Am I Crazy For Paying My Financial Advisor $25k/year?

When you’re doing well financially, paying advisor fees might seem unnecessary. So, do you need an advisor if you’re already in a good place?
Having a successful retirement isn’t just about not running out of money; it’s about what more you can do.
Through a real-life client story, I explain how having an advisor’s perspective to implement the right strategy can be more valuable than the cost of their fee.
Advisors can help you avoid biases in the way you invest and plan. They can ensure you have the right withdrawal strategy and don’t overpay on taxes. When handling finances for yourself, you may worry about what you could be missing. A good financial advisor will give you peace of mind, knowing you have all the right information.
It’s important to reframe your thinking: Is the cost of your advisor justified by the value provided?
Questions Answered:
What’s the opportunity cost of not having an advisor?
What value does an advisor provide when you are stable financially?
=======================
Learn the tips & strategies to get the most out of life with your money.
Get started today → www.rootfinancialpartners.com/
🔔 Make sure to subscribe here to be notified for future videos!
/ @rootfp
_ _
👥 Make sure to connect with us on all socials below → beacons.ai/rootfinancialpartners
⏱Timestamps:⏱
0:00 Financial advisor vs DIY
3:37 Does an advisor add value?
8:30 Story of lost opportunity
12:27 Understand the bigger picture
13:41 Being ok vs optimizing
17:44 Risk of wrong withdrawal strategy
21:13 Risk of overpaying taxes
22:20 Continuity costs
23:27 The real goal
27:31 Appropriately compare
Other videos we think you'll like:
About Root: • Financial advisors wit...
Worried about retirement?
Start here: • Worried About Retireme...

[@DonOz-su7qd]

I am Don that asked the question . Over last 5 months fired my advisor. I am with Charles Schwab now and get free advice from them. My CPA answers my tax and Roth Conversion questions. Any other questions the internet or podcasts like James’s or Ari’s answers with little effort. I could not be happier saving $25,000 per year and I now know exactly what’s happening with my money. In my situation if my advisor was truly my fiduciary then his first advice should have been to fire him. Thanks so James you are really good!!!

[@Anonymouse987]

As Mr Conole mentions, I recommend for-fee / fixed-fee advisors over "percent of wealth" advisors for any high net worth individual. I concur with you and have Fidelity and a separate tax CPA. An outside $300 comprehensive annual review by a different fiduciary financial advisor provides the other last thing James recommends, "recency bias/opportunities you might miss" at a fraction of the price. Fidelity is down the street, provides basic reviews & tax strategy, provides free meetings and advice. I'm slowly consolidating more family accounts to them. You want to with their high net worth team. The S&P500/cash to smooth the ride is similar to the book, The Simple Path to Wealth by JL Collins. It's organized well as a book, and organized a little less well (but free) on his web page. One change, he got burned in real estate, was then against it and pro-rental in NYC (IIRC) as a better use of money. As the market changed he left and purchased a house in Florida in 2017 when interest rats were low/home costs hadn't skyrocketed. It turned out to be a better investment (barring a hurricane). John Goodman gives Mark Whalberg that S&P500/bonds advice the Gambler. (1 min video, swearing). kzbin.info/www/bejne/rpXJlounfaughqs JL Collins edited himself in with more accurate advice, again except the rent vs buy market changed a lot in the last 7 years. kzbin.info/www/bejne/m5rOk4SGocmbhrs

[@bobs74xlch]

The internet is WAY to informative not to manage your money on your own..... You sure did a good job of earning it on your own. I currently use Vanguard and invest in mutual funds, especially VTSAX, which has a very low expense ratio. Anyhow, if anyone is going to lose my money, it's going to be me. I find the biggest unknowns are these dam taxes, and I agree with consulting with a CPA. I would say Goodluck, but your question alone and the fact that you amassed $4M suggest you're a smart man and will have no problem figuring this out.

[@san209nha9]

I do all of my long term investment 401k and IRA by myself. 3 years ago I opened one account for 50k and let the advisor do investing. The reason I did that so I can see if they can do better than me or not. The first 2 1/2 years it was always negative, the last 6 months it grew and after 3 years the total growth is only 0.5%. The accounts that I manage myself are able to grow totally 20% after 3 years. That is because I put 1/2 of the funds conservative. For this year when I moved some funds to SP500 related, I can see the YTD growth is 8%

[@espesq2391]

Advisor is great if you cant read. Paying % of AUM is insanity

[@clbcl5]

As many ask, what do you spend 120K a year on?

[@bobdrawbaugh4207]

I have a Doctor and a Lawyer. They are some of the best in my area. But, they don’t charge me every year just for the privilege of being their customer. I pay them for their services at the time, and I’m glad to do so. Most FAs in my area want do an hourly only service once a year. My Doctor, my Lawyer, my tax advisor will all meet with me once a year for a fee. They don’t want 2 or 3 percent of my net worth every year just to be a customer.

[@alk672]

Exactly. The problem is AUM model doesn't make any sense. The advisor doesn't need to work harder or do more if the portfolio is larger. It's just a very obvious way to extract more money from people who are capable of paying. In any other area of life/business this would be immediately rejected; somehow it's fine here.

[@chillphil967]

.. except for streaming apps lol

[@OnlyMusicExclusives]

But you only have access to your doctor because you have insurance. So essentially, you are paying your insurance carrier a monthly premium in order to have access to the doctor.

[@markbernhardt6281]

Root fees drop as the portfolio grows and their fees aren't anywhere near 1% on a huge portfolio.@@alk672 The other side is of the equation is the types of funds. I believe they use low fee vanguard type funds instead of front loaded funds and annuities. Just to put some perspective on it, Root and outfits like them (similar to Safeguard Wealth Management) operate leaner on software than the classic advisors from 20 years ago.

[@PeteQuad]

I'd be happy to pay an advisor even $1000 for a consultation every few years, but there is no way I am giving them 1% of my portfolio every year.

[@alk672]

Imagine you come to a store and all prices are expressed in percentages of your net worth. That's what AUM is. It doesn't make any sense, its sole purpose is to extract more money from those who can pay, and somehow it is supposed to be ok. An AUM advisor can easily be worth whatever percentage of your net worth they charge, but there is no way in hell it will be worth it every and each year. Yes, the plan needs to change occasionally, but paying $25k every year for decades is completely nuts.

