Evaluating financial advisors

Photo illustration of a woman walking solo through the woods for a post about financial advisors' fees

Hiring a financial advisor is difficult. Common questions include: How much do financial advisors make? How much of that is my hard-earned money? What's a reasonable fee?

Way back in the '90s — a primitive time when a mobile phone could only be used to talk to another phone — I was a broker (i.e., salesman) with Prudential Securities.

While we all used the title “financial advisor,” the majority of efforts were spent providing investment advice. (Actually, most of my time was spent supporting the other advisors, or at least trying to.) Those who had been around long enough and had enough assets under management could also use the title “vice president”; other firms used “first vice president.” It's interesting that most branches have several vice presidents, and each firm has thousands – even though having just one vice president is good enough for the entire country.

As far as I can tell, not much has changed with the so-called “full-service” brokerage firms. Most brokers don't do much cash-flow analysis, debt management, employment benefits evaluation, or anything else that won't generate a commission or an annual fee of 1 to 2 percent of assets. Most ignore employer-sponsored accounts because they can't be transferred to the firm.

Related >> Beginners' Guide to Investing

So most of these folks predominantly provide investment management. Fine. However, there's no way to know if they're providing good financial management. The financial advisor may say that his recommendations result in fabulous returns for his clients. He might also say that every morning, unicorns fly outside his window. Unfortunately, there's no way to prove either one.

As for the purported fabulous returns, there's no way he can back up his claims. He's not going to let you see his clients' accounts, and he shouldn't; that would be a violation of privacy. You pretty much have to take his word for it.

He might mention a stock or mutual fund that he claims to have put in his clients' portfolios, and he may have. But what you won't hear about are the stocks or funds that didn't work out so well. Regular, non-advisor folks do this, too. When people I meet at social gatherings find out I work at The Motley Fool, they often bring up their successful investments; they're not so chatty about the stinkers.

If you want to know how a mutual fund has performed, you can look it up on Morningstar.com or visit the Securities and Exchange Commission website and get legally mandated, audited reports. If you want to know how an advisor performed, you get a brochure, a pitch, and a warm handshake.

Of course, after you've hired an advisor, you'll get quarterly statements and can monitor his performance. Unfortunately, the problem here often lies with the client and the current lack of financial literacy. Many people don't know enough to properly evaluate an advisor's performance — such as, what is an appropriate benchmark and how to adjust the comparisons for the amount of risk taken. Or clients just like the advisor enough to trust him, because he's nice and jovial and sends chocolate during the holidays.

How to Evaluate a Financial Pro

I don't mean to malign all financial advisors. I know plenty of them and know enough about their investment philosophies and overall financial-planning expertise to feel I can judge the quality of the services they provide. And many are very, very smart, capable and ethical. I certain thought highly of, and had great respect for, the fellows in my group at Prudential. But you have to take my word for it, don't you? There's no way to verify my opinion (though I could prove that one of my former partners was much better than I when we competed against each other in high school football).

If I became a financial advisor, I'd pretty much have to do the same things as they do, because there's no mechanism for tracking the performance of an advisor's recommendations. At least not now. Perhaps in the future, there could be an advisor transparency index, administered by a third party. The advisor reports their recommendations to the third party, and the third party tracks and reports the performance to the public – but not the actual investments, because that would be giving away the advisors' secret sauce.

Related >> 8 Questions to Ask a Financial Advisor

But until then, here are some questions to ask an advisor you're considering:

How Are You Paid?

The commissions paid for selling financial products vary widely, so there's always the temptation to provide advice that garners a higher payout. Fee-only advisors who charge by the hour or by the project – such as those at the Garrett Planning Network and NAPFA — have the fewest conflicts of interest, since the amount they are paid is not directly related to the advice they provide. Those who charge an annual fee based on the size of the portfolio have a few more conflicts of interest, but it's much less conflicted than those who earn their keep through commissions, payments from mutual fund companies or payments from insurance companies. With fee-only advisors, you still have the problem of not knowing how their past investment recommendations fared. But it's my experience that most of them recommend low-cost, diversified index-based investments, which pulls back the curtain a bit.

Are You a Fiduciary?

A fiduciary has a much higher legal hurdle than an advisor who only has to meet a “suitability” standard, such as the brokers who work for the big-name firms – Morgan Stanley, Merrill Lynch, UBS, and so on. In fact, brokers have a primary loyalty to the firm, not to the clients.

