Does anyone here use a financial adviser?

[ozzy]

A women I work with told me she was meeting with her "financial adviser" today.  That got me thinking.  Another reason why I love the PP is I don't need one.

Question - do any of you use the services of a financial adviser? And if so, what for?

Thanks.

[Alanw]

A women I work with told me she was meeting with her "financial adviser" today.  That got me thinking.  Another reason why I love the PP is I don't need one.

Question - do any of you use the services of a financial adviser? And if so, what for?

Thanks.

I have written previously on this forum about my experience with "financial advisors".  Your post was quite timely as I just concluded a meeting with a retired lady in my community who requested my financial advice.  She was quite knowledgeable and understood everything I told her about the Permanent Portfolio.  I gave her a copy of Fail Safe Investing and directed her to the Crawling Road web site to check out the historical returns and the FAQ section.  I also told her it would probably be a good idea to purchase the new book that was coming out in October.

Now back to the "financial advisor".  She had requested and brought with her a Merrill Lynch statement her advisor had prepared.  I was astounded at the 57 pages that neither of us could understand nor could we comprehend the fees that she thought were too high.  I never could find what she was paying in fees.  Even more remarkable was the fact that the "financial advisor" had her in a total of 83 individual stocks and mutual funds.  To say that she was over diversified would be an understatement.  My advice was that she immediately switch brokers, then decide about the PP or some other kind of simpler allocation.  I'm sure this kind of thing goes on all the time as the "financial advisors" put their clients in so many investments, then explain that this is the best way for them to make larger returns.  They seem to make the client feel that they cannot live without their advice and that the investment world is so complicated and foreboding that they would be lost without them.

Just my latest "financial advisor" story.

[Greg]

To me at least a financial adviser and you will always have a fundamental difference in what to do. You could also call it a distributive negotiation technique where there are only so many eggs on the table and you grab as many as you can. The adviser in my mind cares to a certain extent about you and that your investments do well but cares more about whether they do good or bad, do they make money.

That's why at least for myself, I'd certainly be against relying on someone else as a financial adviser and feel I should learn it myself. I do however feel as though a financial planner can be very useful. They might help to show you various ways to better manage your money or investing ideas you haven't heard of but aren't on a commission. Just my thoughts at least.

[rhymenocerous]

For me, it was very telling to learn how most financial advisers spend their day.  I used to think that they spent all their time pouring over 10-Ks, having conference calls with a company's management, etc so that they could best advise their clients what they thought was going to happen in the market.  It was such a surprise to me that this was not their role at all.  Most advisers just spend their day trying to find new business to bring under management so they can push a restricted set of products sold by their company.  There's no serious thought or research into what is happening with particular companies or sectors at all.

[smurff]

For me, it was very telling to learn how most financial advisers spend their day.  I used to think that they spent all their time pouring over 10-Ks, having conference calls with a company's management, etc so that they could best advise their clients what they thought was going to happen in the market.  It was such a surprise to me that this was not their role at all.  Most advisers just spend their day trying to find new business to bring under management so they can push a restricted set of products sold by their company.  There's no serious thought or research into what is happening with particular companies or sectors at all.

This is especially true of those who work for banks--actually, who work for the insurance/brokerage divisions of the financial services firms we used to call "banks."  All the decisions about what products to push and which financial situation qualifies for specific asset allocations and products in their stable have already been made. They are salesmen/saleswomen more than anything else.

[EdwardjK]

By way of background, I am a Certified Public Accountant (CPA) and a Certified Financial Planner (CFP).  Over the past three years I have met about a dozen different "financial planners" to ask their advice.  Never did I disclose my credentials.  Those that I met included many big name firms, and some smaller boutique firms.

In my opinion, all of these financial planners are only interested in generating a fee based upon the value of assets being managed for you.  They will create a detailed summary of your portfolio, present some fancy graphs, use some technical terms, and then give you an inkling of how they will invest your portfolio; allegedly in-line with your goals.  And some of the firms wanted me to sign a contract to lock me in for a minimum period of time.

Inevitably, all of them said they would use primarily index funds.  When I commented that I could use index funds just as well as they can, some said they had an "economist" on staff who was constantly evaluating the markets in order to re-allocate your portfolio across the index funds.

After listening to all their pitches, I came away firmly believing that most people can manage their own portfolio, if they took the time to learn basic financial planning.  Maybe not everyone, but certainly most people can be successful if they constantly educate themselves on financial plannning and exercise good discipline.  And discipline is the key to success.

I have only 5% of my portfolio invested using the "permanent portfolio" concept.  The low percent is due to the fact that I learned of the permanent portfolio only about three years ago when one of the financial planners that I met suggested that I invest in the Permanenet Portfolio mutual fund.  While researching the fund, I learned of Harry Browne.  Last year I made my investment in the permanent portfolio using index funds.  I may invest more once I retire in the next year or so.

