[Jay]

I find it so funny how some people get up in arms about a financial advisor charging a 1% fee to a client. The advisor’s income is based on how well the portfolio does.

So it’s literally in the best interest of the advisor to help the client become as wealthy as possible.

An advisor can mean an extra couple $100k in a portfolio for a client.

On the other hand, these same people will gladly tip a server 20% or 25% because they brought them a plate of food and were nice.

Which service is more valuable?

[Elie]

I think it’s more funny that the majority of professional advisors can’t consistently outperform the S&P500

[David]

Definitely don’t need a financial advisor. They can’t beat the market and usually underperform.

Depending on your contributions an advisor will likely cost you over a million dollars over a typical 30 year period of investing.

[Dion]

Simple numbers.
Examples:
100k invested.

1% is 1,000
If it goes up 10% you made 10,000
Fee 1,100

If it goes down 10% you lost 10k.
Fe 900.

They make money either way. And the difference is a small fraction. 1% annually over a few decades is a lot more than just 1%. It 10% in ten years. 20 in 20 etc.

The rule of small numbers can make it seem inconsequential.

[Amanda]

A tip is $5 and an advisor would cost me $20,000 a year so not exactly the same

[John]

You are misunderstood. The FA makes money off of the principal amount as well as the specific funds they select.

% Growth of a portfolio is not their primary strategy for obtaining growth for their own pocket.

They make money whether a client wins or looses

[Mikkel]

You are incorrect sir. The fee is based on the total amount in there. As long as it doesn’t go to zero, Mr ripoff gets paid.

While it’s true that if the money grows more he gets paid more, that difference is marginal compared to what he’s already getting

[Sonny]

As previously mentioned, why would I pay someone 1% a year to underperform the S&P 500? On a $1MM portfolio, that’s $10k a year.

Buy a target date fund or throw 70% in SPY and 30% in a bond fund. Thats what they’re going to do anyway.

Advisors may be good for tax and estate planning, and for individuals who don’t want to learn about markets.

They don’t add value to most of DIYr’s…

[Alys]

Because you can get just as valuable advice from a fee-only fiduciary without giving up a portion of your returns for years.

Personally, I’d rather stick to a basic 3 fund bogle style portfolio that statistically outperforms actively managed portfolios.

[Zach]

I always found it odd that you bring $100,000 of money to the table then an advisor takes a cut out of it.

Why doesn’t advisors just take a % of the gain they get you? I think that seems fair.

[Nicole]

Actually there are a lot of potential hidden fees that they can hide because they have lobbyists.

if you’re not working with a fiduciary as your advisor they don’t even legally & ethically have to work for your best interest.

So, make sure you at least have a fiduciary working for you if you are going to hire someone.

[Burns]

The issue is that almost all financial advisors cannot beat simple S&P low cost index investing and people are paying them for this.

The amount you pay an advisor ends up costing millions over a lifetime if you would’ve just invested that amount in an S&P index fund.

It’s robbery! It’s much more sound financially to pay an advisor hourly should you need some service from them.

[Paul]

Just to add, no one consistently outperforms the market. Why pay 1%, year on year fee when you can just invest in a broad range mutual fund.

Sounds silly to me.

[Glenn]

I think you don’t understand that we can do math. The difference in pay between 10% and 5% gain on a $1M portfolio is 11K vs 10.5K respectively.

That is barely an incentive. But you taking 10K to manage a portfolio is a lot.

[Sage]

I have no problem paying a commission to a financial advisor(I don’t).
I’m not a very advanced trader so my skills are limited to index funds with occasional splashes into companies I like and/or believe in, and I generate certain returns based on that investment strategy.

If an advisor can prove over a 5-10 year track record that they can beat index funds by a substantial margin then that 1% is a drop in the bucket.

The problem is, they can’t.

[Steph]

Research has shown that even with in the same exact funds, those who pay fees and have an advisors often make more individual return.

Why? Because MOST investors need the pro who will help them navigate the emotions of the ups and downs.

As well as other aspects like taxes and suitability… but investor behavior is key.

That may not apply to you specifically, but it is proven to be MOST middle class investors.

I’d gladly pay higher fees for a higher net result at the end.

[Tim]

The point is SP 500 beats FA vodoo 99% of the time and bonus is you get to keep and compound that 1%.

But you keep doing you and helping with your FA’s luxury travel.

[Tom]

The food because I don’t need a financial advisor at this point in life (and if I ever get to the point that I think I will, I’ll have enough to simply put everything into an index fund and take distributions – for a lot less than 1%).

[Brown]

In truth, neither is valuable at all. I do my own investment management, cook and carry my plates from the kitchen like an adult. It’s really not hard just need to be willing.

Plus, you get to bank all of the %s.

[Bryce]

Is the advisor more incentivized to get you a 12% return instead of 10% or is it better to try to find one more clients that will invest 50k.

The incentive is to be a sales person not to get 1 or 2% better returns (which is pretty proven they can’t anyhow).

If we are using the 4% rule, I like to think of an advisor taking 1% of those 4 percents.

Or 25% of the return your expecting to live off of (I know over simplified) but do you feel that is a fair price for advice?

also, they’ll still charge you the year your portfolio goes down 20%

[Author]

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