What Services Will You Provide?

Will you receive just investment advice, or will you receive a complete evaluation of your entire financial situation (debt, insurance, estate planning, etc.)?

What Are the Risks?

Any advisor who doesn't thoroughly explain the risks involved with the investment strategy they recommend isn't doing his job.

Why Should I Listen to You?

We've already established that you can't verify their claims of investing awesomeness. But you can visit BrokerCheck to see if they've had any disputes with clients, and whether they were resolved. Being a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Public Accountant (CPA), or other legitimate designation (Certified Warren Buffett Invest-a-like doesn't count) won't guarantee competence or ethical behavior, but it does show that the person had to know enough to pass very rigorous exams. Also, these designations come with their own ethical standards and ways to report who has been found wanting.

How Can You Make Such Crazy Promises?

If you hear anything too good to be true — such as a guaranteed 10 percent annual return — then the advisor is hoisting a malodorous red flag.

Not everyone needs the services of a financial advisor. One of the main beliefs at The Motley Fool is that you can do much of it yourself, because much of it is more pocket science than rocket science, and no one cares more about your money than you do. But if you don't have the time, inclination, or self-discipline to create and stick to a plan, hiring a financial planner could be one of the best things you ever do. Just make sure you get a good one.

Robert Brokamp is a Certified Financial Planner and the advisor for The Motley Fool's Rule Your Retirement service.

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Sam
Sam
7 years ago

Years ago, I gave a guy with Raymond James a small amount of money to manage to see if a financial adviser would do a better job than me. I wasn’t impressed. I think that there are great research resources for those who want to manage their own finances, we utilize a lot of the research tools at Fidelity. But, there is always the problem of finding the time to do the research when my regular job (I consider personal finances to my part time job) requires 60+ hours a week. So, I might work with someone in the future… Read more »

Sam
Sam
7 years ago
Reply to  Sam

Also, if you have a fidelity office near you its great to go in and work with the folks there so they can show you all the research tools. They also have regular seminars on certain investments and investment categories although they tend to be right in the middle of the work day. Mr. Sam has a fidelity office right near his work and he’s gone and gotten training on how to use their online tools and then he trained me so it worked out well. Of course, I haven’t quite figured out how to track whether I’m doing better… Read more »

Kyle
Kyle
6 years ago
Reply to  Sam

I know this is an old thread, but working directly with Raymond James and Fidelity mean you are working directly with brokers. Fidelity retail has incentive to encourage excessive trading along with upselling you to more expensive Fidelity funds. If/when you are ready to seek professional help, make sure you are working with a Registered Investment Advisor, not a broker. Also, make sure he/she is a fiduciary as this article encourages. Also, as you mentioned about not knowing how well you are doing, the brokerage firms do not make available your annualized portfolio return which is very unfortunate.

William @ Drop Dead Money
William @ Drop Dead Money
7 years ago

Good post. There is of course the human nature phenomenon known as agency theory: an agent is supposed to look out for the best interests of his principal, but he doesn’t; he looks out for #1, himself, first. In the case of financial advisers, human nature tells you the adviser will always look out for him(her)self first, and you second. (No matter what they promise.) Far, far better to acquire a modicum of financial literacy yourself. It’s not rocket science, but there are a few relatively simple things to get to know. The good news is the internet is rife… Read more »

Nate
Nate
6 years ago

Of course, some financial advisors, like Certified Financial Planning designees, are held to a higher fiduciary duty, and are bound to serve the best interests of their clients at the risk of losing their credentials. And then again, some of us actually believe that serving our clients best interest DOES, in fact, also serve our own best interests. In my experience, it leads to better referrals and more fruitful relationships. You seem to think that financial advising is a “zero sum game” in which there must be a loser for every winner, when in actuality, a good advisor can “win”… Read more »

Ross Williams
Ross Williams
6 years ago
Reply to  Nate

@Nate – You are confusing the advantage of pleasing your clients, with advantage from serving their interests. They may be the same sometimes. But Bernie Maddoff got a lot of referrals and had a lot of fruitful, for him, relationships. He didn’t do that by serving his clients. So people need to be able to distinguish between those who are serving their interests and those that aren’t. Frankly, that is usually going to require more time, knowledge and involvement than simply investing the money yourself. And its also obvious you can’t always serve your client’s interest. You don’t charge a… Read more »

EMH
EMH
7 years ago

I am hesitant to seek out an advisor. I feel I should find one since our wealth is growing but if I lose our money, then I know it is my fault and I have to sleep with my mistakes. If somebody else loses my money, then they may have to sleep with one eye open. I have a hard time giving up control.

