Another advisor horror story

[Bourne]

I'm not clear on what the bold portion means. Do you go back and figure out what your return would have been if you had invested in a mix of low cost index funds similar to the ones your FA invested your $$ in and see if you came out ahead? If so, I would submit that is more trouble than just actually investing in these funds yourself and saving .5% every year in fees. If you NOT doing this cross-check yourself and are instead relying on your FA's annual depictions of what your return would have been without his help, then I think there's a real potential you aren't getting an unbiased appraisal. To put it charitably.

Let me explain it with an example of 100K for simplicity sake.

My advisor and I sit down every year and review an asset allocation for the next 3-5 year window. For the record, his approach is more conservative than mine.
For 2006, it was a 80/20 mix with 80 having 15% international. I do measure the stock portfolio at Large/Mid/Small level but will ignore it for this example.

Amount Allocation Split Asset Class Performance ( For example only)
100, 000 = 65000 - S&P 500 - 10.0%(YTD)
15000 - International - 20.0%
20000 - Bonds - 5%

Based on the numbers used above, the portfolio performance should be 10.5%. Again, there are some tweaks that are made during the year but they are easy to track. At this point, the mix is 70/20/10 with some stock gains taken off the table into cash(money market). Also, the small cap holdings were liquidated to move into mid-cap.

Bottom line is that I can track the performace percentage i.e. 10.5% with relative ease using multiple tools available in the market. Add the 0.5% to it and 11.0% is the number to beat.

If he beats 11.0% in the above example, I am more than happly to allow him to manage the money. And he has for four years running...

 

[Bob_Smith]

If he beats 11.0% in the above example, I am more than happly to allow him to manage the money.

I am one of those who is of the opinion that anyone who beats the market over a long period (and most of us are in this for the long haul) either takes more risks to do so, or got lucky. I allow for the possibility that there may be a few exceptions, but I have no way of knowing, in advance, who that will be.

Although I wouldn't do it, I can understand why someone might use an adviser for convenience. I can't see any solid reason to use an adviser based upon past performance, however. In other words, you seem to be saying that you are "more than happy" (eager?) to allow him to manage your money in the future - based on the performance of the portfolio he constructed for you in the past. If that's what you're saying, you won't be the first to take that approach.

 

[tryan]

FD,

You're not helping yourself ...

A guy I used to work with (since left the business) used to sell Vanguard Funds and wrap them with a fee. He was doing quite well with it,

 

[samclem]

I remembered something about mutual funds. A guy I used to work with (since left the business) used to sell Vanguard Funds and wrap them with a fee. He was doing quite well with it, and I have no idea why..........but I know for sure he is out the business now, and that may have been a contributing factor............

Hey, I think FD is doing us a favor by sharing this info. He also said he thinks the practice is shady.

I'd even add that there are many FAs doing worse things to their clients than puting them in a solid mix of low-cost MFs and charging them a fee. If this guy didn't churn their accounts or put them in an inappropriately risky mix of funds, then they might have come out better than many other victims. That doesn't make it a good practice by any means, but not the worst thing happening, either.

 

[FinanceDude]

FD,

You're not helping yourself ...

No offense, but you gotta learn to read what I'm writing.........