Financial advisor?

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Financial advisor?

Post by Douglas » Fri Sep 14, 2018 11:17 am

Seeking some forum opinions. It's not that there is a problem that needs resolved I am just wondering what other DIY'er type people would do in a similar situation.

The situation is a good buddy of mine just became a certified financial advisor and started his own business. His target audience are professionals with > $100,000 / year in earnings but not really money savvy and need help. Briefly, his business model is to have individuals / families pay a couple thousand up front to kick off the planning and then charge a monthly fee to retain his services, which is access to budget / investment software and quarterly check ins from him on how the plan is going. It doesn't scale with total net worth / amount invested and is mostly based on the number of members in the family that are considered in the planning.

We've talked money stuff for a while now and I've already learned a decent bit from him. He knows I am super frugal (cheap) and wouldn't pay the full price but he said he would give me the friends/family deal which is something like $2000 for one year then if we want to stay on it will be something like $1000 / year after that.

My thinking is it might be worth it if he can help us rearrange our current finances in such a way that we end up saving more and / or earning more on investments. I think some low hanging fruit would be taking advantage of tax strategies that we currently are not utilizing because of either ignorance or inertia. He is also going to help us find the right lawyer for our family will which may be complicated since we are an international family.

I've never considered hiring a financial advisor until my buddy became one. I trust him and his judgement a lot so I am thinking it might be nice to have another set of eyes (his) on our financials even if it costs us a couple thousand $. The only draw back is it goes against my wanna be ERE mentality by spending money. I don't have a lot of time right now to give our financials the attention they deserve so maybe paying a CFA can speed things up.

Anybody else use a CFA? What do you think about this current situation?

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Re: Financial advisor?

Post by Douglas » Fri Sep 14, 2018 11:23 am

For what it's worth, we have about a 30% SWR at the moment.

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Re: Financial advisor?

Post by jacob » Fri Sep 14, 2018 11:39 am

I'd say insofar one plans to derive one's primary source from capital income after FIRE'ing---and this is the case for many---then unless one buys an annuity or has a real pension, then it's more like changing career to "money manager". This is true even for the TSM crowd---they just don't pay much attention to their new career.

Therefore, I think it's a bad idea to outsource ongoing management. Three reasons:
1) One's strategy shouldn't be so complicated as to require ongoing [subscription-based] management. A one-time fee to set it up or answer questions should be enough. This does require being sufficiently informed to ask the right questions. You can not hire this problem away.
2) $1000/year = $33,000 in assets ... that's a lot to pay because of a lack of time to study up.
3) $1000/portfolio value = what % in fees? For sure this depends on what the NW is. $1k on $1M is 0.1% which is okay. $1k on $100k is 1% which is quite expensive.

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Re: Financial advisor?

Post by Douglas » Fri Sep 14, 2018 12:08 pm

To continue paying a monthly fee is definitely a deal breaker for me. The service fee not scaling with NW does seem intriguing but we are several years away from $1M so at the moment too expensive.

It could be a good, but with a cost, exercise to go through our financials with a CFA in a one-time deal. I know it would make my wife feel better.

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Re: Financial advisor?

Post by DutchGirl » Fri Sep 14, 2018 3:09 pm

Well, at worst it's $1000 to make your wife feel better plus a $1000 gift to your buddy (i.e. no more birthday gifts necessary ever again). People have spent their money on worse things.

Check whatever he recommends with other sources as well.

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Re: Financial advisor?

Post by Bankai » Fri Sep 14, 2018 3:26 pm

Cheaper options include:

1) posting your numbers here and using the collective wisdom of this forum

2) going for a one-off consultation with a financial advisor; assuming $100/h rate 2-3 hours meeting would only cost you $200 - $300

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Re: Financial advisor?

