Another Reason I’m Skeptical of Financial Advisors

This post was originally published in October 2015.

Anyone that has read my book, RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit, or has been reading this blog for a while knows that I have reservations about utilizing financial advisors (planners). In fact, I believe most people are better off educating themselves with respect to personal finance and developing/managing their own plan. However, I do recognize that there may be specific occasions when it makes sense to seek outside counsel. In my book I noted:

There will likely come a time when finding a good planner is appropriate. As an example, a friend of mine recently started consulting with a professional advisor as he and his wife are within a few years of retiring should they choose. While he is comfortable with the decisions he has made at this point and given significant thought to his withdrawal plan (a topic covered in great detail in Chapter 6), he would like to get a second opinion to ensure he has not overlooked anything or is not considering pertinent information. Similarly, I plan to do the same thing when I get to within four or five years of retiring.

Financial PlanningWhile I am not within four or five years of retiring, I did decide recently that I had a very specific desire and it might not be a bad idea to have an objective second opinion. First, before I discuss that desire, I should note that when utilizing the services of a financial advisor, I always suggest that people look for a fee-only, vice a fee-based, advisor. The difference? Fee-only advisors have no inherent conflicts of interest, they don’t accept fees or compensation based on product sales, and they generally provide more comprehensive advice. Many also carry professional designations which hold them to strict codes of professional and ethical conduct. Conversely, fee-based advisers can charge a one-time or ongoing fee, depending on the types of services they provide. The fees may be hourly, flat or based upon a percentage of assets under management. Also, fee-based advisers may charge both fees and commissions based on the products they sell. Most fee-based advisers hold licenses that allow them to sell investments or insurance products for a commission.

My desire? Get a second opinion/thoughts on a withdrawal (decumulation) plan, a topic I have discussed in the book and here and here on the blog. I would like to present all the relevant information – current ages for me and the wife, number of years until we planned to retire, our desired annual retirement income, current balances of retirement and investment accounts, projected balances of retirement and investment accounts at the time of retirement, projections for Social Security benefits and projections of pensions (we will be receiving three, one of which we are already receiving)  and develop a plan based on those factors, taking into account the different tax implications of various accounts, inflation, different, the RMD, etc. – to a financial professional and compare the plan/recommendation they come up with to my own.

Note that this need is very specific need, does not involve the purchase of a product and nor does it require an ongoing relationship. Clearly my needs would be best served by a fee-only advisor … easier said than done, my friends. I first thought I would try WiserAdvisor.com to locate such an individual. WiserAdvisor is one of those sites that takes some basic information (e.g. name, email address) asks a question or two to determine what it is you’re looking for and pairs you with a provider in their network. Below is a screenshot of the Information page. This is the page that came up after I input my zip code to find a local advisor. In the Additional Information block (Optional), I input the following information: I am seeking a fee-only advisor to assist me with the development a retirement withdrawal plan. Seems pretty straight-forward to me; a fee-only advisor in my area, Southeastern Arizona, that has the ability to develop a withdrawal plan based on provided information.

WiserAdvisor

The next day, following verification of my email address, I received calls from two advisors. The first was from Beverly Hills … the one in California, about 561.7 miles from my home. No problem I thought, while I was pretty certain the indication on the WiserAdvisor site was that it would be a local advisor, someone I could sit and talk with, I went with it, the guy seemed nice enough. However,  it was pretty clear early on that he was interested in managing my portfolio and establishing an ongoing relationship. We never got around to the fee structure.

The second advisor to contact me was from Arizona, Tucson to be exact, a little over an hour from my home. Again, nice guy, but it was clear he was not really into a fee-only type service, whereby I give him the information, he applies his knowledge and expertise, and he delivers a report/recommendation for a one time cost that is reflective of the time he spent developing the report. However, he did suggest he could do it and in fact, he followed up our phone conversation with the email below about an hour later …

Hi James,
 
It was nice speaking with you today.  I am happy to build a retirement plan and review everything we discussed earlier.  I typically include the plan for clients that hire us to manage their assets.  If you would just like to have us run the plan for you and analyze your situation we charge $750 for the plan with no strings attached.  Of course, if you did decide to work with us we would waive the fee.
 