Jason
Jason
6 years ago
Reply to  EMH

@EMH I’m a financial advisor. Truth be told you should be scared to hire one. It’s tough to watch as the agenda of the advisor is always put before the client. One reason for this: Clients don’t and won’t get educated so any attempt at creating wealth through strategies is nearly impossible to build a business around. Serving the clients best interest is often overlooked by another advisors sales pitch. You could have a client ahead of the competition by 10% per year for the last 7 years but if the advisor isn’t keeping up in the last two years… Read more »

MoneyStreetSmart
MoneyStreetSmart
7 years ago

Great article- I like the points raised about explaining the risks involved as well as any investor who “guarantees” a ROI. So many times you hear of horror stories where an investor is simply putting words in someones ear and doing nothing to advise them on what moves to make specific to their financial situation.

Mom of five
Mom of five
7 years ago

All of my dealings with brokers interested in managing our money have been less than satisfactory. And they all seem so – how can I put this nicely? – young. Maybe it’s my own ageism that keeps me from trusting them. With our 401k money, we’ve taken the traditional recommended approach of stocks, bonds, small caps, large caps, etc. percentage wise according to our ages. However, with our relatively small personal investments – which I’ve been doing with etrade – I pick my own companies. I’ve been beating our 401k’s returns as well as the market’s, but I do think… Read more »

Lincoln
Lincoln
7 years ago

The more personal finance books I read, the less I want to give my money to a financial planner to invest. I think they are great to talk to on a yearly basis for big picture stuff, and I don’t mind hearing their suggestions, but I’d rather do my own research and make my own decisions.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago
Reply to  Lincoln

I agree. I feel as though I would be a better judge of how, where, and when to invest my money than most professionals. Very few warned of the dot-com or housing bubbles. In fact, it seems that they tend to recommend investments when they’re going up! Also, in order to protect against lawsuits, they are all but required to follow a herd mentality. If they make a suggestion that turns sour, it’s fine as long as everyone else was doing it too! It’s a government-created conflict of interest.

David William Edwards
David William Edwards
7 years ago

Why would I trust a financial adviser that’s not richer than me? If they’re so good, why would they need to earn money investing other people’s money?

Bethany
Bethany
7 years ago

Because it takes money to make money and unusually high expenses can drain even robust returns. We have a friend who is an excellent investment broker, but he started his investing career in dead-broke poverty with a large family that racked up some HUGE medical bills over the years, not to mention their multiple auto & housing disasters (seriously, the deck has been stacked so badly against them it’s not even funny). So he’s never had a chance to accumulate any money of his own to be ABLE to invest on his own behalf.

Mike @Personal Finance Beat
Mike @Personal Finance Beat
7 years ago

Maybe I’m too stubborn, or cheap, but I would probably never seek out the help of an adviser. Not that I think I can necessarily manage my money better than they can, but I just feel more comfortable making my own investment decisions, and, importantly, I’m able to live with the fact if one of them lost value. If I was paying someone else to manage my money, and it was losing value, I’d probably go crazy!

Then again, my investment “strategy” is pretty bare-bones: dollar-cost-average into blue-chip, dividend-paying stocks, and re-invest the dividends. Pretty basic!

ImJuniperNow
ImJuniperNow
7 years ago

May I brag that, as an individual investor, I have done very well on my own? Thanks – Just wanted to get that out of the way. Now, since becoming an investor in the late 90s, I have consulted with many so-called financial planners/advisors/experts with only one question: Will you review my portfolio and tell me your opinion of my investments? Are they good or bad or indifferent? Have I overlapped or duplicated anything? Am I high or low risk for my age? I have always made it clear from the start that I did not want to switch investments… Read more »

Peach
Peach
7 years ago
Reply to  ImJuniperNow

A fee-only CFP will have no problem with consulting with you and reviewing your portfolio. They just don’t do it for free. The “free” consults are usually done by CFPs who also sell for Amex and other companies, which is how they get paid, by commission.

