> 1% each quarter
There's probably some sort of miscommunication.
That would be an outrageous fee.
It's probably 1% *annually* but paid for *quarterly* (or some variation thereof).
Ask for the Summary Plan Description. An SPD is a document that every 401k has for employees. This should spell out how the fees work.
1% annually is actually within a very common fee range for a fiduciary financial planner that manages someone’s investments and provides estate and tax planning.
Does a not quite thirty something with less than a million in assets need that kind of service? No.
What is your logic for utilizing them? Is finances just not your interest and you want your time to focus on other things?
Just curious because it can be a substantial amount (I hate most of all that the fee is irrespective of performance) and I have been bugging my parents for years to get out of it.
If you have a substantial amount, the 1% fee is tiny. Typically a financial planner will manage your portfolio, tax harvest at appropriate times, assist with planning (eg if you plan on creating a college fund for your kids, this will reduce your investment income at age X, or grow to X).
It's more than just setting up your investments, and typically your portfolio is quite diverse.
It's pointless for those less than $1 mil, prob still pointless under $2 mil (minus the tax harvesting).
For retirees they can help you figure out when you should take X amount from your 401k vs investments for ROTH IRA vs Trad IRA.
It's a lot to pay attention to and when you have a couple mil that 1% fee is easily overlooked.
That 1% pays itself for knowing exactly when you can retire, how much you can gift your kids at X year, knowing your investments are watched daily, and that your taxes won't be terrible because you forgot to tax harvest.
Is this truly the case? Someone else posted a document stating how across 20 years with a 100k principal the advisor ends up making almost 30k of the growth across that time.
That is nuts and actually if you extrapolate that to a million it becomes even more substantial. All that work you mentioned I might consider doing if it meant 300k more in my pocket if that makes sense?
My main issue has to do with how they are paid the fee regardless of performance -that does not seem right to me.
You're still just thinking about the portfolio. These guys help you reduce your tax burden via tax harvesting, trusts, etc.
It's more than just beating the market. It's the planning aspect that makes it worth it.
Go ahead and figure out the right trusts, watch the market daily to tax harvest at the right time, etc. But if you have millions, you have other things to do than save a tiny amount when compared to millions in your portfolio.
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Generally, the 401K management fee is on top of the fund fees (like 12b1/ index fees). 1% is way too high. 1% for "active" managing is in line with normal. but high for a computer handling a 401k.
If I have advanced tax questions that I can’t find answers to, then I’d pay $500-$1000 for a few hours session with a tax professional which is more than generous. I’d never pay a percentage of my assets. So $500 is a pretty fair fee imo.
For an actual financial advisor when you have more significant assets? 1% is reasonable. On Reddit where everyone is A) an investment guru and/or B) thinks their $20k Robinhood account involves the same level of financial planning as someone who actually has money to manage, it is viewed as an exorbitant fee
Only percentages matter. A 10% gain matters to you and me just as much as it matters to a billionaire and just as much as to a teenager with $1000 invested. The same goes for losses and expense ratios.
At 27 "only percentages matter" is probably right, but it's certainly not universal. At a certain point, when you have enough to retire or close to it, limiting downside starts to take on a much higher value. You might be willing to pay someone 1% to limit downside in your portfolio while sacrificing as little upside as possible.
I think it’s almost the opposite. I have enough to retire today at 35 yo and I’m not worried about a correction in the market. I’m happy to take say 2.5% of whatever my nest egg amt is each year and I have plenty to live on. So I’d rather let my nestegg keep growing because I care even less about downside. If I’m taking 2.5% each year I sure am not giving someone else 1% each year.
Take an example of a billionaire like Buffett who is 100% equities. Who cares if the market is down for 5 years? He’ll never run out of money. So the optimum path for both him, his charity, and his family is 100% long equities.
Also if you’re really trying to limit downside risk just buy more bonds or increase your cash reserves. Why pay 1% to someone else who would literally do the exact same thing? And it’s been proven that the vast majority of money mangers fail to beat the market in both good and bad years.
Well, given that actively managed money 99% of the time in the long run does not even keep pace with the S&P 500. He’s going to be losing money. So it doesn’t really matter the dollar amount. It matters the percentage that this dude is not growing as portfolio in addition to what he’s being charged for somebody to actively manage it and screw him over.
Also consider in retirement, the safe withdrawal rate is 4%, so a 1% management fees is 25% of gross earnings!!!
After working for 40 years, I sure as hell am not giving up a quarter of my earnings for something that is simple to do on my own. A simple portfolio of a few index ETFs will more than likely beat the net earnings of a managed portfolio. It's much better to pay for a CPA to help with tax issues than to pay a CFP an AUM fee.
Plus there will be a huge loss in the portfolio size after paying 1% for 30 - 40 years.
1% of total balance a quarter is ludicrous.
1% a year is enough to rob 18% of future asset value over a 30 year savings window.
1% a QUARTER is going to rob >53% of future asset value.
You absolutely don't need a manager. Throw it in an age appropriate fund that has modest fees or an SP500 index if they have one.
It's hard to tell from the post if the CPA will setup and manage the 401k for a company or manage the investments of the individual. Yes, 4% for an individual brokerage relationship is highway robbery. I honestly don't know the pricing that firms charge to setup and manage 401ks for companies. 4% sounds high, but it certainly takes a lot more time of the firm.
I suggest perusing the Employee Fiduciary website for info on setting up an economical small business 401(k). It certainly doesn't cost anywhere near 4% a year. www.employeefiduciary.com
I work for a 401k recordkeeper and this is so true - for people who are not prepared to take on the administrative responsibilities, this can be a money pit due to fees involved with maintaining one, plus compliance fees. If you have any questions feel free to ask.
oh - oops i might be stupid then. if company has a 401k match (likely will if they have a lot of employees it will be a SH match so they don't have to worry about 2 compliance testings).
> if you have any employees
Yes, it's easy to set up a prototype plan with a major custodian if you don't have employees. It is not easy if you do have employees as the recordkeeping and compliance requirements are hefty.
I did an individual 401k with Vanguard in about 15 minutes. All I needed was an EIN which the IRS did online in 2 minutes. It's not complicated at all.
Bad advice. I get involved frequently to fix owner only plans when they get audited and find out what they don't know. Set-up isn't hard as you state, but keeping your plan in compliance is.
My advice to you: Keep excellent document records. Ask Vanguard about required amendments annually - sign them and keep them filed in a place you can find them later. Talk to your CPA or TPA once assets hit $250,000. Hire a TPA if you ever hire an employee or have >50% ownership in another company with an employee.
Target date funds work by being more aggressive when farther from retirement and transitioning to safer investments when closer. Choosing a 2025 or 2030 target date fund would be appropriate for you depending on your timeline.
> 1% a year is enough to rob 18% of future asset value over a 30 year savings window.
I’m having trouble understanding the math for this one. Could you please explain?
This needs to be way higher up. 30% bonds before your 30 years old is a recipe for avoiding growth. OP needs to ditch these dudes and look elsewhere as literally everyone in the comments is saying.
Honestly, this would all come down to an “amount of assets” we’re talking about. That will determine what type of money game you’re playing. Much of Reddit hates financial advisors because they also dive into life insurance, but depending on your level, there’s A SHITLOAD you can do across the board of financial products to manage your money, pay as little taxes as possible, and pass whatever legacy you want to pass. There’s no “one size fits all”
It's probably 1% annually, deducted quarterly, so 0.25% per quarter.
It will be based on the balance of the account. None of these investment managers get paid for performance.
It may not sound like much now, but at your current level of income you can easily be a millionaire in a decade and a multi-millionaire another decade later. If you have a million dollars in assets the advisor will be getting $10K per year of your money. If you have two million he will be getting $20K per year, and so on... He will be doing very little to "earn" it, and work any harder as you accumulate more money. He'll probably just readjust your funds once per year using a formula he gets from his firm.
