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Old 02-25-2014, 09:11 PM   #101
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That still doesn't mean the isn't another institutional class of the fund with very low fees only available to large brokerages for managed accounts. My FA is with USAA and they explained to me that their managed account services with a minimum investment of $500K would have access to these institution versions of their funds with very low fees. I chose not go use them since I enjoy picking individual stocks and didn't like the one percent annual management fee even with the low fund fees, but may consider it one day as I get older. Although USAA doesn't, it's possible her FA eats the fund fees so she only pays the one percent. Institutional fund fees make sense to attract larger accounts. I think everyone needs to cut her some slack. Do you really think institutional fund rates would be available to retail users of Morningstar?
I would expect the companies prospectuses to list all available classes. They already list classes that are not available to retail customers. They also have SEC registration requirements to deal with. What you are suggesting sounds like unregistered securities.

But none of that matters, IP identified the shares as class A.
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Old 02-25-2014, 09:12 PM   #102
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Many years ago I heard a recorded talk given by the photographer Galen Rowell. He complained that one of his most famous images "Rainbow over the Potala Palace" was being questioned by people who thought he must have photoshopped it. Several prominent photographers had been caught photoshopping images and not revealing this to the public. People who used Photoshop knew how easy it was to put a rainbow into a photo. Thus, Mr. Rowell's very famous photo 'must' be a fake.
This is a fantastic image which you can see here (it's the middle image): Mountain Light Photography: Fine Art Prints | Tibet and China

It was made in 1981 well before photoshop although I guess there are analog ways of doing the same thing.

Sorry for the OT post.
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Old 02-25-2014, 09:12 PM   #103
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That still doesn't mean the isn't another institutional class of the fund with very low fees only available to large brokerages for managed accounts. My FA is with USAA and they explained to me that their managed account services with a minimum investment of $500K would have access to these institution versions of their funds with very low fees. I chose not go use them since I enjoy picking individual stocks and didn't like the one percent annual management fee even with the low fund fees, but may consider it one day as I get older. Although USAA doesn't, it's possible her FA eats the fund fees so she only pays the one percent. Institutional fund fees make sense to attract larger accounts. I think everyone needs to cut her some slack.
+1

What you say about the institutional class, available to brokerage firms is 100% correct. They do offer a discount to the normal fees. (EDIT to add, yes the fees must be disclosed) I don't know what the normal ER is, but it's real.

It's up to the OP to determine for themselves what their strategy is. The OPs method of testing their FA number's seems sound. Maybe 1% is ok for now, seems like they were open to thinking about future direction.

I've learned many things on this board. One is to accept other's ideas. Another is to understand we're not all the same.
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Old 02-25-2014, 09:14 PM   #104
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I am happy to go out on a limb here: IP is not MM. Not in the slightest. She isn't crazy and she is very bright. Lets not make that comparison.

IP, some of the stuff you have posted scares the crap out of me. However, your money, your choices. The one thing I would throw out to you is that the ability to manage taxes once you retire becomes hugely important and I would strongly suggest you figure out a way that makes sense to you to get hold of the reins on this one. A massively high churn portfolio like the one you have now will be a disaster once you retire. OTOH, if you are a longer term holder at least in your taxable account you can very judiciously manage tax exposure very simply. I expect to pay about zero federal income tax over the next 5 years even though I will realize significant qualified dividends and long term gains. If your portfolio is constantly churned, it becomes impossible to work the tax code to your advantage. That is a LOT of money to leave on the table.
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Old 02-25-2014, 09:17 PM   #105
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Originally Posted by photoguy View Post
This is a fantastic image which you can see here (it's the middle image): Mountain Light Photography: Fine Art Prints | Tibet and China

It was made in 1981 well before photoshop although I guess there are analog ways of doing the same thing.