Please let me know what you decide.
 
Best,
 
Mark xxxxx, CFP®

Yep, you saw that right. He would be willing to develop such a retirement withdrawal plan for $750. Now, I’m not a cheapskate and I am absolutely willing to pay a professional for their time. Even at $75/hour, do I believe it would take 10 hours to develop such a plan? No. This is 2015 and I’m sure he has some pretty sophisticated software. If I’m providing him with all the relevant information and he is simply plugging it into a program that runs different scenarios, applying some of his own knowledge gained from years of experience and training, and then printing them out, I’m having a hard time seeing $750 as a reasonable price.

Giving up on WiserAdvisor, I went back to the good ol’ Internet and looked for some local advisors on my own. I live in a relatively small town (population ~ 50,000) and I was only able to identify three prospects. Below is the request I sent to each either via email or the comment/question form on their website …

Sir or Ma’am,
 
Are you a fee-only or fee-based advisor?
 
If the former, I would be interested in learning about your fee schedule, and perhaps, scheduling an appointment.
 
James Molet
520.xxx.xxxx

As of this writing, I have had contact with two of the three offices. The first advisor I reached out to noted, via an out of office reply, that she would be out of the office for a few more days. However, the auto-reply provided contact information for her assistants. Following a couple email exchanges, I had a phone conversation with one of them. A nice enough young lady, however, my sense was that she is a financial novice, perhaps an intern with only basic knowledge of financial planning. Even after I reiterated what the original email noted, I was looking for a fee-only advisor, I was pretty satisfied with managing my own portfolio and I was looking for one very specific service, one time, she continually tried to stress that her boss would likely be able to offer guidance with respect to portfolio management.

Regardless of my assurances that I thought I was in good control of my portfolio and I simply wanted a second opinion on a withdrawal plan based on the information I was willing to provide, she continually came back to portfolio management. Ultimately I indicated it would be okay for her boss to contact me when she was back in the office and we could determine if she was able, and willing, to provide the one service I sought.

Contact with the second advisor played out similarly to the first. Just as with the first, the primary advisor was out of town and would not be available for a few more days. However, there were a couple distinct differences. First, the person I spoke with was clearly more knowledgeable and after a few minutes, she indicated that it was clear that I knew what I was talking about and had a firmer grasp on personal finance and financial planning than most. Even with that however, like the first, she continually tried to steer the conversation to an ongoing relationship and portfolio management, in spite of what was stated in my first contact with her and me clearly articulating what I was seeking during the course of our phone conversation. Ultimately she confided that their office is fee-based only and they would not be able to help with what I was looking for. I guess she didn’t value my 10 minutes which were wasted.

For now I will wait and see if the third local advisor ever contacts me and I will speak to the first advisor when she reaches out to me, but I doubt if anything will come of it. While I understand the model the two local advisors are working within and their preference for an ongoing relationship vice a one time service, they played it all wrong. It seems as if it never crossed their minds that providing the one time, fee-only, service that was being requested might in fact lead to an ongoing relationship and future services. Perhaps I would have been pleasantly surprised by the results contained within their withdrawal plan/recommendation and the professional way they developed and delivered it; and I would be amenable to considering some type of ongoing relationship. Or even if I still felt their services were not for me, I might be comfortable recommending them to a friend or coworker who was looking for such services.

As it stands, I’m less impressed now with financial advisors, particularly with the fee-based type, than I was before.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

10 Comments

  1. My recent experience matches yours. I was very clear about wanting a second opinion of our decumulation strategy, and of whether we were missing any key points in our plan to retire. I did not want an ongoing relationship or a complete workup of our finances. Yet the responses I received were for comprehensive plans ranging from several hundred to several thousand dollars. One advisor, without even knowing our circumstances, right off the bat suggested we should probably work a few more years. I became disgusted with planners but also more steadfast about charting our own path.

    • Thanks for sharing your own story, my friend and I’m not surprised your results were similar to mine. The problem with most financial advisors is that they aren’t really interested in listening to what the client has to say and truly thinking in terms of what is best for the client; and they aren’t used to dealing with people who are financially savvy. Like you I am very comfortable charting my own path and am more convinced than ever that is the right approach.