JOhn
JOhn
6 years ago
Reply to  ImJuniperNow

I love the comment by the guy who says he has no intention of using a financial planner but wants their opinion. So in essence you want their expertise, say thank you and go do it yourself. Dude you are an idiot! I don’t know what you do for a living but what ever it is would you do it for free. I don’t think so. Financial advisers need to make a living. It is a extremely difficult profession and there are no guarantees. So next time get a doctors advice about removing a kidney stone, than go home and… Read more »

Juli
Juli
7 years ago

I will freely admit that once you get past the “spend less than you earn” part of money, I am completely ignorant. I don’t even know enough to know what I don’t know. Is there a resource (book, website, other?) that gives a super basic beginners guide to this type of investment stuff?

Debi
Debi
7 years ago
Reply to  Juli

Read read read. Personal finance, investing, retirement, insurance, etc are all addressed everyday on the “money” or “financial” tab of the home page of your preferred web browser. Check out the Ric Edelman site and listen to his podcasts of his radio show. Dave Ramsey is good to read and listen to if you have a debt problem. The Motley Fool podcasts that are available weekly are a good recap of current business news. At first you won’t understand much or all of what you hear or read, but the more you expose yourself to the language and idea of… Read more »

Ross Williams
Ross Williams
7 years ago

“if you don’t have the time, inclination, or self-discipline to create and stick to a plan, hiring a financial planner could be one of the best things you ever do. Just make sure you get a good one.” You will need the same self-discipline to stick with the adviser when things go south that you need to stick with your own investment plan. You are better off putting your time into setting up a Vanguard Account and buying some low cost index funds. Because the risks in choosing an investment adviser just add one additional layer of risks to the… Read more »

steve
steve
7 years ago

My wife enlisted an adviser from Edward Jones about two years ago. So far, so good. We agreed to let the adviser manage her tax-deferred investments, while I continue to manage my accounts. I have my 401k and Roth assets with Vanguard, and the adviser likes Vanguard. All of us have benefitted from rising markets over the past two years. The good news is that the adviser takes a very small fee, and gives us a different perspective from our own. Our next financial moves involve term insurance renewals and brokerage accounts. Based on the adviser’s track record, I will… Read more »

Reggie
Reggie
7 years ago

Boy…would definitely pass on you being a client. Knowledge is good and so is trust. Advisors can’t work miracles. I mostly help people avoid mistakes. I Help them plan, and try to beat the bank rates.

Crystal
Crystal
7 years ago

We don’t have a financial advisor or money manager, but my in-laws like their guy. I trust my husband and target date mutual funds more, so that’s what we have to work with right now…

DreamChaser57
DreamChaser57
7 years ago

I read a personal finance book once, I believe it was Millionaire Next Door, that recounted a story of a multi-millionaire who often had advisors courting his riches…he told them to share their personal portfolio and if their returns outpaced his, he would gladly use their services. Not once in many years has anyone took him up on that offer.

William
William
7 years ago

Almost NO financial advisers called the last downturn. After that pathetic performance, I have abandoned financial advisers and make my own decisions. At least I can be wrong for no additional cost.

Dylan
Dylan
7 years ago

Nice article, but it really needs a cat picture.

getagrip
getagrip
7 years ago

I have used financial advisers for specific purposes. First, to get a snapshot of where I was financially and provide some general advice. Other times, to address a specific question. I used fee only, but even they often follow their advice to you with items that provide them more income, so you have to be aware and read the small print of what they provide. Sometimes it fits the bill, other times not, but regardless you have to decide if it’s really right for you, not for the adviser’s pocketbook.

MelodyO
MelodyO
7 years ago

My husband and I are very lucky, because my BFF is our financial adviser. We’ve known her for twenty years, trust her implicitly, have very similar financial philosophies, get all the paperwork verifying what she does for us, AND she doesn’t charge us anything because she’s just that nice (we’ve offered more than once to pay her). Yay!

PS Is that a unicorn in your PJs or are you just happy to see me?

yogurt
yogurt
7 years ago
Reply to  MelodyO

Sorry MelodyO,
Your buddy may be a BFF, but you are not. By taking all of her valuable advice and services without compensating her adequately is simply be a user and an exploiter. I hope you have named her in your wills for a sizable bequeathment.

Diana J
Diana J
7 years ago
Reply to  yogurt

I’m a Certified Financial Planner and would NEVER work for even my BFF for free. Too much risk, both on the investment side AND the friendship side.

