24/7 Insights

• • This Redditor is set to make $11 million from the sale of their business. 
  • There is a question of whether a robo-advisor or wealth manager is better. 
  • We are missing some info on what the Redditor’s next steps are career-wise. 

Establishing a certain level of net worth comes with the question of whether or not you should use a financial advisor. There is no question that some people don’t like the idea of paying someone else to manage their money. Still, it’s also true that, in some cases, a financial advisor can help relieve many of the headaches of learning about investing. 

In the case of one Redditor in r/fatFIRE, you have someone who has achieved an $11 million net worth and is trying to determine if they want to manage the money themselves or find help. More specifically, they are debating between paying 0.6% AUM for wealth management from one of the big investing firms or paying per hour for tax optimization advice and only investing using a robo-advisor. 

What I love about posts like these is that they create a great conversation about the pros and cons of both routes. There is an argument to be made for both sides, but for most people, both decisions would have pros and cons. 

The Scenario 

In this case, we have an early 40s Redditor who recently sold their company and is set to have a total net worth of around $11 million once the sale closes. The biggest concern is how to manage this windfall best. In the words of the Redditor himself, they are “struggling” to decide if they should manage their assets independently, though they do not have a finance background. 

The alternative scenarios include paying by the hour for tax optimization advice or using a robo-advisor. A third scenario is to find a financial advisor at a wealth management firm and pay around 0.6% AUM from one of the big firms, like Morgan Stanley or Merrill Lynch. 

The Redditor wonders if they would be better off automating their investment strategy and avoiding paying a fee to a wealth/financial advisor. What we don’t know is what goals they have for investing. Is it to grow their wealth, or do they want to be super aggressive and hit another number before retiring?

The Recommendation 

So, while we don’t think we have all the information necessary to make a truly informed decision, I think there is a strong recommendation to be made. Remember that I am not a financial advisor, so this recommendation is based purely on my research. 

First and foremost, I don’t see much harm in working with anyone to gain additional insight into tax advice. Assuming any windfall from selling the company comes all at once, there are tax implications, and it would be great to get some advice on how to approach everything best. 

Regarding the whole decision behind a financial advisor, there is a good chance they will keep you from making any mistakes. The question becomes how much you want to make every year, but there is a better-than-good chance it’s more than 0.6%. In other words, if you’re trying to make a 5% return on your money yearly from investments, then paying 0.6% won’t dramatically impact your lifestyle. 

There is also the question that while robo-advisors can be good, they are not as good as individual financial advisors, at least financial advisors who know their stuff. I would remove the robo-advisor from the equation and only consider managing your money alone or going with a financial advisor.

The Redditor does indicate in the comments that he currently has a flat-fee advisor. Still, he might be better off going with a highly recommended independent advisor who doesn’t require the flashy suits and offices of a major firm like Morgan or Merrill. 

The Takeaway

Ultimately, the best solution is to go with the smaller firm, pay whatever they ask, and live a comfortable life. At some point, you have to be comfortable spending money to make money, and I think that’s where my head is at with this individual’s situation. Again, we’re missing some info on exactly how much additional wealth they hope to create, whether they’re retiring, etc., but even without that information, we can safely assume they want to make more and more money. 

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