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I'm probably not the best person to get into the details, but I'm a developer at a financial company so I can probably explain a little bit. Comparing financia

I'm probably not the best person to get into the details, but I'm a developer at a financial company so I can probably explain a little bit. Comparing financial advisors to mutual funds is comparing apples to oranges. Many times, advisors will advise you to invest in mutual funds as a part of your overall portfolio strategy. So you have to think about having a financial advisor versus not having a financial advisor. In my company, the advantage I have mostly seen has been high net worth clients looking for tax advantage investing strategy and protecting their wealth. There are probably other advantages that I don't see on a daily basis. The cost is typically a large disadvantage. Advisors typically take a small percent on your investments even if you lost money. 1% of a hundred million dollars is a million dollars. Is the utility provided by a financial advisor worth a million dollars? In a similar vein, you can also think of the advantages/disadvantages of mutual funds versus single stocks. The same goes for the advantages/disadvantages of actively managed mutual funds versus passively managed mutual funds.

hesdeadjim 11y ago
This. I had an exit a few years back for a sizable, but not retirement-worthy, amount of money. My friend who was one the founders did make retirement level money and went the full financial planner route with a large investment firm. I had begun to do a lot of research for where and how to invest, but before meeting with "his guy" I doubled down and consumed everything I could find. I ended up deciding that if I went my own route I would just go with Wealthfront for the simplicity of their strategy and the extras like tax-loss harvesting and immediate and near-real time account re-balancing. I eventually did meet with the financial planner and his staff did their best to make me feel "special". The waiting room was modern and wood paneled, I was offered drinks and snacks, and when he brought me back to the war room he had another member of his team there and reassured me that I'd have their full resources at my command. This triggered immense skepticism off the bat, since a few simple calculations with their fee structure revealed that I was essentially a chump to them compared to my friend. We talked for a while and he led me through various investment options and I later left with a few personalized investment strategies in a nice leather-bound folio. It took all of about five minutes of study to determine the proposals were a waste of time and an even larger waste of money. For a 1.5% management fee they would invest in high cost mutual funds -- the kind that even do kickbacks to the advisers, and provide me with a once a year re-balance of my accounts with no opportunity for tax-loss harvesting. I told him all this and that I was just going with Wealthfront instead and in a subtle but patronizing manner he told me I did not understand his value proposition. Unless you are high net-worth I have a hard time understanding why you would ever go the planner route as opposed to just keeping a safety net and dumping the rest into a service like Wealthfront.
- matwood 11y ago
  FYI, if you don't mind spending an hour every quarter rebalacing you can save the Wealthfront fee by using TDAs commission free ETFs. Last time I checked they had almost all of the same ones Wealthfront uses. Maybe the fee is worth it to you to never have to think about it, but since you mentioned the 1.5% management fee, I thought maybe you might not want a fee at all :)
  - hesdeadjim 11y ago
    More effort than I a willing to spend ;) Tax loss harvesting has been significant for me over the last few years as well and that is not something I would want to deal with myself even if I just simulated Wealthfront's trades. It's also made harder once you start using their index tracking individual stock trade functionality -- they do the harvesting on a per stock level for that one.
    - matwood 11y ago
      Fair enough. I do this sort of thing as a side hobby so managing it myself is 'fun'. Wealthfront/Betterment seem like fine zero effort choices.
- runako 11y ago
  Question: what made you choose Wealthfront vs. e.g. Betterment? It looks like they are essentially identical, except that Wealthfront charges more. I haven't examined them in too much depth, but is there a key detail that I'm missing?
  - hesdeadjim 11y ago
    Well it's been a while since I compared, but Wealthfront's direct indexing seems to be a really strong advantage at this point, unless I am missing a competing product on Bettermint. While there is a .20% difference in fees at the 100k+ level, I am content paying Wealthfront's higher fee simply because I believe in what they are doing and I never feel like they are trying to screw me over -- directly or indirectly. Consider it brand loyalty at this point :) I've also enjoyed their blogs both for engineering and investment. I like to point friends there first when they start looking to invest money somewhere.

hesdeadjim 11y ago

This. I had an exit a few years back for a sizable, but not retirement-worthy, amount of money. My friend who was one the founders did make retirement level money and went the full financial planner route with a large investment firm. I had begun to do a lot of research for where and how to invest, but before meeting with "his guy" I doubled down and consumed everything I could find. I ended up deciding that if I went my own route I would just go with Wealthfront for the simplicity of their strategy and the extras like tax-loss harvesting and immediate and near-real time account re-balancing. I eventually did meet with the financial planner and his staff did their best to make me feel "special". The waiting room was modern and wood paneled, I was offered drinks and snacks, and when he brought me back to the war room he had another member of his team there and reassured me that I'd have their full resources at my command. This triggered immense skepticism off the bat, since a few simple calculations with their fee structure revealed that I was essentially a chump to them compared to my friend. We talked for a while and he led me through various investment options and I later left with a few personalized investment strategies in a nice leather-bound folio. It took all of about five minutes of study to determine the proposals were a waste of time and an even larger waste of money. For a 1.5% management fee they would invest in high cost mutual funds -- the kind that even do kickbacks to the advisers, and provide me with a once a year re-balance of my accounts with no opportunity for tax-loss harvesting. I told him all this and that I was just going with Wealthfront instead and in a subtle but patronizing manner he told me I did not understand his value proposition. Unless you are high net-worth I have a hard time understanding why you would ever go the planner route as opposed to just keeping a safety net and dumping the rest into a service like Wealthfront.

matwood 11y ago
FYI, if you don't mind spending an hour every quarter rebalacing you can save the Wealthfront fee by using TDAs commission free ETFs. Last time I checked they had almost all of the same ones Wealthfront uses. Maybe the fee is worth it to you to never have to think about it, but since you mentioned the 1.5% management fee, I thought maybe you might not want a fee at all :)
- hesdeadjim 11y ago
  More effort than I a willing to spend ;) Tax loss harvesting has been significant for me over the last few years as well and that is not something I would want to deal with myself even if I just simulated Wealthfront's trades. It's also made harder once you start using their index tracking individual stock trade functionality -- they do the harvesting on a per stock level for that one.
  - matwood 11y ago
    Fair enough. I do this sort of thing as a side hobby so managing it myself is 'fun'. Wealthfront/Betterment seem like fine zero effort choices.
runako 11y ago
Question: what made you choose Wealthfront vs. e.g. Betterment? It looks like they are essentially identical, except that Wealthfront charges more. I haven't examined them in too much depth, but is there a key detail that I'm missing?
- hesdeadjim 11y ago
  Well it's been a while since I compared, but Wealthfront's direct indexing seems to be a really strong advantage at this point, unless I am missing a competing product on Bettermint. While there is a .20% difference in fees at the 100k+ level, I am content paying Wealthfront's higher fee simply because I believe in what they are doing and I never feel like they are trying to screw me over -- directly or indirectly. Consider it brand loyalty at this point :) I've also enjoyed their blogs both for engineering and investment. I like to point friends there first when they start looking to invest money somewhere.