John
John
7 years ago

Knowledge about financial planning is easy to obtain for free at any library. However, time to properly maintain your plan is a bit harder to find, at least for me. Proper financial planning is a full time occupation. I just can’t devote the time and effort to doing it correctly. Sure, when I started out I did everything by myself, with fair or better results, but now I have accumulated a sizable amount of money and I decided I needed professional advice and someone looking out for my investments regularly, so I hired someone. So far, I am happy with… Read more »

Ross Williams
Ross Williams
7 years ago
Reply to  John

“I hire pros to do the things i am not an expert at. Why not with money?” Do you pay someone to spend it? “Proper financial planning is a full time occupation.” No, for most people it isn’t. If you have enough money to pay someone to manage your investments full time, that may be a different story. But even then, you are probably better off putting it in an index fund and leaving it there. “I decided I needed professional advice and someone looking out for my investments regularly” Most people don’t. In fact, active management tends to reduce… Read more »

John
John
7 years ago
Reply to  Ross Williams

Do I pay someone to spend my money? What does that have to do with anything?!? You’re correct that most people do not have the resources or the quantity of wealth to need help, I am lucky enough to have both. I’m not a millionaire by any stretch but I do have a substantial retirement portfolio and “putting it in an index fund” is not viable, logical or productive. Active management can be cost prohibitive according to how the advisor is compensated. I pay my advisor a set amount each year based on the value of my portfolio. If I… Read more »

Ross Williams
Ross Williams
7 years ago
Reply to  John

” I’m not a millionaire by any stretch but I do have a substantial retirement portfolio and “putting it in an index fund” is not viable, logical or productive” If you aren’t a millionaire, that is the only logical or productive investment for your retirement fund. Virtually any other investment will raise your risk or lower your return or, most likely, both. “I pay my advisor a set amount each year based on the value of my portfolio. If I make money his pay goes up. If I don’t make money his pay does not.” Nice gig for your adviser.… Read more »

John
John
7 years ago
Reply to  John

Are you selling index funds? You certainly sound like it. I have stated several times what I do is not right for everyone. You seem to believe what is right for Ross is the only viable option. It is not. I went from bankruptcy about 15 years ago to having a comfortable retirement portfolio that will, conservatively, make me a multi-millionaire when I retire in ten or so years. I did this by reading books by Dave Ramsey and Ric Edelman and other award winning authors and financial planners and following that advice, not to mention working hard and advancing… Read more »

Ross Williams
Ross Williams
7 years ago
Reply to  John

Vanguard sells index funds, I buy them. “So obviously there are alternatives to your Index Funds that do work.” Of course there are. Some people win at slot machines. There are also people who do quite well for a while and then the odds catch up with them. If you are paying 2% of your winnings in fees, the odds are heavily stacked against you. We have had the dot-com bubble that made a lot of millionaires and then destroyed them again. We had the housing bubble, where people thought their housing value made them wealthy only to find out… Read more »

Lincoln
Lincoln
7 years ago
Reply to  John

I don’t have an issue with someone else using a professional for investment planning. After all, it’s their money, and they have to do what they are comfortable with. But there is something here worth exploring. Most investment planners will tell you that they usually can’t beat the markets and that it is unpredictable. And, if you compare the performace of most actively managed funds to low cost index funds, the low cost index funds usually win out. So the comparison between investment planners and surgeons is not really apt. Investment planners are better than burying the money in your… Read more »

John
John
7 years ago
Reply to  Lincoln

Well, that is a well thought out and clearly explained reason as to why a person may choose not to use a financial planner. Keep in mind however, financial planning is more than just putting money into an investment. There are a myriad of other areas that a financial planner can help with. Things most people never even consider. Such as, budgeting, insurance (life, health, long term care etc), tax planning, estate planning, education planning to name a few. My financial planner helps me with all of this. She understands my goals and helps me with planning for the long… Read more »

Ross Williams
Ross Williams
7 years ago
Reply to  John

“Such as, budgeting, insurance (life, health, long term care etc), tax planning, estate planning, education planning to name a few.” There are two problems with this. The first is the cost of those services if you pay for them as a percentage of your investments. If you have $500,000 in your retirement fund and are paying a money manager 2%, its going to cost you $10,000 per year for whatever services that manager provides. That is expensive advice. The second, is that the qualifications for providing most of those services have little to do with managing your investments. Yet, you… Read more »

Ross Williams
Ross Williams
7 years ago

I think investing is a lot like some health screening. Sometimes more information just makes things worse. Its counter-intuitive and some people will never accept it. But educating yourself in an attempt to improve your returns beyond the market is likely to have the opposite effect. Hiring someone to manage your money is likely to get you lower returns, even if you don’t consider the cost of paying your manager. When you do consider the cost, you only come out ahead by getting lucky. That does not mean financial planners serve no purpose. Because many of us have assets where… Read more »

Susan
Susan
7 years ago

This post is worthless without cat photos.

