Financial Advisor Question

A very dear friend of mine recently had a consultation with a financial advisor. Friend has a history of making poor financial decisions, and despite a long work history in a high-earning profession, has a very modest net worth to show for it. They have somewhat substantial savings in a 401k, but this is offset by a fairly large mortgage, credit card debt and some personal loans (currently on track to get the debts paid off within the next 2 years). Friend has been scammed in the past and has loaned large sums of money to friends who never repaid the loans.
The friend told me with some enthusiasm that they can hire the advisor for $100 per month to be an "on-call" financial advisor, who will help find the best rate for refinancing their mortgage, and will help interact with their HR dept when it is time for them to retire (10-12 years away). Presumably there would be other benefits, but these are the two that were mentioned to me.
I thought it sounded like a horrible idea. I think I could actually help with those two items mentioned, and I wouldn't even charge for my services. I get the sense that this person is just overwhelmed by handling their own finances, and loves the idea of having someone else take over. This is not a good mindset, and I fear has helped set them up to be victimized in the past. The friend doesn't have brokerage accounts or anything complex going on, so it seems to me that $1200 a year is a lot to pay.
My question is whether I'm letting my own biases get in the way. Maybe a $1200 advisor is a terrible idea for me, but a good idea for my friend who wishes they didn't have to think about their own finances. It does look like the firm and the advisor are on the up and up. Maybe a financial advisor would help steer friend away from future poor financial decisions - or maybe hiring this advisor would just be another one of those poor decisions. I would love some unbiased opinions from you folks please.

I generally think most financial advisors are a waste of time and money if you have normal finances, as they seem to deliver cookbook approaches that you could do yourself with an hour of Google learning, and I think it is important to at least have a baseline level of understanding of your own finances.

That said, some people can’t for various reasons do it themselves, so for them, maybe it’s helpful. $1200/year still seems to me a bit high - I can’t imagine the job described takes very long, and $1200 for on-call services for such simple tasks is silly.

For reference, I keep a sizable (7-8 figure) sum under active management with a reputable firm, and they charge me 0.5% per year of the portfolio value, and no fees. They also happily provide the sort of baseline financial advice and assistance for free, but Schwab does that too for me, also for free.

Over the top expensive IMO. Should find a fee-based financial planner that charges a one time fee to tell them what to do. Why would anyone need an on-call financial advisor? Scam.

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Originally Posted by rosarugosa

A very dear friend of mine....

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They should run away from that financial advisor as fast as possible, even though the advisor and the firm they work for seem to be on the up and up.

It sounds like you could give them the kind of advice they need on an as-needed basis if they will trust you to do it. After all, they don't have anything complicated that needs to be constantly monitored by an expert advisor.

Talk to your friend some more about what exactly this financial advisor is going to do for them on a day to day basis. If you can make them realize the advisor is mostly going to be doing simple stuff like balancing their checkbook and giving them a cookie cuter budget they should follow, then you'll have a good chance of convincing them they can do that for themself, and that you'll be available if they need help or even just some reassurance that they're making the right decision.

Definitely ridiculous for what they are getting!

Looking at this very broadly, your friend, rosa, apparently needs someone to do most every little thing in her financial life for her. We can all silently scream at her to take responsibility for herself and learn a few basic things, but she most likely will not start adulting now if she is well into maturity.

$1200 annually against what you hint is a pretty good salary is not much, if the $1200 guy is stone cold reliable, and will be of use to her. In the right scenario, this guy could easily save her $1200 annually, in the first few years of his service anyway.

so she needs someone to act as her dad. Unfortunately she’s not gonna be able to buy that care and concern, and any guy who offers this kind of weird service (hunts dor best mortgage rate? Talks to HR in her behalf) seems suspect. I mean, I understand that busy Hollywood stars have their “business managers” who do exactly this kind of thing as well as manage their assets.And there are many stories of these business managers who scam their clients.

I just don’t think it’s a reliable scenario so after all of my verbiage I say NO.

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Originally Posted by iris lilies

she needs someone to act as her dad.

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Actually I was thinking something similar while I was offline. Maybe what she's buying, or thinks she's buying, is the financial equivalent of a Weight Watcher's membership or having a prepaid on-call fitness coach. IOW someone who will be her "Daddy" and keep her on the straight and narrow in spite of her tendency to wander off the path every time she sees temptation. Maybe hiring this financial advisor is like hiring a shrink to cure your addiction, or maybe she just thinks it is....

Anyway, step one is to clarify exactly what she expects to get from this guy and why she thinks he'll actually provide that level of service.