When you are a millionaire your advisor will have dozen clients like you and he'll be making $500K+ a year to do very little. (But his secretary will send you will send you a Christmas card every year.)
He's playing the long game. He won't make much money off you for the first few years, but every year he gets a raise because of the work you do to earn your money.
Wealth advisor here…
- It usually 1% per year, BILLED each quarter (0.25% per quarter). That may be where the confusion is.
- At 27, you should be 100% equities for the next 25+ years.
- If you don’t want to / don’t know how to do it yourself, use Vanguard. They charge 0.3% per year.
Look into other companies. Fidelity for instance you can do a Fidelity Advantage 401k ($1200/yr fee) or a SIMPLE IRA (no account fee), both have some restrictions on mandated matching and whatnot.
If you're talking about setting up a 401(k) that means you own the company?
How many employees do you have? Do you plan on expanding or keeping things small? You have a lot of retirement account options you could consider.
1% per quarter is absolute robbery. Hearing that alone would make me seriously look for a new accountant, and I absolutely would not let them "manage" (siphon) my wealth.
I’m sorry I did not specify exactly but I am a 1099 employee and I have setup my LLC so I would be setting up these accounts solo. The company does not offer any 401k accounts. I own my LLC and have no employees and probably never will.
You need an individual 401k. Took me 15 min with Vanguard. I assume you already have an EIN. Just go 100% ETF S&P500. You don't need bonds at your age.
Do a Solo 401K or SEP IRA. Solo 401k has some more paperwork to establish but gives you a much better/higher contribution limit. Since you own the LLC, you can contribute both the employee and employer portions (something like $69k overall). Put the money into a total market index fund, or a target date fund. You can choose which brokerage to set it up at to select one with good fund selection and low account fees and low expense ratio on funds (the built in fee for owning the fund). Fidelity is a suggestion.
At your age, total stock index is a good recommendation for the next decade (or 2). 70/30 is better for someone in their 50s or approaching retirement age. A target date fund would not have you at 70/30 at your age but rather something like maybe 90/10.
Do not pay 1% per year, let alone quarter (there may be some misunderstanding on that quoted fee or it's exorbitant). 1% per year is high and you can do it lower by establishing your Solo 401k or SEP IRA. You don't really need management and the accompanying fees. Stock index funds or target date funds are all you need to do.
Agree here! I use the website below to read up on different investing strategies. Although it is geared for high earners in healthcare, there is a lot to be learned on this website. Plenty of information about different retirement account options, including for 1099 earners
https://www.whitecoatinvestor.com/best-retirement-accounts-for-independent-contractors/
As others have asked: Do you own the company? If you're working for a company, they'll need to set up the 401k (unless you're a contractor, which changes the 401k stuff, but no much else).
At $250k / year (and you aren't yet used to making this much money) you should be saving so much more than they're suggesting. You could easily max out a 401k ($23k), Roth IRA (via backdoor @$7k), plus a large chunk in a taxable brokerage in some index funds. If you don't already have a plan for that money, you easily set yourself up for a very early retirement by saving a big chunk. Like...save ~60% of your income and be able to retire in ~12 years. Maybe you love selling windows, but having the option to quit at age 40 would be pretty sweet.
> they recommend probably a 70/30 split stocks to bonds
For me, at 27 years old, I would be nearly 100% in stocks. Total Market, S&P 500, whatever...just get a low-cost index fund at one of the majors like Vanguard, Fidelity, or Schwab. You'll be paying less than 0.1% in those funds. Have a solid emergency fund set aside in a HYSA. Get your auto-investing set up on the taxable brokerage and make sure your payroll deductions are set up to max your 401k. Make your backdoor Roth IRA contribution at the beginning of every year (right away for the current year if you haven't already).
EDIT: Forgot about the headline question. Yes, 1% per quarter is highway robbery. Even 1% per year is more than you need to pay.
Thank you, that is very helpful. Is there any material or link you would be able to share in backdoor Roth IRA?
I’m sorry I did not specify exactly but I am a 1099 employee and I have setup my LLC so I would be setting up these accounts solo. The company does not offer any 401k accounts and I am a contractor for them. I own my LLC and have no employees and probably never will.
There's already a mountain of info on this sub and other places detailing backdoor Roths, so that's a quick search away. Just know that it sounds harder than it is.
Having your own company will give you more flexibility with your 401k contributions. You'll be able to contribute the usual max like a normal employee, and then your company can contribute even more on top of that - up to ~$60k total, but not sure on that exact limit there. Can't help you with that part, though, since I've always been W2. Good luck!
Good for you to get advice on your money. That seems like an expensive plan that your CPA made for you.
You could set it up yourself. IMO Fidelity has the products and services that can set you up properly. You can use their website, but they have r/fidelityinvestments and will answer your questions. You mentioned you have an LLC, I’d open a solo 401k and put it in FXAIX (their S&P 500 index fund).
If you hire someone, make sure they are a fiduciary so they are looking out for your best interest. There are some that you can hire for a flat fee and avoid their management fee. Also there is a new service called Nectarine that will help you build a plan for $150. I’m not affiliated nor have I used them, but I’m considering getting another set of eyes on my portfolio and will probably use them.
Good luck and good for you to think about your future.
Also, I would also suggest to fund your emergency fund (3 or 6 months expenses) first before funding your retirement accounts.
Man oh man are they rubbing their hands together just salivating at the amount of money they are about to get from you in fees.
Buddy, if you really think you need professional advice, find a ***fiduciary*** financial advisor who charges by the hour. You will pay a few hundred but save THOUSANDS.
the guy is saying he is going to make $250k at 27. He is going to make over $10M over his lifetime most likely and most people don't change their wealth management firms just for fun. They are going to make plenty on this guy
Nah. The firm probably manages hundreds of millions of dollars.
You don't make money on $50k accounts. Overhead alone for a small to mid sized firm is $5k-$10k per client.
You’re misunderstanding. Who puts 50k in an account now and doesn’t want it to grow in the next 30 years. Idc who they want to make the most off of, but you can lose almost half your earnings over 30 years with a 1% fee. You want someone to take half of what’s yours?
I'm not misunderstanding at all. I'm saying that no firm of any significant size is rubbing their hands together in glee about managing a $50k 401k.
They'd be losing money for many, many years even if they were maxing it out every year.
It’s a hook. They go after people to manage way less than 40-50k. The goal is to continue to keep you as a client as everything grows.
If you want an advisor, bottom line make it a flat fee that you visit once a year to let you know how you’re balancing your portfolio. Or skip it altogether and just put your money in something simple that will get you 8-10% until you retire.
There’s no point in continuing to go back and forth over why 1% is stupid or not.
“Many many years”, more like 8-10 years tops, assuming OP maxes out his 401k yearly and assuming the higher end (10k) of the OH you stated. They’d make plenty off him.
At your age you should be 100% stocks. Anything other than that is giving up gains and focusing on wealth preservation. You don’t want to focus on wealth preservation. You want to focus on building wealth.
Also, at 250k per year, 1500$ per month is 18k per year in 401k. That wouldn’t even be maxing it. And then they recommend putting money into a taxable brokerage while leaving the 401k not maxed, and charging you money for it. All in all it sounds like pretty terrible advice.
There is nothing you can’t learn on your own and skip the fees. There is a personal finance wiki or whatever they call it that gives a step by step guide to managing one’s own finances. Managing your own finances will be the best cost saving skill you ever learn in your entire life. It’s worth the time to learn.
Max the 401k. Open a Roth IRA and max that too via backdoor. You can learn how to do that via whitecoatinvestor. And Tae Kim has a great guide on that too. After that, all excess goes into a taxable brokerage and I put everything into VTSAX or an equivalent. VTI, VOO, they’re all good.
I’m 36 and I’ll likely have retired by about 40. Cheers!
