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Let’s start here before this goes completely off the rails: we are huge Dave Ramsey fans. We were deeply in debt and needed his baby steps to get out of the mess we had created. His books, Financial Peace University, and radio show have served us very well. It helped build our financial literacy and got us to where we are today. So, if we’re such big fans, why did we fire the financial advisor we’d had for years through his ELP/SmartVestor Pro referral program? 

First and Foremost, Fees

All told, the fees totaled about 2.2% of assets under management (AUM) each year. That means we were giving up 2.2% of the gains in our portfolio off the top. Remember we approximate that the market grows at 8% per year so 8%-2.2%=5.8% per year. As our portfolio has continued to grow, this percentage has led to an increasingly large chunk of money.

One myth we were falsely convinced of was: investing is hard, you must hire an expert to do it right. We assumed the fees we were paying were small in comparison to the wealth they were building for us. As it turns out, this was completely false.

When we began reading about early retirement and found the FIRE movement, everyone was talking about index fund investing and VTSAX due to “low fees.” We had to ask our advisor what it was all about. Our approach was simply to ask him to run some models comparing our current approach to a 100% VTSAX approach like we had read about.

Running models about whether we were on track in our retirement planning was our favorite part of our twice a year meetings with our financial advisor. It really makes compound interest come alive! The results were absolutely startling. The fees were hampering our ability to grow long term wealth so much that the difference in models resulted in a 2.5X multiple in our wealth over our lifetime totaling almost $18,000,000 over the rest of our lives. Yikes!

From reading FIRE blogs and listening to podcasts, we knew many people were handling their own retirement investing with much lower fees. Others were using “fee only” financial planners instead of the “assets under management” models. After seeing the models, we asked our ELP what value we were getting from those fees.

What Value Were We Getting From Our High Fees?

Here are a couple of key points he made:

1.  Fund managers are smart and do research so our fees are essentially outsourcing that work so we don’t have to do it ourselves.
2. We are paying him basically as insurance so that he can talk us off a cliff if, say, we called him one day asking to pull all our money out of the market because we got scared during a market blip.
3. As a financial advisor, we are paying for advice (and you get what you pay for, right)? We’re seeking wise advice in the area of our finances.

Now, let’s look at these 3 point:

First of all, the mutual funds we were invested in were not keeping up with the S&P 500 index, so how smart could these fund managers be? Plus, the investments were complicated with no easy way to decipher what we actually were invested in. In total, we owned 37 different funds. We had no idea what they were or why or how they were balanced. And they weren’t even keeping up with the stock market. We couldn’t explain to anyone the “why” behind the strategy other than to say that we worked with a Dave Ramsey ELP, so it has to be sound advice because we believe in Dave’s approach.

On the second point, we are very low maintenance financial clients. We’ve not called our ELP in the 15+ years we’ve been doing business with him asking to move money around (scared of the market, etc). We are not people who need to be talked off a cliff when the market is down. We get it. We understand that the market goes up and it goes down but generally it goes up and investing early, often, and consistently for the long haul is the way to go. We were paying for someone to protect us from ourselves when we really didn’t need that.

Third, as far as financial advice goes, as FIRE enthusiasts, it felt like we were as informed or more informed than our advisor (and that’s never a good thing). We read blogs, listen to podcasts, read books. It’s our hobby. We challenge the status quo. We felt like the questions we did have were so niche or advanced or fringe (I mean, who retires early, right?) that our advisor wasn’t helping or providing value. He could Google our questions and get answers as easily as we could. For example, one question that never had a concrete answer was, “Is it better for us to be investing in a traditional or Roth 401k through my employer at this stage of life, knowing I’ll retire early?” It was frustrating that this never got a solid answer when one must exist (it’s traditional by the way).

What Did We Do?

Ultimately, we decided to pull our money from our ELP, open a Vanguard account and invest in a much simpler and extremely low cost portfolio that we 100% understood and could manage ourselves.

But that’s a big scary decision. It’s one that took lots of pondering. In addition to the social awkwardness of firing someone you’ve been working with a long time, there’s the chance to screw it up in the transfer since you don’t really know what you’re doing, and the chance you’ll miss out on something because you can’t possibly know everything about everything. Because we are very conservative and risk averse in these areas of moving lots of money around, we decided to mitigate this risk by taking two concrete actions on our way out:

1. Read JL Collins’ The Simple Path to Wealth. This is basically the only DIY handbook you’ll need for investing and every single person should read this. This is going to be part of our kids high school homeschool curriculum. This will tell you everything you need to know and give you confidence that simple does not equal crazy.
2. Hired a fee-only certified financial planner (CFP). We weren’t sure if we’d do this for a one time “are we crazy?” consultation or on an ongoing basis (depending on our comfort level), but we knew we wanted some FIRE-friendly smart eyes on our plan for reassurance.

What We Learned From This New Plan

From The Simple Path to Wealth

This is directly from the book and is now our simple, understandable investments strategy:

• Get out of debt
• Spend less than you make
• Invest the difference in low cost stock market index funds
• You can do 100% in the total stock market index and be alright (or add a little fancy and invest in some bonds). We also chose to add some international as well.
• Our simplified portfolio became:
  • 60% VTSAX – Total stock market fund
  • 20% VBTLX – Total bond market fund
  • 20% – VTIAX – Total international stock market fund

Much better than 37 different funds, right?!? And with the credibility and confidence of JL Collins, we felt pretty comfortable with this approach.

From Hiring a Fee-Only Certified Financial Planner

We got on a wait list to see a rock star, fee-only, FIRE-friendly CFP. After an initial call, we decided that we’re pretty self sufficient and an ongoing situation wasn’t going to be necessary. We just needed a one-time look at our numbers and our plan to give us confidence that we’re on track and to answer a few questions we had. We can always repeat that meeting in the future if we need to.

In the end, it cost us $750 for the one hour meeting (which seems like a lot, right?). When you are writing the check from your checking account for $750 and you live as frugally as we do, it stings. We wanted to make sure we maximized the value of the 60 minutes we spent. Minimize the small talk and maximize the value. $750 seemed insane at first, BUT, you know what is even more insane? We met with our old financial planner twice a year for an hour each time and if you calculate what we were paying in fees, those meetings cost us about $8000 per meeting. Are you freaking kidding me?

We only wish we would have come to this awareness sooner. It’s unfair to play “what-ifs” and my wife encourages me not to (and it makes me sick to my stomach to think about) but if we had known this, might we already be retired early? It’s definitely possible. By reading this far, you’re benefiting from our mistake. Please share this with someone, especially someone who is early in their financial journey; their financial journey’s course will be altered profoundly by this reality.

In Summary

We love Dave and credit him with our current financial success.

His ELP had crazy high fees in an assets under management (AUM) model costing us 2.2%, which is highway robbery.

Paying high fees meant our nest egg wasn’t growing as fast as it could have.

We were falsely convinced that it was the opposite (the fees we were paying were small in comparison to the smart financial decisions they were making for us).

Our investments were complicated and we didn’t understand them, really.

Let the math tell you the truth. Just run the models. There are lots of free calculators online. What are fees costing you over the length of your investments? Ours told us the fees we were paying were freaking nuts.

We didn’t need what we were paying an expensive ELP for: smart research and fund management, talking us off a cliff, or advice we could Google ourselves.

If you want to DIY your investments, we recommend two things:

• Read The Simple Path to Wealth
• Hire a fee-only CFP (either one-time or ongoing, if you think you need it).

When the fee-only fee stings, remember the value you’re getting and the lost growth opportunity high fees would have cost you over your lifetime.

Share this info with someone who’s early in their journey and change their life forever.