Ted Jenkin
Ted Jenkin
7 years ago

One of the big questions you should ask your financial advisor is ‘do you take wholesaler’ support or receive cash from wholesalers for marketing support? The reason is that most financial advisors sell the products from the very companies who line their pockets with money for seminars and overall marketing support. They may not make more commission to sell that product, but it is a hidden way that advisors take money in exchange to sell products.

Karen
Karen
7 years ago

After realizing that my financial planner was not acting in my best interests, but in hers, I pulled all my money out three years ago and started managing it myself. At the time, this was a very terrifying thing to do. Now, I have no regrets. I have since realized that working financial planners is counter-productive to seeing growth in your investments. Paying 1 to 2 percent to the planner, purchasing A shares for 5 percent, purchasing funds with high expense ratios, and on and on, strip out money that could be invested to make higher returns. My financial planner… Read more »

BJ Jensen
BJ Jensen
5 years ago
Reply to  Karen

Karen,

While doing some research on line, I came across your response. I’m impressed by your thought process and would welcome the opportunity to chat with you further. Don’t worry…I’m not in the financial or insurance industry. I’m simply wanting to pick your brain because your situation sounds very similar to mine. Thanks.

Gajizmo
Gajizmo
7 years ago

You are exactly right. The funny thing is that the individuals who talk the most are usually the ones who need to market themselves because they are lacking in skills. The strongest individuals are content doing what they love and are good at, and don’t need the attention and hype.

Tim Murray
Tim Murray
7 years ago

Good discussion! I’m an independent fee-based advisor managing about $35m. I have no ties to any specific companies or products. The only corporate relationship I have is with Fidelity – which is where my client’s accounts are held. My investment strategy is very simple: own “everything” via low cost index funds (ETFs or Mutual)and then rebalance quarterly as needed. I target about 8 broad stock categories, 8 broad bond category, and a commodity allocation. I am an anti-market timer. I tell my clients that their returns will be close to market returns – which is better than the vast majority… Read more »

Debi
Debi
7 years ago
Reply to  Tim Murray

“You can invest on your own, but I implore you to have an allocation plan in place and stick to it no matter what happens.” This is key. Writing this plan down, with contingencies and limits, when you are not in a panicked state of mind, and sticking with it when you are, can lend a piece of mind and sanity when the markets go crazy.

Can I ask what dollar amount you consider a “very small account?”

Bondage
Bondage
7 years ago
Reply to  Tim Murray

I’ve been using brokers and investment advisers for 25 year. The problem is not just finding a good one, but the whole market seems to have changed. The dot.com crash changed everything, and the housing bubble just reinforced everyone’s fears that the stock market, the bond market, commodities, and even to an extent housing is not a level playing field, is rigged, highly volatile, and not much different to Las Vegas. There seem to be to very few advisers who can effectively navigate today’s markets and make money for their clients. Panicking is good for your financial health. Missing out… Read more »

Tim Murray
Tim Murray
7 years ago

Right on, Debi! Below is my annualized fee schedule. Assets Under Management $0 to $50,000 2.00% $50,001 to $100,000 1.50% $100,001 to $500,000 1.25% $500,001 to $1,000,000 1.00% $1,000,001 to $1,250,000 0.90% $1,250,001 to $2,500,000 0.80% $2,500,001 and higher 0.70% Section 529 Education Accounts 1.00% More details can be found on my Form ADV at http://www.murrayfinancial.com/mfi-documents Which reminds me…. Registered Investment Advisers (RIAs) have a fiduciary duty to do what is best for their clients. Brokers (i.e. Registered Representatives)and insurance agents do not. If you do seek help, only hire an RIA who will act as an RIA at all… Read more »

Matt Whiting
Matt Whiting
6 years ago

The concept of investing one’s money and seeking out advice can be a difficult task for all of us. What I do is I assist people with their overall financial situation. I look at the situation of an individual in relation to their family, assets, liabilities, insurance, healthcare, education for children/grandchildren, and I make recommendations in terms of how much risk is appropriate for that family to take. My process involves getting to know a family, understanding what keeps them up at night and what makes them tick, and helping them to choose a path which will make sense for… Read more »

Shirl Salvo
Shirl Salvo
6 years ago

Thanks for that post. It helped me out!