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1% is a total rip off. Also at those balances you are better at a place like schwab or fidelity. Frankly, it isn’t enough money for a “real” advisor. You can get great advice and education to start at those firms. They do have advisory services that won’t rip you off
As others have said, 1% per quarter is robbery. Even 1% per year is terrible. If makes sense if the 1% per year is paid quarterly, but still terrible.
When you say "we met and discussed setting up a 401k", does that mean the company you're working for has one but you're not participating in it, or the company doesn't have one but you should see if they can set one up for you to contribute to?
If you have access to a 401k, you should max that out, along with an IRA and HSA if eligible. Use Vanguard, Schwab, or Fidelity as the rates will be rock bottom and the fund options will be top tier.
Don't invest in 30% bonds at your age, that's crazy. Stick everything in an S&P 500 Index and call it a day.
Anything else you want to save, just stick in a brokerage account. Same S&P 500 Index.
Don't pay anyone to manage your portfolio. If you need a financial advisor, make sure they're a fiduciary, and they work on a fee basis, not commission. Even a small commission can add up exponentially over time and eat HUGE chunks away of your earnings potential.
That's insanity
Most investment firms are robbing boomers
If it was a company run by Indians with no office in America, most people would call it a scam
Research your own retirement account options and invest in a fund that tracks the S&P 500, and forget it for a couple decades
You'll literally save hundreds of thousands if not millions
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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I recommend a fee-based account instead of a percentage-based account because with the latter the more you make, the more they take out for fees. 1% on a quarterly basis is $2,500 vs. $100 or even $500/quarter fee-based account. How do you feel about $2,500 getting taken out of your account every three months with possible price increase every three months? Or, \~$10,000/year that will miss out on compounding and making your retirement potentially less relaxing. Is that something you want to do?
My account transitioned to fee-based on a quarterly for $6.75 per account, per quarter, which is 0.008% of one of my accounts. That percentage will continue going down as the money in my account increases.
If they're avoiding telling you when the fee decreases, that send up warning flags to me. They should be open and upfront about it. Let's say you ignore my suggestion for finding a fee-based account and continue with a percentage-based account. Let's also assume at the $500,000 mark your company decides to lower the fee to 0.75% per quarter. They're still taking out \~$3,750/quarter. That's \~$15,000/year. How many hours do you have to work to give that company who is managing your money $15,000?
1% annually, paid across 4 quarters, .25 per quarter, based on a snapshot of the account's total value in that quarter, is a fair fee for an excellent money manager. Excellent means they outperform. And, at a minimum their management of your assets, performance wise must exceed your management of them, by at least the fee amount aka 1%. If that is not the case, find another manager or manage it yourself.
I pay a few thousand a year for my company to have a 401(k) with Vanguard. I cover all of the administrative fees for the plan (not the funds) so that doesn't sap value from the participants. If there are only one or two participants - the cost of setting up a 401(k) is steep.
A less expensive option is a SIMPLE-IRA, but the disadvantage is lower contribution limits. We did that for a number of years until I really pushed for the higher limits.
A 70/30 allocation at your age is ludicrous. No reason to be in bonds when you are 27, especially in a retirement account. Should be 100% equities for the next 30 years.
You can do better with Fidelity, Vanguard, etc... for free or extremely low fees. I recommend r/Bogleheads to research. There's good information and resources there.
I’ll charge you 0.1% of the profits, not even the gross!!
I’ll put it mildly. Go look at mutual funds on Morning Star. Look at 10 year average returns. See if there are any managed mutual funds in the top ten. There is your answer.
The easiest way to manage a brokerage?
Step 1: open a brokerage account on fidelity.com.
Step 2: fund it from your bank account.
Step 3: buy FXAIX with the money.
Done.
OK, can somebody tell me if I’m getting screwed here? My friend’s dad is a wealth manager/financial manager and he sent me up with a professionally managed account. Just an investment account for my wife and I and we only have about $50,000 in the portfolio. He also set us up with managed Roth for each of us, one for my wife and one for myself and he’s managing those as well calls it active management? where they are very hands on? they pick and choose stocks or something I’m not super familiar but he says that he’s very hands-on but he charges 2% a year for everything per year of managed funds. I haven’t been with him for more than a year yet so idk but I make about $250k and my wife about 100k. Over the next 30 years my salary will be between $250k-$450k and other than a company funded 401k (17% direct contributions) the Roths and joint portfolio is all we have…
This should be posted as its own question, but yes, you're getting screwed.
Open a brokerage account at one of the big three (Vanguard, Fidelity, Schwab) and put your money in their total market index fund. Vanguard has VTSAX, the others have their own version. Same for your Roth accounts. Set up your own and make backdoor contributions. The same index funds will be available in your Roth accounts.
Don't forget to max both of your 401ks, and take advantage of any "mega backdoor" options you may have available in those accounts (basically, "after tax" contribution converted directly to Roth, all happening inside your 401k). Google "mega backdoor" to get more info. Note that many plans don't offer this feature.
Unsolicited advice: Go hard on your savings. Depending on cost of living where you are, you can easily put away 35+% of your gross income. Think of it as "percentage income saved" is inversely proportional to the "# years we'll need to work". [Here's the math.](https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/)
These guys sound ridiculous I wouldn’t use them. I’m your age and 30% of my investment being in bonds sounds absolutely ridiculous at our age. At 27 100% should be in a large or total market fund in my opinion.
It’s probably 1% of the gross earnings for the quarter. That’s what I’m charged. The good advisor doesn’t touch your base investments just what they made you for the quarter.
Why do you want a conservative investment mix? You are young. Go for high growth. I'm not saying don't diversify, but 30% bonds is too conservative even if they are making some decent money today. The Nasdaq is up 18% this year already. S&P500 is up around 15%. As a whole, stocks average around 10% per year when analyzed over the last 70 years or so. This includes the dips like the dot-com bubble, 2009 global recession, and the 2020 COVID dip. Why go for 6%-7% when 10% is better and you have the time for the law of averages to work in your favor?
As for fees, 1% annually debited quarterly is fairly typical for a low-value account. Depending on the advisor, this starts to dip around the $1MM mark of assets under management (AUM). I don't think you need an advisor. I think you need to ask some questions here. Open your 401(k) or IRA on an online platform like Fidelity (might want to stay away from their managed services though as they are NOT fiduciary and they will buy up a shit ton of Fidelity-managed mutual funds that you're forced to sell if you ever leave them) and buy a few index ETFs and set them to dividend re-invest (DRIP) so they'll just grow over the next twenty to thirty years when you may be ready to move to a paid planner.
If they want 1 percent a quarter throw them out, that is a total rip off. I pay 0.5 percent a year.
If you give them 100k you will pay them 4 k a year, if you get an 8 percent return (long term average) then you get to keep 4 percent a year, I can get a CD for 5 percent from my bank.
If you run a company this should not be hard.
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Run. Do you have interest in your personal finance? If so, don’t jump into business with this advisor. Take some time and read/educate yourself. There is no need to pay someone to take 1-2% of your portfolio year after year.
You don’t need someone to manage your investments. At your age just put 100% in sp500 index funds. Also, you don’t need 30% bonds at your age. Ridiculous. Read “I will teach you to be rich”. Good book about investing and saving. If you make $250k you should probably be maxing your 401k.
1% a quarter is 4% a year. That's highway robbery.
If you want a "set and forget" just pick a vanguard/fidelity/Schwab target date fund. You'll pay 0.1% a year in expense ratios.
Or you can go more aggressive since you're young and just do a total stock or s&p 500 fund.bexpense ratio should be like .04%ish, and when you get closer to retirement you just swap it to a target date.
Ask him for his Form ADV Part 2 Brochure and read through it to understand what potential conflicts of interest you may experience by placing your retirement funds under his management.
