This YouTuber that I generally like got me thinking about the challenge investors have in trying to manage their money and answer for themselves, do I want help, or do I manage it myself? Either is acceptable, but you must know who you are and be smart enough to hear both sides objectively and then decide.
The potential value of an advisory fee comes from things other than portfolio management. Russell Investments quantifies the value of an advisor’s advice as much as 4.91%. It comes from answering questions for clients:
- IRA or Roth IRA?
- 401K or Roth 401K?
- Convert my IRA to a Roth IRA? If so, when? Where do I pay the tax dollars owed?
- Asset allocation and assets not under our management.
- Should I rebalance?
- Payoff my House? Refi my house? Use a HELOC or asset-backed LOC?
- Am I saving the correct amount toward my goals?
- Am I allocating those investment dollars to the appropriate asset class for the goal’s time frame?
- Tax loss harvesting?
- Asset allocation AND asset location.
- Retirement income – how much can I spend? How long will it last? Do I have enough?
- Social Security Optimization
- Risk management discussion – Investments, Life Insurance – do I need it? Should I keep what I have?
Behavioral Coaching – Do some research and look at the typical Investment result vs. the average investor result. The Vlogger assumes people can hold onto their 50/50 or 60/40, or 80/20 portfolio to get these 40 years of returns. Maybe some can, but lots of people need help, and it is ok to pay for it. The Russell study estimates this part of the advisors to be worth 2.37%. When we look at the 20 years from 2002–2021, we’ve found that the average investor’s returns were 2.37% lower than the overall market’s return vs. 7.15 (average investor thinks… what if it’s different this time and sells at the bottom then, FOMO hits, they buy back in at the top)
See Vanguards Whitepaper Assessing the Value of Advice.
I could go on, but if you choose to do it alone, great. People seeking advice and willing to pay for it are not somehow intellectually challenged. So, if we have a fee discussion, please just get a balanced accounting of both sides.
If all someone wants is asset management, 1% is too high; however, true wealth management will be worth much more than the advisory fee with even modest complexity to your household.