[@n00dle_king]

Yup. If you aren’t paying hourly or a flat fee for service you are being taken advantage of.

[@marcalvarado1915]

If it were me I would hire a fee only FA that is a fiduciary to me. I would check in with him once a year and manage my retirement with something like New Retirement that considers everything including SS and taxes. I would also have a cash bucket with 4 yrs of expenses and put the rest in a 70/30 fund between the S&P and a total bond fund like BND. It is really hard for anyone including FA’s and even hedge fund managers to beat the S&P. The cash bucket will protect you from four years of negative returns.

[@et_phonehome_2822]

Most of them cannot beat the SP500 even these so called mutual funds.

[@rickyaz8640]

Just pay them hourly 2 or 3 times a year for advisory & tax advice. That’s all most people need

[@xlerb2286]

I like the way you think - because it largely agrees with my thoughts on the subject ;) For years I've worked with a broker that is a big fan of broad market index funds. We've done quite well with that strategy over the long term. But now I'm coming up on retirement and it's a whole new world to learn about.

[@dc1741]

Retired last yr (from my career as a chemical engineer) at age 61. Took a lump sump on my pension. With that, along with my 401k, I came to a hard realization: this is it. This is all I've got. Nobody is ever gonna give me another paycheck. That made those funds seem that much more critical. Which is to say, my fiduciary responsibility to myself---at that moment of realization---became of utmost importance to me. Since then, I've opted to take SS early (at 62), I've invested 80% of my portfolio agressively in stocks and ETFs, and I'll be doing a substantial Roth conversion this year and next. I decided on these actions via my own investigations and study. So, for the near term, I'll proceed without an adviser.

[@chillphil967]

👏🙏

[@sunfiend]

It is possible of course you made all the right choices. With such big stakes on choosing how to receive your pension and when is the best time for your situation to collect SS, and your decision on a Roth conversion strategy, why didn't you want to pay for a fee-only financial advisor to review with you? The cost of this in the grand scheme is probably irrelevant and at a minimum it would just confirm you made all the correct decisions. More likely is that opportunities for structuring your retirement were missed which could have been a net positive for you.

[@et_phonehome_2822]

@@sparkie996 You sound like my wife, take the cash and don't invest it in. She say putting money in a bank account is safer, and how far you think that will get you?

[@rickbarrington]

@@sparkie996more and more people are living into the 90s. Converting all to cash is probably the worst strategy - it will lose value every year due to inflation. Investing wisely is required, not an option .. or you may be out of money and out of options just as you are at your most vulnerable and need it.

[@justliberty4072]

@@sparkie996 And you might have 25 or 30 years of life left, so many would say it is prudent and closer to optimal for you to keep some assets in equities. Why not split it and keep a few years of cash or low-risk investments and invest the rest in assets with a variety of risk/reward profiles?

[@trevorward9680]

You are brave to take this on as a financial advisor. Your reply was very eloquent and totally sound. I enjoy your channel, well done!

[@heidikamrath1951]

Wholeheartedly agree!

[@fortusvictus8297]

This was a real litmus test question I had when looking for an FA a few years ago. If they could honestly answer without devolving into sales pitches or implying they could generate money from thin air with market magic was a prime consideration. My current advisor is exceptionally honest about his own limitations and very up front about his conservative investment style and dollar cost averaging methodology.

[@verb0ze]

I think he sounds like a good advisor. I mean, we're here learning from him. That said, these days, information is readily available and we can learn most of the basics on their own and manage parts ourselves. Couple that with automation and it's hard to justify some advisors fees / charge structure. I'd happily consult with a fee-only FA periodically, but I'd be hard-pressed to pay 10-30k yearly for advice, unless I was dealing with complex assets worth 10M+. I guess some / most of us here feel that way because the fact that we're here to begin with indicates we tend to like to self-manage our finances and take ownership of our choices.

[@whatspeedlimits]

@@fortusvictus8297 you missed the fact that he wasn't honest...and this WAS a sales pitch... the best trick the devil ever did- was convincing the world he didn't exist.... the fact you have an advisor..your PT Barnums best friend...fell for the snake oil in a nice suit.

[@mikehlavinka2964]

About 2 years ago I was with my financial advisor who had put me into actively managed accounts over the last 2 yrs. I told him I wanted to move into low cost ETF's. Boy did our relationship change. He moved my account into the general brokerage firms accounts. He has never spoken to me since or made any attempt to reach out. I remember looking at the cars by parked by the office employee entrance. The fancy cars put my used car to shame, all I could think was I paid a small portion of all those new high priced automobiles. Needless to say my returns increased dramatically after the change. My broker never bothered to demonstrate how his firms actively managed account compared to any other benchmark. I often laugh and wonder why.

[@herculesrockefeller8969]

Your story reminds me of the book title "Where are the Customer's yachts?" 😀

[@mikebest66]

That is exactly what happened to me.

[@fredericfaugue9977]

This is what’s going on with me right now. I plan to fire him too.

[@marcuskelly5768]

Exactly what happened to me to. Cost me one huge amount of money till I woke up and smelt the difference between shit and coffee. No one looks after your money better than yourself. A FA is a fraud, most of them can't even manage their own funds a money. As you say, just look no further than the cars they drive and their lifestyles. Not to mention all their corporate parties they have.

[@NotThatKraken]

A reasonable billing rate would, in my opinion, be around $150 per hour. Is your advisor spending 150-160 hours per year on your account?

[@alfonz7863]

Agree with your reasoning. (160 hours / 8-hour day = 20 days). Is a financial advisor spending 20 eight-hour days with each client?

[@kellanhills1972]

Not even close to that. Most financial advisors are pure salesmen. I know this because I have two friends who are this. They care about sales then just spend an hour a month on each client. This is then upwards of 1-2 thousand dollars an hour or more.

[@raydziesinski7165]

Very practical way to look at this. Thanks.