TJ
TJ
6 years ago

The more I read and listen to financial experts, the more I have been drawn to a mix of broadly diversified index funds.They are very low cost, usually passively managed, cause one is buying the index, so no real attention needed, other than re balancing once a year.Most importantly, buyers of them are in good company, because they are touted by Fee only planners, many in financial academia and pretty importantly Warren Buffett.

Dark Space
Dark Space
6 years ago

I mostly agree with your statements above, but a few are disingenuous. For one, if you ask any regulator, past performance is not indicative of future returns – clearly, as an RIA we have to slap that on everything we put out. That being said, we do put out return data because A) it is indicative of future returns because someone who has outperformed every other manager in a sector for 5 years straight is doing something right and we all know it. and B) everyone wants to see it. Secondly, if they are making “crazy promises” its more than… Read more »

Ross WIlliams
Ross WIlliams
6 years ago
Reply to  Dark Space

“we do put out return data because A) it is indicative of future returns” While that is a good sales pitch, it apparently isn’t true. Returns are largely random with some advisers getting lucky for a period. The best investment advice remains to put your savings in low fee index funds like Vanguard and leave it there until you ready to spend it. If you aren’t willing to take the time to develop your own asset mix and periodically rebalance, then you should stick the money in a balanced index fund. Because if you don’t have the time to manage… Read more »

Water Gate Consulting
Water Gate Consulting
6 years ago

Very informative and knowledgeable blog post. Good to read this informative blog post. Fiduciary regulation, Demographics and The rise of Robo-advisors bring more problems to financial advisors. These are three main issues facing by the Financial planners.

Slimeyone
Slimeyone
6 years ago

I have one question for any financial advisor. How many people have you made rich? This is the only question that counts and nobody asks it and no financial advisor I have ever talked to will answer it. That is why I don’t use them. They make $60k a year which means they have no idea how to make you rich (because if they did they would be rich) and they are trying to tell me what to do with my money. I may as well ask a school teacher.

Geoffrey
Geoffrey
5 years ago
Reply to  Slimeyone

You are so right – Human nature says – I get rich first – Leads one to the conclusion that the only financial advisor that’s worth having is one that’s rich already – And…They are really hard to find!

Tim
Tim
5 years ago

Well said, Matt Whiting. As long as client’s do their research, they will find many honest Financial Advisers around who have all of their clients’ best interests in mind

James
James
5 years ago

I think most people have an issue following an investment strategy when the markets become volatile. An advisor can help protect many people from themselves. I think it’s Dalbar that’s been conducting an ongoing study that shows the average performance of an investor is half that of the investment they are in because they are getting in and out. If an advisor can help keep someone from jumping ship, there is some serious value there.

Many of you speak as if you are a perfectly disciplined investor and unfortunately that’s typically just not the case for many people.

Ross Williams
Ross Williams
5 years ago
Reply to  James

People have no problem with volatile markets on the upside. And people who panic when the market crashes are unlikely to heed the advice of the adviser who recommended those investments. In theory, good investment advice has value. In practice, getting and taking good advice is a roll of the dice. Unless you educate yourself, you may not get good advice or you may fail to take it. And once you educate yourself, you probably don’t need to pay someone for the advice.

T. Davs
T. Davs
5 years ago

I have a number of questions for everyone who reads this. 1) what do you do for a living? 2) will you do it for me for free? How can I control the market, or even see bad things coming? 4) if i could do any of these things, why would I do it for you? So lets take a deep breath here and actually think about all of the arguments on this thread against Advisors. They arent always right, so they must not be good at their job? I know world renown doctors who get the diagnosis wrong from… Read more »

Debi
Debi
5 years ago
Reply to  T. Davs

I couldn’t agree more. I use a financial planner because that’s what she does for a living. I have my own full time job for which my employeer pays be well to be the expert in my field. Why should I begrudge any other expert in their field a paying job? I choose not to spend every minute away from my job working on my financial plan. I have a long term relatonship with my planner, she knows my goals and works with me to achieve them, for a fee. What’s wrong with that?