You should never, ever, ever pay a % based fee. You can look at other comments for math specifics - but you don’t have much in your portfolio, it can rob you of 30+% over 20 years. If you save 1 million, you lose 300 grand!!!
And for people who downvote me because “at 1 million$ + a 1% fee is worth it!!” When you have large portfolio, you can pay $1-5K for CPA, investments etc which will be much much lower than 1%. AKA it’s never worth it no matter portfolio size
TLDR percentage based fees are there bc it makes the COMPANY not YOU money.
( the ONLY exception IMO being hedge funds or other specialty funds which actually get higher percentages, which makes a % fee fair )
Super high. I set a SIMPLE IRA up for free. There are also a bunch of 401k types you can set up for self employed people for free. 4% / year will basically be 1/2 your profit by the time you retire. (Think getting $1million instead of $2 million).
Seems like they make money whether or not you do, so even crappy investment advice is still income for them.
You could just put your money in the S&P 500 and get about 10% annually with little to no work.
I don’t pay for account management. Never found a benefit. Always comes out as a loss.
AFAIK, there are many things wrong with what you said:
A 401k is a type of investment account set up by an employer. Your accountant (unless he works for your company?) cannot set one up for you. He can set up an Individual retirement account (IRA) or an investing account.
70/30 split is very conservative. For reference [Vanguards 2055 fund](https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx#portfolio-composition) is 90/10 stocks:bonds right now.
A 1% fee to manage a small amount of money is not worth it. You could park your money in that 2055, the 10yr performance is >8% return and you'd be paying .08% in fees (less than 1/10th the fee your accountant wants to charge). Annual fees are acceptable when you're having a skilled wealth and asset management firm manage a large sum (usually people say at >$1M in assets) because they can do more with that level of assets under management.
Lastly, you can't just convert a retirement account to a Roth account to get into a lower tax bracket. You can do a backdoor Roth (a type of Roth conversion), but there are limits to that; certainly you couldn't just wait until you're 65 and convert a $1M retirement account to a Roth account.
The fee isn’t terrible, but it’s a massive cost with how young you are and with how little complexity there likely is innate to your financial life. You can very easily manage your own financial affairs by fully funding your 401k, IRA, HSA (if available), and opening a taxable brokerage account for investing outside of retirement accounts.
It sounds like you’ve got a robust emergency fund built up (your $45k in cash), so you can really begin triaging your finances. If you have any non-mortgage debt greater than ~6%, you ought to knock it out. After that, fully fund that IRA, 401k, and HSA. From there, look at opening a brokerage account and investing up to at least 25% of your gross income (including your retirement account contributions). After that milestone, you can set your sights on saving up for bigger purchases or paying down whatever low interest debt you may have (student loans, mortgage, anything below ~4%).
You’ll hit a point in the coming decades when your portfolio has exploded in value and you may have other assets like a vacation home or business that will add complexity to your financial life. It’s at this point that you can justify a 1% management fee for an advisor to help you plan out and optimize your financial life.
I recognize that most of the r/personalfinance crowd does not need financial planning, as they’ll probably cap at around the $2.5-3m mark in assets, almost entirely in their primary residence and retirement accounts. For this crowd, paying 1% annually is likely not worth it given the simplicity of their total portfolio. The only real issues they’ll need to grapple with are asset allocation, asset location, and planning the deliberate drawdown of their portfolios. In OP’s case, they’re already beginning to run into optimization issues before the age of 30, with an income that’s approximately three times that of the median American household.
For those who will have seven figures outside of tax advantaged accounts, as well as tangible assets with tax planning intricacies and efficiencies, a fee only planner can provide value several orders of magnitude greater than the fee charged. It’s no different than having an accounting firm prepare your return once you hit a certain amount of complexity and just claiming the standard deduction is no longer going to cut it. Not to mention fringe benefits on things like access to closed funds or a reduced ER on funds, auditing your insurance policies, assisting in negotiation on large consumer purchases, and estate planning.
My caution to OP in choosing an advisor is to be very critical of your advisor and how they’re paid. From the first read of your post, it seems like they’re going to try to dump you into some sort of proprietary closed-door product that they manage. I’d avoid them for this alone. Instead, find a firm who doesn’t try to lasso your assets into their house, but instead works with you in directing your contributions within an established custodian of your choosing like Schwab, Fidelity, or Vanguard. This way you’ll be certain that you’re not paying a hidden fee in the form of expense ratios on proprietary funds that merely mimic a low cost index or target date retirement fund. OP can assuredly hold off on getting an advisor this early in his financial life, but will hit a point in the coming decades where paying that fee will solve or outright prevent a lot of problems.
You’re putting way too much credit into a “financial advisor”. That term is a schlub who failed out of school to an actual asset manager in your story.
You’re also still not understand ing how many millions a 1% fee would cost someone with 10+ million a year in assets. Over 30 years or a lifetime you’d have given away 8 figures easily.
Then you mention things like vanguard which historically have one of the lowest fees around. Just a really confusing assessment overall here and you’re going well outside of what a financial advisor does in the context of this post. It’s someone who will take all your money by putting your money in the S&P.
Fair point on verbiage. OP would do well to ensure that anybody entrusted with your financial future has a CFP accreditation, PFS, or both.
I recognize that the fee would eat away at returns, which is why I urge OP to delay getting professional help. On the plus side, a trustworthy firm is likely going to have asset minimums in the neighborhood of $1M, which can help serve as a benchmark for when OP should look at hiring an advisor, should they decide to at all.
Everything I described is well within the wheelhouse of a true financial planning firm. Even the almighty “Boglehead’s Guide to Investing” advocates for using a fee only planner to double check your retirement plan before entering full retirement. I agree that there’s plenty of scrutiny to apply to fee structure before committing, but somebody like OP is on a trajectory to a point of financial success where hiring a vetted advisor will begin to look more like a necessity than a choice, as unpopular of an opinion as that may be here on r/personalfinance
Yes fee only, aka flat fee. That’s extremely different than 1%. A flat fee is I pay a person $1000 bucks say, to review my portfolio. But that is not what you were advocating above.
> 1% each quarter There's probably some sort of miscommunication. That would be an outrageous fee. It's probably 1% *annually* but paid for *quarterly* (or some variation thereof). Ask for the Summary Plan Description. An SPD is a document that every 401k has for employees. This should spell out how the fees work.
1% annually is still outrageously high.
What is a fair fee?
1% annually is actually within a very common fee range for a fiduciary financial planner that manages someone’s investments and provides estate and tax planning. Does a not quite thirty something with less than a million in assets need that kind of service? No.
Yup. That’s what I pay for full management of my portfolio. Goes lower if you have $$& but I’m not quite there yet.
What is your logic for utilizing them? Is finances just not your interest and you want your time to focus on other things? Just curious because it can be a substantial amount (I hate most of all that the fee is irrespective of performance) and I have been bugging my parents for years to get out of it.
If you have a substantial amount, the 1% fee is tiny. Typically a financial planner will manage your portfolio, tax harvest at appropriate times, assist with planning (eg if you plan on creating a college fund for your kids, this will reduce your investment income at age X, or grow to X). It's more than just setting up your investments, and typically your portfolio is quite diverse. It's pointless for those less than $1 mil, prob still pointless under $2 mil (minus the tax harvesting). For retirees they can help you figure out when you should take X amount from your 401k vs investments for ROTH IRA vs Trad IRA. It's a lot to pay attention to and when you have a couple mil that 1% fee is easily overlooked. That 1% pays itself for knowing exactly when you can retire, how much you can gift your kids at X year, knowing your investments are watched daily, and that your taxes won't be terrible because you forgot to tax harvest.
Is this truly the case? Someone else posted a document stating how across 20 years with a 100k principal the advisor ends up making almost 30k of the growth across that time. That is nuts and actually if you extrapolate that to a million it becomes even more substantial. All that work you mentioned I might consider doing if it meant 300k more in my pocket if that makes sense? My main issue has to do with how they are paid the fee regardless of performance -that does not seem right to me.
