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This week I finally got around to doing something I've wanted to do for a long time.  I fired my "financial advisor."  Here's why you should consider it.

History

I had some 401(k) roll over money and Roth IRA.  I wanted to move them to the same place for convenience.  A new "advisor" had taken over my Roth IRA account (I opened it with a friend and he quit the business).  I didn't trust the new advisor with my money.

So I asked around and a friend told me about the lady he used.  I talked to her and she sounded fine.  I moved my money over to her.  She's been managing it for about 5 years.

The Problem

You might think that I'm upset about the recent financial meltdown and blame my advisor for it.  That would be wrong.  Sort of like blaming the weatherman for a hurricane.

The problem was I had outgrown my need for an advisor.  At least an advisor of this type.

Many advisors/brokers at the large firms aren't necessarily looking out for your best interest.  Most advisors are really just front line sales staff.  No different than the clerks at the cell phone store, just a different product and a nicer office.

My advisor was helpful in getting the funds transferred over.  At the time, it seemed like a big pain and I welcomed the help.  However, as time passed I began to research investing.  You have a lot more incentive with more wealth.  Who cares what happens to a $500 Roth.

Well, turns out you really need to care when you have a small amount.  Fees and expenses will eat you alive.  It turns out it's very easy to roll over money to a new investment firm.  Vanguard made the process really easy.

You Get What You Don't Pay For

Most of the books I read said that fees and expenses are the biggest enemy of the long term investor.  And fees and expenses are what you get at a full service brokerage/financial advisor.  I recieved an updated schedule of fees that made me cringe.  I couldn't believe what they were charging me.

What was I getting for these fees?  Did they move my money out of the stock market before the recent crash?  Did they provide market beating returns year after year?  No.

The fact is that most investors are better off in a whole market index fund with super low expenses.  Over the long run it's highly unlikely (not impossible) that anybody will beat the market.  This goes double for small investors.

So knowing that I wasn't getting my money's worth, I transferred all of my money to Vanguard.  I chose a super cheap targeted retirement fund.  I'll tell you how I decided on that fund in another post.

Are All Advisors Bad?

Certainly not.  In fact, I'll gladly pay attorneys, CPA's, MD's and other's for their services.  That's the difference.

In most professions, the fee is based on service, not hidden in the operation.  Imagine your accountant skimming off 1% of your bank account for doing your taxes.  You'd be outraged and rightly so.

However, investment advise from the likes of Buffet, Bogle, Munger, Malkiel and others indicate that simplicity is the best policy.  You can't get any simpler than a whole market index fund with super low expenses.

The evidence is overwhelming.  The financial industry is full of crooks and charlatans out to scam you.  Yet the stock market remains the best hope for long term profits.  I think the most important step you can take is finding a low cost way to invest in the stock market.

Tags    Fees    Financial Advisor    Index Fund    Investing    Vanguard

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