I know Clark advises strongly against investing thru a bank but I don’t know what that means. I invest thru TRUIST Investment Services (previously SunTrust), the investment arm of my primary bank. I understand them to be a fee-only fiduciary with reasonable mgmt fees of 1-1.5%. What am I missing or misunderstanding?
I’m certainly not an expert on this stuff but I do trust what Clark says.
A lot of financial advisers lie and say they are a “fiduciary” when they are not. For a bank to say they are is extremely suspicious. Clark talks about “two hat” advisors who claim to be fiduciaries but in reality “switch hats” and become commission advisors when they want to. Just because the bank guy is very friendly and even your friend does not mean he is finding the right, low cost investments for your retirement accounts.
I have a good friend who lives just down his street from a Wells Fargo. He has all his retirement/investment accounts there with a guy he has known a long time. I did bring up Clark Howard and his opinion on this stuff once. My friend would have none of it. “He’s my investment guy, I trust him”.
Banks are not good choices for investing because of their high fees. You need to find out from Truist what additional fees you are paying in addition to their management fee. Are you investing in Truist ETFs or mutual funds? The funds are likely to be actively managed funds with high expense ratios. If you were with Vanguard or Fidelity your management fee would be less than 0.5% and the expense ratios for the index funds would be less than 0.2%.
The high Truist fees occur every year. For simplicity, I looked at the returns if you invested with a low cost alternative to Truist with an overall cost 1% lower than Truist. Using the compound interest calculator linked below, I calculated how much a retirement account would be with a monthly contribution of $500 for 35 year with estimated annual interest rate of 7%. I used “interest rate variance range” of 1% so that the calculator will also give the result if fees were 1% higher. An annual interest rate of 7% results in $829,000,000 after the 35 years. For the individual with additional 1% expenses, the net annual interest rate of 6% will result in a nest egg of $668,000- a loss of 20%.
Link to an excellent video series on investing including “use index funds when possible” and “keep costs low”
https://www.bogleheads.org/wiki/Video:Bogleheads®_investment_philosophy
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Pretty much everyone would agree that education makes a difference in a person’s earnings over their lifetimes.
So why not consider investing in your own financial investing education? People spend 4+ years and scarce dollars for a college degree and earn $600K to over $1M in a lifetime.
If you spent six months learning about investing and dropped the 1.5% surcharge you pay an advisor you can likely match or possibly exceed the $500K your bank’s “expert” is taking as his cut of your retirement nest egg.
When it comes to making money or losing money on your investments there’s one thing you can always be sure of … NO ONE cares as much as you do, no matter how much they charge you.
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I took the CRPC class, took the official test at a test center, and it has made a huge difference in how I many my entire life, not just my investments. I’ve also used to to help my parents, siblings. It was $1100 when I took it, $1375 now, best money I ever spent. It was a bit hard at times! I didn’t ace it, I got a B, but was happy to get that B. I worked for months on it.
https://www.kaplanfinancial.com/wealth-management/crpc
CPRC is the “baby CFP”, that’s one way to think about it. It was enough for me. But it makes you not slavishly dependent on someone with more letters behind their name than you. You can ask intelligent questions that push the boundaries of their knowledge and expertise, and get a sense of whether they know what they are talking about or if there are layering on the you know what.
I don’t think I have a need to hire a CFP by putting my assets under management, although maybe this will happen when my mind goes at an advanced age, if my daughter doesn’t want to manage my assets.
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I can see Clark freaking out as he reads this.
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1% - 1.5% is a huge bite, considering that over the long term a representative portfolio only earns 6% or 7% above the rate of inflation, through bull and bear markets.
Management fees of 1.5 percent per year are enormous compared to fees charged by Vanguard and others on index mutual funds or ETFs (typically three tenths of one percent, .003). So the annual fee per $1000 is $15 vs. $3, or 5 times as much. Check to see what happens over 20 or 30 years with compounding assuming an 8 percent annual return.
On the first, fees reduce the compounding amount to 6.5 percent per annum. On the second, the reduction is only to 7.97 percent.
See what Warren Buffett and John Bogle have to say about index funds. And think about getting the book, “The Bogleheads’ guide to the Three Fund Portfolio”, which is 70% stock, 15% bond, and 15% international stock. Then there is no need to have to study which individual stocks you will buy.
This is why I do my own research. It is my money. The “fiduciary” or other investment advisor is more concerned about his income than my gains.
I research the heck out of stuff. If I invest wrongly, I have learned a lesson. If I invest correctly, I have not only gained financially but in knowledge.
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In addition to research I rely a lot on the study of how people make decisions, including myself. In the end markets are driven by supply and demand. That dynamic is driven by people, and when people try to predict what other people are going to do in the future, it gets real interesting.
I appreciate the many thoughtful/passionate replies to my inquiry. I will revisit my current fee structure and perhaps discuss with my CFP. The fees mentioned were a best guess; really not sure how accurate as I don’t obsess over these matters. I understand maybe I should. Many comments seem focused on self-directed v. paying for advice, generally. I get that. But I am not 30- or 40- something. I am several years retired, only responsible for myself, and not interested in pursuing an investing certificate or experimenting with my finances until I am able to be my own expert. I also need to be able to deal with an unexpected medical/car repair/condo bill (like most folks) but on a very fixed retirement income. Call me lazy maybe - I’m reasonably self-sufficient but I don’t repair my own car or cut my own hair. But I also don’t pay to eat out, or for meal services, or for a daily Starbucks run, or for a dozen streaming services, or for someone to do my taxes, etc… We all make choices about how we spend our money, wherever we are in life.
Most CFPs charge you a fee for giving you advice, but that’s just part of the story.
Many of the products they sell you or advise you to buy also have a built-in expense for buying and selling them. So the fees add up.
I suggest you ask your financial advisor for a bottom-line expense number when he suggests a product for you to invest in. That is; his fee plus the fees that are charged by all other sources involved in each transaction plus ongoing fees.
It can sometimes get into the 2% to 3% range. For an investment that pays 7-10% that’s a big hit.