[@JohnGFish]

excellent comprison

[@ralphmorgan6130]

As a financial adviser in Australia I couldn't give advice to 'Don' if I wanted to, but the $25,000 pa fee he is currently paying seems a "bit" steep if his financial situation is as simple as the background provided implies. For example, my standard fee for someone with simple financial situation and $4M of non-retirement would be A$12,200 (about USD$8,260 USD). And, as I don't charge a % fee for advice re superannuation asset allocations (ie retirement savings) it could be as low as my minimum fee of A$2,200 for someone like 'Don'. So, a fee of USD$25,000 seems a bit excessive to me. You could also pay an adviser for a one-off review of your situation and your proposed 'plan'. They could do some modelling, recommend some fine tuning (eg. for tax efficiency, or impacts re estate planning), review you insurance needs and cover, etc. for a flat fee. Unless your situation changes or you need ongoing financial advice, there may not be any need to pay an annual ongoing fee once your 'plan' is in place and basically running on 'auto pilot'.

[@chillphil967]

good idea

[@serialmigrant]

Ive worked in several countries as an engineer, including down under, Canada and the USA... Costs of living is more in the USA, salaries are higher, wealth is bigger. Even when I compare my wealth to some of my american friends, it's not comparable. U can't compare an Aussie fee to a USA fee. My wealth is high if compare to other far eastern Canada (poorer provinces), but compared to my friends in California, I'm swinging around chump change. But as an example, their property taxes on their home is 25000$ US, mine is 1800 $ CA. I'd scoff at 25k financial adviser fee, but I wouldn't be surprised they wouldnt. Another example, my remodel in Portugal cost 20 k Euro, my friends in the USA... It's 300k...

[@jamesphillips2961]

You invest in index funds to lower costs. Then you reduce your return by 0.5-1% per year to pay that advisor. Get out a compounding interest calculator. Put in a 5% return over 25 years vs a 6% return on a $1 mil portfolio and a $1000/month contribution. The result is $4.9m at 6%, $3.9m at 5%. Was the guy worth $1m over that 25 years? At 5.5% you're still down $500k.

[@DavidsonFootball1]

If you've decided you're going to invest in index funds whether or not you use an advisor, then there's obviously no value added by using an advisor. If you don't think they can improve your asset allocation, investment selection, or tax plan, then of course you don't want an advisor.

[@brodacious1313]

@@DavidsonFootball1 "If you're not open to advice, don't pay an advisor." Great advice, somewhat ironically. I'd also like to add "Don't hire a lifeguard for a puddle."

[@ThePurpleSnork]

I've been an advisor for 15 years now, and in my experience very few people actually invest their money well. Certainly there are many people who are totally capable of doing so, and I'm sure many of them can be found in the comments on videos like this - because you and others here are interested in investing and have taken the time to learn. Think about the other people who don't know, don't care, and let their emotions run their life. Yes, we are paid well, but your math only works out if the client doesn't sell out in a down market. It's not uncommon for people like me to earn the entire lifetime of fees in a single meeting by preventing clients from selling out at a market bottom. If I can keep them properly invested through good and bad markets I feel it's worth it. That said, I don't charge anyone $25k a year I begin to steeply reduce fees once clients are reaching $1MM.

[@paulsusi6929]

25k n advisor fees for 25 years (as mentioned in the video) adds up to 625k. The 500k - 1M missed opportunity for not using a financial advisor doesn't seem so bad anymore.

[@Dave-sw2dm]

My issue is that I built the $1,000,000. The moment I hand it over to an advisor they make $10,000 - $15,000 whether or not that money grows or not. I would rather they take a percentage of the gains. Where is their risk to perform?

[@iczemi]

Unfortunately they don't participate in the risk. The fee shall be proportional with the profit. If the profit is 0 or negative, then the fee should be zero.

[@ItsEverythingElse]

You could always explicitly tell them what to invest in. Their planning (withdrawal strategy, tax strategy, etc) is probably far more valuable than their investment advice.

[@tstouff65]

Yup, its a bitter pill to swallow for the “other guidance” they claim to provide outside of investments.

[@et_phonehome_2822]

Not worth having your account managed, their fee comes from the size of your account no matter if one make money or not. I dumped Fidelity, I was being charged for them to lose money for me.

[@peterwright837]

You don’t need to pay $10,000-$15,000 per year for an advisor. Vanguard will do it for $3,000.

[@TacticalStrudel]

% of assets vs fee is not “tangential”, its core to the issue here. Paying ~20% of your annual spending to a single advisor is insane.

[@dforrest4503]

This is a well reasoned video. I can relate (due to being naturally cheap) to not wanting to pay an advisor. But a few years after my dad passed away when I inherited some money, I realized I just wasn’t able to do the research back then and make good investment choices. So I kept part of my money in a few funds, and hired an advisor to manage the rest. Over the years I’ve gotten better at my fund choices (and been lucky) and my investments have performed better than those invested with my advisor. While it annoys me, I think my advisor has diversified much more than I have, and it probably means those investments are much safer in tough times. So I think I’ll stick with this combination.

[@chillphil967]

or they’re just selling what they’re being told to sell, making reasonable recommendations, and making bank with fees. at least, that’s where i’m at. my dad passed 14 yrs ago, senior year of college. i learned a lot with advisor, but, time to move on for me. wish you the best 😇

[@topeka088]

Yes, much safer in bad times, but that's only half the equation. Diversified also means you're missing out on money during good times (which outnumber the bad times)

[@CalmerThanYouAre1]

Having a CFP look over your plan is certainly valuable, but there’s no way in hell it needs to cost $25K per year for a $4M, very simple portfolio of assets for an individual family. $2K at most. The one thing you definitely do need is a good accountant. And that expense is likely less than $1K per year as well. Don built a $4M fortune without a CFP, which is something less than 5% of the people on earth can do. I bet he can do just fine managing his own finances in retirement with 10x the free time.

[@cherishgp]

Root Finsncial Planners charge 1-% for the first million and then it is a sliding scale down. They would almost certainly charge more than $25,000 for a $4 million portfolio.