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Originally Posted by GeorgeParker

Actually I was thinking something similar while I was offline. Maybe what she's buying, or thinks she's buying, is the financial equivalent of a Weight Watcher's membership or having a prepaid on-call fitness coach. IOW someone who will be her "Daddy" and keep her on the straight and narrow in spite of her tendency to wander off the path every time she sees temptation. Maybe hiring this financial advisor is like hiring a shrink to cure your addiction, or maybe she just thinks it is....

Anyway, step one is to clarify exactly what she expects to get from this guy and why she thinks he'll actually provide that level of service.

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yeah, your analogy of a fitness trainer is good and may be what she is thinking of. And the idea that the service is charged monthly is very much consuma sucka territory.

You mentioned there may be other benefits. Without knowing those, I can't say this is or isn't worth it. There are different benefits to a financial advisor I can think of, one of them is, those "friends" who want to borrow money, will have to deal with the advisor, not the person who has the money.

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Originally Posted by ToomuchStuff

There are different benefits to a financial advisor I can think of, one of them is, those "friends" who want to borrow money, will have to deal with the advisor, not the person who has the money.

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At $100/month I would learn real quick how to say no to friends who want to borrow money. My standard line goes something like this "If you need cab fare to get home -- If you need a few dollars for a vending machine because you don't have any cash on you -- I'll give you the money. But don't ever ask me to loan you money, because I don't loan money to nobody."

Of course, I'm a hardnosed warehouse guy, so I'm accustomed to dealing with people who only want to be your friend so they can sweet talk you into doing them a favor. Most people probably aren't as cynical as me about such "friends".

DW and I know people who find the whole money thing befuddling. Well, they know how to spend it (maybe not wisely but they know how) but they don't have the interest (and, some, not the personality) to learn more about managing their money. If this advisor is on the up and up and is willing to put his/her foot down and say 'no' to friend's dumb ideas (like loaning friends large sums of money), then $100 a month might be a decent price for a little financial fitness training. Shouldn't need $100 worth of help every month for forever, though.

I'd be curious as to what kind of "managing" either rosa's friend or the advisor thinks is going to get done for $100/month. If it's just putting the advisor's name down on investments and financial forms as a contact so they can have a general idea of how much money is there, that's too much money for that. If it's actually looking at allocations and doing the work of buy/sell/transfers until appropriate diversification is achieved, it's expensive but retail handholding always is.

Personally I would say no; I have zero interest (ha!) in an arrangement like this. But I could see a complete financial neophyte finding value in it if the monthly fee was for true fiduciary help and not just a convenience fee and if it didn't go on for years on autopilot (occasional reallocations, etc. aside).

I can relate to the friend because I certainly have made my share of dumb decisions with money, but the closest thing I've found to a financial adviser that has helped me is Dave Ramsey (free) and the Truebill app ($5 a month for reminding you what you are paying for things you could be getting for less).

I know for a fact that all the information she wants is found online--there are retirement models to help you figure out the best time to take it, for instance. I'm pretty good at wasting money, but I wouldn't waste $100/month on that financial advisor.

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Originally Posted by catherine

I can relate to the friend because I certainly have made my share of dumb decisions with money, but the closest thing I've found to a financial adviser that has helped me is Dave Ramsey (free) and the Truebill app ($5 a month for reminding you what you are paying for things you could be getting for less).

I know for a fact that all the information she wants is found online--there are retirement models to help you figure out the best time to take it, for instance. I'm pretty good at wasting money, but I wouldn't waste $100/month on that financial advisor.

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If she wants someone who will really control her finances, Britney Spears' father is available.... https://www.forbes.com/sites/maddieb...h=3cc20d5d7a6b

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Originally Posted by SteveinMN

Personally I would say no; I have zero interest (ha!) in an arrangement like this. But I could see a complete financial neophyte finding value in it if the monthly fee was for true fiduciary help and not just a convenience fee and if it didn't go on for years on autopilot (occasional reallocations, etc. aside).

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Agreed. But with a caveat. Here in Canada we have something called a fee only financial planner. For a straight annual fee (in our case it was $1000) they come in to do a full financial assessment and create a plan for you. Every year there was a three hour annual review…for another $1000. Then her son, who operated in a fiduciary capacity according to them, did the investing for us…for another $1000 per year. When we moved and left “the firm”, we discovered all the investments we had were in investment vehicles that had hefty charges to leave. In the end it cost us to be with this mother/son duo, rather than making us money. Now we do any investing by ourselves or through the bank. Mostly straight GICs or market linked GICs.

Rosa, I agree that your friends need to clarify what exactly they expect from their financial planner, as well as ask about any other hidden fees. I doubt they will let you handle things though. I’m not sure it’s a good idea for you to do it. If anything goes wrong you could be opening yourself up to a lawsuit.

Personally, I would love to be able to get someone to review our finances and help us make a plan, because we don't have anything set.

When do i apply for social security to our best advantage? Should we keep our retirement funds as they are, etc. Or a guide line/rule to help us know would have been a great boon.

