Good AUM Financial Advisors

[afan]

Those are good reasons for people to use advisers. They are not reasons to pay an AUM fee. If you need advice, hire someone to offer it and pay them for the work they do. Like a dentist, doctor, lawyer, etc. When they don't do anything, don't pay anything.

[Lithium]

I think it is pretty difficult for us to understand the mindset of the average client. Not only is their knowledge base pretty poor, but so is their level of interest. Have any of you tried to educate your friends and family about things like the three fund portfolio, the Backdoor Roth IRA, short vs. long term capital gains, or the nuances of disability insurance? Most of the time, their eyes just glaze over. People want a “money guy” (investment management) to make sure they reach their number when they turn 65, and that’s what they’re willing to pay for.

I’ve provided quite a bit of high quality financial advice to friends and family over the years, and usually they disregard it even when they seek it out. Considering how they use this advice when it’s rendered for free, there’s no reason to think they’d pay high sums of money for it.

People don’t know what they don’t know.

[afan]

AUM is popular with advisers for the same reason it is a poor choice for customers. 99.9999% of the time, there is nothing for the adviser to do. Yet they collect steady fees for doing nothing. Set someone up with a 3 fund portfolio and done. That takes almost no work to set up and no work at all to maintain.

If the customer wants someone to rebalance for them, then with simple software, the adviser can tell at a glance whether the customer is outside of bands. They can spend a handful of minutes, at most, doing the rebalance. Same if there are doing some TLH.

Let's estimate, generously, that they put in an hour per year doing these things. And that most years they don't do anything else because there is nothing else to do. At WCIs $100,000 portfolio, that $1,000 per year in fees becomes $1,000/hour of service. Very hard to see this as anywhere near worth it. For the customer. It is a great deal for the adviser.

The deal only gets better for the adviser as the portfolio grows. The work does not increase at all. But the fees keep going up. If you pay 0.5% on a $10M portfolio, that is 50k. For the same 1 hour of work. For the advisor, this is great. For the customer, they have just paid a very large amount of money for--nothing.

If the customer went to an hourly fee advisor, most years they would seek no advice and pay nothing for it. When they do pay for advice, it is likely to be less than $1,000 per hour. Even if they pay $500/hr, it will take 100 hours to get to the $50,000 in AUM fees we postulated for a $10M portfolio. I have not paid for 100 hours of financial advice in my life. Certainly not every year.

Even for a small portfolio it is overpriced. For a large portfolio, the cost is obscene.

Now it could be worth it if the AUM rate was far smaller. At 5 basis points, rather than 100, one could make a case for AUM. On the 100k portfolio, that would be $50, which is about right. For the $10M portfolio, that would be $5,000. Still absurdly high for what you get. But I have not heard of an AUM adviser, who charges anything close to that.

[Kennyt7]

SIMPLY STATED the goal of many in this financial industry is to keep the retail investor in the dark.I would wonder how many AUM advisors put their clients in a 3-4 Boglehead Fund portfolio. Look at SPIVA to see how active funds have fared versus SP500. Even Buffett is having his wife put 90% of inheritance in to SP500. Unfortunately way too many get duped by advisors, but they are to be blamed for being uninformed. As Dr Dahle says if you know enough to know if your advisor is doing a good job, you can manage your own portfolio.
And who could think doctors and other educated investors cannot learn this stuff in short order

[Random1]

Why do you want a financial planner ? To pick stocks and funds or for general investing advice.

Any basic investment book will get you started. You could put all your money in a target date fund and forget it for the next 20 years if so inclined.

Picking funds is easy, staying the course when everyone else is jumping ship is the hard part. If you think you will need a plan so you dont jump ship in a down turn, hiring a good advisor may well be worth the money.

Early on savings rate is more important than what funds you chose.

If you need other advice, insurances, disability, wills. Someone to piece it all together may be helpful as a consult , but probably not as an ongoing service, unless life circumstances change. Like any other professional service out there , choosing the cheapest alternative may not be the best. You probably would not choose the cheapest doctor , why would you want to choose the cheapest financial planner ? I am a total do it yourselfer , but there are several times though out life that I need good professional advice, and I am willing to pay well for it, as long as I feel I get a good value for it.

[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).

[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.

[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.

[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.

[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.

[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.

[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

[Kennyt7]

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

[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

[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.