In conclusion, I believe most people can be successful in managing their portfolio - if they take the time to constantly educate themselves , exercise good judgement and discipline.  I believe using the permanent portfolio can be part of anyones portfolio.  Whether it will be a major part of mine remains to be seen.

[Alanw]

By way of background, I am a Certified Public Accountant (CPA) and a Certified Financial Planner (CFP).  Over the past three years I have met about a dozen different "financial planners" to ask their advice.  Never did I disclose my credentials.  Those that I met included many big name firms, and some smaller boutique firms.

In my opinion, all of these financial planners are only interested in generating a fee based upon the value of assets being managed for you.  They will create a detailed summary of your portfolio, present some fancy graphs, use some technical terms, and then give you an inkling of how they will invest your portfolio; allegedly in-line with your goals.  And some of the firms wanted me to sign a contract to lock me in for a minimum period of time.

Inevitably, all of them said they would use primarily index funds.  When I commented that I could use index funds just as well as they can, some said they had an "economist" on staff who was constantly evaluating the markets in order to re-allocate your portfolio across the index funds.

After listening to all their pitches, I came away firmly believing that most people can manage their own portfolio, if they took the time to learn basic financial planning.  Maybe not everyone, but certainly most people can be successful if they constantly educate themselves on financial plannning and exercise good discipline.  And discipline is the key to success.

I have only 5% of my portfolio invested using the "permanent portfolio" concept.  The low percent is due to the fact that I learned of the permanent portfolio only about three years ago when one of the financial planners that I met suggested that I invest in the Permanenet Portfolio mutual fund.  While researching the fund, I learned of Harry Browne.  Last year I made my investment in the permanent portfolio using index funds.  I may invest more once I retire in the next year or so.

In conclusion, I believe most people can be successful in managing their portfolio - if they take the time to constantly educate themselves , exercise good judgement and discipline.  I believe using the permanent portfolio can be part of anyones portfolio.  Whether it will be a major part of mine remains to be seen.

I would be interested to learn what investment concepts you feel would be better than the PP when it comes to safety, returns and volatility.

As far as the financial planners you visited, it sounds like a case of "My snake oil is better than their snake oil".

[EdwardjK]

Alanw,

I failed to comment that, while I am a Certified Financial Planner, I do not hold myself out as such.  Obtaining the designation was a matter of personal interest and a desire to improve my financial skills.  I am fast approaching 25 years in the telecom industry and have never developed a financial plan for other than myself.

To answer your question, I have not found any other investment concept that is superior to the permanent portfolio.  But I personally am not ready to embrace it with anywhere near 100% of my portfolio.  Since I only learned of the permanent portfolio in the past three years, my entire wealth has been generated by investment options within my company's 401(k) plan - meaning traditional asset allocation (large cap, small cap, international, emerging markets, etc.).

If I am hesitant to fully embrace the permanent porfolio concept, it is because of the potential effects of artificial interference in the marketplace.  I do not believe the permanent portfolio has had to deal with level of bank bailouts, country bailouts and the recent actions of central banks like we are living with today.  Over the past four years the permanent portfolio has performed well, and I hope it continues.  If it does then my confidence in it will grow as will the amount of my portfolio that I will invest in it.

[Pointedstick]

I believe using the permanent portfolio can be part of anyones portfolio.  Whether it will be a major part of mine remains to be seen.

I highly recommend this thread, and all the graphs in it: http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9

It's not hard to build a portfolio that beats the PP's return. What's hard to do is build one that even matches its return for its low level of volatility. I used to think stock index funds were the way to go for me because of course I was rational enough to stick with it even when the market falls … until I actually did it and found that I was trading in and out to try to moderate the swings. I will totally admit that I lacked the willpower to stick with it. But what I love about the PP is that it doesn't force me to attempt to (and perhaps fail to) exceed my current level of willpower. And I think those willpower requirements would only increase with my wealth as I accumulated more and more that I didn't want to lose. If I was smart, I'd eventually swap most of the stocks out for bonds and… oh wait, the PP beats that with even less volatility!

http://www.riskcog.com/portfolio-theme2.jsp#5740lbg

[hoost]

I failed to comment that, while I am a Certified Financial Planner, I do not hold myself out as such.  Obtaining the designation was a matter of personal interest and a desire to improve my financial skills.  I am fast approaching 25 years in the telecom industry and have never developed a financial plan for other than myself.

EdwardjK,

How did you go about getting the CFP designation?  It's something I've been interested in doing, but isn't there a requirement for 4 years of practice before you can attain the designation?  Also, how did you meet the education requirement?

[PP67]

Great discussions!...

