Questions: I am about three years from FIRE (Financial Independence, Retire Early) status and have been looking at placing part of my investable assets with an advisor, which would still be seven figures. Since I have conducted interviews with many of them, they all have two areas of concern that I do not like and give me a break. Firstly, they will charge a fee even if they do not make my assets grow (they get paid no matter what the portfolio does), and secondly, they want me to place my assets at once, whereas I prefer one ” leg”. in “strategy over time, the same way I handle the stocks I buy. Since I do not know the advisor or their company, I would like to move assets into tranches, maybe 25% every quarter for 4 quarters. (You can use this tool to be matched with a financial advisor who may meet your needs.)
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Are these my expectations unrealistic, and will I have a very hard time finding a counselor who fits my preferences and who I feel comfortable with? I have been in the markets for over 20 years and have so far been comfortable managing my own investments. But I will spend less time on it and set aside time for other pursuits during my second act, and I will also be sure that the investments are managed for my wife in case I deceased her as she is not financially knowledgeable.
Reply: Let’s start with your first question: why all advisors wanted to charge a fee, no matter how the assets worked. This is probably because one of the most common fee structures among financial advisors is that they charge a percentage of your assets under their management (approximately 1% is common). They do it because markets go up and down and advisers want to protect themselves. And adds Steve Stanganelli, certified financial planner at Clearview Wealth Advisors: “Many, not all, investment advisors will also provide retirement forecasts, portfolio withdrawal scenarios, social security advice, tax projections, budgeting and cash flows or even property issues. For standard rebalancing and refinancing.” No doubt they will also have their time on these tasks paid for so assets under the management system can work well for them.
That’s not to say you can not find someone who does not work like this. Some advisors charge performance-based fees, though certified financial planner Mark Brinser of Stewardship Advisors says this can be hard to find. “Performance-based fees are when an advisor only charges a fee if they perform better than a certain benchmark, and the fee is forfeited if the advisor does not hit the benchmark,” Brinser says. This method of compensation was in fact banned for registered investment advisers for a period of time and is now only allowed for clients who meet certain criteria. (You can use this tool to be matched with a financial advisor who may meet your needs.)
And one thing to note: Even in a traditional model of assets under management, if an account value falls and the dollar amount falls, the advisor still has an incentive to make good investment decisions to help the account recover as quickly as possible, Brinser says. “In fact, I would argue that a good financial advisor shows their value most when markets are volatile. We can listen to customer concerns and help them develop a strategy to get through the market turmoil,” says Brinser.
Avoid the salary structure for assets under management
One option you might want to consider is to pay an advisor on an hourly basis or a one-time fee to create a plan. “You may be able to get a certified financial planner who only costs advice and fees to help streamline your investments to a point where you can still enjoy your activities without handing it over to someone else,” says Jay Zigmont, certified financial planner and founder of Live, Learn, Plan. “The challenge is that you have to find a good place between do-it-yourself and delegation of responsibilities,” Zigmont says. Therefore, together with your advisor, you should create an overall financial plan that takes into account both your preferences and considerations and the advisor’s approach and experience. (You can use this tool to be matched with a financial advisor who may meet your needs.)
Can you slowly move your money to an advisor?
Zigmont says it is does not strange for people to move only part of their portfolio to an investment advisor – and lots of advisors should be willing to work with you on this.
So why did not the advisers let you move money slowly over to them? One possible reason is this: The more assets they have under management, the more they take home from your accounts, so they want more, not less money. Some companies even have a minimum of assets. “Advisors can make such adjustments given a client’s special circumstances, but each firm has a minimum of assets under management for a reason,” says wealth adviser Bruce Tyson at Morton Wealth. The reason why companies may have minimum requirements is to keep their customer list within a certain range and possibly deter short-term investors from recording time that could be spent on long-term customers. And moving over the funds in steps creates special challenges when planning a customer’s asset allocation. “As with any business, there’s a lot more under the hood than most customers might first realize,” says Tyson.
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What can you do about worries about your spouse?
If you are worried about your less money-savvy spouse, Stanganelli says you should consider adding life insurance to the mix. “This will provide replacement income and even liquidity to all state-level taxes that your wife’s property ends up having to pay,” Stanganelli said.