@CFP, generally I like to have the advisors’ incentives aligned with mine. So, a percentage of assets aligns it, though there are economies of scale in the work, so the percentage of assets taken as a fee ought to decline with size. In contrast, someone at a big brokerage house gets commissions for putting you into certain kinds of products and not into others. Their short-term incentives (and pressure from the firms) tends to lead them to push higher fee investments. I’m sure this is not universal but it is consistent with both economics and the behavior I’ve observed. Many brokers tend to rationalize their behavior and believe that they are acting in the best interests of their clients even when they are pushing higher-fee investment options.
The brokerage firm wealth advisors get both a percentage of assets and commissions/payments from investment options. The RIA that I use only gets its fixed fee (no doubt correlated with asset size).
I would say most advisors regardless of whether they are RIAs or registered representatives have migrated towards a fee based model.
Very few if any traditional stock brokers even exist. And most will charge 1% fee based advisory business. It is much more profitable in the long term for the firm and the advisor to charge based on this platform. Very few if any advisors will sell traditional load mutual funds or commission based products unless the accounts are so small, they can’t put them in a fee account. The minimums used to be much larger but are now smaller. The other area where registered representatives will offer commission based solutions is when no other choice exists (if a client needs life insurance or an annuity).
The entire fee based vs commission based discussion is pretty much a moot point (but continues to be pushed by RIAs as some kind of value differentiation) when that is the defacto model used by the majority of advisors (or registered representatives).
I believe there are many very good RIAs but I find some their moral high ground client pitches to be hollow when the entire industry has already moved in that direction. In my opinion, the better messaging is if they can create amazing holistic financial plans. That to me is a much more compelling argument than fees vs commissions.
DISCLAIMER: Nothing I say constitutes advice. These are just my opinions and not recommendations. Please do your own research. I use the term “advisors” in the general sense. People affiliated with broker dealers are technically registered representatives.
Rickle1, I always appreciate your advice. Finding someone like you is like finding a needle in a haystack. I met 2 or 3 people my parents used and passed them by. So, now I pay <1% to fidelity, but still met with several people before I found my “one”.
I have observed the same. Even if advisors are ethical, I’ve seen them push products so they can double dip. There are lots of options out there and some are duplicates of others. If someone has an incentive that can and does sway them. And I’ve seen better returns with RIA’s.
I don’t want my FA to be tempted to get a % of my assets and commissions from investment options. One side or the other, IMO.
I believe the wealth managers at brokerage firms get commissions on top of the 1%. The commissions are for non-standard investments (structured notes?, hedge funds, etc.). I’m guessing that you are right re mutual funds – the thresholds to have low or no fees is a lot lower than it once was.
When our CFA gets compensated (e.g., by a real estate private placement), he lets us know and passes on his incentive to us. It builds my trust and loyalty with him.
“Almost all said they’d taken on jobs that were more accommodating of their needs, whether that meant being able to work remotely, travel less or set their own hours.”
It’s not so bad to return to work if you can shed the stuff that made many of us want to leave the workforce. If I choose to return to work, or if circumstances are such that I need to return to work, the ability to GET a job (which is a big deal when you are older) & have some flexibility would help make it easier.
One of the reasons people shouldnt retire early is because of uncertainty.
People who retire early probably has XYZ saved. And those people typically have a 60/40 investment portfolio.
What happens if that portfolio goes down 20-30%. The stock market is usually a leading indicator. So if the market starts tanking because of economic conditions, that means the job market may also start to cool down.
So people who want to (or have to) go back to work because of their investments may also have a hard time finding a job for the exact reason. Plus once you’re out of the work force, it may be harder to get back in or have to accept lower compensation. Your skills may be outdated, you have “unemployment bias” from hiring managers, etc.
My personal opinion is people should work part time and semi-retire to continue getting some salary, company subsidized healthcare, and it keeps them in the game in case they have to go back full time.
Let’s assume you work 30 hours a week. You have 3 day weekends and if you get laid off, you may get severance and can collect unemployment benefits.
And since you are close to retirement, you dont have to worry about company politics or have to work overtime or any of that because you have the flexibility to leave. And you can take your four weeks of vacations and holidays.
If you’re married, one person can work 30 hours a week in a job that may pay less but something they would enjoy.
I know a lot of people in this group and that’s what they do. They do just enough to get insurance until medicare because that’s typically a big wild card.
Another method some of use use is to stagger retirements.