EdwardjK,

I was wondering based on your observation regarding the level of bank bailouts, country bailouts and the recent actions of central banks, where do you feel safe keeping the remaining 96% of your investments that are not in the PP?  These are precisely all the things (and 2008) that drove me to seriously considering getting into a PP...

[MediumTex]

If I am hesitant to fully embrace the permanent porfolio concept, it is because of the potential effects of artificial interference in the marketplace.  I do not believe the permanent portfolio has had to deal with level of bank bailouts, country bailouts and the recent actions of central banks like we are living with today.  Over the past four years the permanent portfolio has performed well, and I hope it continues.  If it does then my confidence in it will grow as will the amount of my portfolio that I will invest in it.

I'm not following this line of thinking.

You seem to be saying that the PP has never had to deal with a certain set of conditions, but then you say that the PP has been dealing with these conditions for the past 4 years.

If anything, I would say that the conditions you are describing are the conditions under which the PP performs best--i.e., lots of volatility against a backdrop of uncertainty and fear.

The question that always looms in my mind is if the PP isn't well positioned to deal with something, what strategy is?

[dualstow]

Even Harry Browne said that financial advisors can provide some benefit (This was on one of the Money Talk episodes), though I cannot imagine what that benefit is. As soon as I had control of my own investments, I dropped my advisors and moved everything to Vanguard and eventually bogleheaded over here.

[Greg]

Even Harry Browne said that financial advisors can provide some benefit (This was on one of the Money Talk episodes), though I cannot imagine what that benefit is. As soon as I had control of my own investments, I dropped my advisors and moved everything to Vanguard and eventually bogleheaded over here.

I realize this is a bit of a tangent but it has something to do with what you said dualstow.

I'm wondering how many people came over to the PP-side through Bogleheads. I did it and it just seems like a natural transition. Like a seed slowly growing into a flower.

[LifestyleFreedom]

Question - do any of you use the services of a financial adviser? And if so, what for?

Diversification.

About 60 percent of my financial assets are managed through a financial adviser and his choice of money managers (we discuss the money managers to use beforehand).  The fees are steep and I've had plenty of opportunities to either manage my financial assets myself or change over to a less expensive alternative.  Yet I continue to stay with this approach for a significant part of my financial assets.

I pay someone to change my oil, for example, even though I could do it myself a lot less expensively.  I also purchase my laundry detergent, even though I could make it myself for only 10 percent of what it costs to buy it in a store (http://www.moneytalksnews.com/2012/05/1 ... n-laundry/).

Less than 2 percent of my financial assets are in the Permanent Portfolio and even they are in PRPFX (which means technically they are managed, although I rather than my financial adviser is the person who has selected the asset manager).  I'll probably move more assets to the Permanent Portfolio in the coming years and I may even manage it myself.  But that is a decision I will make at a later time.  I look forward to reading The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy when it is published later this year to expand my understanding of the Permanent Portfolio approach.

I commend people who change their own oil, make their own laundry detergent, or manage their own Permanent Portfolio.  We all make our own lifestyle choices.

[EdwardjK]

OK, a few replies are in order here:

Hoost:  I obtained the CFP designation after passing a 1.5 day exam administered by the Board of Certified Financial Planners.  To prepare for the exam, I completed a two-year training program provided by a university here in NJ.  We met one day a week for three hours every week for two years.  At the time, the University provided five courses (which I understand have since been reduced to four) Using the HP-12C calculator to correctly calculate various returns, cost of capital, etc.; insurance analysis; investment analysis; tax planning; and retirement planning.

My prior education helped me pass the exam.  I completed the education requirements to take the CPA exam while in graduate school and also earned an MBA with a specialty in Taxation.  In this respect, I had a great advantage with my fellow CFP peers, who came out of the banking industry for the most part. 

Lastly, my CPA license and the fact that I do tax work on the side fulfilled the experience requirements for the CFP designation.

***********

PP6:  At this time I do not feel safe putting my portfolio in any particular investment.  I believe I am fairly well diversified across the traditional asset classes.  If I learned of the Permanent Portfolio 10 or more years ago, then I probably would be saying something different.  My reluctance with the PP at this time is based primarily on experience.  I made my first investment in the PP in September, 2011 so I now have 9 months of real-time experience with it.  For me, personally, that is not enough time to make a larger commitment.  Yes, I have seen all the backtesting of the PP but real-time experience matters more to me.  Clearly, others may feel differently.

***********

MediumTex:  Yo, yo doag!  Whilst I agree that the PP appears to have performed well over the last 30 years, and over the last 4, I just need more confirmation.  Maybe it genetic.  I blame my father for that because he took forever to make a decision as well. 

I absolutely agree with you that the PP appears to perform best in periods of uncertainty and volatility.  And if now isn't a period of uncertainty then we will never see one.  Again, my reluctance is more a personal issue than anything else.