Post by arcyallen » Fri Sep 14, 2018 7:38 pm

I have a special mentality for giving money to friends and family for services. If the service is truly good, I don't worry about the money. Two exceptions: If it's a LOT of money compared to the going rate, I may hesitate. That being said what he's quoting you doesn't sound atrocious. The second is it needs to be really, truly good service and not a pity pay. It sounds like you trust him and he may be qualified. If he were freshly licensed and trained, I'd be holding out. You said "I don't have a lot of time right now to give our financials the attention they deserve", which tells me unless you choose otherwise he may be a good choice. But I'd ask yourself if you really don't have the time, or just don't want to make the time.

My personal example of paying money to friends and famiy: I HATE paying to board my dog at the doggy daycare, but I'm happy to pay my niece or friend the same amount of money for taking care of him. I think of it like taking the money out of my right pocket, and putting it in my left. But that's just my wacky mindset.

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Re: Financial advisor?

Post by IlliniDave » Sat Sep 15, 2018 7:20 am

I have a long-time colleague at work who has been approaching me about providing similar services. I think he's working towards CFP credentials. A CFA is a higher level of certification than a CFP. In my case, in my mind, my ~30 years practical experience trumps his 1-2 years of training. But the fact that we're friends insofar as coworker friendships go, makes me uncomfortable in keeping him at bay.

In your situation I think there are a number of considerations. There's nothing inherently wrong with professional money management, you just have to be careful because some of the larger firms have practices that aren't always best for the client. One thing to discuss with your friend is ask whether he would a fiduciary financial advisor (and if the answer is yes, ask to see it in writing). If the answer isn't an unequivocal, "yes", then, well, beware. It's also reasonable to ask him if there are ways he's compensated other than the fees you've discussed. If he is truly offering fee-only services then establishing a fiduciary relationship shouldn't be a problem. It requires him to always act with your best interests first. From there it is largely a matter of what makes you most comfortable. It might also be possible to sort of split the difference, i.e., rather than signing up for the full program maybe you could arrange for you keeping more autonomy with less frequent consultations for advice (one thing you didn't mention, or I missed, was whether he would be managing the investment accounts, or just advising). Bottom line I guess is that a lot of people get a lot of peace of mind by getting financial advice. If you decide to go that route I'd only caution against completely abdicating your own responsibility and to stay engaged in what is going on. Where bad things happen is usually when the client loses awareness of what is going on. Good luck, either way.

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Re: Financial advisor?

Post by Augustus » Sat Sep 15, 2018 5:07 pm

I don't like doing business with friends, once money is involved people often get dissatisfied, you may feel his advice is lackluster, he may feel he's doing you a favor that you don't appreciate, both lead to resentment.

That said, if you're really interested in it, you should ask for a free consultation where you go over your finances and goals and he gives you his general opinion. Most financial planners aren't thinking anywhere in the ballpark of early retirement or what that entails. You shouldn't just ante up $2000 for an unknown outcome, you need to know what you're getting and if it's what you want.

I wouldn't pay $2000 personally, I'd do the research myself. No one cares about your money or your life as much as you do.

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Re: Financial advisor?

Post by thedollar » Sat Sep 15, 2018 11:37 pm

Augustus wrote:
Sat Sep 15, 2018 5:07 pm
I don't like doing business with friends, once money is involved people often get dissatisfied, you may feel his advice is lackluster, he may feel he's doing you a favor that you don't appreciate, both lead to resentment.[...]
This is my experience as well.

@OP This could be an important question to ask yourself: If you feel the service is bad or that you don't get what you pay for, would you be able to cancel it without losing a friend or straining your friendship?

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Re: Financial advisor?

Post by Mister Imperceptible » Sat Sep 15, 2018 11:39 pm

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Re: Financial advisor?

Post by Douglas » Sun Sep 23, 2018 6:38 pm

After considerable thought I ended up not taking the financial advisor services from my friend. I think my biggest issue was sticker shock, even with the steep friend discount. In the end I am not within his target audience of young professional families who don't have money smarts, and apparently are not tech and spreadsheet savy. Half of the deal was that we would import all of our budget and investment data in a software program which I would then be dependent on by paying a monthly fee...not a good sell for someone who has created > 10 charts in excel monitoring budget and investment data going back more than 2 years. I commend my friend for trying and at least I gave it serious consideration.

Thank you for the feedback!

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