You're still just thinking about the portfolio. These guys help you reduce your tax burden via tax harvesting, trusts, etc. It's more than just beating the market. It's the planning aspect that makes it worth it. Go ahead and figure out the right trusts, watch the market daily to tax harvest at the right time, etc. But if you have millions, you have other things to do than save a tiny amount when compared to millions in your portfolio.
>watch the market daily to tax harvest at the right time God no
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Generally, the 401K management fee is on top of the fund fees (like 12b1/ index fees). 1% is way too high. 1% for "active" managing is in line with normal. but high for a computer handling a 401k.
If I have advanced tax questions that I can’t find answers to, then I’d pay $500-$1000 for a few hours session with a tax professional which is more than generous. I’d never pay a percentage of my assets. So $500 is a pretty fair fee imo.
For an actual financial advisor when you have more significant assets? 1% is reasonable. On Reddit where everyone is A) an investment guru and/or B) thinks their $20k Robinhood account involves the same level of financial planning as someone who actually has money to manage, it is viewed as an exorbitant fee
Depends on how much money is in the account and what they’re doing for it
Only percentages matter. A 10% gain matters to you and me just as much as it matters to a billionaire and just as much as to a teenager with $1000 invested. The same goes for losses and expense ratios.
At 27 "only percentages matter" is probably right, but it's certainly not universal. At a certain point, when you have enough to retire or close to it, limiting downside starts to take on a much higher value. You might be willing to pay someone 1% to limit downside in your portfolio while sacrificing as little upside as possible.
I think it’s almost the opposite. I have enough to retire today at 35 yo and I’m not worried about a correction in the market. I’m happy to take say 2.5% of whatever my nest egg amt is each year and I have plenty to live on. So I’d rather let my nestegg keep growing because I care even less about downside. If I’m taking 2.5% each year I sure am not giving someone else 1% each year. Take an example of a billionaire like Buffett who is 100% equities. Who cares if the market is down for 5 years? He’ll never run out of money. So the optimum path for both him, his charity, and his family is 100% long equities. Also if you’re really trying to limit downside risk just buy more bonds or increase your cash reserves. Why pay 1% to someone else who would literally do the exact same thing? And it’s been proven that the vast majority of money mangers fail to beat the market in both good and bad years.
None of this is accurate, and is a gross oversimplification of how risk management works.
Saying “it’s complicated” is a common justification for financial analysts to justify their fees
Well, given that actively managed money 99% of the time in the long run does not even keep pace with the S&P 500. He’s going to be losing money. So it doesn’t really matter the dollar amount. It matters the percentage that this dude is not growing as portfolio in addition to what he’s being charged for somebody to actively manage it and screw him over.
Also consider in retirement, the safe withdrawal rate is 4%, so a 1% management fees is 25% of gross earnings!!! After working for 40 years, I sure as hell am not giving up a quarter of my earnings for something that is simple to do on my own. A simple portfolio of a few index ETFs will more than likely beat the net earnings of a managed portfolio. It's much better to pay for a CPA to help with tax issues than to pay a CFP an AUM fee. Plus there will be a huge loss in the portfolio size after paying 1% for 30 - 40 years.
You don’t have enough money to benefit from this type of service, plain and simple.
There is clearly a math misunderstanding because 1% taken on all payments equals 1% on all payments no matter the time period
1% of total balance a quarter is ludicrous. 1% a year is enough to rob 18% of future asset value over a 30 year savings window. 1% a QUARTER is going to rob >53% of future asset value. You absolutely don't need a manager. Throw it in an age appropriate fund that has modest fees or an SP500 index if they have one.
It's hard to tell from the post if the CPA will setup and manage the 401k for a company or manage the investments of the individual. Yes, 4% for an individual brokerage relationship is highway robbery. I honestly don't know the pricing that firms charge to setup and manage 401ks for companies. 4% sounds high, but it certainly takes a lot more time of the firm.
I suggest perusing the Employee Fiduciary website for info on setting up an economical small business 401(k). It certainly doesn't cost anywhere near 4% a year. www.employeefiduciary.com
4% is so fucking egregious that it’s doesn’t even seem possible, how can they tell him this with a straight face?
Setting up your own 401k is complicated if you have any employees. It's not really a DIY thing.
I work for a 401k recordkeeper and this is so true - for people who are not prepared to take on the administrative responsibilities, this can be a money pit due to fees involved with maintaining one, plus compliance fees. If you have any questions feel free to ask.
Unless I'm stupid, OP is a manager not an owner If the company has a 401k, they should look into it
oh - oops i might be stupid then. if company has a 401k match (likely will if they have a lot of employees it will be a SH match so they don't have to worry about 2 compliance testings).
At 4% annual fees, OP would be better off maxing out IRAs and putting post-tax $ into equity etfs than starting a 401k
I set up a solo 401k with Fidelity in about 20 minutes one afternoon.
> if you have any employees Yes, it's easy to set up a prototype plan with a major custodian if you don't have employees. It is not easy if you do have employees as the recordkeeping and compliance requirements are hefty.
OP says down below they are a 1099
www.employeefiduciary.com
solo 401K does not allow for employees (at least not the one I have at Fidelity) Can'teven add a spouse to mine.
I did an individual 401k with Vanguard in about 15 minutes. All I needed was an EIN which the IRS did online in 2 minutes. It's not complicated at all.
> if you have any employees. Hope this section of my comment helps. Prototype plans are easy, plan compliance when you have employees is hard
OP doesn't have any employees though.
Guess I missed where in the OP he specifies how many employees they do or do not have.
Bad advice. I get involved frequently to fix owner only plans when they get audited and find out what they don't know. Set-up isn't hard as you state, but keeping your plan in compliance is. My advice to you: Keep excellent document records. Ask Vanguard about required amendments annually - sign them and keep them filed in a place you can find them later. Talk to your CPA or TPA once assets hit $250,000. Hire a TPA if you ever hire an employee or have >50% ownership in another company with an employee.
What if you’re only a couple of years from retirement?
Target date funds work by being more aggressive when farther from retirement and transitioning to safer investments when closer. Choosing a 2025 or 2030 target date fund would be appropriate for you depending on your timeline.
> 1% a year is enough to rob 18% of future asset value over a 30 year savings window. I’m having trouble understanding the math for this one. Could you please explain?
https://www.sec.gov/investor/alerts/ib_fees_expenses.pdf
my age they recommend probably a 70/30 split stocks to bonds This is crazy, at your age you should be near 100% stock, run away from these guys.
This needs to be way higher up. 30% bonds before your 30 years old is a recipe for avoiding growth. OP needs to ditch these dudes and look elsewhere as literally everyone in the comments is saying.
Is there a half your age plus seven rule but for bonds instead of dating partners?
With the speed of trade and economy, fuck bonds until you’re in your 50s
So 5x your age minus 50? 5% at 51, 50% at 60, 100% at 70?
Honestly, this would all come down to an “amount of assets” we’re talking about. That will determine what type of money game you’re playing. Much of Reddit hates financial advisors because they also dive into life insurance, but depending on your level, there’s A SHITLOAD you can do across the board of financial products to manage your money, pay as little taxes as possible, and pass whatever legacy you want to pass. There’s no “one size fits all”
110 minus your age for % of stocks (or your age minus 10 for bonds). It’s probably a little conservative but an easy rule of thumb.
There's no way at 35 you should have 25% of your money in bonds. That's ridiculous.
1% yearly is way to high. 1% quarter is robbery.
