Calling for Backup

Dennis Friedman

WHEN I RETIRED, I WAS surprised by how many of my friends and former colleagues had a financial advisor. My thought: Why would folks pay someone else to manage their money when they could easily do it themselves?

But I found out early in retirement that hiring an advisor was a good idea. There’s a big difference between investing while drawing a paycheck and investing without one. When I retired, I realized that the money I was investing was all the money I’d ever have, except for Social Security—and Social Security replaces just 40% of the average worker’s salary. With the stakes so high, I was hesitant to manage my own money.

When I turned age 67, I decided it was time to hire an advisor. I felt someone else could do a better job than me, not because the advisor would select better investments, but because he or she would be a more patient and less emotional investor.

I wasn’t looking to hire a full-service financial planner who would advise me on topics like estate planning and insurance. I’m pretty well set in those areas and I already have professionals helping me. Instead, I wanted an advisor who would create a plan for meeting my financial goals and help me manage my investments. Here are some things that were important to me when looking for a financial advisor:

  • After one advisor failed to turn up for our appointment, I realized how important it was to have someone who was dependable and trustworthy.
  • I wanted someone with reputable credentials, such as the Chartered Financial Analyst or Certified Financial Planner designation. In addition, the advisor couldn’t work on commission because that creates an incentive to push high-cost financial products.
  • I wanted my own dedicated financial advisor, with the ability to schedule an appointment when needed. I wasn’t willing to leave my investment portfolio in the hands of a robo-advisor, with no human interaction.
  • I wanted a portfolio designed specifically for my circumstances, needs and goals.
  • I wanted my portfolio built primarily with low-cost, broad-based index funds.
  • I wanted transparency, with the ability to go online and see up-to-date information on the total management fees incurred, my portfolio’s performance and the likelihood of meeting my financial goals.
  • I wanted excellent customer support not just from my financial advisor, but from the whole organization.
  • I didn’t want to pay for the initial investment plan. If I didn’t like the plan, I wanted to be able to walk away without incurring a fee.
  • Finally, I wasn’t willing to pay someone 1% of assets per year to manage my investments. It would have to be considerably less.

I decided to go with Vanguard Personal Advisor Services. I’ve been a Vanguard Group client for more than 35 years and felt comfortable with the people there managing my money. Since I already had most of my money with the firm, it was easy to swap over to the advisory service.

After three years, I’m happy with my portfolio’s performance and with the customer service. But in the back of my mind, I keep wondering whether I’d be better off in a Vanguard Target Retirement Fund that meets my desired asset allocation.

These funds offer a diversified, professionally managed portfolio—and the cost is just 0.12% to 0.15% a year. That’s less than half the cost of the advisory service, which is typically 0.3% a year plus the expenses of the underlying funds. Each target fund is made up of low-cost, broad-based index funds, similar to what my advisor-managed portfolio owns. It’s a type of fund you can literally forget about because it makes all the investment decisions. You don’t even have to keep tabs on your asset allocation because it rebalances for you.

How important is access to a financial advisor and having a personalized financial plan? Is it worth the added expense? So far, the answer is, “yes.” But those target retirement funds sure look tempting.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

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