[@chillphil967]

yeah, that’s what i see in the literature as well, however, it doesn’t mean it’s worth it. price of everything’s going up. might dust off the old robin hood, start shorting risky pharma start-ups again 📱🤳💸

[@brahmmauer7437]

You’re not gonna find anyone who’s gonna handle a $4 million portfolio for $2000 a year. One Percent to one and a half percent seem to be the going rate. Do the math.

[@et_phonehome_2822]

@@cherishgp The more money one have, the more they want out of you.

[@CalmerThanYouAre1]

@@brahmmauer7437 the math is exactly why I’m saying it isn’t worth it… what they’re doing for a $4M portfolio isn’t very much different than a $1M portfolio. It doesn’t justify higher expenses. In fact, some people with a $500K portfolio may have a more complicated financial situation and require more work than $4M. Charging based on AUM is a scam. Plain and simple.

[@ivyclara9782]

I am in the exact same situation and paying ridiculous AUM fees as my portfolio has grown. If the firm sent out a bill for $25,000 in the mail every year, how many would continue to pay? I am not in retirement and I can really now see that my advisor is withdrawing almost to same amount as I am. The 4 percent rule now becomes 1 percent for my advisor, 3 percent for me. They are skimming off the cream. I plan to find a less expensive or a fee only advisor. I do not have to pay any other professional based on my assets. Why should the most expensive item in my budget be a financial advisor? It is like I am paying for a kid to go the college for the rest of my life.

[@davidk6498]

Exactly dump him he has took enough from you you can do it yourself😢

[@alk672]

You are paying for a kid to go to college for the rest of your life, yes. The advisor's kid.

[@chillphil967]

.. i just realized that my advisor hasn’t actually invested my monthly contributions for IRA etc. since q2 2021.. dumped them into a 0.01% bank sweep at custodian. knew it was fishy for a while, but found smoking gun today (bad). but found this channel today as well (good). whadya think? file complaint? ask to settle for material losses? walk away n try again w new company?

[@rickdunn3883]

The issue is that they never should have sold out of the market. They need major hand holding. My sister has done this 3 times-she is excellent at locking in losses.

[@michaelalberts4699]

Very nuanced conversation James. Well done!

[@NEWHAMPSHIREGUY]

Well Done James! a very good job of expressing your value! 😉

[@d.c.127]

James, you explain things so clearly in your videos that even a financial Luddite like me can understand! Subscribed.

[@heidikamrath1951]

Excellent video (as I have come to expect from you 😊). Thank you, James!

[@RootFP]

Thank you for watching!

[@michaeldbouck]

In my mind, unless you have a very complicated scenario or want to be completely hands-off AUM-based fees per year is killing your portfolio growth. Remember - 1% AUM is ~15% of your gains (not to mention the loss of compounding on that 15%). The question then becomes is your advisor worth that hit to your portfolio? If you are a DIYer and are willing to learn then most people can probably do better with a simple investment strategy and leveraging tools like Empower/NewRetirement. If you need additional help I think it makes much more sense to pay a CFP hourly/flat to do a portfolio analysis as a one-shot. Remember - it's your money and you own your future. Just my 2 cents...

[@johnadair6108]

Don uses hindsight to determine that his advisor was not worth the $25k annually over time. Stating that he/she made worse decisions than he (Don) would have made. Using a financial advisor in an effort to beat the market consistently is a fool's errand. I believe advisors are value-added in other areas such as tax planning etc. but not to the tune of $25k per year LOL!

[@et_phonehome_2822]

If someone charged me $25K, I would expect my portfolio to increased by more than $25K to offset the fees. I would like to see a FA guarantee my principle.

[@ttiger9780]

Very helpful. Thanks. Trying to make some decisions on this right now.

[@chislands]

The question is, what is your FA doing for the $25K a year? This sounds like an assets under management situation and there's a high probability that you are not getting $25K worth out of them. The other question I have is how much have you lost on those fee's over the years that would have been compounded year over year in a 70/30 portfolio. The internet has made it easy to invest on your own these days and it sounds like Don know's what he's doing. Now if a FA is doing more outside of just investing (retirement, tax, estate planning), then maybe they can be worth it. Finally I'd add, out of all the FA's on KZbin, James knows his Sh%t and no doubt would be a go to when nearing retirement.

[@michaeldbouck]

This.

[@rickdunn3883]

I believe AUM fees are excessive. Likely the "plan" is not sufficient to be effective-more work necessary. There ARE fee only financial planners that charge much less. "more doesn't grow on fees."

[@kaytee1617]

I like this framing for thinking about the value.

[@Frank-nh9fe]

FAs can add value, no doubt, but the AUM fee structure is ridiculous. Especially over multiple years as most of the work is performed up front, then tweaked in later years. Fees should be relative to the work performed. The amount of financial work has no relation to the total amounts of assets. We do not compensate other professionals based on some arbitrary number, typically hourly or by the task. Fees based on market losses/gains don't make sense either as returns are not predictable. An outstanding FA could have a bad return year through no fault on his own.

[@gardenofcorgi6636]

Don’t forget we pay Real Estate agents/Brokers a percentage of our home sale as a seller. The same contract, inspections, etc but the higher priced home seller pays more. Usually around 5%-6% unless you use a discount broker.

[@orkins2025]

@@gardenofcorgi6636 Realtors are also a huge scam with their % of sale. It should be a flat negotiated fee. You build the equity, assume all the risk, your real estate professionals could sell your house on day one and basically steal 6% of the sales price (not just your profit) for that minimal service. I see AUM model as very similar, except it is ongoing, year after year. Pay a fee only FA if you feel the need, and use a package like New Retirement which is about $100/year. The good news is that it is less of a requirement to have an AUM manager than it is to enlist a realtor...

[@Nick-Who]

The percentage-based fee structure is ridiculous in both financial advising and real estate.@@gardenofcorgi6636

[@viadharmawheel]

And this model is being challenged. With the Internet tools like Zillow, etc. what is your realtor doing these days? Open Houses are just tools for the realtor to get new clients.@@gardenofcorgi6636

[@glasshalffull2930]

@@gardenofcorgi6636 Not me. I’ve always thought 6% was ridiculous and have sold my three homes without a realtor. Now, when my mother passed and her home was on the other side of the country, I did hire a realtor as I couldn’t be there and with four beneficiaries, it wasn’t a great amount of money.