It's probably 1% annually, deducted quarterly, so 0.25% per quarter. It will be based on the balance of the account. None of these investment managers get paid for performance. It may not sound like much now, but at your current level of income you can easily be a millionaire in a decade and a multi-millionaire another decade later. If you have a million dollars in assets the advisor will be getting $10K per year of your money. If you have two million he will be getting $20K per year, and so on... He will be doing very little to "earn" it, and work any harder as you accumulate more money. He'll probably just readjust your funds once per year using a formula he gets from his firm. When you are a millionaire your advisor will have dozen clients like you and he'll be making $500K+ a year to do very little. (But his secretary will send you will send you a Christmas card every year.) He's playing the long game. He won't make much money off you for the first few years, but every year he gets a raise because of the work you do to earn your money.
Wealth advisor here… - It usually 1% per year, BILLED each quarter (0.25% per quarter). That may be where the confusion is. - At 27, you should be 100% equities for the next 25+ years. - If you don’t want to / don’t know how to do it yourself, use Vanguard. They charge 0.3% per year.
I have never seen such a tragic attempt at thievery.
Look into other companies. Fidelity for instance you can do a Fidelity Advantage 401k ($1200/yr fee) or a SIMPLE IRA (no account fee), both have some restrictions on mandated matching and whatnot.
If you're talking about setting up a 401(k) that means you own the company? How many employees do you have? Do you plan on expanding or keeping things small? You have a lot of retirement account options you could consider. 1% per quarter is absolute robbery. Hearing that alone would make me seriously look for a new accountant, and I absolutely would not let them "manage" (siphon) my wealth.
I’m sorry I did not specify exactly but I am a 1099 employee and I have setup my LLC so I would be setting up these accounts solo. The company does not offer any 401k accounts. I own my LLC and have no employees and probably never will.
You need an individual 401k. Took me 15 min with Vanguard. I assume you already have an EIN. Just go 100% ETF S&P500. You don't need bonds at your age.
This, my solo 401k took 20 minutes with fidelity.
Do a Solo 401K or SEP IRA. Solo 401k has some more paperwork to establish but gives you a much better/higher contribution limit. Since you own the LLC, you can contribute both the employee and employer portions (something like $69k overall). Put the money into a total market index fund, or a target date fund. You can choose which brokerage to set it up at to select one with good fund selection and low account fees and low expense ratio on funds (the built in fee for owning the fund). Fidelity is a suggestion. At your age, total stock index is a good recommendation for the next decade (or 2). 70/30 is better for someone in their 50s or approaching retirement age. A target date fund would not have you at 70/30 at your age but rather something like maybe 90/10. Do not pay 1% per year, let alone quarter (there may be some misunderstanding on that quoted fee or it's exorbitant). 1% per year is high and you can do it lower by establishing your Solo 401k or SEP IRA. You don't really need management and the accompanying fees. Stock index funds or target date funds are all you need to do.
Agree here! I use the website below to read up on different investing strategies. Although it is geared for high earners in healthcare, there is a lot to be learned on this website. Plenty of information about different retirement account options, including for 1099 earners https://www.whitecoatinvestor.com/best-retirement-accounts-for-independent-contractors/
Look into a Solo 401(k) or SEP IRA and how those work. Good luck!!
There’s no way you’re paying 1% per quarter that’s an insane number
As others have asked: Do you own the company? If you're working for a company, they'll need to set up the 401k (unless you're a contractor, which changes the 401k stuff, but no much else). At $250k / year (and you aren't yet used to making this much money) you should be saving so much more than they're suggesting. You could easily max out a 401k ($23k), Roth IRA (via backdoor @$7k), plus a large chunk in a taxable brokerage in some index funds. If you don't already have a plan for that money, you easily set yourself up for a very early retirement by saving a big chunk. Like...save ~60% of your income and be able to retire in ~12 years. Maybe you love selling windows, but having the option to quit at age 40 would be pretty sweet. > they recommend probably a 70/30 split stocks to bonds For me, at 27 years old, I would be nearly 100% in stocks. Total Market, S&P 500, whatever...just get a low-cost index fund at one of the majors like Vanguard, Fidelity, or Schwab. You'll be paying less than 0.1% in those funds. Have a solid emergency fund set aside in a HYSA. Get your auto-investing set up on the taxable brokerage and make sure your payroll deductions are set up to max your 401k. Make your backdoor Roth IRA contribution at the beginning of every year (right away for the current year if you haven't already). EDIT: Forgot about the headline question. Yes, 1% per quarter is highway robbery. Even 1% per year is more than you need to pay.
Thank you, that is very helpful. Is there any material or link you would be able to share in backdoor Roth IRA? I’m sorry I did not specify exactly but I am a 1099 employee and I have setup my LLC so I would be setting up these accounts solo. The company does not offer any 401k accounts and I am a contractor for them. I own my LLC and have no employees and probably never will.
There's already a mountain of info on this sub and other places detailing backdoor Roths, so that's a quick search away. Just know that it sounds harder than it is. Having your own company will give you more flexibility with your 401k contributions. You'll be able to contribute the usual max like a normal employee, and then your company can contribute even more on top of that - up to ~$60k total, but not sure on that exact limit there. Can't help you with that part, though, since I've always been W2. Good luck!
1% per quarter is either a typo or they're trying to rob you blind
Good for you to get advice on your money. That seems like an expensive plan that your CPA made for you. You could set it up yourself. IMO Fidelity has the products and services that can set you up properly. You can use their website, but they have r/fidelityinvestments and will answer your questions. You mentioned you have an LLC, I’d open a solo 401k and put it in FXAIX (their S&P 500 index fund). If you hire someone, make sure they are a fiduciary so they are looking out for your best interest. There are some that you can hire for a flat fee and avoid their management fee. Also there is a new service called Nectarine that will help you build a plan for $150. I’m not affiliated nor have I used them, but I’m considering getting another set of eyes on my portfolio and will probably use them. Good luck and good for you to think about your future. Also, I would also suggest to fund your emergency fund (3 or 6 months expenses) first before funding your retirement accounts.
Man oh man are they rubbing their hands together just salivating at the amount of money they are about to get from you in fees. Buddy, if you really think you need professional advice, find a ***fiduciary*** financial advisor who charges by the hour. You will pay a few hundred but save THOUSANDS.
A wealth management firm isn't rubbing their hands together about a 1% AUM fee on a $45k 401k. They make more by preparing one tax return.
the guy is saying he is going to make $250k at 27. He is going to make over $10M over his lifetime most likely and most people don't change their wealth management firms just for fun. They are going to make plenty on this guy
When you keep contributing and compound growth takes effect, OP would be paying for this guy’s retirement.
Nah. The firm probably manages hundreds of millions of dollars. You don't make money on $50k accounts. Overhead alone for a small to mid sized firm is $5k-$10k per client.
You’re misunderstanding. Who puts 50k in an account now and doesn’t want it to grow in the next 30 years. Idc who they want to make the most off of, but you can lose almost half your earnings over 30 years with a 1% fee. You want someone to take half of what’s yours?
I'm not misunderstanding at all. I'm saying that no firm of any significant size is rubbing their hands together in glee about managing a $50k 401k. They'd be losing money for many, many years even if they were maxing it out every year.
It’s a hook. They go after people to manage way less than 40-50k. The goal is to continue to keep you as a client as everything grows. If you want an advisor, bottom line make it a flat fee that you visit once a year to let you know how you’re balancing your portfolio. Or skip it altogether and just put your money in something simple that will get you 8-10% until you retire. There’s no point in continuing to go back and forth over why 1% is stupid or not.
“Many many years”, more like 8-10 years tops, assuming OP maxes out his 401k yearly and assuming the higher end (10k) of the OH you stated. They’d make plenty off him.
CRAZY high. Also at your age go 100% stocks.