Sorry for the OT post.
It was not really off topic. It demonstrated that when some people commit a fraud even the honest guys who produce outstanding results sometimes get tarred with the same brush.
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Old 02-25-2014, 09:18 PM   #106
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I would expect the companies prospectuses to list all available classes. They already list classes that are not available to retail customers. They also have SEC registration requirements to deal with. What you are suggesting sounds like unregistered securities.



But none of that matters, IP identified the shares as class A.

Sounds like you must know everything about everything.
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Old 02-25-2014, 09:26 PM   #107
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Sounds like you must know everything about everything.
Certainly not. But I did help write some of the software behind EDGAR which is used by the SEC to track what we are discussing.
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Old 02-25-2014, 09:28 PM   #108
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Looking at the first fund, AEGFX in more detail I see that it under performed the MSCI EAFE benchmark index that morningstar compares it to for the past 1,3 and 5 year periods once you take expenses into account. At 3 years it did the best with an annualized gain of .2 per year better than the index, but with an expense ratio of .85 it under performed the benchmark index. A small investor can buy the VGTSX fund with an expense ratio of .22%. A larger investor can get admiral shares of the same fund (VTIAX) with an expense ratio of .16%. Either of these core index funds beat the managed fund.

Is morningstar comparing the fund to an improper benchmark?

ETA: I should have said "benchmark index" instead of "index fund" in the first sentence. I have corrected this.
In my opinion, the right way to benchmark the fund is to look at it under a factor model such as the Fama French model. E.g, take a look at

Fama-French Factor Regression Analysis

Under this model the alpha (excess return) is 0.05% which is basically not different from 0. I wouldn't trust morningstar's benchmarking as they just pick something vaguely similar and it isn't really quantitative.
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Old 02-25-2014, 09:35 PM   #109
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I think most folks here do a good job of responding appropriately to new posters. When a new person chimes in and says they know very little, but they think their FA might be taking advantage of them, they generally get supportive and non-critical comments. When a new poster says she's an experienced investor and has an "FA who beats the benchmarks every time" and is happy that she's not getting "sloughed off into low-cost index funds", then it's fitting that the discussion go exactly where it went. Other people read this stuff.

If I had a friend who had an FA putting them in a lot positions and was actively trading at a rapid rate, I'd be suspicious. If these active trades made it virtually impossible to track performance (which benchmark to use?) it would be harder still to know what was going on. I'd offer suggestions to that friend, things for her to think about. That's what people are doing for IP.

The 1, 3, and 5 year track records of an advisor (or fund) are virtually meaningless unless they are adjusted for risk. And we can't adequately adjust for all real risk, so instead we use "volatility," which is a poor substitute, especially over short timeframes (since volatility is a systematic, not random, source of variation).

But we know this for sure: If anyone could accurately pick winning stocks even a few percentage points better than the market does, that person could become fabulously wealthy in short order by trading options in a highly leveraged way. They wouldn't have to be right "all the time", just a fair percentage better than chance. They'd make a lot more money than taking 1% off the top of some retail clients and making money through hidden fees. But, they don't . . .why? That's the question to ask them and their acolytes.

InParadise: Welcome to the board!
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Old 02-25-2014, 09:35 PM   #110
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This is a fantastic image which you can see here (it's the middle image): Mountain Light Photography: Fine Art Prints | Tibet and China

It was made in 1981 well before photoshop although I guess there are analog ways of doing the same thing.

Sorry for the OT post.
Continuing OT.... My dad was acquainted with Mr Rowell and I recently received from my step mom the framed photos my dad had from that time period. One is the one you linked. I have memories as a kid when Galen Rowell and his wife had dinner at our house. It was a big deal.