[@choski76]

Such great content so well presented. You must have a great team and service.

[@GeoMo52]

You certainly handled that question well.

[@abopin]

Excellent perspective!

[@samhu3855]

The question asked is very challenging. The specific example you provided is excellent.

[@lewisr7700]

The answer is yes. Absolutely.

[@williamperez9827]

Financial advisor fees should be billed directly to the client. This is ridiculous. 25k a year to under perform the market. Criminal.

[@jackschaufele7237]

Hired a several fiduciaries and finally after their ups and downs figured I would have done better w the s&p , so I fired them and never looked back. You just need to have a strategy on down markets, I’ve never found an advisor who looks after my $$ the way I do

[@rstspecos]

I think at 23:30 is the most key for me. I don't want to wake up each day and worry about what I need to change or move or whatever.... No intent for me to do that. I do want to just retire and let you drive the bus and I will sit in the back and enjoy the scenery. That is my reason that I will use an advisor when the day comes I retire.

[@justliberty4072]

I really appreciate James' comments and viewpoint here. Your choice should depend on how numerate you are and how interested, willing, and able you are to learn what you need to (about investments, taxes, health care, IRAs, etc.) to make good decisions. Also remember that most or all of the arguments James has for using an advisor apply to a fee-only advisor that you only have to consult once to set up a plan (for $1k - $3k or something like that) and then maybe consult once every few or 5 years for a check-up if you feel the need. Make sure and take advantage of any financial/retirement advisors that your company make have retained on behalf of the employees. This is common for executives but may be available for regular employees at some companies.

[@erickarnell]

Great work discussing a topic that can be difficult because it is self-referential. I identified a lot with Don's position at the start of the video, so your points were very relevant to me as well.

[@davidk6498]

Well some people have alot of money to give away to protect them from themselves

[@jaynelson8304]

Great video! Many of your fellow youtube content providers tell us to save the CFP's fees. But for all the reasons you state I keep mine. And I have watched money smart people that I admire make really foolish decisions as they aged. No one knows if or when the day comes when you are not able to make smart financial decisions

[@MeltingRubberZ28]

So save the fees until your 70...or teach your kids to handle the funds at that point

[@alk672]

I don't think a financial advisor can protect you from yourself. It's still your money. That is not a very good argument.

[@mkmac9539]

Thanks for the video, James. I am sure you had a client start with your service in Jan 2020. Can you provide the same analysis for someone like this?

[@George-hl2xm]

That’s why I like Vanguard

[@elizabethandrews4199]

You are really amazing!

[@macross2ii]

It would have been nice to hear options such as using a fee only planner annually or perhaps financial planning software that is now widely available. There is rarely a reason someone with $5 million should pay $ 10k more than someone with $4 million given similar circumstances.

[@et_phonehome_2822]

its OK if one has a huge account if one wants to pay a CFP. My PC crashed, awhile back I found a website that sells a spreadsheet that would estimate the impact of withdrawals of funds on taxes, social security, medicare, etc. Most spreadsheets out there are a waste as it too basic.

[@felixurena9899]

James, I have been listening to your Podcast and enjoyed and learned something new every time.... I want to know if you could talk about HELOC as a plan B during retirement... Best regards....F&T...

[@rrs26a]

James great job analyzing Don's question. I was very impressed with all of the items you brought up.

[@alexanderkrichevsky9194]

You are repeating the same statement over and over. Yes, an adviser may offer services worth their cost, be it asset allocation or withdrawal strategy. But that's a one time job. Unless your financial situation changes significantly every year, no way you can justifying paying every year, especially since vast majority of advisers cannot outperform the market (say SP500) net of fees long term. One more danger with financial advisers: They may trap you by creating a super complicated portfolio which would grow over time (albeit slower than the market). Then what? If you fire your adviser at that point YOU are left with the mess. You either sell those investments in order to simplify the portfolio and get hit with a huge tax bill, or drag it on with suboptimal performance and waste your time trying to understand what you own and how to optimize it. Pick your poison. Or rather don't. Learn to manage your money yourself, or hire a fee based adviser once to do a specific job.

[@leeharrell777]

Great video. Like and subscribed.

[@fuz4623]

I like your last point best.

[@rick_vv7754]

My response for the poor returns of the S&P during 1999 to 2009, use a bucket strategy and have more stock diversification than just S&P ETF. During a down market, use CDs, bonds and stable value fund for withdrawals to minimize sequence of returns risks. Replenish when stock values recover.

[@dlg5485]

Of course he's insane for paying that price for "advice" that clearly isn't serving him well. It sounds to me like he already understands that he's getting screwed. No one should ever pay ongoing mgmt fees for financial advice, you may as well set fire to money. It's fine to seek help with developing a plan, for a one-time fee or periodically, but this scenario of spending $25k every year is absurd.

[@cherishgp]

But that is exactly the revenue model of Root Financial Advice.

[@michaeldbouck]

Unfortunately it's (much) worse - $25K/year plus the lost compounding. Over time that AUM fee destroys your gains.

[@networkteacher1]

I find value in the use of an advisor that understands my personal situation. However, there are some funds that don't need managing, especially index funds, which can be quite good without the expense ration problem. So, one option is to split the portfolio into managed stocks and managed funds. Pay the fee for the managed stocks, but not for the managed funds, which already have built in management fees. And if you look at some fund families, you will find the top 10 stocks repeated across multiple funds. The average annual return is within a percent or two of each other regardless of which fund you pick.

[@marcuskelly5768]

These are the most interesting discussions. I used the Richest man in Babylon principle, in my 30 year working life. Retired at 46. Do my own thing, ie work for myself. Ie. Pay no one else other than myself. Vat, tax, and profit. It comes to me. I have saved and made more money in my retirement years in total than in my entire working life. I am now so far through the loop of financial independence, that I save 3x more than I spend each year. Yes, you hit the nail on head... Happiness and fulfilment is a mindset and a state of mind... I feel happy now to be able to support a homeless couple with a flat, they just a little younger than I. Less is more and more is less. Keep doing the right thing right long enough and you can get there in the end. Always live below your means and don't show off. You don't need to impress anyone worth while.

