Only recently started making somewhat decent money and am an expat trying to learn tax rules and get investment advice. Held talks with several IFA's and there was one who actually made some very solid points and asked questions I never thought of and brought up rules I wasn't aware of and also seemed to have a decent pipeline of investments for further down the line.
Got me thinking this could be worth the fee, which is 1% on assets pear year as I have under 250k, but it winds down gradually to 0.4% at 1m in assets.
Do you guys use financial advisors, anyone can just throw money in an index fund, but access to alternative investments is interesting.
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The expat might make it worth it given there's some intricacies around taxes. For the regular person in finance, I don't think it is.
100bps is a really high fee for someone young whose best investment strategy is 1. set it and forget it and 2. mostly equities. For comparison, the fee on the SPY is 1bps and the vast majority of managers do not beat its returns over a long time frame. So you're paying significantly more money for less returns...
If you want alternatives, become an accredited investor in a few years and do some of your own investments, or just get into retail alts ETFs for more diversification.
If you take advantage of using a full and proper professional like thebrofessor who can talk to other topics like insurance planning, trust planning, estate planning too? Definitely. Otherwise eloquence is right to just keep it simple in the index space. Beyond that, I'd just take a think about if you're after asset growth or cash flow to determine how you want to allocate things.
I think financial advisors are only needed for complicated tax needs, estate planning or trusts.
No one beats vanguard total index unless they insider trade.
Once your rich enough, you’ll get your own opportunities to waste money on things like commercial real estate, private m&a deals and alternatives, you need to pay someone for that.
I have a firm that helps with tax planning & other tax related issues, and usually hire other firms to audit their work every 3 years. Firm has tax attorneys etc too. This would be less intense if I wasn't living in a different country than what it scribbled on my passport though.
Not really sure why anyone with W2 income and under ~$75m - $100m in NW would need a dedicated financial advisor though if you post on this forum. They are just going to tell you what you already know.
I'm not sure that's entirely true. If you've got $5mm in liquidity sitting around, you have access to a whole lot of investments that you may not even know. Pooling your money with others with a financial advisor may give you access to private equity investment, or to hedge funds that otherwise don't accept individual investors, etc. Frankly, having a person/team that is dedicated full time to diversifying your investment strategy and monitoring it can be extremely valuable. In March 2020 the bond markets went bananas as people scrambled for liquidity and it was possible to make huge guaranteed returns (like over 150% annualized) in the space of a few weeks or a months by buying short dated bonds and holding to maturity. Obviously that is rare but the point is that if you "set it and forget it" you might miss out on those opportunities.
I'm talking about investing with large wealth management businesses/teams, not your dad's friend who works in an office in the strip mall in that random Philadelphia suburb.
Well, blimey mate, it seems like you're in a bit of a pickle! Trying to navigate the murky waters of tax rules and investment advice as an expat can be a right nightmare. I mean, crikey, I don't know about you, but I'd rather be chomping on a packet of hobnobs and watching some telly than dealing with that kind of hassle.
So, you've been having a chinwag with some IFA's, have ya? Sounds like a right fancy bunch of blokes! And it seems like you've found one who knows their onions. They've even brought up some rules you didn't know existed! Blimey, they must have a noggin like Stephen Hawking!
Now, I know what you're thinking, "Should I fork out for their services?" And honestly, I'm as confused as a chav at a polo match. On the one hand, 1% of your assets per year sounds like a right ripoff. But on the other hand, having access to alternative investments could be as sweet as a cuppa tea with the Queen.
So, what's a bloke to do? Well, I reckon you should ask yourself, "Do I want to be a proper savvy investor, or just chuck my money in an index fund and hope for the best?" And if you're feeling fancy, maybe treat yourself to a nice scone and ponder the question. Cheers, mate!
I do not use one, but have considered one for a trust and tax reasons. In general I find that most investment advice isn’t useful from the advisors I’ve talked to. Where I have found value is understanding the complex tax rules and trust rules (trying to setup a trust for my kid). It isn’t worth my time to try and figure that all out. I imagine if you have a complex tax situation that’d be another place where they could add value.
When I moved from the US to the UK, my tax situation went from complicated to an absolute nightmare. I consider myself very savvy and I really, really struggled to understand the intricacies of the rules without speaking to a tax expert. You can really trip yourself up and create a huge tax burden by doing simple things such as transferring a lot of cash into the UK from the US. It is a lot easier if you aren’t American, but if you are, definitely seek out tax advice.
There are also complications regarding what types of investment vehicles you can invest in to avoid double taxation (not everything is covered by tax treaties). You want to be damn sure that your financial advisor is an expert on this stuff or you’ll end up in trouble investing in non-US vehicles. Personally, I think you’re better off not hiring the advisor and just throwing the money into a general, US index fund.
Note: If you’re not American, you can disregard most of this advice.
USA! USA! USA! One of two countries in the world that taxes ex-pats. The other being Eritrea, except they only impose a sur-tax when you come home unlike the USA that does it regardless. We almost became the world leader in something again!
That is only partly true. You are not taxed on the first roughly 160K, at least that is what it used to be. Well the cavet here is that it is expected that the local country the expat is in has a higher tax rate than the US. If you go to the UAE or other country that has a basically 0% income tax then the US will tax you.
