proper fee based financial planner compensation
Terry, thank you for taking this. We have begun reading your column in the new sunday Harrisburg,pa patriot news financial section. 14 yrs ago I met with a fee based planner who has my dads business. At the time he wanted $600 per yr to manage our (wife and I) 50k in investment money. I thought this was high and pointed out to him how an extra $600 per yr would compound over time. (Would I make an extra $3000+ over 5yrs?) We instead, maybe wrongly, ended up with a planner right in town and we invested that money in several American Fund mutual funds. I now know a lot more about fee’s and so forth and we have not added to the funds since. We now have around 200k in total investment money with way to much( probably 60%) sitting in cash. 1/2 of this is in an Am.F. account the other is in a siebertnet account in a few stocks and M.M. fund. As I near 50yrs old I would like to consider a new fee based planner to make sure we are on track. Can you give some guidance as to whether it will pay off to pay 600-800+ or more to manage my account? Should I just use the new siebertnet planning service or other general guidelines and use low cost funds to invest in? I certainly want to compensate properly but I can’t help but feel like actual returns are based more on the ups and downs of the general market than any advice they could give.( for example 5-8 yrs ago my current adviser advised me to move 1/3 of our already invested money into a booming A.F. world fund. Soon after that the fund fell 50% during the recession.) Am I being P.W. and pound foolish and more specifically what should I expect to pay for a fee based planner? Our income is close to the area average of 50-55k. thank you very much, mike
Terry Says: Well, first of all congratulations. The BIG thing you have already proved is that if you start early and stay reasonably invested, that over the long run you will come out ahead. But where you are now is the sudden realization that the “long run” may not be so very long any more — at least concerning the amount of time you have to keep contributing, and to make up for any investment losses.
I have an unusual suggestion for you. Vanguard has just announced a new program called the Personal Advisor service for people with a minimum of $50,000 to invest. It is available at an annual advisory cost of 0.30% of a client’s managed assets, or $150 on a $50,000 portfolio annually. The announcement made waves because this is such a good deal. Since they will be recommending their low-cost funds, it is a double win for those who use it. And it uses their investment methodology and advisors, guiding you to diversify your portfolio based on your age, risk tolerance and goals. So why not give it a try.
(I’m writing a column about it now, which you will find in your local newspaper — or posted at TerrySavage.com in the next week or so.)
