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Interviewing financial planners/advisors - a couple of questions

2,556 Views | 10 Replies | Last: 5 yr ago by cheeky
Thriller
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AG
My wife and I are interviewing a few different people/firms and they are all a bit different. I'm curious if some of you have been through this process or are in the business that can help me out.

For background, we have interviewed three firms.

One is a 1 person operation with about 180-200 clients. She is CWS and CRC, but not a CFP. She is personal and seems competent in the knowledge category compared to our other interview candidates. If it matters, she charges 1% net of investing expenses. So if the expense ratio for an investment is 0.2, she charges 0.8, etc.

The second was a local 4-6 person operation that was recently acquired by a national wealth advisory company. They have a 2 person team approach with a Senior Advisor and an associate advisor. Both are CFPs, one is also a CPA and brings in tax strategy to the planning process. They are fiduciaries. Expenses are 1.25% flat, but would go down in tiers with more AUM. Right now we would be more of a "planning" client for them, growing into a "management" client over time. Each team in the firm tops out around 250 clients before they start expanding their practice with new advisors.

The third was a CFP with Charles Schwab. We are very close to one of their bigger branches in the country and she came highly recommended. She is a CFP/fiduciary with about 500 clients, but 300 of those are "passive" clients assigned to he by Schwab - the rest are active clients that she knows well. Fees would be 0.28% with the Schwab Intelligent Advisor portfolio and then we'd grow into the Private Client side which is at 0.8% at the bottom tier and goes down as AUM goes up.


- Fiduciary / non-fiduciary? Two of the firms we have viewed were fiduciary. The third was not, but was in the process of going that route, delayed due to some recent law changes???
- Does size of firm matter? Options 2 and 3 above have some larger scale and can bring in some people in their firm that have expertise in areas like real estate, executive compensation (a big key for us), and tax planning. On the flip side, we don't want to just be a number in a big machine.
- Do any of the fee structures seem out of whack to you guys?

At this point, we are wary of not knowing what we don't know to ask. I figure TexAgs knows everything, so...
Harkrider 93
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AG
Options 1: if someone told me they were 1% net of expenses, I would take it as they charge 1% and then you add the investment expense. I wouldn't assume what you typed unless she verbally gave that example. 1% plus fee is the lower end of the range.

option 2 - are they using all individual stocks or funds/index/etf - I ask because a flat fee of 1.25% would mean stocks only - they may have meant they charge a 1.25% fee for all services, and you still pay the investment expense for the fund - 1.25% for all plus investment fee is normal

option 3 - the lower rung is a cookie cutter approach and not personalized at all - once you hit the higher service, it does look like the previous two - can you stand waiting until you hit the higher service? This has the chance to be the lowest asset management fee, but not sure what level.


I would work with the one you like and trust. The one who will do their best to manage your money according to your goals. That type of person could be solo, work for a wealth group, be an insurance agent, or work for those nasty places everyone on here hates.

Those with good experiences with a wealth advisory place will tell you to go there. Those with a bad experience will tell you to stay away.

Your Schwab one sounds the best based on the referral, but I personally don't like the call center until you have enough money approach.

I have seen some take option 2 because it sounds neat. "I have a wealth manager who only accepts millionaires". They may be great, but they could do very little. The Schwab one is the cheapest, but they may actually do the most on service and planning. Although some would say that a low fee means low service.
LCE
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AG
Also do a FINRA broker check on them if you haven't already
nactownag
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AG
Quote:

One is a 1 person operation with about 180-200 clients. She is CWS and CRC, but not a CFP. She is personal and seems competent in the knowledge category compared to our other interview candidates. If it matters, she charges 1% net of investing expenses. So if the expense ratio for an investment is 0.2, she charges 0.8, etc.

Like Harkrider said, I don't see how that's possible. Seems kind of strange. And also seems like it's a conflict of interest to leave funds in index funds only.
Dazed and Confused
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AG
There is an expense ratio and then there are front loaded expenses. Are they including front loaded fees? Is the front load 5% and she gets some of this? Question to ask is how they make their money. For me I would go fully index funds and if I need an adviser I'd check out fidelity or Vanguard ( .3%) Or better yet find a fee based adviser and not a % of AUM. Do some research.

https://cogentsw.com/blog/15-questions-to-ask-when-choosing-a-financial-advisor

https://www.bogleheads.org/forum/viewtopic.php?t=244460

"Once you know enough to pick a financial adviser, you won't need one."
Thriller
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AG
Harkrider 93 said:

Options 1: if someone told me they were 1% net of expenses, I would take it as they charge 1% and then you add the investment expense. I wouldn't assume what you typed unless she verbally gave that example. 1% plus fee is the lower end of the range. I may have used the terminology wrong. She indicated her max fee would be 1%, regardless of expenses within a particular investment. To answer a question further down the thread, I would imagine this would exclude load charges. Her specific example was an investment with a fee under 1%, she would not charge 1% + the expense - she would top it at 1%

option 2 - are they using all individual stocks or funds/index/etf - I ask because a flat fee of 1.25% would mean stocks only - they may have meant they charge a 1.25% fee for all services, and you still pay the investment expense for the fund - 1.25% for all plus investment fee is normal. This option was more of an actively managed situation. The example of tax loss harvesting, etc gave me the indication that this was not an index fund only situation, but stocks, etc. We have a second meeting with them at the end of the month, but I've considered cancelling if it was too high. I need to ask your specific question about the 1.25 - I think what you indicated in your last line is my understanding.

option 3 - the lower rung is a cookie cutter approach and not personalized at all - once you hit the higher service, it does look like the previous two - can you stand waiting until you hit the higher service? This has the chance to be the lowest asset management fee, but not sure what level. I'm not opposed to waiting until we have more assets to invest. My primary concern here is what do we do with assets outside of the traditional investments (RE, etc). A large portion (and getting larger) of our NW is tied up in 1 stock that we can't do anything with. They won't be managing that part (nobody will), so it may take some time, relative to the rest of our assets, to get to an amount that qualifies for personalized service.