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Old 02-25-2014, 09:35 PM   #111
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That still doesn't mean the isn't another institutional class of the fund with very low fees only available to large brokerages for managed accounts. My FA is with USAA and they explained to me that their managed account services with a minimum investment of $500K would have access to these institution versions of their funds with very low fees. I chose not go use them since I enjoy picking individual stocks and didn't like the one percent annual management fee even with the low fund fees, but may consider it one day as I get older. Although USAA doesn't, it's possible her FA eats the fund fees so she only pays the one percent. Institutional fund fees make sense to attract larger accounts. I think everyone needs to cut her some slack. Do you really think institutional fund rates would be available to retail users of Morningstar?
About USAA, their institutional funds have different tickers. So the investor class and institutional class have different e/r's.
As an example, from Morningstar:
USIFX 1.21%
UIIFX 1.01%
The expenses are still too high to be in an index.

Tonight, an MSSB financial guy (was very nice, and bought us a delicious dinner!), explained something similar about "eating" the fees. I posed the question, doesn't his quoted 1% AUM fee exclude the expenses of the fund expenses, and wouldn't someone invested in a particular model be wise to look at the internal fund expenses? His explanation about "eating" the fees was not so clear. If I follow up with a one-on-one, I'll ask again.
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Old 02-25-2014, 09:56 PM   #112
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A couple of thoughts. First of all I do remember inParadise from the TMF days, she isn't a newbie on this stuff and as such I think deserves the benefit of the doubt.

I have patted myself on the back many times, for out performing my moderately aggressive benchmark by 1-2% with lower volatility over 5+ year. But how do I really know this only because Schwab has portfolio analysis tool. I vaguely know how works but I'd be at loss as to how I'd try and prove my performance, to the forum members. There is room in my performance to pay FA fees and still achieve alpha. I think I am better than average investor, maybe even better than the average on the board, but no way am I a top investor. I lack the discipline, and some cases the knowledge to be a top investor, and 'm just too lazy, relying on M* to summarize a company rather the pouring through the 10K except on rare occasions.

God knows we seen enough awful advisers on the board, that have underperformed every possible index, that the law of averages seems to imply that some new person on the board may have the rare FA who actual provides alpha.

I think unlike that vast majority of new members with FA, I think IP actually has the knowledge to accurately judge. "Is my adviser making me money on a risk adjusted basis." So I more inclined to to believe she has actually found the rare good one.

All that said, InParadise the financial side of this board is very data driven, pretty much nothing is taken at face value. If some expert say the SWR is 2.8% or another says you increase the percentage equities in your portfolio as you age. One or more board members will take it upon themselves to dig deeply into the report and try to reproduce, or more commonly point out the questionable assumption they use to support their recommendation. After all many of us are retired we have the time. ...

This extends to other area, not long ago ERD and I collaborated in showing that EPA MPG rating for electric vehicles was BS smoke and mirror. I just bought a Tesla so I wanted to believe I was getting 95 MPG but the data doesn't lie even if government officials do..

Folks like ERD50 provide a very valuable service in crunching numbers. He may seem a bit aggressive in his requests, but I guarantee you if he thinks X is true but the data shows it is Y, he will be the first say I was wrong. I find the peer review feature of the board to be one of the most valuable things..
It seems to me there are three things that can happen if you provide more info.
  • Your FA is in fact achieving alpha
  • He isn't and he is lying to you.
  • It is inconclusive
If you don't think it is worth the effort to figure this out no problem, but we are looking for understanding not condemnation.
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Old 02-25-2014, 09:56 PM   #113
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I'm pretty sure IP's FA can avoid the front load fees for him, but if he has specified a symbol and share class he is not in some magical institutional fund without fees. IP is paying the ER's in addition to the 1% AUM.

gozer, reported performance is always net of expenses. No need to "take expenses into account." Front or redemption loads are not included and do need to be taken into account.