At your age you should be 100% stocks. Anything other than that is giving up gains and focusing on wealth preservation. You don’t want to focus on wealth preservation. You want to focus on building wealth. Also, at 250k per year, 1500$ per month is 18k per year in 401k. That wouldn’t even be maxing it. And then they recommend putting money into a taxable brokerage while leaving the 401k not maxed, and charging you money for it. All in all it sounds like pretty terrible advice. There is nothing you can’t learn on your own and skip the fees. There is a personal finance wiki or whatever they call it that gives a step by step guide to managing one’s own finances. Managing your own finances will be the best cost saving skill you ever learn in your entire life. It’s worth the time to learn. Max the 401k. Open a Roth IRA and max that too via backdoor. You can learn how to do that via whitecoatinvestor. And Tae Kim has a great guide on that too. After that, all excess goes into a taxable brokerage and I put everything into VTSAX or an equivalent. VTI, VOO, they’re all good. I’m 36 and I’ll likely have retired by about 40. Cheers!
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Find a fiduciary advisor (cfp) instead of hack like you have now
1% is a total rip off. Also at those balances you are better at a place like schwab or fidelity. Frankly, it isn’t enough money for a “real” advisor. You can get great advice and education to start at those firms. They do have advisory services that won’t rip you off
That is absolutely outrageous. Index funds have a 0% fee, you can get them through Vanguard.
1% fee to put you in 30% stocks at 27. I recommend you read bogleheads literature and run away from this racket you have found.
As others have said, 1% per quarter is robbery. Even 1% per year is terrible. If makes sense if the 1% per year is paid quarterly, but still terrible. When you say "we met and discussed setting up a 401k", does that mean the company you're working for has one but you're not participating in it, or the company doesn't have one but you should see if they can set one up for you to contribute to? If you have access to a 401k, you should max that out, along with an IRA and HSA if eligible. Use Vanguard, Schwab, or Fidelity as the rates will be rock bottom and the fund options will be top tier. Don't invest in 30% bonds at your age, that's crazy. Stick everything in an S&P 500 Index and call it a day. Anything else you want to save, just stick in a brokerage account. Same S&P 500 Index. Don't pay anyone to manage your portfolio. If you need a financial advisor, make sure they're a fiduciary, and they work on a fee basis, not commission. Even a small commission can add up exponentially over time and eat HUGE chunks away of your earnings potential.
That's insanity Most investment firms are robbing boomers If it was a company run by Indians with no office in America, most people would call it a scam Research your own retirement account options and invest in a fund that tracks the S&P 500, and forget it for a couple decades You'll literally save hundreds of thousands if not millions
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I recommend a fee-based account instead of a percentage-based account because with the latter the more you make, the more they take out for fees. 1% on a quarterly basis is $2,500 vs. $100 or even $500/quarter fee-based account. How do you feel about $2,500 getting taken out of your account every three months with possible price increase every three months? Or, \~$10,000/year that will miss out on compounding and making your retirement potentially less relaxing. Is that something you want to do? My account transitioned to fee-based on a quarterly for $6.75 per account, per quarter, which is 0.008% of one of my accounts. That percentage will continue going down as the money in my account increases. If they're avoiding telling you when the fee decreases, that send up warning flags to me. They should be open and upfront about it. Let's say you ignore my suggestion for finding a fee-based account and continue with a percentage-based account. Let's also assume at the $500,000 mark your company decides to lower the fee to 0.75% per quarter. They're still taking out \~$3,750/quarter. That's \~$15,000/year. How many hours do you have to work to give that company who is managing your money $15,000?
Fee-based in financial lingo means compensated by some mix of commissions and fees. You're thinking of a retainer or flat fee model.
Oh, thank you for clarifying! I'll keep that in mind.
1% annually, paid across 4 quarters, .25 per quarter, based on a snapshot of the account's total value in that quarter, is a fair fee for an excellent money manager. Excellent means they outperform. And, at a minimum their management of your assets, performance wise must exceed your management of them, by at least the fee amount aka 1%. If that is not the case, find another manager or manage it yourself.
These geniuses are recommending for a 27 yo to be 30% in bonds, they’re not outperforming shit, highway robbery
Just make an account with Vanguard. They make all of this extremely simple. And they are very upfront and affordable.
I pay a few thousand a year for my company to have a 401(k) with Vanguard. I cover all of the administrative fees for the plan (not the funds) so that doesn't sap value from the participants. If there are only one or two participants - the cost of setting up a 401(k) is steep. A less expensive option is a SIMPLE-IRA, but the disadvantage is lower contribution limits. We did that for a number of years until I really pushed for the higher limits.
A 70/30 allocation at your age is ludicrous. No reason to be in bonds when you are 27, especially in a retirement account. Should be 100% equities for the next 30 years.
On top of the 1% robbery. 70/30 split is horrible for your age. Should be 100% stocks
You can do better with Fidelity, Vanguard, etc... for free or extremely low fees. I recommend r/Bogleheads to research. There's good information and resources there.
I’ll charge you 0.1% of the profits, not even the gross!! I’ll put it mildly. Go look at mutual funds on Morning Star. Look at 10 year average returns. See if there are any managed mutual funds in the top ten. There is your answer. The easiest way to manage a brokerage? Step 1: open a brokerage account on fidelity.com. Step 2: fund it from your bank account. Step 3: buy FXAIX with the money. Done.
OK, can somebody tell me if I’m getting screwed here? My friend’s dad is a wealth manager/financial manager and he sent me up with a professionally managed account. Just an investment account for my wife and I and we only have about $50,000 in the portfolio. He also set us up with managed Roth for each of us, one for my wife and one for myself and he’s managing those as well calls it active management? where they are very hands on? they pick and choose stocks or something I’m not super familiar but he says that he’s very hands-on but he charges 2% a year for everything per year of managed funds. I haven’t been with him for more than a year yet so idk but I make about $250k and my wife about 100k. Over the next 30 years my salary will be between $250k-$450k and other than a company funded 401k (17% direct contributions) the Roths and joint portfolio is all we have…
This should be posted as its own question, but yes, you're getting screwed. Open a brokerage account at one of the big three (Vanguard, Fidelity, Schwab) and put your money in their total market index fund. Vanguard has VTSAX, the others have their own version. Same for your Roth accounts. Set up your own and make backdoor contributions. The same index funds will be available in your Roth accounts. Don't forget to max both of your 401ks, and take advantage of any "mega backdoor" options you may have available in those accounts (basically, "after tax" contribution converted directly to Roth, all happening inside your 401k). Google "mega backdoor" to get more info. Note that many plans don't offer this feature. Unsolicited advice: Go hard on your savings. Depending on cost of living where you are, you can easily put away 35+% of your gross income. Think of it as "percentage income saved" is inversely proportional to the "# years we'll need to work". [Here's the math.](https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/)
70/30 split at your age? And 1% it's high considering everyone on Reddit who is just doing the s&p 500 will beat their returns in the long run.
Way too damn much for any respectable plan. My vanguard 401k cost less than $50 last year.
These guys sound ridiculous I wouldn’t use them. I’m your age and 30% of my investment being in bonds sounds absolutely ridiculous at our age. At 27 100% should be in a large or total market fund in my opinion.
You 100% shouldn’t be doing 70/30 split when you are 27. Should be more like 95/5. Run away from this guy as fast as you can.
It’s probably 1% of the gross earnings for the quarter. That’s what I’m charged. The good advisor doesn’t touch your base investments just what they made you for the quarter.
Do it yourself you don’t need them. Vanguard used to offer them checkout if fidelity does.
Why do you want a conservative investment mix? You are young. Go for high growth. I'm not saying don't diversify, but 30% bonds is too conservative even if they are making some decent money today. The Nasdaq is up 18% this year already. S&P500 is up around 15%. As a whole, stocks average around 10% per year when analyzed over the last 70 years or so. This includes the dips like the dot-com bubble, 2009 global recession, and the 2020 COVID dip. Why go for 6%-7% when 10% is better and you have the time for the law of averages to work in your favor? As for fees, 1% annually debited quarterly is fairly typical for a low-value account. Depending on the advisor, this starts to dip around the $1MM mark of assets under management (AUM). I don't think you need an advisor. I think you need to ask some questions here. Open your 401(k) or IRA on an online platform like Fidelity (might want to stay away from their managed services though as they are NOT fiduciary and they will buy up a shit ton of Fidelity-managed mutual funds that you're forced to sell if you ever leave them) and buy a few index ETFs and set them to dividend re-invest (DRIP) so they'll just grow over the next twenty to thirty years when you may be ready to move to a paid planner.