I would work with the one you like and trust. The one who will do their best to manage your money according to your goals. That type of person could be solo, work for a wealth group, be an insurance agent, or work for those nasty places everyone on here hates.

Those with good experiences with a wealth advisory place will tell you to go there. Those with a bad experience will tell you to stay away.

Your Schwab one sounds the best based on the referral, but I personally don't like the call center until you have enough money approach. I should clarify that the referral to CS was not a personal one in the traditional sense. It was a referral from a good friend of ours (an EVP at Schwab) that manages this portion of the business. There's a bias there, but at the same time, I'm going to trust this friend to at least get us to the best of the bunch locally, if that makes sense.

I have seen some take option 2 because it sounds neat. "I have a wealth manager who only accepts millionaires". They may be great, but they could do very little. The Schwab one is the cheapest, but they may actually do the most on service and planning. Although some would say that a low fee means low service.
I hope this answers some of the questions. This is a fascinating process and I like seeing all of the different options (and opinions on here) that are out there.
Thriller
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AG
LCE said:

Also do a FINRA broker check on them if you haven't already
Did this. It was suggested by all 3 of them, and all 3 came back with no issues.
Thriller
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AG
Dazed and Confused said:

There is an expense ratio and then there are front loaded expenses. Are they including front loaded fees? Is the front load 5% and she gets some of this? Question to ask is how they make their money. For me I would go fully index funds and if I need an adviser I'd check out fidelity or Vanguard ( .3%) Or better yet find a fee based adviser and not a % of AUM. Do some research.

https://cogentsw.com/blog/15-questions-to-ask-when-choosing-a-financial-advisor

https://www.bogleheads.org/forum/viewtopic.php?t=244460

"Once you know enough to pick a financial adviser, you won't need one."
Thanks for the links. I'm familiar with Bogleheads and tend to follow quite a bit of the "accepted" advice on there as I've done my own thing. We were just looking at rounding out the picture - maybe that's not necessary, and that's part of why I'm doing this. We aren't locked into hiring help.

I will ask how the fees work with load charges and whether the FA's fees come out of that.
investorAg83
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AG
Thriller said:

Dazed and Confused said:

There is an expense ratio and then there are front loaded expenses. Are they including front loaded fees? Is the front load 5% and she gets some of this? Question to ask is how they make their money. For me I would go fully index funds and if I need an adviser I'd check out fidelity or Vanguard ( .3%) Or better yet find a fee based adviser and not a % of AUM. Do some research.

https://cogentsw.com/blog/15-questions-to-ask-when-choosing-a-financial-advisor

https://www.bogleheads.org/forum/viewtopic.php?t=244460

"Once you know enough to pick a financial adviser, you won't need one."
Thanks for the links. I'm familiar with Bogleheads and tend to follow quite a bit of the "accepted" advice on there as I've done my own thing. We were just looking at rounding out the picture - maybe that's not necessary, and that's part of why I'm doing this. We aren't locked into hiring help.

I will ask how the fees work with load charges and whether the FA's fees come out of that.


Planning fees, load charges and wrap fees are all independent.

Planning fee = for the relationship, guidance, advice
Load charges = buying funds on retail. Not managed.
Wrap fees = fee based on AUM (% fee based on assets in account). There aren't loads in wrap accounts. Maybe expense ratios and strategy fees for separately managed accounts but that isn't the wrap fee. First one could very well adjust her fee to keep total expense at 1% with the thought being 'were paying .5 for the strategy and that's less management off my back so I'll drop my cut to keep it at 1 percent)

They may adjust the planning fee based on whether or not they're managing the assets, but the planning fee won't come from anything else.

None of what you posted gives any notion to loads though. Sounds like all based on AUM.
Dazed and Confused
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AG
https://cogentsw.com/blog/15-questions-to-ask-when-choosing-a-financial-advisor

Question #5: What costs will I pay in addition to your advisor fee?

If an advisor's fee is fair and fully disclosed, that's preferred to opaque arrangements that can pose conflicts between your best interests and an advisor's reasonable compensation for their work. That said, there may be other charges to be aware of, whether incurred by the advisor or by the aforementioned independent custodian. Each should be able to share a transparent schedule of potential add-ons, such as trading costs, account set-up fees, ongoing account maintenance charges, and account-closing and/or transfer fees if you ever wish to move your money elsewhere or among your existing accounts. Forewarned is forearmed!
Harkrider 93
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AG
On the option 2 folks: Personally, I do not like a place that only does individual stocks. To me, they would be like owning one mutual fund, but with a whole lot less research and employees. Asking what products they use to build a portfolio will allow you to see if that is even a concern.

If you have one large stock holding, it may be wise to have someone look at strategies to help minimize the risk (if that is a concern). Some places can use collar strategies along with loans to help keep risk low. That may not be a solution you want or need, but something to consider. For lending, you may have to do to a larger firm like UBS, Merrill, etc. It is likely that option 2 may be able to do this as well.

cheeky
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AG
250 clients!?! Wow. 40 is my objective. That sounds like a processing center for emerging affluent (<$250m to invest). There are only a few credentials that mean anything in wealth management: CFP, CFA, CIMA, CPA, CPWA and (for certain investors) CAIS. EVERYTHING else is nonsense.
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