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New grad – Is it worth getting a financial advisor? (Fee only or AUM?)

Home Financial Advisors New grad – Is it worth getting a financial advisor? (Fee only or AUM?)

  • Avatar nephron 
    Participant
    Status: Physician
    Posts: 67
    Joined: 05/09/2019
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    4K is excessive, but I wouldn’t rule out the benefits of meeting with a one time fee only adviser.  Sometimes the amount they can save you (eg making sure that you are in low cost index funds, assessing your risk tolerance, making sure that you have the right insurance, etc) can easily make up the difference of paying their one time fee.    It’s usually the stuff you don’t know about that ends up costing you in the long term.  That being said, if you are willing to read a few good personal finance books, you probably could learn enough to do it yourself.  I just would be cautious about trying to do it yourself if you don’t really know how to do it yourself.   I was looking for whole life policies after listening to a “personal finance” radio show (the Ray Lucia show) and had already met the northwestern mutual guy that my boss used to purchase her policy when I met with my fee only adviser.   Wouldn’t spend more then 1 K for it though, it shouldn’t take them more then 3-4 hours of their time to go through your assets.

    #221163 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1997
    Joined: 03/01/2018

    Advice here is free. Whenever you have a question about what to do, first, do nothing. Come here and ask. And just hang out and read. You’ll learn quick and realize it’s not that difficult. Your goal is to be average, control what you can (fees).

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #221166 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 944
    Joined: 02/11/2019

    Not trying to be rude, but $25k per year isn’t very much, so if you’re legitimately thinking about paying someone $4k (16% of your yearly contribution), you’re going to lose money from the outset. With that kind of “return” you’ll never catch up.

    First you need to figure out what kinds of options are available to you. A Roth IRA for you (and spouse?) would be a good place to start, and then what, if any, options do you have through your employer? If they offer a 401(k) then you should do the 401(k) up to any match, Roth IRA for you (and spouse, if applicable), then the rest in your 401(k).

    And for now (and maybe forever) some type of target date fund would be perfectly fine. I’d wager that you would do better over the long run putting all of your money into a target date fund and NOT hiring an adviser than hiring an adviser and getting into whatever funds they want you to be in (because their livelihood depends on it).

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    MaxPower makes a good point.  If you invest that 4K in something reasonable you would have to make a lot of other investing mistakes to make an advisor worth it.    A lot of us started where you are and decided to DIY when you see the crappy other options.

    In your case it is pretty easy since you can likely get everything in a tax advantaged account.  If you really want to set it and forget it just pick a target date fund as mentioned above.  You will still be ahead of 75% of everyone else.  Savings rate matters so much more in the early days!

    “Never let your sense of morals prevent you from doing what is right.”

    #221196 Reply
    Avatar GPGP 
    Participant
    Status: Physician
    Posts: 153
    Joined: 05/02/2017

    I went from DIY to financial advisor back to DIY.  If I had this site, or someone had pointed me to the three fund portfolio, I would never have used a 1% AUM financial advisor.

     

    They were a fiduciary, they just didn’t tell me everything (like, they didn’t discuss a back door roth until I learned it here, and that was one of the things that led me to question what I was getting for 8K/yr).  They were helpful for getting advice/hand-holding along the way about stuff like a financial plan, 529, life insurance, disability insurance.  But I started with them after I’d weathered a bear market, so I didn’t really need the behavioral finance part of “don’t chase stocks/returns, don’t panic when the market goes down”

     

    In your case, I heartily agree with vanguard’s 0.3% service, if you don’t want to just do it yourself.  For the amount you’re putting in and your stage in life, Target Date <when I turn 65> is just fine.

    #221198 Reply
    Avatar DDStigers 
    Participant
    Status: Dentist
    Posts: 12
    Joined: 05/11/2019

    After reading the responses I’m thinking of investing myself for the first few years until my income/assets increase.

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    That’s a start, but in the future what exactly do you imagine that your financial advisor will do for you?  Please be as specific as possible.

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    Asset allocation.  Choosing the right investments.  Once I own my own practice I will be spending most of my time running that and don’t want to spend extra work and time researching the best investments.

