I paid a pro $3K to manage my money, but didn’t feel that was worth it. What’s my next move?
Originally published on MSN.com by Alisa Wolfson – Read article here
Question: I’m 59, divorced, and have about $750,000 saved for retirement spread across index funds and some individual stocks. The mix is about 70% in a traditional IRA, 10% in a Roth IRA, and 20% individual stocks/cash. I also have an emergency fund with six months of salary in it, and it’s in in individual stocks and cash. I am very interested in — and well-versed in — investing and saving for retirement.
Last year, I hired a CFA who said he was a fiduciary. The CFA moved about $300,000 from my self-managed, low-fee ETF and index funds into a low-cost, diversified ETF and index portfolio that he managed, which auto-balanced on a regular basis. In our initial meeting he made all the usual recommendations: create a budget, keep saving in the 401(k), get an umbrella insurance policy, and ensure my will, living will, and estate plan were up to date. He confirmed my planned retirement age, budget, and savings rate were on track.
Over the year I was with him, he contacted me three times to check on the status of some fund transfers. At the end of the year, I scheduled a check-in, and he said we need to talk more often, inferring I need to request time with him. After the year, his management fees totaled $3,000; results of the portfolio were in line with the market but below average after accounting for his fees.
To be clear, I don’t mind spending the $3,000, as long as I’m getting something of value, but I ended the relationship, as I didn’t feel I was getting anything of value. My question is, what am I missing? Is there something I’m not understanding that a financial adviser would provide that I’m not getting today? Also, how could a financial adviser be a fiduciary when they’re primarily motivated by getting more funds under management, yielding greater fees? Shouldn’t a real fiduciary have said, this is what I offer, but you’ve done your homework, you may want to work with a CFA who charges by the hour?
Answer: You seem like a person who is on top of your finances, and it’s certainly possible you simply do not need professional money help. “It does seem like you’ve done your homework, and there weren’t a lot of changes to be made,” concludes certified financial planner Cristina Guglielmetti at Future Perfect. Should you want a financial adviser — for peace of mind or for help with issues you might not be as well-versed on — you are correct that an hourly or per-project adviser might be the best bet for you.
Before we get into that though, it sounds as though there was a misunderstanding or miscommunication in the expectations for your current financial adviser relationship; you stated you enjoy investing your own money and doing your own research, so it’s unlikely you’ll benefit from passing that responsibility onto someone else. Your adviser either didn’t quite understand that, or he didn’t honor that (a big red flag). “I wonder whether there was an initial conversation to understand why you reached out, how that conversation went, what you presented as your wishes in working with an adviser and what the adviser represented their working relationship would look like,” asks Guglielmetti.
How could an adviser be of value to you without managing your investments?
Pros we spoke to said it’s likely that you don’t need an investment manager, but possibly an advice-only financial adviser who charges a flat retainer or hourly fee for financial planning advice and doesn’t manage investments. “This type of relationship would allow you to retain control over your investments, but still receive the benefit of comprehensive financial planning advice,” says certified financial planner Zach Hubbard at Greenspring Advisors.
You can find advisers like this through the National Association of Personal Financial Advisors (NAPFA) or the Garrett Planning Network. Though rates vary depending on expertise and location, you can expect to pay between $150 and $600 per hour for hourly financial planning services, while per-project rates mayrun $1,500 to $10,000.
So what might an adviser help with? Since you seem to be on top of your own investments, you’d want someone who offers value in other arenas. “For your situation, you may want an adviser to help you create a retirement income plan, help with tax and estate planning and help you plan for the transition to retirement,” says Hubbard.
Bruce Primeau at Summit Wealth Advocates says there are other retirement-related issues to consider too: “For cash flow in retirement, how are you going to determine where to draw funds from and when? The only way to know if strategic Roth IRA conversions make sense is to prepare long-term tax projections and to take a look at what your anticipated tax situation will be in the future versus where it is today.”
And for her part, certified financial planner Amir Noor at United Financial Planning Group, says: “The main topics I’m not seeing addressed in appropriate detail are long-term care planning, Medicare planning and how to plan and anticipate for some life curveballs regarding your children and possibly grandchildren.” You also want to think about portfolio rebalancing, insurance, whether $750,000 is enough for retirement, and more.
By the same token, certified financial planner Blaine Thiederman at Progress Wealth Management says even though it’s clear you’re a knowledgeable and diligent investor, you’re missing a crucial aspect of financial planning. “Having $750,000 may feel like a lot and it may be enough, but there’s a lot more to financial planning and investing than picking a few funds out. If that were the case, robo-advisers would have already replaced advisers everywhere,” says Thiederman.
Was your adviser truly acting as a fiduciary?
You also asked this question: “how could a financial adviser be a fiduciary when they’re primarily motivated by getting more funds under management, yielding greater fees?” Investopedia defines a fiduciary as “a person or organization that acts on behalf of another person or persons, putting their clients’ interests ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.” Basically, this means they can’t recommend investments that pay them a commission, but because anyone can arguably benefit from financial advising, an adviser can still act as a fiduciary by taking your business without offering investment management services.
CFP vs. CFA
It may be that a CFP, rather than a CFA would be a better choice for you. Certified financial planners (CFPs) and chartered financial analysts (CFAs) are different designations with differing roles (CFPs generally focus on helping clients with personal investments, and CFAs often help select investments for institutional investors).
Certified financial planner Cary Carbonaro, director of the women and wealth division at Advisors Capital Management, says regardless of your previous professional’s credentials, there’s no one-size-fits-all strategy for financial planning. The main goal of working with a financial adviser, whatever their professional designation, is to meet your goals, grow your net worth and beat the market after fees and taxes, according to Carbonaro.
