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January 12, 2008

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And let's not forget to take a look at their fees, shall we?

"Our managed account fee is based on the value of assets under our management.

1.0% of the first million ($1M)
0.8% for the next two million ($1-3M)
0.7% for the next two million ($3-5M)
0.6% for the next five million ($5-10M)
0.5% for the next fifteen million ($10-25M)
0.4% for the remainder ($25M+)
Our minimum annual fee for services is $10,000. All billing is quarterly in advance.

Although we recommend an ongoing relationship, we also offer an hourly fee of $500 per hour for non-managed accounts.

We receive no other form of compensation."

To anybody reading this article I say, research all you want, skip the planner and save yourself a bundle. Your investment portfolio will thank you, and you'll be just as well off informationally. $500 an hour? Give me a break!

Doug...

In theory I agree. But as crazy as it sounds, if this planner can show that if he went elsewhere he would be getting dinged for double and the person going to the planner KNOWS the fees up front and has a few million and likes to golf instead of tracking the street, who are we to say anything?

I work with a tax attorney and the guy charges a good buck, but you can see that when he takes a fee of say $1000, you as the customer will save money/taxes that can be shown. So do you save $1000 to lose $5000? Or do you pay $1000 and reap the $4000 benefit?

Personally, I think not enough folks go to financial planners. I think what Ameriprise and alike is silly, telling some 24-year old what he needs to do to retire at 65, but I think too many goobers walk around doing nothing. If you go to a fee-only planner with a nice disclosure like Marrotta must have, you are being told upfront what the fees are. They will not ding you on the back end with hidden fees and commissions...

Zook,

My point is that someone reading this blog probably has an interest in personal finance, and therefore is not spending their time golfing all day. It is to this person who my comment is directed at. I agree this would be useful to someone who has no interest or knowledge about personal finance concepts. OTOH, how hard is it for someone, even a golfing multi-millionaire, to have their money in index funds, reallocating once a year if necessary? How does Warren Buffet feel about this? (http://money.cnn.com/2006/03/05/news/newsmakers/buffett_fortune/index.htm)

As for spending money to save even more I agree, however for someone who is well versed in personal finance issues like readers of this blog, it will be doubtful this will offer much savings above what they already know and implement in their life.

As for not enough people going to financial planners, judging from all the people who took out loans they could not afford, all the people who spend more than they earn, all the people who don't fund their retirement etc, I agree. Americans in general are pretty ignorant when it comes to personal finance. However, I bet the people reading this blog tend not to fall in this category.

Moreover, the idea that someone making 20k a year should drop $500 for an hour of financial planning advice is crazy.

People who make $20K a year shouldn't be paying $500 a hour, then again I am not sure this author has them even in mind. I don't think that's even implied.

I can tell you that for $50-$125 a hour, a person making $20K a year should go to a fee only planner to get their act in shape, especially if they have no idea about how to get out of debt and no idea about what accounts to get into. There are folks out there trying to make a mint, but I can tell you I don't or will never charge $500/hour.

Doug, I agree with you. I am semi-playing Devil's advocate here.

Yes, someone should be able to play golf and buy index funds, but "financial planning" goes beyond that. Tax complications, estate issues etc. etc. are being gathered into the planning process.

Marrotta has actually used some very neat strategies in the past for folks with some big money. Example...Since ETF's are cheaper, he recommends, and so do I, using mutual funds up to a certain dollar amount, then going ahead and transferring out and into the same product in an ETF, which operate better and cheaper. If you have $1 million in an index fund charging a .33% expense ratio and there is the same ETF, covering the same market/index operating at .22% expense ratio, you just saved $11,000 a year on that small tidbit of info.

Good debate fellas!

Interesting discussion between you two guys. I think you both make some excellent points. At the end of the day, using a planner is right for some people and unnecessary for others.

It depends on a lot of things: investor personality, knowledge, motivation, time, etc. It also depends on the quality of the advisor and the services provided, there are a lot of fakers out there. I write about a lot of this stuff on my blog.

I am a financial planner, so I'm biased. My business is almost 100% fee based and I charge my clients 1%. From my experience, for the most part,(at the risk of sounding arrogant) charging them 1% is a small price to pay, in comparison to what they would have cost themselves in poor decisions, if a good planner was not there to guide them, especially when markets are as volatile as they are now.

Much of what a good planner does for his clients is psychological. What price can you put on that? Some people don't need it, some do. I think most people, with any kind of assets, should be working with a planner in some capacity because the truth is (especially when markets are rocky)most investors make bad decisions and need to be saved from themselves.

Maybe not some of the readers of these PF blogs, but generally speaking.

btw... should add a StumbleUpon button to the site, think you would have a lot more success than with Digg and Furl. I stumbled your NY Times article, interesting stuff. Gonna Stumble this article too. Cheers

"If you have $1 million in an index fund charging a .33% expense ratio and there is the same ETF, covering the same market/index operating at .22% expense ratio, you just saved $11,000 a year on that small tidbit of info."

No, you saved yourself $1,100. Now add in the 1% fee and you're down $8,900.

And say the person was coming from a mutual fund that charges a 5% front end sales load and is actively managed at 1.50% a year but doesn't beat its index?

So every time this person added to their million they were getting nicked 5% AND they were getting charged $15000 a year for managing the money on top of addtional management fees by the prior advisor?

And this person instead hires a fee-only planner who drops them into the strategy I mentioned above?

What is the financial benefit there?

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