Financial Planning & Investment Advisory Fees – What is Reasonable?

From what I’ve seen, fee-based advisory firms, my own included, generally charge an annual fee which ranges from .75% to 1.75% of assets under management.  Generally, the larger your account balance, the more likely you are to receive a lower fee.  In fact, fee schedules are often tiered such that the initial 250K is billed at a higher rate which scales down at varying thresholds such as 500K and 1M.  There may, however, be other methods of determining an advisory fee beyond simply the size of the account.  For example, some firms are more active (tactical) than others.  Those firms would likely charge a slightly higher fee than a firm which is more passive and investing strictly in products which mirror indexes such as the S&P 500 and the Dow Jones.  Firms with passive investment strategies may still charge fees over 1% if they are including valuable services such as financial planning, estate planning, tax planning, etc.  What is included in the fee amount (above and beyond investment management) should be discussed in clear detail at an initial consultation. Continue reading

8 Questions Financial Advisors Should Ask Their Clients

I thought this entry would be interesting for both financial advisors and for people who work with them.  Having a truly productive relationship with your financial advisor means trusting them and giving them the needed information to figure out how to really help you.  Much of that information doesn’t come out through back and forth discussion and needs to be extracted through specific questions and elaborate answers.  Below are 8 of the questions which I ask my clients that I think really help to gain a more complete understanding of their financial profile: Continue reading

Debating the Fed’s Current Interest Rate Policy

I find the entire debate surrounding economic interest rates to be highly significant at the moment.  What is supposed to be a policy tool used by the Federal Reserve to contain inflation and occasionally encourage either economic expansion or contraction has turned into a drug which our economy is gradually becoming immune to.  The debate over interest rates is currently taking place at high level institutions such as the Federal Reserve who understand that if they wait too long, the drug can have serious consequences.  The debate is also taking place across America where portfolio values and real estate prices have been on the rise, giving people the satisfaction of passively achieved wealth.  That satisfaction, however, is partially masked by the concern of bubbles and whether those asset prices may come back down at some point soon.  Continue reading

Which is Better: Traditional Financial Advisors vs. Automated “Robo” Financial Advisors

I’ve come across several articles lately about the emergence of online sites (sometimes referred to as “Robo-Advisors”) which customize and automate the investment process for individuals.   These sites are totally separate from discount online brokerage firms which allow you to buy and sell stocks at low rates.  Robo-Advisors create investment portfolios, most often by utilizing securities which replicate broad market indexes.  They collect fees for this service, generally is the form of annual fees  taken as a percentage of invested assets (approx .15% – .50% per year).*  The asset mixes are generally created after analyzing personal data including age and risk tolerance.  While people in the financial services industry have fairly strong opinions about these websites – some think they will fail over time while others fear they may capture a serious portion of the traditional business – I think it’s clear that the investment advice industry has plenty of room for both traditional wealth managers and the many online solutions which are popping up.  Let’s look at both sides of the debate:    Continue reading

Retirement Decisions: Lump Sums vs. Income Streams

Americans love getting big checks.  The instant gratification of dramatically increasing one’s liquid net worth is far more desirable for most people than the comfortable but far less exciting feeling of getting a check every month for the rest of their life.  Ironically, taking the lump sum option is most often the wrong decision.  People mistakenly believe they can better manage funds on their own than leaving it in the hands of experienced pension managers and insurance companies.  It’s not so hard to understand why people make this choice – if you were 65 and deciding between $500,000 or $3,000/month for life, I think many people would take the lump sum.  Why?  You can buy a house with $500,000, or pay for a college education, or buy a boat, or take many incredible vacations.  However, $3,000 per month doesn’t allow for any of those large and highly gratifying purchases.  That last point is exactly why we want to pass on the $500,000 and take the long-term income stream instead.

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What Kind of Life Insurance Should I Have?

Picking the right life insurance is tricky.  Should you go with the absolute cheapest coverage, term? Or is it better to buy a cash value policy such as whole life?  What other choices do you have (such as return of premium) which may work better in your situation?  Like many personal finance decisions, the right type of life insurance depends entirely on your individual needs.  The purpose of this article is to help you assess your needs and find the right type of insurance.  As always, feel free to contact me directly if you seek professional help with this.

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5 Tips for Financial Success and Independence

Save Early and Often – It’s some of the most popular financial advice out there – start saving in your 20’s, and yet so many people don’t do it.  I understand that people have other obligations such as paying off debts and getting established in their careers which can interfere with implementing a savings plan.  However, most people don’t properly prioritize saving.  If you treat saving like paying a bill and you make it totally automatic, you’ll forget you’re doing it.  Create an automated savings plan when you’re young and get started.  Even if the amounts are low at first, it’ll be easy to increase the amounts as your income level rises and your debts disappear.

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Analyzing the Value of Life Insurance as an Asset

One of the more challenging aspects of advising clients about life insurance is helping them to recognize that life insurance is an “asset,” rather than an “expense”.  For many people, this view is a bit of a foreign concept in a world where other types of insurance (auto, homeowners, health, and liability, just to name a few) merely reimburse the policyholder for a contemporaneous, out-of-pocket, economic loss that the policyholder hoped would never occur – leaving the policyholder in the same economic position as he or she was in before the loss took place.  Life insurance is unique in the sense that it covers a loss that is certain to eventually occur:  It is not a question of whether the policyholder will have a claim, but instead when.  As long as the policy is maintained, the stream of premium payments will ultimately result in the policyholder’s receipt of the death benefit – which allows for a rate-of-return calculation that is inapplicable to other types of coverage.

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Simple Ratios and Rules of Thumb for Financial Planning

I often get asked quick questions such as “how much house can I afford?” or “how much life insurance do I need?”  Personal finance is a very subjective science and the answers can vary widely depending on who is doing the asking.  That said, it’s nice to have some basic rules of thumb which can be used to make sure you’re not totally off base when making a quick financial estimate.  Below are a few of these rules which apply to saving, spending, housing, and insurance.  Enjoy!

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New York Financial Planner – NYC Financial Advisor