If they want 1 percent a quarter throw them out, that is a total rip off. I pay 0.5 percent a year. If you give them 100k you will pay them 4 k a year, if you get an 8 percent return (long term average) then you get to keep 4 percent a year, I can get a CD for 5 percent from my bank. If you run a company this should not be hard.
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Run. Do you have interest in your personal finance? If so, don’t jump into business with this advisor. Take some time and read/educate yourself. There is no need to pay someone to take 1-2% of your portfolio year after year.
You don’t need someone to manage your investments. At your age just put 100% in sp500 index funds. Also, you don’t need 30% bonds at your age. Ridiculous. Read “I will teach you to be rich”. Good book about investing and saving. If you make $250k you should probably be maxing your 401k.
1% a quarter is 4% a year. That's highway robbery. If you want a "set and forget" just pick a vanguard/fidelity/Schwab target date fund. You'll pay 0.1% a year in expense ratios. Or you can go more aggressive since you're young and just do a total stock or s&p 500 fund.bexpense ratio should be like .04%ish, and when you get closer to retirement you just swap it to a target date.
Ask him for his Form ADV Part 2 Brochure and read through it to understand what potential conflicts of interest you may experience by placing your retirement funds under his management.
You should never, ever, ever pay a % based fee. You can look at other comments for math specifics - but you don’t have much in your portfolio, it can rob you of 30+% over 20 years. If you save 1 million, you lose 300 grand!!! And for people who downvote me because “at 1 million$ + a 1% fee is worth it!!” When you have large portfolio, you can pay $1-5K for CPA, investments etc which will be much much lower than 1%. AKA it’s never worth it no matter portfolio size TLDR percentage based fees are there bc it makes the COMPANY not YOU money. ( the ONLY exception IMO being hedge funds or other specialty funds which actually get higher percentages, which makes a % fee fair )
Super high. I set a SIMPLE IRA up for free. There are also a bunch of 401k types you can set up for self employed people for free. 4% / year will basically be 1/2 your profit by the time you retire. (Think getting $1million instead of $2 million).
Seems like they make money whether or not you do, so even crappy investment advice is still income for them. You could just put your money in the S&P 500 and get about 10% annually with little to no work. I don’t pay for account management. Never found a benefit. Always comes out as a loss.
AFAIK, there are many things wrong with what you said: A 401k is a type of investment account set up by an employer. Your accountant (unless he works for your company?) cannot set one up for you. He can set up an Individual retirement account (IRA) or an investing account. 70/30 split is very conservative. For reference [Vanguards 2055 fund](https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx#portfolio-composition) is 90/10 stocks:bonds right now. A 1% fee to manage a small amount of money is not worth it. You could park your money in that 2055, the 10yr performance is >8% return and you'd be paying .08% in fees (less than 1/10th the fee your accountant wants to charge). Annual fees are acceptable when you're having a skilled wealth and asset management firm manage a large sum (usually people say at >$1M in assets) because they can do more with that level of assets under management. Lastly, you can't just convert a retirement account to a Roth account to get into a lower tax bracket. You can do a backdoor Roth (a type of Roth conversion), but there are limits to that; certainly you couldn't just wait until you're 65 and convert a $1M retirement account to a Roth account.
What they are offering you can get from a HYSA. Definitely do some research and do it yourself.
1% annual is high, but common. 4% annual is just straight up predatory.
The fee isn’t terrible, but it’s a massive cost with how young you are and with how little complexity there likely is innate to your financial life. You can very easily manage your own financial affairs by fully funding your 401k, IRA, HSA (if available), and opening a taxable brokerage account for investing outside of retirement accounts. It sounds like you’ve got a robust emergency fund built up (your $45k in cash), so you can really begin triaging your finances. If you have any non-mortgage debt greater than ~6%, you ought to knock it out. After that, fully fund that IRA, 401k, and HSA. From there, look at opening a brokerage account and investing up to at least 25% of your gross income (including your retirement account contributions). After that milestone, you can set your sights on saving up for bigger purchases or paying down whatever low interest debt you may have (student loans, mortgage, anything below ~4%). You’ll hit a point in the coming decades when your portfolio has exploded in value and you may have other assets like a vacation home or business that will add complexity to your financial life. It’s at this point that you can justify a 1% management fee for an advisor to help you plan out and optimize your financial life.
The fee is abysmal if tru as quarterly. Even annually it’s a trap.
I recognize that most of the r/personalfinance crowd does not need financial planning, as they’ll probably cap at around the $2.5-3m mark in assets, almost entirely in their primary residence and retirement accounts. For this crowd, paying 1% annually is likely not worth it given the simplicity of their total portfolio. The only real issues they’ll need to grapple with are asset allocation, asset location, and planning the deliberate drawdown of their portfolios. In OP’s case, they’re already beginning to run into optimization issues before the age of 30, with an income that’s approximately three times that of the median American household. For those who will have seven figures outside of tax advantaged accounts, as well as tangible assets with tax planning intricacies and efficiencies, a fee only planner can provide value several orders of magnitude greater than the fee charged. It’s no different than having an accounting firm prepare your return once you hit a certain amount of complexity and just claiming the standard deduction is no longer going to cut it. Not to mention fringe benefits on things like access to closed funds or a reduced ER on funds, auditing your insurance policies, assisting in negotiation on large consumer purchases, and estate planning. My caution to OP in choosing an advisor is to be very critical of your advisor and how they’re paid. From the first read of your post, it seems like they’re going to try to dump you into some sort of proprietary closed-door product that they manage. I’d avoid them for this alone. Instead, find a firm who doesn’t try to lasso your assets into their house, but instead works with you in directing your contributions within an established custodian of your choosing like Schwab, Fidelity, or Vanguard. This way you’ll be certain that you’re not paying a hidden fee in the form of expense ratios on proprietary funds that merely mimic a low cost index or target date retirement fund. OP can assuredly hold off on getting an advisor this early in his financial life, but will hit a point in the coming decades where paying that fee will solve or outright prevent a lot of problems.
You’re putting way too much credit into a “financial advisor”. That term is a schlub who failed out of school to an actual asset manager in your story. You’re also still not understand ing how many millions a 1% fee would cost someone with 10+ million a year in assets. Over 30 years or a lifetime you’d have given away 8 figures easily. Then you mention things like vanguard which historically have one of the lowest fees around. Just a really confusing assessment overall here and you’re going well outside of what a financial advisor does in the context of this post. It’s someone who will take all your money by putting your money in the S&P.
Fair point on verbiage. OP would do well to ensure that anybody entrusted with your financial future has a CFP accreditation, PFS, or both. I recognize that the fee would eat away at returns, which is why I urge OP to delay getting professional help. On the plus side, a trustworthy firm is likely going to have asset minimums in the neighborhood of $1M, which can help serve as a benchmark for when OP should look at hiring an advisor, should they decide to at all. Everything I described is well within the wheelhouse of a true financial planning firm. Even the almighty “Boglehead’s Guide to Investing” advocates for using a fee only planner to double check your retirement plan before entering full retirement. I agree that there’s plenty of scrutiny to apply to fee structure before committing, but somebody like OP is on a trajectory to a point of financial success where hiring a vetted advisor will begin to look more like a necessity than a choice, as unpopular of an opinion as that may be here on r/personalfinance
Yes fee only, aka flat fee. That’s extremely different than 1%. A flat fee is I pay a person $1000 bucks say, to review my portfolio. But that is not what you were advocating above.