In our case, my husband is 7 years older and retired ahead of me at age 64, I continued to work full time, covering medical for both of us. I retired the next year, a few months after he turned 65 / Medicare. Then I did 18 months of Cobra/self. Next I switched to payment via a retiree healthcare account (created when the pension plan went away). To be honest, I would have considered working a few more years longer, possibly part time, if finances had been tight and/or my job had been less stressful.
We know other couples where the husband had a decent pension and had early retirement (or layoff), with the wife working a few more years.
When you look at numbers in retirement, even a small part time job with limited income can make a huge difference. Letting your money grow can have huge implications esp if people retire on the early side (say 62).
One of the biggest mistakes people make in personal finance is extrapolating favorable results.
I make $… so in 10 years Ill be making this.
My portfolio has grown %… so I anticipate X % going forward.
I don’t have to save $… because I’ll work until 65.
This is especially true when retirement projections are based on very favorable assumptions that may not continue.
Your job may be eliminated during a recession.
Your portfolio may go down 20-30%
You may not be able to work until 65 because of health problems or some other circumstance (caring for a loved one).
Can you imagine someone retiring at 55 because they thought they were all set, have the market go down 30% and then have to try to find a job at 67?
Not sure why you are replying to me. But here goes. IF you look at LONG term investments, money grows over time. That’s my point.
I would agree with ups and downs and not relying on any of those. I certainly wouldn’t. But then again, I don’t worry about short term market fluctuations at all.
Major fluctuations like 2008/2009 and even the current inflation soaring over a short time worry me ( a lot). But little things, not so much. And if you watch your portfolio ( just check it daily), it’s not going down 20-30% in a day or a week. You would sell when anything dips below 15% ( or whatever number makes you comfortable).
I think that people who rely on others to manage the entire portfolio and don’t check in market volatility lose a lot. We lost about 1/4 what others did in 2008 because we moved quickly and didn’t ride things down to the bottom. Going into cash can be a good thing on FEW occasions. Trying to time the market will leave someone with very little, IMO.
Right now, I’m getting out of bonds. Looking at real estate to replace and rebalance. This is tough inside of 401K type vehicles. Easy with cash. Inflation, IMO, is going far north and here to stay. Made some serious money in oil/gas companies last quarter. Not my call (was the FA’s) but saddens me in a way as many can’t afford gas and it’s going to keep inflation rising.
Still thinking of ways to rebalance given where we are. My family hasn’t experienced huge inflation since the 1970s ( way before we started retirement savings).
N/A to us. Also, we haven’t put $ in 401K for years. Have enough for retirement. Only risk to us is double digit inflation without corresponding returns in the market.
Well, no I can’t. At some point, if they are retired they should implement stop losses and go to cash/other if there is extreme volatility. And someone who is retiring at 55 has to plan for long term big bumps in the road and other factors like huge increases in taxes. Not like you can just think you have enough. You have to run the numbers in various forms and have a plan B/C. (use real estate income, sell your house and downside, etc).
Interesting - “you would sell when anything dips below 15%…” I have an asset allocation I can “sleep well at night” with, and I don’t sell when things go down. If you do, how do you know when to get back in bc things are going back up?
My husband and I are fortunate to have (relatively small) pensions that have some inflation protection, once you hit 62. I retired before then, and I won’t get any increases until the year after I turn 62.
My husband will retire this year, and he has already been offered a very flexible part-time gig in his (specialized) field. I can work up to a limited number of hours this year, which is enough to fund trip. Next year I may or may not have a similar opportunity. We will be fine either way, but it is nice to have that little “padding.”
While out running today I listed to an interesting podcast about various personal views (sometimes unconscious) about money. No earth shattering info, just an interesting listen.
Well we never take money totally out of the market. So we don’t have to worry about getting back in for the most part. 90% of the time we are reallocating amongst stocks/other vehicles. There are so many options. And we are NOT mutual fund people. We buy the actual stocks. When times are really crazy ( have been two since 1980s), we’ve done other types of investments but mostly remained in stocks/cash.
Don’t think we’ve ever been more than 30% cash.
We don’t have any pensions as we’ve been entrepreneurs (multiple businesses each). And we’ve also worked for various companies but only one had a tiny pension which we got as a pay out because it was very small.
20-30% is a lot. Ours hasn’t gone done that much multiple times. We did have some bad years but that is a big cyclical change. And hard to bounce back from. Do you mean from year to year? Or just up and down a bit with better returns at year end?