Good AUM Financial Advisors

[Tangler]

Yes, it would be ok to change to “many” who “are incompetent” based on your limited experience with the 10s of thousands in the world of advising.

Ok, but the industry has not gone out of its way to convince me otherwise.

For example. Say I have a net worth of 6M and 5M invested in stocks. If that is with an advisor getting 1% per year that is 50k per year.

What could they offer? How could they possibly be worth 50k/year? 50k per year is a lot of cash.

They had better do something pretty amazing. Even if they are honest and add value I doubt seriously they can add 50k per year.

[Tangler]

Sorry, too harsh.

I certainly have a myopic viewpoint when describing my personal experience and it is not fair to generalize.

J. Fox, I certainly value you and your opinion here as an extremely bright CPA and advisor and I am certain you provide value to your clients.

Sorry for being a bit of a jerk.

I personally won't hire AUM advisors because I have had bad experiences. Perhaps unfair.

[jfoxcpacfp]

Ok, but the industry has not gone out of its way to convince me otherwise.

For example. Say I have a net worth of 6M and 5M invested in stocks. If that is with an advisor getting 1% per year that is 50k per year.

What could they offer? How could they possibly be worth 50k/year? 50k per year is a lot of cash.

They had better do something pretty amazing. Even if they are honest and add value I doubt seriously they can add 50k per year.

You know what? Nobody I know of would put a gun to your head and force you to sign a document to do business with an advisor who had that business model. This is still your opinion.

I happen to know of many who recognize that the amount of service add-on levels out after a certain amount of time and effort and lower their rates at certain breakpoints.

You do realize that WCI still has (at least at last review, which I admit is not often) AUM advisors on his Recommended List, correct? Do you believe his vetting is not designed to catch crooks?

[Tangler]

You know what? Nobody I know of would put a gun to your head and force you to sign a document to do business with an advisor who had that business model. This is still your opinion.

I happen to know of many who recognize that the amount of service add-on levels out after a certain amount of time and effort and lower their rates at certain breakpoints.

You do realize that WCI still has (at least at last review, which I admit is not often) AUM advisors on his Recommended List, correct? Do you believe his vetting is not designed to catch crooks?

Sorry. I like you. sorry to fight. I don't know how he determines who is good. I know they pay him and he does not recommend advisors that do not pay him. That creates and inherent conflict for him but I imagine he tries to recommend good people.

The AUM people he recommends, how does he decide?

Perhaps they charge less than the industry standard, which is 1%? Perhaps they save clients a lot of $ (tens of thousands or even hundreds of thousands per year)?

I don't know. My experience with advisors has been that the fee only ones have helped me a lot for less than 2k per “session" they have given me outstanding advice that saved me thousands.

The AUM fee one's who tried to win my business have tried to get >20k from me to basically put me into index funds and/or sell me something.

Anyway, like you. Sorry to offend.

[jfoxcpacfp]

Sorry, too harsh.

I certainly have a myopic viewpoint when describing my personal experience and it is not fair to generalize.

J. Fox, I certainly value you and your opinion here as an extremely bright CPA and advisor and I am certain you provide value to your clients.

Sorry for being a bit of a jerk.

I personally won't hire AUM advisors because I have had bad experiences. Perhaps unfair.

I don’t think you were a jerk - I just think you were voicing what many people think, maybe without thinking it all through. The view of AUM advisors is a very skewed perspective in the WCI crowd and I get it, but there is a place for that fee model. Criticize the person, not how they charge as long as the customer has a choice. I’m just not one for grouping a whole sector of diverse advisors (or anyone else) into a square hole.

I understand many of you have gained a very different viewpoint of financial advisors after finding WCI and that’s ok, but most of the world, even the doctor world, has not been exposed to these ideas. We’re cool and thank you for the compliment.

[Tim]

You know what? Nobody I know of would put a gun to your head and force you to sign a document to do business with an advisor who had that business model. This is still your opinion.

I happen to know of many who recognize that the amount of service add-on levels out after a certain amount of time and effort and lower their rates at certain breakpoints.

