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I have my 403b with Fidelity, and am 60 years old. I am starting a 70% work week soon, probably for the next 2-4 yrs. Fidelity is after me to put the bulk of my funds (close to $500K) into their fidelity portfolio advisory services, and have a personal?

advisor, for a fee of about 1% of my investment. To date, I have been doing my own investing, with decent results, but maybe I could do better. In the past, I have not liked having someone manage my money. Have you heard good things about PAS?

May 29, 2013 by KATHERINE from Eaton Rapids, MI in  |  Flag
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Dushyant Pandit Level 17

Your concern seems to be whether you should manage your investments yourself or retain an advisor. Here are three simple questions to ask when thinking about retaining a professional service firm:

One: Do I have the time, interest and training to manage my portfolio myself? In other words CAN I do it?

Two: If yes, have I actually been doing it? In other words – WILL I do it?

Three: If yes, am I satisfied with the results? How WELL am I doing it?

Answering these questions honestly will guide you well. Then if you do decide to use an Advisor, there are resources to help you choose the right one for you.

Finally, why not talk with a few different types of advisors where you live? Many firms are willing to give you a second opinion on your portfolio.

Comment   |  Flag   |  Jun 05, 2013 from Summit, NJ

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Alex Bentley Level 18

In my opinion, one percent is too high. Drawing on the experience of a friend of mine who was a Fidelity private client, Fidelity will probably put you in actively managed mutual funds, which will most likely have high fees also. All these fees will significantly hurt your performance over time. Having a financial advisor is a good idea but paying those fees is not.

Comment   |  Flag   |  May 29, 2013 from Pacific Palisades, CA

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Hello Katherine, In general, what causes investor success is a disciplined investment policy based specifically on your risk tolerance. In my experience, (which is reasonable as a Chief Investment Officer) investors who say "I've had decent results" basically mean "I've been saving a lot of money over the years and it has grown." I have never had an investor who has said "My results have been the following: I have beaten the index (x) amount of times and underperformed my benchmark (y) times in the past 10 years. I have a registered BETA (market sensitivity) of (x) and I took (x percent) of market risk to get (x) return over (x years)." In other words, yes, their accounts have grown but even the worst of the worst investors would have had "decent results" over the last 5 years because the market is up over 100% since 2009. The real question should be "how do you stack up against the best in the industry?" After all, it IS your nest egg we are talking about - the single most important determinant of your financial future for the next 30 years. It is NOT a hobby - it is your life.

I would suggest that with an unlimited amount of investment options, professional advisors, institutional level funds, and a disciplined investment committee, it is highly likely that you would do better - for a specific risk point - with a managed account. The unlimited investment options alone gives them a decided advantage that would likely outperform the 1% fee.

But for 1% of your account - you should certainly get more than just investment management. Retirement is a period of your life where there are a myriad of questions that need to be answered:

Pension survivor options? Insurance alternative? Long-term care planning? Social Security strategies? Which are the best for you? Pension alternative - lump sum or annuitized income? Survivor Planning? Estate Planning?
Pay off your home? Is it paid off already? Reverse Mortgages in the future? What about income tax planning? How will RMD's affect you in 10 years?

Providing all of those services - along with coaching and updates - is known as Wealth Management.

So... personally, I would seek out an advisor who could do both - manage the portfolio for about 1%, with unlimited investment options, a disciplined investment policy that matches YOUR philosophy and YOUR risk tolerance - AND provides the comprehensive retirement planning and wealth management to boot. For a $500K portfolio, you should be able to find it.

Jon Castle http://www.WealthGuards.com

Comment   |  Flag   |  May 29, 2013 from Jacksonville, FL

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Andy Tilp, CFP® Level 16

Hi Katherine

Congratulations on doing well with your own investing. Regarding your question, what I advise clients to do is, if they are comfortable and enjoy managing their own investments, then to continue. If, however, you are not, then having someone else help manage your money is fine.

The key is to have a very broadly diversified portfolio that is shifting toward preservation of assets. Also, it is important to rebalance on an annual basis. That way you harvest your profits and buy things on sale. (Sell high, buy low!).

If you want some help with selecting your investments, you can hire a fee only planner by the hour. Compare that to the cost of a 1% fee. At 1% on your $500k, you will be paying $5000 in fee. The cost of an hourly planner should be much less. The service should include a complete comprehensive financial plan to get you on the right track and then you can have periodic meetings to discuss rebalancing and any changes. A good place to find a fee only planner that charges by the hour is here at Brightscope, at NAPFA and Garrett Planning Network.

There are also alternatives to the large companies offering portfolio management that charge much less than the 1% fee and have a good track record. For example, there is an independent manager in Portland that charges 0.25%.

Another important consideration is whoever is managing your money should not be captive to just their company’s funds. Rather they should be able to look across the wide spectrum of mutual funds and ETF to get you the lowest-cost, highest quality investment that are best for you.

Finally, whoever you chose to help should be a fiduciary to you. For example, members of NAPFA are required to adhere to a fiduciary oath, putting the client first. That may be a question to ask the Fidelity or whoever you work with.