I do and can elaborate on why I specifically opt to. I think it is worth calling out the fact that I also manage a small account myself (consisting primarily of ETFs). The rationale is as follows:
1. I gain access to mutual funds I normally could not gain access to on my own (e.g., Blackrock Capital Appreciation A). These mutual funds average near PE returns over the course of a 10-20 year period. I take solace in knowing I will likely realize a 10-20% return over the course of that duration. These are funds I do not plan to touch until I look to buy a house.
2. When I switched jobs I rolled over my 401k into an advisor-managed 401k, whereby I had increased flexibility in the types of asset classes I invest in. For example, when you do this you can use your 401k to invest in individual equity securities or bonds that are not offered by your current company's 401k plan.
3. Most importantly, my advisor doesnt take any fees on profits made or capital managed. This is because someone within my immediate family works for a financial advisor and therefore the only fees I pay are due to trades executed. This is perhaps the biggest driver in my rationale behind using a financial advisor.
4. They know the market better than I do. Sure, I work in finance, and more specifically in M&A so I in theory have an idea of when companies are trading at, above, and below market. However, I focus on one particular industry and really dont have the time to track the markets like a trader or financial advisor would. I work on average 12 hours a day and after a full day of work and some time at the gym, I really dont want to spend the last hour or two of my day tracking the markets. Further, 1-2 hours of analysis per day is not only tiresome, but it doesnt give you adequate time to figure out where to invest.
Therefore, I found a financial advisor I trust who works at the same company as an immediate family member and I have been fairly happy since.
Makes almost every argument against using one irrelevant if you're getting it for free. Not sure why that wasn't in bold at the top.
I disagree, I think if you invest in mutual funds with 15-20% CAGRS over a 20 year horizon that even if you are eating say 1-3% in fees the IRR is still better than if you were to invest in individual securities or vanilla ETFs that yield 4-5%.
Additionally, there is an inherent benefit of knowing its not something you need to worry about and track when you're tied up working 60+ hours per week.
On what grounds are you staking a claim that Blackrock's Capital Appreciation A is going to earn such outsized returns compared to other ETFs?
From a quick look through their site and their prospectus, it seems like a pretty replicable actively managed mutual fund that invests in mid to large sized growth stocks (also convertibles and preferred stock) with a 1% yearly fee and a 5% front-load sales charge...
What am I missing here?
Good call out, Blackrock's Capital Appreciation Fund was a bad example. It looks like the return with the sales charge yieled a 10.6% IRR over the course of the last ten years, which is below its benchmark (14%) of the Russel 1000 Growth Index.
There are other index funds providing higher returns (at work rn and cannot check) but I will try and update this comment.
I dont think anyone needs to leverage a financial advisor especially given the range of ETFs available, but I have realized benefits of doing so
Come on bro. Everyone would choose to drive the Porsche over the Toyota if the Porsche is free.
I don't at the moment, but that's because I am one. For the majority of this forum's members in the accumulation phase, you can probably DIY with a 100% equity strategy in index funds or ETFs.
With that being said, we save younger clients thousands with our tax advice, preferred lending pricing, etc. So, for individuals in 'finance', it's all a matter of how much time and effort you want to put into it. In many instances, it's not about beating the market net of fees, it's more so preventing a catastrophic mistake. If I can keep someone in the market instead of letting them sell out at the bottom, that's a huge value-add in the long run.
For clients in the retirement/ distribution phase, I'd say almost everyone would benefit from having an advisor. Very few have the time or expertise to build individual bond ladders, tax-loss harvest, rebalance, among many other things. Heck, when I retire, I'll gladly pay someone 1% to build a tax-efficient income stream while I do something more appealing. When you do this for a living, you realize how little people actually know - there's plenty of teaching and re-teaching.
This is true.
I started making connections to find one not long ago, and landed with a firm that was on the first floor of our company before I went to tech.
I wish I had better financial discipline growing up, as growing up in the ghetto/poor area of the city it wasn’t prevalent. I’m glad I know what I know now, but the true understanding of money preservation never hit home until I had a few last minute emergencies where I had to burn some cash. I’ve seen families who spent as much as they made. It’s stressful. The view for financial advisors and institutions took a turn for the worse during the 08 crash that happened. I remember growing up that people kept calling advisors scam artists, or snake oil salesman.
Despite it, I have a good experience with advisors I turned to. Even if it’s at the early stages of one’s career, I feel people would benefit a lot. I did.
The industry has gotten a lot better, even though there are still plenty of bad advisors out there. 2 things I see and coach with younger clients:
I don't but that has more to do with my wildly odd capital allocation strategies. I am near 100% in real estate with the only exceptions being some 401K and crypto that I have accumulated over the years at various jobs. As for the value, this is highly dependent on your situation and need for access to specific products and/or specific types of advisory. As far as the tax stuff goes, I would advise hiring an tax lawyer to lay out the framework first then move to a more cost effective year to year management. The most important things with these types of situations is to properly setting up the structure if this is not done correctly you can bit yourself in the ass.
Moving money internationally (LEGALLY) as an American is a goddamn nightmare. Taxes galore. Hiring a tax lawyer for say $20k can save you hundreds of thousands.
Majority of people don’t need an advisor, but a great one is worth it if you can afford it. Best advisors I know don’t take clients under a certain net worth
One of my acquaintances requirements are at least $1.5M.
Also - wanted to do a shoutout to thebrofessor and rickle who helped me during the years here. I am in a better position now, thankfully. thebrofessor has a guide on here (I think it has 4 parts) that shares a lot of 'what to do with money' if I remember correctly.
Regardless, thoughts thebrofessor?
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