You do realize that WCI still has (at least at last review, which I admit is not often) AUM advisors on his Recommended List, correct? Do you believe his vetting is not designed to catch crooks?

I would remind everyone that value is not determined by price. (Credit to Johanna). Additionally, the “Recommended List” is actually a list of paid advertisers that WCI has determined to be consistent with WCI philosophies. Primarily disclosures and business practices. By no means is a listing imply value or an opinion on “crook” (which implies a crime or fraudulent practices).
Full disclosure of the costs (and transparency) helps. The value is an individual choice. For some, the professional services can be worth it. A type of royalty paid year after year. Maybe not, make your own choice. For some, an FA is a “personal shopper”., just take care of it. They don’t like shopping. WCI has plenty of posts on how to select advice and has disclosed conflicts of interest in paid advertising.
Some advertisers are probably a great value for one and terrible for another. Broad generalizations are foolish. Focus on making your own choice.
Johanna has a business model and is transparent. Highest compliments. I wish you well.

[Kennyt7]

Ric Ferri says the AUM. model is obsolete. Even if the DIY investor makes a few mistakes, the loss is minimal in comparison to outrageous AUM fees. Someone please tell me what is the difference between managing 2M or 5M. To me its nothing. Unfortunately from experience and seeing financial literacy exam results, the population is ILLITERATE when it comes to investing. A 5th grader can learn to invest and now many states are including financial education in secondary schools. As Jim Dahle says, no one should be paying anything more than a few grand

[Kennyt7]

Even paying .3% AUM fee is high with Vanguard PAS

[Kennyt7]

Really how much work does an advisor need to do to manage my INDEXED Portfolio with Vanguard if I cannot do it
The only time needed is to take the RMD and transfer to the bank
Yearly Rebalancing as well if need be and to comfort my wife if need be
I just went to a dinner, a wealth mgmt company, pushing alternative investments, 1% AUM fees, and the BS you cannot lose money
No one there understood their spiel on Structured Notes
They did not like COOKIE CUTTER poptfolios
PS-look at SPIVA-they analyze returns versus SP500

[Tim]

Wow, I cannot tell you how strongly I disagree with lumping all of AUM advisors into this bucket. As I have stated on many posts, even we still have some “heritage” AUM clients from before we went flat fee. They had no interest in financial planning and wanted to continue as AUM clients.

I would posit that the large majority of AUM advisors are decent, intelligent, ethical advisors trying to do the right thing every day they go to work. Flat fee advice is a relatively new concept and the amount of thought, planning, and effort it takes to make the conversion from AUM to flat fee is monumental. Very fortunate for us that we decided to make the change in the very early days of working with WCI doc’s. I cannot imagine what it would be like to undertake that today and that is where most AUM advisors sit.

Change takes time - please look at it from another perspective than your own, which is rather narrow at this point (impo).

Not discounting the value of a financial advisor. From my perspective the AUM often refers to the management of assets and that is often the service that is sold.
Asset management in and of itself for a person just finishing residency is of very limited value.
The plan and taxes are where the value is added starting out.
My comment is in selecting an advisor, getting the plan and advice needs to be the focus. What one pays or how it is billed is a different question. A lower cost for AUM could be an advantage starting out from purely a cost perspective. Regardless of ethics, I can see how there would be an inclination to spend minimal amount of time on planning and taxes for any advisor for smaller portfolios. I don't consider that unethical, but it is not near as complicated nor as rewarding managing small asset portfolios.

[Bmac]

I feel like the AUM model is similar to the real estate agent model. Just as selling a $2M home is unlikely twice the work as selling a $1M home, managing a $2M portfolio doesn’t require twice the work as managing a $1M portfolio. Both systems are broken. I hardly believe all AUM advisors are snakes, but…in surgery we say there are bad fast surgeons, good fast surgeons and bad slow surgeons, but there are no good slow surgeons. Financial advisors may be good or bad, but having an AUM advisor is not a good idea for the client. Especially when there are so many good fee only advisors available now.