Last time we tried to get such a thing, we went to our bank. The fellow was only interested in selling us securities/mutual funds and not any of the other planning. We passed.

I'd love to find someone to help us get it into perspective. Everyone I've ever found wants lots of money, for a long time, and no concrete "deliverables" so we have muddled on as best we can...

My plan is to pay down debt as quickly as possible. DH's is mostly to make investments in this place which either increase the value or make it easier for us to stay put. We do a little of both. Neither help with the social security question, the investments question, etc. Both do, however, put us in a better position in the long run.

If I suddenly bring in someone DH doesn't know to talk about this, he'll just say "No."

This thread is giving me an idea for a new, useful, business. One time charge for initial consult and advice, then a per-hour fee for future consultation and updates. Keep things simple and inexpensive, help folks, rake in cheese money.

Thanks for the input everyone. While the ultimate decision is up to my friend, at least I feel more comfortable saying that I would not recommend it. An advisor might not be a bad idea for this individual, but surely something more reasonably priced.
RedSpruce: That sounds like a terrible experience. I should clarify that my idea of helping would be to assist in checking interest rates at different institutions, for example, and providing moral support, steering friend towards online resources, etc. I'm not worried about being sued, but my friend is an intelligent adult, and I'm not interested in parenting them so I will tailor any assistance accordingly.
George: That is hilarious!

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Originally Posted by NewGig

When do i apply for social security to our best advantage?

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This free site is great. I used it to make my decision. https://opensocialsecurity.com

I think if someone is as clueless with money as your friend seems to be, a hundred dollars a month would be well spent if they could learn and get on track with help. That's like four 25 dollars a month therapy sessions. Nobody would think that was a ripoff.

It probably isn't much different.

Things like Dave Ramsey are great, Bogleheads, other money sites--but you have to know where to look and spend a lot of time looking and learning and they be willing to implement what you learn. Will the hundred dollars a month get them on track? If they are big earners, that is not much.

Thanks Catherine!

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Originally Posted by bae

This thread is giving me an idea for a new, useful, business. One time charge for initial consult and advice, then a per-hour fee for future consultation and updates. Keep things simple and inexpensive, help folks, rake in cheese money.

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Already done... called a fee-base financial planner. I contacted one over 10 years ago for less than $100. I suppose it depends how organized a person is with their finances or if they have lots of work to do to figure out where they stand to determine the fee charged? I found out we were underinsured and was told I didn't need help managing our money and was realistic in plans to retire. It was so reassuring to have someone else eyeball our finances and agree with our assessment.

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Originally Posted by bae

I generally think most financial advisors are a waste of time and money if you have normal finances, as they seem to deliver cookbook approaches that you could do yourself with an hour of Google learning, and I think it is important to at least have a baseline level of understanding of your own finances.

That said, some people can’t for various reasons do it themselves, so for them, maybe it’s helpful. $1200/year still seems to me a bit high - I can’t imagine the job described takes very long, and $1200 for on-call services for such simple tasks is silly.

For reference, I keep a sizable (7-8 figure) sum under active management with a reputable firm, and they charge me 0.5% per year of the portfolio value, and no fees. They also happily provide the sort of baseline financial advice and assistance for free, but Schwab does that too for me, also for free.

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That fee management of .05% jives with what I know from friends. It must be the industry standard.

Those who have 7 -8 figures in brokerage accounts are charged .05% while we lesser mortals pay 1%. I’m pretty sure that if DH and I put all of our investments into one brokerage account it isnt enough to beat a 1% fee.

One of my friends who handles millions through her family trust and who has a crap ton of money herself, stepped in to help our other money-clueless friend who has multi-millions. She bitch-slapped the manager of our clueless friend’s money, and rightly so. One thing the guy had done is buy a large parcel of of farmland/woods in clueless-friend’s name, and he regularly went hunting on that land with his buddies. Hmmmm….He was also charging more than the standard .05%. He was fired post haste.

That reminds me of Johnny Cash’s business manager who bought a lovely country retreat in Cash’s name and used it regularly. Cash didnt know about this real estate until the underhanded shenanigans of his business manager were revealed.

There really is no substitute cor monitoring your own finances.

I know of an author whose companion/caretaker "acquired" the rights to all her books, a healthy backstock of industry standards, reprinted again and again. This person died and the property was discovered in her will/estate. That was challenged of course and the rights were given back to the author, in their 80s at the time. That took time/$, an auction was held to raise money to aid in the effort.

Also, there was library director in a small town, who lived on a boat. When he died, the town discovered that it owned a boat...

JD Roth says "Nobody cares more about your money than you do." I agree that's the way it should be.

My mother's new conservator is getting 1 percent of her assets annually. Not just the invested ones, but real estate, too.