Good luck.

Andy Tilp, CFP® Trillium Valley Financial Planning, LLC

Comment   |  Flag   |  May 29, 2013 from Sherwood, OR

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Katherine,

Your question cuts to the heart of one of the main problems with our profession. The problem is that it is not clear what role the financial advisor is playing. You probably assume the Fidelity advisor assigned to your account is working on your behalf and places your interests above all else. That is not the case as the advisor is an employee of Fidelity and when Fidelity says jump, the advisor will ask how high. For your 1% you will get a salesperson with extraordinary access to you and a relationship fraught with conflicts of interest. If you really want help with your finances, find an independent advisor who will put in writing that they will act as your fiduciary. I agree with one of the other commenters that you should be getting more than just portfolio management for 1%. Good luck.

Barry Bailey - www.retirewithicm.com

Comment   |  Flag   |  May 30, 2013 from Kingsport, TN

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Brad Raines Level 15

Katherine - you are definitely asking the right questions. Your question has more to do with your availability and personality than anything else. It really comes down to the time you're willing to spend and how honest/accountable you will be with yourself and your results. As Jonathan mentioned, the 1.00% (or however much an advisor or firm charges) should include much more than simple account allocation. You could "pay yourself" 1.00% and in turn create your own portfolio where you decide the allocation of your account. This is very doable, but this strategy hinges on you being accountable with yourself by comparing yourself to other investors and the benchmarks. That part alone can be difficult for even an advisor which is why many advisors hire an advisor to keep themselves accountable. If you do end up hiring a personal advisor, you want him/her to be exactly that... personal. Your advisor should know every intimate financial detail about you, your investing history, and every other financial or personal detail that could affect your investment decisions. A holistic financial advisor like that will not only keep you out of trouble by reminding you NOT to Buy High or Sell Low (which is what the "crowd" will always do), but should also perform other duties which are difficult for any investor. Such as... Buy a little more when everyone else is selling. Communicate with your other key advisors (CPA, Attorney,...etc). Play the Devil's Advocate for any investment idea you are considering. Some independent financial advisors will also have contracts with the big custodians like Fidelity that can give them additional access to their 403b or 401k platforms. Just another option to look into. Good luck!

Brad Raines

Invest with purpose. www.AppliedCapital.com

Comment   |  Flag   |  May 29, 2013 from Little Rock, AR

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Katherine, you feel you have had decent results, but are you comparing it to any benchmark? Are you actually measuring your performance, or are you just feeling good because, in general, your account value has risen? I am not suggesting that you have not done well on your own, I am just suggesting you need to actually look at measurable results. Look at your performance in bad years as well as good years. If your results, are, in fact good, then there is nothing wrong with continuing on your own. And there is nothing wrong with sharing your results with the PAS advisor, or another financial advisor to see what he/she would do differently. Be careful he/ she does not back test your results just to get a better result.

What I don't like most is that you said Fidelity was 'after you' to sign up with PAS. whether the advisor at PAS is worthy or not, I don't think that you should invest $500,000 anywhere if you are under pressure. And 1% is a bit high.

Further, because you are in a 403(b), it is likely that you will only be able to invest in Fidelity or another provider offered by your employer. I could be wrong, but I doubt if PAS has different parameters. That, in itself is not necessarily bad. I think Fidelity has a myriad of excellent funds. In the universe of investments, you will always be able to find something that is better or cheaper, but I don't think being with Fidelity in any way terrible.

I agree that for a 1% fee, you should be getting complete Wealth Management services, including, but not limited to risk assessment, portfolio management, retirement planning, long term care and life insurance planning, income planning, etc. Regardless, at $500,000 or more in assets, that fee should be negotiable.

The advisor you get at PAS may be very good. But you need to make that determination. One concern that I have with Fidelity in general, is that most of their advisors are very young; how deep is your advisors experience and knowledge, and how long will he actually be staying at Fidelity. I'm not being judgemental. They are just questions you may want answers to. Does this advisor share your investment philosophy? Actually, do have a defined investment philosophy?

Lastly, but perhaps most important, many 403(b) plans offer in-service distributions at normal retirement age. As I understand IRS regulations, if your plan permits in-service distributions, and has set their 'normal retirement age' at your age or younger, then even though you are still employed and contributing, you can rollover your current assets to an IRA, then select any money manager or investment choice you wish. You would have total control over investment choices and fees. If this is an option, it is a very good option and you should carefully research this.

1 Comment   |  Flag   |  May 30, 2013 from Delray Beach, FL
KATHERINE

Thank you all for your well considered responses. I do appreciate it.

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Flag |  May 30, 2013 near Eaton Rapids, MI

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Katherine, I have recently Joined Brightscope and just saw your questions. I spend 13 years working at Fidelity Investments, as a VP Sr. Account Executive and I am an expert when it comes down to PAS, how it works as well as any other products offered by Fidelity Investments as it pertains to institutional and retail accounts. If you have any specific questions I would be more then happy to answer them for you. you can reach me at 860-341-4500

Comment   |  Flag   |  Sep 24, 2013 from Farmington, CT

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