[@MilaN-lt2mq]

Don, I am NOT a financial advisor, but I've been ripped of by one. All they do is justify their existence. Analyzing what if you did something in the past does not make any sense. You did not take any money out in 2000. You are going to start taking money out at some future date. You have a very sensible plan. I would keep about 5 years worth of cash invested in short-term treasuries or similar securities. The rest you can put into SP500. Maybe add some international index fund and a dividend fund. No one can beat the market. No one. No matter what they say.

[@MrToadColorado]

People that pay firms like Baird 2% of assets a year do not understand the compound effect of this fee on their portfolio. A million dollar portfolio has expenses of $20,000/year just for sitting in the advisors accounts. This guts the yield, and drains - like a leech - the wealth of the fund. It is totally insane. If you need an advisor, get a fee only advisor. OR deposit a relatively small amount of your money with the fee-based advisor and leave the rest in Vanguard/Schwab/Fidelity where there is no "fee" to simply have an account or fee for transactions AND you control your investments and don't have to worry about somebody just out of college deciding what and how often to sell. Give NOBODY the power to access your investments.

[@jlee8792]

Just wondering how much money do you need to have in your account to go find Financial advisor? Btw new to your channel, thanks for great videos.

[@Pottle_Wealth]

This is the first time I have seen one of your videos. Although we are probably competitors, It is good to see a financial influencer with good credentials. I would suggest that viewers carefully look at a any KZbinr's credentials. Does the "financial expert" have years of experience as a banker, investment banker, Financial Advisor, etc? Do they have an MBA? Do they have a recognized certification? Have they ever held a Series 7 securities license? For example, I have an MBA and worked on Wall Street as a banker for 30 years with large European banks, earned my Series 7 twice (very rare) and was a Financial Advisor for Merrill Lynch for 2 years. Also, people need to stop looking at "get rich quick schemes". Growing your net worth and retirement assets is a marathon, not a sprint.

[@lynnkalin8908]

CFA ( Chartered Financial Analyst) is the best.

[@cle_roknn3742]

The big question here I think was missed is if the advise is a fiduciary or simply an “advisor.” There is a big difference, a fiduciary has to legally provide you the best advice for your financial situation, a “financial advisor” has no such obligation. They could steal you into higher fee managed funds or funds in which they or their employer have a vested interest (a higher commission). The best thing I ever did was to make sure I was in low cost index funds. I might make a fraction of a percent less, but I’m not paying out large management fees on statistically insufficient gains. The only fund/advisor that ever consistently beat the market enough to justify their fee was Bernie Madoff and we all know what was really going on. Low cost index funds, regular deposits, and let it ride for a few decades. Time value of money works in your favor.

[@tomjoyce6464]

Hi James, I just recently viewed one of your You Tube presentations. Great job! It's nice to see professionals like you who's primary goal is to help their clients achieve their financial goals. I've been doing financial planning for over 25 years and have used many different software programs. I have not seen the one you are using and would like to discover it's potential. Can you respond with the name of the software plan you are using? Thank you

[@janethunt4037]

Excellent points. There's a lot to consider when retirement is not far into the future. Pick your hard: working well with a FA (who is good) or put a lot of time into educating yourself to do a good job.

[@numbskullranch]

I'd be interested in your thoughts in a financial planner versus a financial advisor. I paid 5K to set up a simple portfolio for easy rebalancing, a strategy for asset location and allocation to minimize taxes, and will save 70k in taxes with their proposed Roth conversion strategy. Lower cost then a full-time advisor and I am confident of my abilities to implement the plan. Of course everyone's circumstances are different but I feel this was money well spent.

[@davidk6498]

That’s a great plan these guys thrive on high net worth people that make a lot money some of these people don’t have time to watch the small things so they hand it over to these aum managers that smile real big pat you on the back and say I’m a fiduciary don’t worry I will take care of everything this guy maybe a doctor he is busy that what they want someone not asking a lot of questions there account going up great then 10 years latter they may have some time and start digging a little deeper and realize they paid this 1 to 2 percent for some etf or mutual fund that he could done on his own that who these guys want 😊

[@chillphil967]

yeah, that’s me, but not a doctor :( i just found out my advisor hasn’t actually invested my money since q2 2021, just dumped it into a 0.01% temp bank sweep thing at custodian

[@heidikamrath1951]

@@davidk6498Comments are painful to read when the commenter can’t be bothered to use punctuation. Even if you are dictating, you can insert a period here and there by saying “period.”

[@et_phonehome_2822]

@@chillphil967 You could've done that yourself and save in paying one to do nothing.

[@glasshalffull2930]

@@heidikamrath1951 Didn’t even notice he did that. Didn’t bother me a bit.

[@PorscheSpeedster-kz6nc]

Don has the cash reserves to protect him from sequence of return risk. I think he is good. For me is the advisor providing the long term tax planning value to offset the cost on taxes and move mistakes. I would propose $25k startup plan fee and then a $2k annual check up fee. That seems reasonable.

[@Summerdee223]

Speak to a good CPA tax planner with FA knowledge and your problem is solved.

[@narongchamkasem6758]

It is easy to say what you should’ve done in the past as you know the outcome and can set up the scenario to suit your goal. Had I put my cash at the bottom in 2020, I would have made tons of money today.

[@chillphil967]

new year! new day

[@doomshallot4203]

I love what you said about going 100% into the S&P500 being recency bias. People look back only a few decades and think that's sufficient data. IT'S NOT!!! over the long run, the S&P500 doesn't perform better than the world's index. But it has FAR more volatility, which means you'll end up FAR more likely to fail in retirement with the 4% rule when the S&P500 is the only stocks you own. There is some great data back to the 60's about the world index, but there's also some data that dates back HUNDREDS of years on market behavior. Please people. Don't put all your eggs in one basket (the U.S.). Diversify diversify diversify!!!!