    #221211 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1997
    Joined: 03/01/2018

    Asset allocation. Age in bond or age minus 10 or 20 in bonds. Depends on your risk tolerance. The remainder in equities, with 30-40% of that international. Three funds. Use Vanguard. That’s it.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #221215 Reply
    Liked by snowcanyon, Hank, Peds
    Avatar DDStigers 
    Participant
    Status: Dentist
    Posts: 12
    Joined: 05/11/2019

    “My plan has always been to have a financial advisor”

    There are no “ins and outs” of investing. For investing, use the Vanguard service. You will end up with a four or five low cost fund portfolio. You just keep putting money in. A financial planner and good tax advisor (CPA) will give you a plan of attack.

    I would suggest you rethink using a pure financial advisor to monitor your investments. The core plan is you put money in and the advisor takes money out.Use the advice of a planner and whatever professional you need. Pay for a plan and follow it. The investment advice at Vanguard will suffice. It’s not rocket science.
    Basic preference, keep it simple.

    J. L. Collins vs WCI


    Consider: US, , International , Emerging Markets, Total Bonds.

    Pick a 3-7 AA and you will be fine.

    Click to expand…

    Would picking one of these 150 portfolio’s and duplicating it be wise?

    #221217 Reply
    Avatar DDStigers 
    Participant
    Status: Dentist
    Posts: 12
    Joined: 05/11/2019
    401

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    My employer does not match my 401k until after the first year.  I don’t think I’ll be working for them for more than 2 years.  Should I still use their 401k plan or get an individual one?

    #221219 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 944
    Joined: 02/11/2019

    If you are a W2 employee you cannot get your own 401K.  You are stuck with the one they provide for your.  It is still very beneficial to use it even without a match for the first year.

    95% of the work of investing is done up front.  Once you learn what you need to know keeping it up over the years is trivial.  Even the busiest practice owner can spare a few hours a year.

    You seem a good candidate for JLC stock series.  https://jlcollinsnh.com/stock-series/

    If you have some time give his blog a read.  I like his simple approach.

    That being said not everyone wants to DIY.  If you really just want to hand it over to someone when you get to that stage make sure you understand the fees.  Understand that with AUM you will be paying tens of thousands a year that could have been working for you.  It is pretty hard to screw up investing so much to justify the fees.

     

    Good luck

    “Never let your sense of morals prevent you from doing what is right.”

    #221224 Reply
    Liked by DDStigers
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1798
    Joined: 01/15/2017

    Congrats on being a taxpayer!

    Doesn’t sound like debt at all and saving 20% from the very start. Win and win. Last two wins….live like a student still to keep expense creep. And invest easily in a target fund for the first years while getting your financial legs.

    You dont need a CPA or financial advisor doing a 1040EZ or putting 25k into a target fund.

    That said, that’s only your first years. Develop your targets for retirement and setup budget goals to get there and all the big commits inbetween…..house kids college fund marriage fund…..that will be your roadmap.

    Do all that. Then if you find that your savings rate will outpace your budget or if you want more than a simple 3 fund index system that’s boglehead based because you want to be more actively engaged, then that’s the time to get a FA fee only to help massage your game plan.

    #221225 Reply
    Liked by DDStigers
    Avatar uteomfs 
    Participant
    Status: Dentist
    Posts: 4
    Joined: 05/30/2019

    If you want a financial advisor and the stress of doing it on your own is more than you want, then by all means hire one. I dont think you can put a price on stress reduction and spending your time doing the things you want to do. You will have enough on your plate being a new dentist. Trust me, you will have sleepless nights worrying about your cases, your skills and have you done the right thing for your patient. As my practice grew and I became less overwhelmed with the day to day of running it, I made a decision to learn more and I really enjoy learning about finance and alternative options, so I spend a ton of time on it. That, and I bought a Whole Life Policy and have tried to right that wrong for 3 years now.

    All that being said, you more than owe it to yourself to spend some time learning the basics of financial planning. At a minimum enough to hold a conversation with your advisor so you can map out your goals together and not be confused.

    And, if an advisor tries to sell you Insurance as an investment, run like hell. Good luck!