[jfoxcpacfp]

I feel like the AUM model is similar to the real estate agent model. Just as selling a $2M home is unlikely twice the work as selling a $1M home, managing a $2M portfolio doesn’t require twice the work as managing a $1M portfolio. Both systems are broken. I hardly believe all AUM advisors are snakes, but…in surgery we say there are bad fast surgeons, good fast surgeons and bad slow surgeons, but there are no good slow surgeons. Financial advisors may be good or bad, but having an AUM advisor is not a good idea for the client. Especially when there are so many good fee only advisors available now.

Fee-only advisors almost exclusively use the AUM model fyi. Fee-only advisors cannot sell products, receive a commission or any other incentives tied to sales of products. Rick Ferri can say it is obsolete until he is blue in the face but pronouncing it as such doesn’t make it so. As I have posted here before, AUM is by far the most commonly used billing method for financial “advisors” and is not going away any time soon. It is deeply ingrained in the financial advice (actually investment advice) profession, not the least of which is because it is so much more lucrative and so much less time-consuming. Very simple as long as you can sell it as such. Yes, I believe flat-fee and hourly advice are slowly taking hold but until AUM loses traction to the point that AUM advisors can no longer find wealthy clients willing to support and grow their practices, they will have no incentive to change.

It’s not a very difficult concept to grasp. Want to work with WCI community? You’ll have an uphill battle to make money at AUM, even though you are “fee only”. Want to work with the other 99.9% of the world? AUM is the norm and expected.

Of course, you havethat very small minority of the profession who chooses flat fee and/or hourly simply because they believe it’s the right thing to do. Some of them also advertise on WCI, so there is that. But don’t delude yourselves into believing that because they (we) are more prevalent here is representative of the real world for most people. It’s not.

[altadoc]

I would remind everyone that value is not determined by price. (Credit to Johanna).

Loved this! When setting up an advisory firm, I struggled with figuring out a fee model that felt right. What was reasonable and fair to my colleagues? And what allowed me to be fairly compensated for my time and expertise.

I eventually figured out that those questions don't matter as much if the value is there. If the client finds value in what I provide, that is enough. If not, many other firms out there do things differently and charge different fees. But it's always important to keep asking, how can we serve our colleagues at the highest level? What are their pain points? The biggest problem with the traditional view of AUM is that it diminishes the advisor's work to 'just' investment management. Working with a real financial advisor (a huge hat tip to jfoxcpacfp and others) provides so much value beyond managing investments. It's a partnership through every step and phase of life.

Does every physician need to work with an advisor? Of course not. But I can tell you that the physicians who need help are not on this forum. They are not on the Bogleheads forum. They are watching financial pornography, have a poor or nonexistent savings rate, and do insane things with their retirement savings (like shorting the market! Trust me, it did not work out so well).

For our colleagues who struggle with student loan debt, saving enough, figuring out how to invest their 401(k), etc., I implore you - don't judge them or make them feel stupid for their money decisions. Let them know there is a better way. Our colleagues do not need to struggle and suffer. Every doc should be able to get to a point in 10-15 years where they have much better choices. For high-income specialties, they could flat out FIRE. For others, it may be going to a three-day workweek. Wouldn't it be amazing to work in a healthcare system with docs who all chose to work in medicine? Financially secure physicians are better physicians.

[fatlittlepig]

just from what I've seen: financial advisors will charge you a percentage of your portfolio to put you into funds that have additional fees, they will put you into multiple numerous often overlapping funds which makes it seem like they are doing something sophisticated, and in the process making it harder for you to extricate yourself from said advisor. basically it's a rip off.

[The White Coat Investor]

I don't have a problem with someone using a fee-only advisor who charges an AUM fee. But if you're paying 1% on $5 million, you're likely dramatically overpaying for what you are receiving. So that means that if you hire an AUM charging advisor that as your assets grow, you will either need to negotiate the % down or plan to change advisors at some point, or you will eventually end up overpaying.

But a 1% AUM fee on a $100K portfolio is a steal of a price. Good luck finding a flat fee or hourly rate advisor that will work cheaper than that.

Naturally, this all assumes you're getting the same good advice and we're just talking about price. You know, all else being equal (when it never is).