As most of my readers know, I am an ardent believer in a dividend growth stock portfolio for a secure retirement. We have a "Team Alpha" core portfolio that we have been following since I began writing this series, and we "home gaming" non professionals have been doing a pretty decent job thus far.
Our current portfolio consists of ExxonMobil (XOM), Johnson and Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital (NLY), Southern Company (SO), Procter & Gamble (PG), Philip Morris (PM), Intel (INTC), Realty Income (O), Chevron (CVX), E.I. du Pont (DD), Duke Energy (DUK), Coca-Cola (KO), Bank of America (BAC). At last review we were up over 16%.
How Much Is A Financial Planner Paid
Wikipedia has a fairly accurate explanation of what a financial planner is and does:
"A financial planner or personal financial planner is a practicing professional who prepares financial planning for people covering various aspects of personal finance which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners). One of the key objectives with which a financial planner works is to provide inflation and risk adjusted returns for its clients."
OK, so that is what they do, no surprise there, right? Well take a minute to read an article that came out today.
The article states:
"Would you be surprised to hear that retail financial advisors often recommend the portfolio that makes the most money for them, not their customers, even if their recommendations result in less money for their clients or make their client's current situation worse? That's the damning conclusion of a recent working paper published by the National Bureau of Economic Research (NBER), reporting on an audit conducted by the Consumer Financial Protection Bureau (CFPB) of the quality of financial advice."
"The CFPB put together a clever undercover operation in which trained auditors visited numerous retail financial advisors whom the average citizen can access via their bank, independent brokerage, or independent advisory firm. These advisors are usually paid based on the commissions and fees they generate from transactions and not on the assets under management. The audit was carried out in the Boston area in 2008.
The auditors impersonated regular customers who were seeking advice on how to invest their non-401(k) plan retirement savings. The auditors represented two different wealth levels, either those with savings between $45,000 and $55,000 or those with savings between $95,000 and $105,000. The auditors' goal was to have a savings amount that was representative of that of the average U.S. household in different age ranges. The audit didn't address the situation of people in the higher end of the wealth spectrum, who usually have access to private wealth managers or fee-based advisors who don't accept commissions."
I guess this means that fee based advisors are "better". Really?
Well according to an article in "About.com Money over 55" there are roughly 6 popular ways planners are paid, with a fee based advisor being the most recommended. This article states:
"A financial planner who works this way will charge a fee based on a percentage of your account value. If your account value grows, they will make more money. If your account value goes down, they will make less money. In this way they have an incentive to grow your account and to minimize losses.
This type of fee can range from 2.5% per year on the high side to .50% per year on the low side. Typically the more assets you have, the lower the fee."
Ok, so let's just take a rough mid ground and use 1.5% as a "guestimate". Obviously if your balance goes up, they earn more, if it goes down, they "earn" less.
Now lets take a figure of about $500,000 to manage as just a number to use. 1.5% of 500k is $7,500 right out of the gate. Now lets also assume that the portfolio increases by 10% the first year. Not bad right? So now we have 550k less $8,250 for the advisor. (And while not a fee, don't forget taxes.) Now, lets say that a decent pro has 50-100 clients. See where I am going with this folks?
Assuming that I am somewhere in the ballpark with the numbers, I truly believe that individuals can match the "pros", save the dough, and go on a vacation with the money, or even plow it back into more dividend and growth stocks for an even nicer vacation next year.
I am not anti-financial planners. I think they fill a need for some people, just not for my money.
Should you pay them your money to do what I feel you can do quite well on your own?
It's your money, and your choice.