    #221228 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2250
    Joined: 08/01/2016

    Asset allocation. Choosing the right investments. Once I own my own practice I will be spending most of my time running that and don’t want to spend extra work and time researching the best investments.

    Click to expand…

    First thing – don’t panic. Basic investing is easy. The FA will try and sound as if it is hard and that you cannot do it. Their pitch – you take care of teeth and I will take care of money, as we are both professionals in our fields. The surest way to lose money. If they don’t use smoke and mirrors why would you use them. Not all FA are like that and maybe if you have a good portfolio it might be worth spending $4K for a financial check. Not when your total investments is 25K.

    Start the 401K even if there is no match. Later you can roll it over to your next employer. Use backdoor Roth. Whatever is left is put in a simple 3 or 2 fund portfolio. If you are under 40 you can just pick just 2 index funds – 60% US stock and 40% international stock. That is it. Just keep adding to it every year and soon you will be very comfortable with it. Don’t get into real estate or other exotic things at this point.

     

    #221254 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2301
    Joined: 09/18/2018

    OP,
    At your stage, savings rate is critical.
    20-50% , tax advantaged preferable.

    @Kambam gave to sound advice, “If you are under 40 you can just pick just 2 index funds – 60% US stock and 40% international stock. That is it. “

    You are overthinking this, “ins and outs” will cost you wealth in fees and missed opportunities. Stay invested in your simple low cost funds and you “win”. Almost any other scenario will “stink” . Don’t try to out think Mr Market, it’s more risk and never been proven as a sustainable strategy. No portfolio is better, because the fire is unknown. Take 2 aspirin and call back in 20 years!
    Your symptoms are that you will be wealthy if you use 60/40 and rebalance once a year.

    No need to send a check, you know the answer. Keep it simple and save. That is your plan, correct?

    #221305 Reply
    Liked by Kamban
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4284
    Joined: 05/13/2011

    I don’t think I want to invest the time to learn the ins and outs of investing.  My plan has always been to have a financial advisor.

    Click to expand…

    Then hire an advisor. Make sure you’re getting good advice at a fair price. A fair price is a four figure amount per year. If you don’t want to pay that much, chances are you’ll get bad advice. Most AUM charging advisors are either also selling you stuff like disability insurance for commissions or have a minimum amount of assets before they’ll take you or have a minimum fee that is….wait for it….a four figure amount per year.

    If you want to try to game it by using Vanguard for a few years and then hiring someone for $4K a year, that’s fine, but realize that Vanguard is not going to do the same quality of financial planning work you’ll get from those on my recommended list of advisors. They’re just going to get you into a reasonable collection of low cost Vanguard index funds and rebalance it for you. You’re not going to get student loan advice, budget advice, life insurance advice etc.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #221307 Reply
    Avatar artemis 
    Participant
    Status: Physician
    Posts: 488
    Joined: 12/02/2016

    You’re not going to get student loan advice, budget advice, life insurance advice etc.

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    THAT’S the advice that is worth paying for, OP.  Note that it is NOT “investment advice.”  It’s about planning your financial life, not about what specific investments you should put your money into.  And you can get that advice at a reasonable price by using one of the advisers recommended here on the WCI website.  Once you’re set up with the right budget advice, insurance plans, student loan payoff plans, etc., you’ll be golden for the next several decades.  It will be time to consider another session when it comes time to figure out estate planning and investment drawdown strategies for retirement, but that’s a way off.

    As for asset allocation:  if you want to keep it super simple, use either a target date fund or a fund like Vanguard Wellington which has a fixed stock:bond ratio for your retirement account.  Make sure the expense ratio on the fund is low (if you go with Vanguard, it will be, so no worries there).  All you have to do is toss the money in every year and leave it alone (no matter what the market may be doing).  You’ll also want to build up some savings outside of a retirement account, kept in cash, to cover emergency expenses.  As your income grows and your school loans shrink, you might also want to open up a taxable investment account; you can fund it with exactly the same sort of funds you use in your retirement accounts.  Toss the money into that taxable investment account whenever you have some funds to invest, then leave it alone.  That’s it, that’s all the planning you need.

    #221334 Reply
    Liked by Tim

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