  2. James,

    Some years back, we got frustated with American Express Financial Advisors — now called Ameriprise. It seemed like every year we would get two or three notices of class action lawsuits on sales practices, including selling expensive insurance when simple term plans would suffice. We pulled all accounts out and transferred the funds to Vanguard. They had a fee-only plan available for $250. They would INCLUDE non-Vanguard assets in the analysis. The way it worked was you (and your spouse if applicable) fill out an on-line questionnaire and then do about a one-hour phone call with an advisor. A few days later, a plan appears in your file as a .pdf document. After reviewing the plan, you get another phone appointment where you have the option of executing the recommendations yourself or having VG Financial Advisors do it for you. No pressure. No follow-up.

    My wife and I have done this twice — paying for the first and getting the second free. Now, VG also has a link on its website for its clients to use Financial Engines to tune up asset allocation.

    We feel like we are on track and know we can check in to get further advice when needed.

    As your fund balance accumulates (should you be a VG client), the fee actually goes down until it disappears. (The people with lower balances probably need the free service more than the Million Dollar Admiral accounts but that is MHO).

    Regards,
    Tony

    I like your blog and Twitter feed. Although I am well beyond the age demographic of the FIRE community, I like being a follower of you and many in the FINCOM community.

    • Great information regarding Vanguard. Thanks for the kind words about the blog and thanks for sharing your experiences, my friend. When I next seek a second, objective opinion I will definitely keep Vanguard in mind.

  3. Hi James,
    For the record (and to be clear to your readers), although we’ve never met, you and I have an ongoing social media relationship.

    I really feel for you and your frustration. I am a fee-only advisor — and sometimes that really surprises people! I guess that’s because there aren’t many of us. You and your readers should check out Garrett Planning Network (I am a member) or possibly XY Planning Network.

    What you are looking for is a one-time engagement. Not many planners do that, I imagine because it’s often not a money-maker compared to, say, AUM or 12b-1 fees. But if you look, you can find someone who will work with you, possibly remotely/virtually.

    A fee-only planner is selling nothing else but time and expertise. You’re right in that it comes down to what their time is worth as an hourly rate. Same goes for lawyers an plumbers.

    Most fee-only planners that I know base their fees on about $200/hour give or take. That’s the going rate. Sorry. It doesn’t mean they are scumbags or swindlers.

    Advisors are required to disclose their fees in their form ADV 2, which is a public document. If you can’t find it or they don’t offer it, then don’t hire them.

    Thanks,
    Rob

    • Thanks for dropping by, Rob and sharing your thoughts and experience. This experience has been frustrating but not too surprising considering, as you note, fee-only advisors are less prevalent than fee-based and I live in a smaller community which makes it even more difficult to find someone local. Thanks for the heads up on Garrett Planning Network and XY Planning Network. I will have to check them both out.

      Since this post was written and published, I have heard from a fee-only advisor in the Scottsdale, AZ area – about three hours away – that sounds promising. We shall see.

      • Hi James – Would you recommend other folks to use WiserAdvisor? I find it quite convenient to place one request and simply just have 3 advisors matched. Saving folks time from searching online. BTW, great feedback here you got!

        • I’m not familiar with WiseAdvisor so I can’t comment on their convenience or capabilities. However, my experience was that finding an advisor was not difficult. The difficulty was in finding one that was willing and able to provide the service I was looking for.

          Thanks for stopping by, my friend.

  4. Its unfortunate that most service providers in the market only think about establishing an on-going relationship right away instead of earning an on-going relationship through good work and good advice. Unfortunately, most people advisers work with don’t spend the time to educate themselves so they just willing pay these fees – so advisers think that is what they need to do to get all new clients.

    • ” … only think about establishing an on-going relationship right away instead of earning an on-going relationship through good work and good advice.” Exactly. As I was telling a friend last night over dinner, if I am pleased with the service – in any industry – there is a good chance that I will go back to the vendor for future services, perhaps in an ongoing manner depending on the type of service we are talking about, and I will certainly recommend the vendor to friends, family or coworkers that might be looking for assistance in that area if I’m pleased with the service they have provided me.

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