[@allanzfs]

While I do really like the channel, I think that the example of when a client should have bought into the market at the low point was not a good example, since if his advice would have been to get into the market at the peak and then sell it at the bottom we would never have heard him talk about how good that advice was. I'm sure some people publish two blogs, one saying now is a great time to buy across supporting different articles and the second blog to say now is a great time to sell, with many supporting articles. Depending on what actually happens they will point to one blog and remove the other blog from the other one from public viewing. Smoke and mirrors.

[@glennaa11]

Sounds like he doesn't have a very good relationship with this advisor and doesn't seem to have much trust in him. I think chemistry is important in any relationship. And as I said elsewhere a good advisor is as much a psychologist as anything. I don't necessarily love paying the percentage I do, but I also appreciate that he is there to answer my questions, and metaphorically hold my hand when necessary. These intangibles are worth something to me. There is a certain "auto-pilot" nature to what he and his company do, but I find enough value in what they do to make it worthwhile as I near retirement. I tend to be fairly dispassionate about all of this stuff so I think their services would be worth more to folks who are a bit more emotional about their money.

[@Paul-GrnHil]

James, I would say by the details of the question, the person has a handle on most aspects of investment planning. He has understanding of sequence of returns risk with a healthy cash position and is considering Roth conversions for tax planning. I would say that he is capable of the investment management part of his estate planning. As for other services such as estate taxes, withdrawal strategies and other considerations, he should consider a fee for service planner that reviews his situation at least annually for guidance. BTW while their were some asset classes that outperformed the SP500 during the lost decade, most had incredible risk and wild performance from year to year that most retirees would have trouble sleeping at night even if in the end they beat the S&P.

[@christine-jx4fh]

100% agree with you Paul. Hopefully Don reads your comment and gets the confidence to drop the adviser.

[@Leonard369C]

With $4 million the advisor would need to outperform the S&P consistently by about 1% in order for this fee to be justified, wich only a minority of financial advisors are able to do. Mechanics would rarely advise customers to fix their own car, it's just not good for business.

[@alalfred3474]

James brought up a lot of good points for financial planning. Unfortunately, most of the planners do not have, or do not want to organize, a team of experts to address and help each client based on his or her unique situation. Many of them have specific experience, mostly in sales or pro folio management. Most of them are too timid to address all the questions James brought up. And, the clients can spend more time than the planners on some of these issues. Therefore, most of the planners end up with management of investment only, rather than many facets of financial planning. I am a strong proponent of investing education and self management. However, if the situation is right and the compensation is appropriate, there is nothing wrong in retaining a financial planner.

[@marys8801]

It would be great to compare the annual returns under his FA for the last 20 years agains the S&P returns. Compare year by year the FA returns (after subtracting the FA fee) V the S&P returns. History is no guarantee of future performance. But it is an excellent start.

[@chillphil967]

sounds logical and verifiable 😇

[@glasshalffull2930]

Exactly! How did their customers fair during these down turns. He cherry picked the ‘one’ email to the ‘one’ customer that in hindsight was the exact bottom of the tech bubble. How did his other customers fair? What was his advice to the rest?

[@adamcp2008]

I think Don is on the right track. I plan to do something similar. However, I plan to have 5-10 years of cash on hand (in Treasuries, CDs, or HYSA). That will help me sleep at night. Don and I will both have enough to be fine either way.

[@aroran412]

Very nicely explained James. I find your KZbin videos to be AWESOME. I started with being very concerned about the 1% AUM but as I do my own research, I am convinced that a really good CFP/ advisor who has a whole life approach can add significant value. I will definitely call your company in a couple of weeks to explore things. Thank you for excellent online content.

[@jenniferswicegood4455]

Great video and discussion James. It’s not a simple one size fits all issue as you point out. There are costs either way, and each individual must decide what what they are comfortable handling and what is in their own best long term interest. Thanks, Paul

[@tonyf7997]

Yes I do actually agree - I have been running a ‘test’ portfolio of a simple 3 ETF’s and 3 shares that are not covered in any of the ETF’s In the 3 years using simple reinvestment of dividends and once off investment costs, we are running 10% better than our advisors choice of 28 different investments for the same total investment. We pay our guys 1% and our accountant costs a further 1% BUT for the value of our portfolio in different structures , need our accountant but seriously considering going it alone in a very simplistic investment strategy!

[@josephroberts7374]

A financial advisor, yes. One that is costing you $25k a year, no! Find a financial advisor and a CPA to assist with planning and strategy, and pay $5k max. That's the best option I believe.

[@viadharmawheel]

I believe the question is the fee structure. Hourly costs is one thing like any other profession. Percentage based charges of assets managed is highly dubious from a value perspective.

[@matthewmenghi5690]

Great video as usual. This one next level. Thank you

[@xlerb2286]

I remember the covid market drop. It made your eyes water to look at your balance if you were the type that panics. But I was socking away all the money I could while the S&P was on sale.

[@lawrenceralph7481]

In a word, yes.

[@LukeC908]

A lot of times it comes down to if someone thinks they don’t need you, maybe they don’t, but either way they aren’t a good fit.

[@jetboy770371]

My question is, why do financial advisors make it dam near impossible to find their fees taken out on my statements ? It seems I can find every other figures and amounts except fees. If you want to keep it from me fine. That's why I am closing my account from my 2nd advisor.

[@seoultrain99]

Now do a video on why an AUM advisor is better than hourly or fixed fee advisor, as an AUM advisor.

[@testodude]

He just did, didn't he?

[@rong2977]

People are lazy. All this info is free online. With 4 million in a portfolio, you’d have to make like 3% yearly on that and never touch the principle. My dog could make 3%. Would like to know what rate of return his FA has gotten him on average.

[@chillphil967]

facts 💯

[@Kimmer]

James, what fee does Root Financial charge for advisory services, and is it a percentage of assets under management like most advisors?

[@Summerdee223]

Yes, James and Root Financial charges clients for assets under management of at least 1% of your net worth each and every single year regardless of market performance. Don't bother calling if you want to get a basic financial plan for a few thousand dollars.

[@CaffeineLoaded]

They charge 1% on the first $1 million they manage, and then the fee changes for the next millions.