***********

I hope I have addressed everyone's questions.  Great discussion, thank you.

[MediumTex]

Whilst I agree that the PP appears to have performed well over the last 30 years, and over the last 4, I just need more confirmation.

I understand how you're feeling.

It's probably not that 30 years of performance is not enough for you.  You probably just need more time to build your own personal comfort level with it.

FWIW, though, the backtesting period over which the PP has maintained its steady 4-4.5% inflation adjusted returns has been more like 40 years.

I don't know if that extra 10 years of backtesting results helps you or not.

I suspect that if there were 250 years of backtesting data showing that the PP worked, it would still take you time to embrace it if its structure was not consistent with your own preconceived notions of what an investment strategy is supposed to look like.

I remember the first time I read about the PP.  I thought to myself "Whoa, there's no way I could ever do that.  That doesn't even make any sense."

[steve]

I remember the first time I read about the PP.  I thought to myself "Whoa, there's no way I could ever do that.  That doesn't even make any sense."

The first time I read about the PP it made perfect sense and I knew I wanted to do it, the only thing that slowed me down was that I still looked at assests in isolation and wanted to time my way in. I'm glad I got over that.

[gap]

Financial Planners have a much broader role to play than just suggesting a portfolio. If all you want is a portfolio adviser/manager the PP is is in the top 1% and you probably do not need anything more. However if you want to plan for some of the other contingencies in life childrens education, marriage, divorce, gift-giving, estate management etc. a good financial planner is useful. S/he can guide you through the maze of estate taxes, ILITs, QPRTs and other trusts, avoiding probate etc. Using a good financial planner  together with an estate lawyer is valuable for these aspects. So financial planners have their role, but for help doing your investing this forum is as good as any(if not better) for that

[AdamA]

Whilst I agree that the PP appears to have performed well over the last 30 years, and over the last 4, I just need more confirmation. 

Another thing to think about is how you'd feel holding a more traditional portfolio now that you're aware of the PP.

Wouldn't you worry about vulnerability to inflation (no gold), or bank defaults (no gold, no treasury bills/bonds), or even currency collapse?

Prior to the PP I had spent so much time fretting over various extreme econmic conditions that when I discovered it, it made perfect sense.  I would feel very uneasy if I didn't hold one of the assets offered by the PP. 

If it's really hard for you to get started, maybe you could just buy a small amount (5-10%) of gold and LTT's and see how you feel.  At the very least it will make a more traditional portfolio much less volatile.

[dualstow]

I should mention that my new accountant, who is also a friend, does give helpful advice on tax strategies, updates in the tax code, etc.
I don't pay extra for this info; he mentions things at lunch.

[LifestyleFreedom]

Financial Planners have a much broader role to play than just suggesting a portfolio.

I agree with this notion.  Over the years, my financial adviser has steered me in the right direction as my net worth has grown and kept me out of trouble when I wanted to stray (I use him as a sounding board for ideas I pick up from the financial media).

When I first started investing 20 years ago, he put me in some mutual funds.  That doesn't sound like much today, but it was a major step forward for me back then because I had no experience with investing.  Today, I do a lot of self-directed investing, but that's because of all the things I've learned over the years.  I have the confidence to pull the trigger myself in some areas.

But I still depend on him for 60 percent of my portfolio.  I don't have the time to do everything myself.  He also has many other clients (most of whom are wealthier than I am) and has access to wealth-related resources I know little about.  If I ever need services such as estate planning or asset protection, for example, I'm sure he can refer me to a team of reputable specialists that he and his other clients use.

The Permanent Portfolio works, but to have it work well, one has to have the discipline to follow the rules.  Buy the four asset classes initially no matter what they are selling for, and rebalance the portfolio when necessary no matter what the asset classes are selling for.  This is easier said than done for many people.  A good financial adviser can help one stay on track and follow their investment plan.

[Pointedstick]

The Permanent Portfolio works, but to have it work well, one has to have the discipline to follow the rules.  Buy the four asset classes initially no matter what they are selling for, and rebalance the portfolio when necessary no matter what the asset classes are selling for.  This is easier said than done for many people.  A good financial adviser can help one stay on track and follow their investment plan.

Isn't this true of any other portfolio as well? If you're a buy-and-hold stock investor, for example, you have to have the discipline to continue buying those stock funds and not sell everything in a panic when the market craters. Seems to me, no matter what your asset allocation, you always need to at least stick to your plan or else there's no real point. What I love about the PP is that the low overall volatility makes it easy for me to stick with the plan, even if the individual assets are going crazy. That's actually the point, they're supposed to! 

[Ad Orientem]

Question - do any of you use the services of a financial adviser? And if so, what for?

Thanks.

I have two and I enthusiastically recommend them both. Their names are Jack Bogle and Harry Browne.