Ross Williams
Ross Williams
5 years ago
Reply to  Debi

Lets be clear. The question is not whether financial advisors should get paid for their services. Its whether their services are likely to be worth the cost. Its not the financial advisers are never successful. Its that there are cheaper alternatives that are more likelty to be successful. A financial adviser is less likely to be successful than you are on your own if you take your money and put it in Vanguard or other index funds. The time to investigate and choose a good financial adviser would be better spent investigating and choosing index funds. Are there exceptions? Sure,… Read more »

Debi
Debi
5 years ago
Reply to  Ross Williams

It sounds like your definition of financial planner is someone who only makes investment recommedations. A true financial planner is someone who looks at the whole picture When do you plan to retire, what will you spend money on in retirement, how can best generate a cash flow plan to fit your needs,what are your cash needs between now and then, what type of insurance do you have/need, what are your plans for your money afer your demise, etc, etc, etc.

Roland
Roland
5 years ago

On paper and assuming the only job of a financial advisor is investment performance than yes it’s more likely that you will get more value from a index type strategy. However, investment success is not only a result of investment selection but also discipline to remain invested when shtf as well as other emotional decisions. People are more likely to make emotional decisions with their money than their advisor is with their money. Also, a financial advisor does more than just pick investments. They help educate what investments are appropriate depending on your goals, which account to take money from… Read more »

Right
Right
5 years ago

I’ll tell you right now: Fire your investment advisor. You don’t need him/her/them, at all. You can invest on your own and avoid the major mistakes many investment advisors make. Don’t forget, it’s a job for them – many times they will make a decision that is simply not in the best interest of their client. This is YOUR money – not theirs. They have NO right to make any decision about your investments when the vast majority of their decsions are faulty. Fire them. Handle your own money and also avoid the potential shill artists out there that will… Read more »

CMoney
CMoney
4 years ago

Wow!! Most of you have missed the purpose of actually hiring a Financial Planner. Before my clients actually retire, and before we even start to make investment decisions, I’m showing them how they can extend their portfolio life by about 8 to 12 years (If not forever). Not only that, careful distribution strategies, and tax planning is essential for prolonging the life of your portfolio. If your discussion with your advisor is just about returns, then you probably are working with the wrong person. I’ve read to many sad responses here. All I have to say is Uncle Sam is… Read more »

Debi
Debi
4 years ago
Reply to  CMoney

HEAR HEAR! Well said. That’s the point I was trying to make on 09 Sept 2015. For example, right now my planner is looking at tax brackets for post retirement and talking to my CPA about the best plan for me. She is also looking at best time to start taking social security benefits. Contrary to the almost unanimous advise, waiting until age 70 is not necessarily the best option for everyone; even those who believe they will live to 100+. Plus, I find it very valuable to be able to toss ideas back and forth with a financial professional.… Read more »

Katie Ryan O'Connor
4 years ago
Reply to  Debi

Good points Debi — thank you!
You sparked a story idea: If you have flexibility on when you retire, when is the “right” age? I’ll admit I have no idea how to think about this question in relation to my own life other than…work until I can afford to quit, ideally at some point before I die or become incapacitated. Cheery thoughts LOL — Katie

Autopilot
Autopilot
3 years ago

Interesting. What do you do for tax loss harvesting, equity lot matching, tax strategies associated with cash balance plans or premium financing, leverage of legacy planning on order of stretch IRA beneficiary lines, CRT for those who likes to give, and so many other questions like what should you do about debt, pay off, consolidate, amortize, and should you or should you not depreciate or use accelerated depreciation? Saying people should throw all their investment in index funds because they offer better returns? Doesn’t that mean they also loose more in down years? So you are saying if you want… Read more »

Fred Garvin
Fred Garvin
1 year ago

Quote from above article:

Are you a fiduciary?
A fiduciary has a much higher legal hurdle than an advisor who only has to meet a “suitability” standard, such as the brokers who work for the big-name firms – Morgan Stanley, Merrill Lynch, UBS, and so on. In fact, brokers have a primary loyalty to the firm, not to the clients.

Question:

Are you stating that brokers are fiduciaries and have a higher legal standard than advisors? Or, are you stating that brokers only have to meet suitability standards? I’m not sure how to decipher the intent.

Thank you.

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