[@davidk6498]

I called they won’t even talked to you in less you have million Aum does not work if you have no money and most people will figure out there being robbed in a few years 😊

[@samhu3855]

James. I found this video is the best video i have seen from lots of your videos.

[@nofeerz]

SP big question is it tax efficient they buy and sell look at how much taxes vs long term cap gains I like to use an advisor because it makes it objective and I get help in decisions many don’t know when to get in or out you can’t time the market and hard to be objective

[@risingdough8078]

Financial advisors compensated by investment profits is problematic. There is no guarantee that they would earn anything during a major recession, and that's when you need their expertise the most. They would be out of business in this situation. OTOH, I feel compensation based on your assets is also problematic, when you go with an advisor who invests in a variety of index funds (which should be what most investors should look for), and rebalances once or twice a year. It takes as much expertise, time and effort to invest $2m as it does $6m. To have to pay 3x as much doesn't make sense. But financial advisors offer a lot more expertise and perspectives for important planning topics other than simple investing. They do provide a lot of value. It's just the percentage of assets business model is just objectionable to me.

[@wjb111]

Yes! Unless your ROI surpasses fees.

[@QuantumEntanglementForFun]

I don’t understand why a financial advisor should be paid % of assets. It’s like paying a gardener a % of the house value. Does not make any sense.

[@joepfeiler5911]

I hear of advisers taking a half percent fee off of a CD invested in a bank with the security of FDIC insurance. CDs are something I can do on my own as a pool of secure funds.

[@asfdoth]

This should be a pretty easy thing to test. Assuming you have 3 Million in cash. Give 100K to your CFP, take 100K yourself to invest. See who's ahead, and by how much, at the end of a year. Now you know the answer to your question!

[@zuozhen4758]

Yes !

[@mlee1308]

I agree.

[@mlee1308]

I meant I agree with don.

[@djee02]

Don has a fine plan. Pretty simple stuff really. My retirement plan is basically the same. All equity global index fund with a US tilt plus a cash buffer of 3 years of expenses. No advisor needed.

[@ArthurDentZaphodBeeb]

Don is 100% capable of beating 99% of fee advisors. There's plenty of studies that prove simple investment strategies outperform. There's zero reason to pay management fees unless you're totally incompetent.

[@chillphil967]

“SPIVA® U.S. Scorecard”, is the name of that study

[@heidikamrath1951]

Partly correct. Making the money is probably the easy part. It’s the sequence of returns, it’s the tax plan, it’s the charitable giving plans, etc that most people would benefit from the advice of someone who does this professionally.

[@martinwenthe8481]

I agree with previous comment regarding fees. As a doctor, I don't charge my patient a percentage of their assets for medical advice, although I could argue that giving them the proper medical advice might make them more productive financially. In addition why should I pay more for the same financial advice if the advice is the same for a 1 million dollar portfolio or a 2 million dollar portfolio?

[@davidk6498]

Your right on doctor there fees shouldn’t be on total portfolio size maybe a bonus if there is a capital gain above the market index minus your contributions to the portfolio but we know most would fail this test.

[@Irin31]

Why would you think that advice on $1mil is the same as on $2 mil? It’s well known that you should not invest too much in any stock . Which means you FA will have to research and pick maybe twice as much stocks on $2mil vs $$1mil

[@chillphil967]

smoke and mirrors. i’ve seen that the % charged goes down as assets under management increases, but then i looked closer and realized that’s not how fees work, i was only looking at the first part of the puzzle (ex. load fees up front, or account fees that are factored into the share price in the morning to water down the stock, and then never mentioned in the report out by lunch, or custodian fees…)

[@donkemp8151]

Do you charge a very sick patient, one with multiple health issues, more than a healthy one? Of course you do because sick people need more attention. Wealthy people have more wealth issues that can be solved.

[@rjkbuny]

@@donkemp8151 Insurance actually doesn't necessarily reimburse more for a sicker patient with more health issues, so hospitals frequently eat the cost and rehab facilities that are for profit refuse these patients. Doctors also don't usually get paid more if they do more for a pt unless there's RVU's or fee for service procedures involved. I get ur point but healthcare is actually sillier than most ppl think.

[@serialmigrant]

I pay much more now for higher end cross border accountants then my first stints abroad, and I get a clear return (they save me taxes beyond their fee). However, when it comes to personal finance, I found it to be the opposite... The more I self educate, and i remove money from my financial planner, the better my returns. Ive come across bankers who don't understand how mortgage amortisation tables work when reneweing my mortgage term.

[@seannorthrop1009]

Very simple. Are his returns now beating the returns of the sp? If not he surely needs to get rid of his FA

[@seannorthrop1009]

Made 72% this year me as advisor.

[@johntaylor4817]

Generally advisors take 1% per year against your holdings. So if you have a portfolio of 1 million he takes 10k per year. If your advisor is good and you want to keep him/her open a second account and move 500k into that account. Then in the second account just copy what your advisor does in the first account which now only has 500k there so now you’re only paying 5k for his advice.

[@alk672]

Unfortunately that's not how it works. Don't do that. If you don't understand why - then definitely don't do that.

[@Irin31]

@@alk672could you elaborate please what you mean and why?

[@chillphil967]

hahahah “F around and find out”, it sounds like

[@et_phonehome_2822]

Fidelity buy their own funds that is not available to the public.

[@michaeldbouck]

That's not how it works. You can't just "move" them to a $10K account to manage to get their "free" advice for $100. Most wealth managers will only engage if you give them $1MM minimum to manage.

[@steveweiss8920]

You hit the nail on the head when you talked about the "real" value a client gets from an advisor team. As an example, you need 4 to 5 professional subcontractors to build a good house. A good CFP of CFA is part of a logical long term plan. Mine just happens to be a CPA and a tax attorney as well. The value my family gets in return for the fee I pay is nothing in my opinion. I'm 100% confident I would make mistakes worth far more than the fee I pay if I did everything myself. It's not my wheel house.

[@chillphil967]

that’s awesome.

[@joewalsh9685]

It makes no sense to pay an FA a percentage of your assets annually for their services. Get an FA that is fee based. Once they tell you about a tax strategy and how to implement, you don’t need them to keep telling you that same thing until your situation changes.