Fee based money managers

[tbsells]

I know this is slowlane so please don't flame me for it.

I have about $60K in a SEP retirement account. It will be about 25 years before I access the money. Its in 4 or 5 mutual funds that are doing pretty well. I started it several years ago as a long term retirement plan and tax saving vehicle. Its basically unmanaged. I can make changes to the accounts whenever I want to. I just don't. I'm not interested enough to study a thousand mutual funds to find the best ones.

I met last week with a fee based investment advisor. For 1 1/2% per year he will manage the funds. He's been doing this since 1996. He spent about 2 1/2 hours with my Dad and I explaining what he does, how he does it, and going over a risk/returm questionaire to help determine our objectives. I'm thinking that this looks like a good way for me to go. The portfolio will be actively managed by an experienced professional. Surely, this can make me enough to more than pay his fee. As it is, the account just sits unmanged. There is no rebalancing, reallocation or anything. I would think this guy could improve its performance and even minor improvements add up substantially over 20-25 years. $60k is not alot of money for someone to manage. On its own I doubt it will get much attention from anybody. But, my Dad has about $300k in an account he's thinking of placing with this guy. Surely, I benefit from that. I'm thinking I'll make more money over time with the account being managed than I am currently.

I just wanted to toss the idea out for discussion, advice, opinions, etc. What do you think? I like the fee for service model in this situation.

 

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[kurtyordy]

Aren't the mutual fund managers accomplishing the same thing for you? Aren't they paid money managers?

I would look more at performance based payment. If he beats the S&P by x %, then he gets X%.

 

[Edge]

I think you're spending a lot of money over time to do what you could do just as good or better with just a little bit of time.

BUT, if you've already earmarked this money as your "safe/secure" money and it fits in your plan that way, then go for it. Maybe on down the road you can leverage your business relationship with this advisor as you look at other types of fastlane investments that will fit into other parts of your plan.

 

[kimberland]

Okay, I'll step up to the plate and say that I use a fee based financial advisor.
I've always used them.

When I started investing $25 a month, they were a bargain.
For 3% of that $300 or $9 a year,
I got an annual one on one meeting with an experienced advisor,
and
access to all his research and seminars.
All less than the price of a book.
I'd be d*** stupid not to have an advisor.

Lets look at your situation.
For 1.5% of $60k, you get the benefit of an advisor.
That's $900 a year.

So how do you squeak out a positive return?
You look at how you're doing historically,
you add 1.5% to that
and tell him that's your minimum target return.
If he feels he can do it,
then you're now at break even.

To make a profit...
you have to learn from this guy.
Do you get an annual meeting?
Can you call him?
(once a quarter for a review)
Does he offer seminars (on things like option trading, etc)?
If so, then USE those resources.

Oh, and ask his advice.
Starting up a business?
Ask him if he knows someone in a similar business.
Going through a life change (marriage, kid)?
Ask him how this changes your taxes, insurance, savings, etc.
Want to make more money at the 9-5?
Ask him what benefits to negotiate for.

Don't bug him but do use him.
I used to call my advisor once a quarter
(I'd send him an email before hand).
Yeah, I got my $9 worth.
LOL

 

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[kimberland]

If he beats the S&P by x %, then he gets X%.

So if the S&P is down 30%,
you'd be happy to be down 28%?
Nope, not for me.
I prefer a set target.

 

[kimberland]

BTW... one benefit of a financial advisor
is that the biggest component of success in the early stages
is picking the right person.
That's a people skill, not a financial skill.

One of my buds is in Human Resources.
She's not the best at numbers
but she's really good at judging people.
Hiring a financial advisor was easy for her
(like hiring anyone else).

'Course now she's learning about investing
because an advisor simply does that, advise.
She still has to make the decisions.

 

[kurtyordy]

haha, valid point. how bout if he beats the s&p by x% and is positive, then he gets X%.

So if the S&P is down 30%,
you'd be happy to be down 28%?
Nope, not for me.
I prefer a set target.

 

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[phlgirl]

Great clip, J Scott. ++++

Thank you!!

 

[tbsells]

Thanks everyone for the insight. I would recommend everyone watch the video JScott posted. Its an hour long but very informative.

JScott-Do you agree with the information on the video? Has your experience shown this to be good advice? Is it really that simple?

 

[John]

We use a fee based adviser and we're happy with them so far. You just have to keep an eye on your after-fee returns and make sure that you're better off with them than somewhere else.

We're charged 1.05% of our managed assets. We get a quarterly meeting, plus they're available any other time we want by phone or email. We're seeing good results so far, plus they have access to some investments that we wouldn't have been able to buy into otherwise.

One thing to watch out for is that your fee-based adviser isn't also making more money from you by selling you the investments that make him a higher commission instead of the investments that are best for you.

 

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[Runum]

Sorry, I've been burned badly by fee based money managers. I had about 100K in 2000 when the market corrected. I thought my fees were so they could "actively" manage my money. I lost about 30K in value over about a year. I got no phone calls or input but I did get the pleasure of paying their fees to lose my money. It was all my fault I know, I shouldn't have been so naive. I figure I can lose 30% of my money if I want to lose money and I can do it without paying someone to lose it for me. I also figure it won't cost me much of my time to look over my savings and see what's best for me.

No one will manage your money as well as you can if it's important enough for you. They will, however, be happy to take your money and promise the moon.

Good luck with your choice.

Greg

 

[kimberland]

No one will manage your money as well as you can if it's important enough for you.

I agree.
Financial advisors are employees.
They work for you, their client.

I treat them like employees.
That means that I set up guidelines (systems)
and they operate to those guidelines.

At the beginning,
the advisors had a lot more input in those guidelines.
Now, with a bit of experience,
I basically know what I like.

My previous advisor wasn't comfortable with my revised guidelines
(he really didn't work with higher net worth folks)
so I moved to an advisor with the same vision.

You're the captain of the ship,
staff it as you see fit.

 

[kimberland]

TheGreatBear,

Yeah, I'm not a fan of index chasing myself.
It is kind of like forcing companies to return that 10% growth a year.
There's no room for long term building.

I set a conservative target
and then the advisor can use the wiggle room
to work on long term plays.

 

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[KLPInvestments]

Pay that no name guy 1 1/2% or what ever to manage your money....

or put that money in shares of Berkshire Hathaway class B and have Warren Buffett manage your money. WOW....tough choice!

There are capital allocators out there that will smoke that guy into oblivion. Just look at Leucadia National(ticker LUK). Buy those shares and have Joe Steinberg and Ian Cumming allocate capital for you. Those two guys are two of the best of a generation with a long track record. They have compounded shareholder wealth at 28%(averaged)or better annually going back over 20 years.

This would not be a tough choice for me, but that's just me.

If you give this guy your money, your opportunity cost will be huge! Plus...with a money manager, you are just adding another layer of costs and will most likely not do much better than the averages....over the long term. At least with Berkshire or Leucadia you are actually OWNING the business DIRECTLY....no manager or fundhouse between you and your assets. The layers of costs are stripped away. The returns are all yours....and in all likelyhood they will be far better returns because you don't get much better than Buffett, Steinberg, and Cumming.

http://www.zenway.com/bk/luk