Jun 2, 2022

Reprise on Advisory Rationale

From a reader (always surprised when I have a reader...)

"Curious as to why you have an advisor. What services do you think you can't or don't want to do that your advisor provides? Other than handling your divorce which was bungled anyway you seem more than capable of managing your retirement drawdown.

I'm an advisor and big fan of yours thank you for your content and contributions to our industry. I have huge problem with our industry that is focused on training salesman as opposed to actually....advisors..."

From private correspondence with another reader [edited]...

Short Version of why I still use advisory: 
  • lethargy, habit, anxiousness
Long Version of why:

When I was married, my ex and I had a bit of a high comp lifestyle. She was a globetrotting CEO visible in the news and TV; I was a tech consultant and did some corporate development and strategy. Outsourcing to an advisor made sense then. In 2008, though, I was snookered into moving to FL (another dude was in the waiting) right during the Global Fin crisis. Six years before that I had technically "retired" (first "retirement") to deal with kids cuz no one else was home, ever. 

Then in '08 when we moved and divorced, we split our assets as described in the other post, and I chose not to re-seek my past career (my second "retirement," age 50) in order to keep the child-caregiving situation continuous during a rather crappy and unstable time. It was right here that I should have taken over my own assets...but I didn't for the reasons in the "short version" above plus I was kinda flipped out on things and had lost a ton of weight and was in a big "crouch of fear." I also did not yet know the finance things I know now (trading, investing, MPT, ret-fin, my blog, etc...). So I stuck with my status quo advisory as a bit of a temporary life raft, while leaving the decision on whether to go solo for later. 

In ~2012 I started to see my long term finance picture quite well so I kinda flipped out again (whence the blog, btw), and then ended up leaving my old advisor for reasons in the last post. Here was another point where I should have just done it myself. But me? I am very cheap and I know the impact of fees now. But I worked out a deal with my new advisor. He had started a new practice focusing on the ultra-rich (that's not me, btw...clearly) but he had brought me in as a favor because we had worked together before and he structured a deal that made interim sense with me articulating a plan for me to wean myself off at some point, say age 65 or so. He took a fee on maybe ~1/3+, waived it or adjusted it on ~1/3- and I decided to manage another 1/3...plus I ran all the non-or-semi-financial stuff of course...the whole balance sheet. So my fees across all "monetizable assets" was maybe max 60 bps, probably less if I do the math (but more if we just look at managed assets. I need to review that number) vs the 125 bps before at WF. That's about a mid-tier mutual fund...or used to be anyway. I was ok with that for a while, at least. 

Here is what I think I get out of the deal:
  • I get access to a team of 4 HNW professionals each with their own skill set. All CFAs and 1 CFP.
  • I have access to various private financial services: private mortgage, private bank etc with mostly responsive or pretty good service levels,
  • I have access to an asset-pledged lending facility pegged to SOFR + a little. I have found this to be a very useful tool for dealing with temporary things like a new roof, big tuition bills, property taxes, and I will probably bridge-loan myself my new house when I move. I was reluctant to give this tool up. It's a helpful thing,
  • They are pretty good and tax management whether tax-loss harvesting or sourcing tax advantaged income,
  • They have access to deal flow, private placements, and structured products. I have a policy against those things now but I do still have some specialty positions in trend following and will always have an eye open to opportunity,
  • They manage individual stocks and individual bonds rather than "funds." That can be tedious for retail investors sometimes and me? I have bought and sold bonds on a retail platform but it can be tricky. Is there an edge to this individual thing? They say that no-one can consistently beat the market but the relative gap vs my benchmark is encouraging and the game for me is not really return so much as it is vol suppression...which has worked very well for years now. Is that vol suppression them, my strategy, or luck? no idea. 
  • They are, or used to be, a behavioral hedge -- making sure I am not a weak hand that bails out when things are bad 
On the other hand: 
  • It is expensive. Even at 50-70bps (way more if we are careful on our terms), if one's spend rate is supposed to be 3 or 3.5%, say, that 60bps is pushing what? 20% of my spend capacity. And that is before tax talk. Technically speaking the rate is closer to a point and so we are talking a real challenge over decades.
  • Of anyone in my personal circle, I am going to absolutely claim that I have the best skills that I know for managing myself, maybe even better on the Ret-fin stuff than my advisor. It seems silly not to just do it myself at some point
  • A transition would be tricky, though. I am not prepared to manage a long list of individual holdings...yet.  And also, I wouldn't want to convert it all to mutual funds or ETFs...yet, since I'd take a tax hit. 
  • the value of what I get for that 60-100bps is ultimately unknown. Is it really worth it? Probably not...maybe...not sure. Were my pile to shrink too far I would absolutely have to take it over. There is no question. But right now my spend rate is low enough that it can absorb the monthly hit. That may not be true later. TBD

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