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I recently changed jobs and have a sizable sum in my old employer's 401k plan. It's doing fine but there are quite a few fees and I would prefer to roll it over. I'm considering two options.

First, my financial advisor is trying to talk me into letting him roll it over and manage it. The cost seems steep to me, 1.5% of my account value yearly. He claims they easily make that 1.5% up by out-performing the market, but it seems a little fishy to me. Is a flat 1.5% of the total account value a high/low/about average cost this?

My other option is to go with Vanguard and handle everything myself. I'm not interested in spending a lot of time on it; just get diversified and adjust myself every year or so.

Thoughts or advice?

TLDR
Use a financial advisor to rollover and manage a 401k plan for a flat 1.5% account value fee or do it all myself?

Follow-up
I ended up doing the roll-over through Vanguard. It was a very painless process. Vanguard made everything very easy so I opened a brokerage account as well :). Thanks for the help!

Chris W. Rea
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2 Answers2

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Call up vanguard and tell them you want to do a rollover. They walk you through the process. Spend some time on reading up on asset allocation and benefits of indexing.

1.5% every year is steep and what do you have in return? The advisor's word that he'll make it up. How much did he manage to return during the last lost decade?

It's a lose-win situation. He'll get his 1.5% no matter how the market does but that's not the deal you are getting.

Go with Vanguard. You are already thinking correctly - diversification, rebalancing, low cost!

MoneyCone
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I thought the Finance Buff made a pretty solid argument for a financial advisor the other day: http://thefinancebuff.com/the-average-investor-should-use-an-investment-advisor-how-to-find-one.html

But 1.5% is too expensive. The blog post at Finance Buff suggests several alternatives. He also has the great suggestion to use Vanguard's cheap financial planning service if you go with Vanguard.

A lot of investing advice fails to consider the human factor. Sure it'd be great to rebalance exactly every 6 months and take precisely the amount of risk to theoretically maximize returns. But, yeah right. It's well-known that in the aggregate individual investors go to cash near market bottoms and then buy near market tops. It's not that they don't know the right thing to do necessarily, it's just that the emotional aspect is stronger than any of us expect. You shouldn't rely on sticking to your investments any more than you rely on sticking to your diet and exercise program ;-) the theoretically optimal solution is not the real-world-people-are-involved optimal solution.

My own blog post on this suggests a balanced fund rather than a financial advisor, but I think the right financial advisor could well be a better approach: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/

Anyway, I think people are too quick to think of the main risk as volatility, and to think of investing as simple. Sure in theory it is simple. But the main risk is yourself. Fear at market bottoms, greed at market tops, laziness the rest of the time... so there's potential value in taking yourself out of the picture. The human part is the part that isn't simple.

On whether to get a financial advisor in general (not just for investments), see also: What exactly can a financial advisor do for me, and is it worth the money?

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