Experimenting with a Financial Advisor

For Part II go here, for Part III go here.

Because of the recent market volatility, I decided it was time to buckle down and really create a portfolio.  Up until now, Hubs and I have been somewhat “free-styling” our portfolios which consists of us just buying index funds and ETF’s where the hypothetical growth looks the highest.  Good strategy right??  Just kidding, sort of, but we have been investing somewhat unstructured and haven’t fully thought about asset allocation and tax efficienty.  I know all the investor mantras, don’t try to time the market, don’t go on your emotion, buy and hold, blah blah blah.  But it’s one thing when the market was doing well, but watching our little nest egg go up and down over the last few weeks is a little unnerving.  I’ve been toying with the idea of using Vanguard’s Personal Advisor Service (VPAS) for some time since they launched a larger scale version of their advisor services, but wasn’t really sure if it was worth it for us.

I’m a big believer of doing it yourself when it comes to your finances especially if you don’t have too much in assets and/or if most of your money is tied up in your 401k or other employer-sponsored retirement account.  Not because I don’t believe in asking for help from a financial professional occasionally, but because I think finance is a critical part of a person’s overall sense of well-being, just as health is.  And just as I feel responsible for taking care of my own health regularly (through a healthy diet, regular exercise, prevention) and not just waiting til I get sick or blindly doing and taking what a doctor tells me or prescribes me without personally knowing and understanding why I’m doing/taking it, in the same vein I don’t believe in just leaving my investments to be managed by a financial advisor without some firm knowledge of what they are doing.  I figure if I know how to manage my own money, then I’m also better able to communicate my specific financial needs and goals with an advisor and also make sure they aren’t going to rip me off either accidentally or intentionally.

Moreover, because of the wide range in the degree of education and training of financial advisors, sometimes you don’t know what you’re getting and what you’re paying for when you hire an advisor.  At least you know a doctor has to go through probably 4 years of medical school, take multiple difficult exams to get a license and then go through likely 3-4 years of residency training and maybe another 1-2 years of fellowship training before they can practice (at least in the US), but the bar is set pretty low to call yourself a financial advisor.  In fact, many insurance salesmen and saleswomen call themselves “financial advisors” but I personally don’t think being able to sell insurance products should allow you to call yourself a financial advisor.  It’s misleading, just like chiropractors who call themselves “doctors.”  Not hating on chiros here but come on, it’s misleading to call yourself a doctor because the average patient doesn’t know the difference between a MD (doctor of medicine) and DC (doctor of chiropractic).  Also, don’t even get me started on the conflict of interest that advisors face.  Something about money always has a way of creating huge conflicts of interest for people involved and makes it more difficult for me to fully trust in a financial advisor.  Lastly, we live in a time where managing our own investments has become easier than ever before because of the internet and forced transparency of fees and the rise of passive investing.

But still it doesn’t hurt to get a second pair of eyes to look over our investments and because of Vanguard’s stellar reputation, I decided to call them up and said “Can I get more information on this VPAS thing.”

VPAS requires a minimum investment of $50,000 and charges 0.3% of assets under management (AUM).  Remember the 0.3% fee is in addition to the expense ratios of any funds they might use and/or any trading fees if they construct your portfolio from individual stocks and bonds.  The important message here is fees add up!  Don’t let that 0.3% or 0.15% fool you.  Doesn’t sound like much right?  But they will eat away at your earnings, especially over time.  Still 0.3% of AUM is a lot better than the “industry average” of 1% and cheaper than Personal Capital who charges 0.89% of AUM (I had a free consultation with them once).  Personal Capital appears to have a similar model to VPAS in that it’s not just an automated portfolio construction like a robo-advisor, but a hybrid of automated and real people constructing your investment portfolio.  They also seem to have a proprietary way of constructing an investment portfolio.  Interesting.  Incidentally, I’m all about the free consultations with advisors.  You can learn a lot just by meeting with different advisors once or twice.  True Story.

In order from most expensive to the least:

Industry Average  1% of AUM, but I’ve met advisors/firms that want to charge 2%!  Holy Crap, those Starbucks Fraps and cookies they served me during our consultations do not make up for that.

Personal Capital 0.89% of AUM (some discount after your first million, but I know I’m not quite there)

Vanguard 0.3% of AUM

-Then the robo-advisors: Betterment, Wealthfront, they have somewhat of a more complex fee structure, but basically <0.2% of AUM

I’m sure there are much more out there, but these are the ones I have some experience with.

Ultimately, my end game with VPAS is to learn as much as possible from them and then take over the management of my accounts hopefully within 1 to 2 years.  The reality is right now I’m taking care of a baby, a toddler and a husband (moms and wives know what I mean), helping my parents manage their own finances, etc., while working pretty much full time, and that doesn’t leave me with a ton of time right now to ensure I’m effectively managing all our investments.  I do believe in asking for help when appropriate and paying for quality things.  It also makes for great blog information for my readers!

I got Cory who became my personal concierge (fancy).  He tells me I need to fill out an investor profile prior to my meeting.  You login to your Vanguard account and here’s what the first page looks like.

Investor Profile Page 1

The big red arrow pointing to my “estimated retirement age” I just left at the default 67 for now since saving for retirement is like an insurance for me in case I can’t work, but I’m hoping to actually never retire in the sense that I don’t want to stop looking for ways to create a stream of income, whether active or passive.  I also think young people should think twice before they consider retiring at age 65-67, though I realize that’s not always a choice for everyone.  Disability and illness, either yourself or a loved one, can prevent you from working more than you’d like.

Second Section

The final 2 sections after this are filling in your income information, tax status – they ask you for your tax filing status (us married filing jointly) and “Is your taxable income $146,400 or more?” Taxable income is your adjusted gross income minus your deductions, line 43 of your most recent IRS form 1040 tax return.  The last section allows you to include what Vanguard accounts you want them to analyze and add in any outside accounts as well.  You also have to estimate your Social Security at the SSA.gov website.  Then you click Submit.  Done!

You can probably tell filling out this Investor Profile is pretty easy, maybe takes 5-10 minutes if you know your financial situation.  If you don’t, then it’ll take you longer.

I purposely scheduled my appointment in January, after the holidays, even though earlier appointments were available.  I have a bad habit of delaying major changes, I’m working on it.  I’ll have a new post about the phone consultation afterwards with other updates as they occur.  Part of their service includes quarterly rebalancing of your portfolio if you need it.  I should also note, you can video conference with them, either one way (you see them but they can’t see you) or two way (you both can see each other).  I think I’ll just take the phone consultation this time – not feeling too hot 3 months postpartum. =P

Summary of VPAS features:

  • $50K minimum to invest.
  • Charges 0.3% fee of AUM
  • Is a phone based service, but you can also video chat if you wish.  Initial consultation is approx. 45 minutes
  • Helps with portfolio construction, rebalancing
  • No contract, can stop using at any time

Bottom Line: If you need some financial help, don’t really know where to start but have $50,000 to invest, and have a phone — consider VPAS.  You really can’t go too wrong with anything Vanguard.  I swear I do not work for them.

Ok readers, til next time! Oh and Happy Holidays!  =)

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