse you for any losses or mistakes. That 1% should belong to you.

[Brains428]

Yes, it's too much. If they're investing in the same funds everyone else is (which is what they should be doing- nothing with a bunch of load fees), then you don't really need them.

People get overworried about rebalancing. In reality, you can set whatever time frame you want to do so- Bernstein's 4 pillars says every few years.

You can also use a roboadvisor or a Vanguard advisor that will charge you less.

For many of us- we probably don't need someone except for every few years when there are large changes in portfolios/family dynamics, or when nearing retirement (assuming you've done all the appropriate saving up to that point, which those that frequent here don't have a problem with).

[Miko]

If you are indeed comfortable doing it yourself, perhaps when you reach out to your advisor you should negotiate ending your arrangement altogether.

Thanks for the feedback. When you say negotiate ending the relationship - I'm curious what you mean. I imagine it's easy to tell them that we will stop using their services as of x date and then we'll have to figure out how to transfer the funds out the the custodial accounts or remove their custodial control. Were you thinking of anything else?

[Miko]

Thanks for all the feedback. It sounds like there's consensus that we are paying too much!
I do think we can replicate a similar plan to what our financial advisor currently has set up for us. I just feel a little stressed about taking it on myself and like the reassurance of having "an expert" help to manage things.

A lot of people have suggested we should manage our investments ourselves. I do think that's an option.

What about a middle ground option of having a financial advisor help without paying so much? I know that if we invest with Vanguard, we can have access to their advisors for considerably less money. Not sure how their advice or services would compare to what we currently have - but probably similar for most things.

Any advocates for asking for a lower % for AUM or conversion to flat fee - or is that likely to be too expensive still?

Appreciate the input. Thank you!

[zlandar]

If most of your money is at your workplace (i.e. 401k) then 1% AUM is expensive. How about you pay me 1% AUM and I tell you to put it all in a target fund? It's tax-deferred not a brokerage account. There are no tax consequences for changing investments in a tax-deferred account. Many of us manage our own brokerage accounts it's not that hard.

I personally do not think you need a FA to help you figure out how to plan for future expenses. That is something you need to take control of. There are plenty of good books (WCI has two) that will give you the necessary tools to handle the mundane financial tasks in life.

[bovie]

I am going to reach out to our advisor to see if we can negotiate a different arrangement.

Thanks for the feedback. When you say negotiate ending the relationship - I'm curious what you mean. I imagine it's easy to tell them that we will stop using their services as of x date and then we'll have to figure out how to transfer the funds out the the custodial accounts or remove their custodial control. Were you thinking of anything else?

Nope, you nailed it.

[Auric goldfinger]

1% in todays world is usurious. Contact Rick Ferri or someone similar. Full plan for about $1K, revisit for about $400/hour. There is no room for 1% anywhere today. I had a portion of my portfolio with Gamco for over 20 years. Great first decade. 1% every year. By the time I finally cut ties, it was over 80k/ year for management fees. Deductible, but worthless in the end. Reversion to the mean as Mr. Bogle would say. My parallel accounts, individual stocks or index outperformed in the end. It’s not all about expenses, but it’s sailing with your anchor at full scope

[doctorbone]

I agree with everyone. $8k/year is a very nice vacation. Contact Rick Ferri. He was great. He will review your portfolio and give you some options. It’s not a rocket Science. Buy and hold and watch your money grow.

[artemis]

Harry Sit (who runs The Finance Buff blog) also maintains a list of reputable accredited advisors who act as a fiduciary and give advice for a set fee.