Looking at M*, it looks like AEGFX did beat M*'s index for the 3 year period, though not the others. Also beat for 10 and 15 years, which I like better. It's a decent fund that M* rates as Gold.
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Old 02-25-2014, 09:59 PM   #114
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Continuing OT.... My dad was acquainted with Mr Rowell and I recently received from my step mom the framed photos my dad had from that time period. One is the one you linked. I have memories as a kid when Galen Rowell and his wife had dinner at our house. It was a big deal.
Wow that would be a huge treasure. I'm very jealous (both of the photo and having known Rowell).
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Old 02-25-2014, 10:04 PM   #115
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Certainly not. But I did help write some of the software behind EDGAR which is used by the SEC to track what we are discussing.
Did the software or EDGAR track privately placed securities? My former employer's 401K plan had a number of privately placed "Trust" Mutual Funds that were essentially carbon copies of the well-known mega publicly traded mutual funds with negotiated expense ratio less than the public funds, no sales charge, no 12b-1 fees, and no redemption fees. I suspect, from what's being reported here, that there are other privately placed securities offered to major accredited investors.

Just asking.
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Old 02-25-2014, 11:12 PM   #116
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To IP.....


Do you have what your return has been the last 3 years and the last 1 year on your invested portfolio

My Vanguard account tells me my returns for all accounts... so posting those might show how good you are doing...

I will spend a bit of time tomorrow looking at the funds you posted and see...


I also believe that these funds are paying your FA.... you should be able to ask...

My biggest concern is the churn.... there is NO reason to keep changing funds at a rapid clip... zip, zero, nada.... funds fall into a class, and the biggest difference in them are the fees... and an S&P fund is and S&P fund... there is not enough diff in them except for the fee.... or it is NOT an S&P fund....



As most people have said.... your comments are outside the norm.... and almost all who have posted more info has been proven wrong... not all, but most... I would be skeptical of someone who said they have beaten the market by 10% for the past 3 and 5 year period... it could have happened, but not likely...
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Old 02-25-2014, 11:46 PM   #117
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I'm just glad it is looking like the funds are legit. Whether they beat the market or not is less important.
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Old 02-26-2014, 12:03 AM   #118
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Did the software or EDGAR track privately placed securities? My former employer's 401K plan had a number of privately placed "Trust" Mutual Funds that were essentially carbon copies of the well-known mega publicly traded mutual funds with negotiated expense ratio less than the public funds, no sales charge, no 12b-1 fees, and no redemption fees. I suspect, from what's being reported here, that there are other privately placed securities offered to major accredited investors.

Just asking.
There are unregistered securities which are not tracked by the SEC. That's the definition of an unregistered security. It involves things that are offered to specific institutions or small numbers of individuals. There are rules that can get you in trouble if you sell unregistered securities to the wrong entities. I don't know all the rules in this space. But it's things like unregistered securities can only be sold to "qualified investors". Qualified in the SEC sense, million dollar net worth or high income. However, I suspect most of the things you are talking about are actually tracked. If they have tickers we can look them up in EDGAR and maybe see.

IP listed ticker symbols that are standard class A retail shares from tracked mutual funds.
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Old 02-26-2014, 12:41 AM   #119
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I'm pretty sure IP's FA can avoid the front load fees for him, but if he has specified a symbol and share class he is not in some magical institutional fund without fees. IP is paying the ER's in addition to the 1% AUM.

gozer, reported performance is always net of expenses. No need to "take expenses into account." Front or redemption loads are not included and do need to be taken into account.

Looking at M*, it looks like AEGFX did beat M*'s index for the 3 year period, though not the others. Also beat for 10 and 15 years, which I like better. It's a decent fund that M* rates as Gold.
Yes, I see that you are correct on how the fees are handled. But since the 1% to the FA is on top of those fees, and not already factored in, then didn't AEGFX actually lose to the index by slightly more than I thought in the 3 year window? But I also like longer term numbers better, it's just that IP said 3 years in an earlier post.
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Old 02-26-2014, 01:10 AM   #120
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There are unregistered securities which are not tracked by the SEC. That's the definition of an unregistered security. It involves things that are offered to specific institutions or small numbers of individuals. There are rules that can get you in trouble if you sell unregistered securities to the wrong entities. I don't know all the rules in this space. But it's things like unregistered securities can only be sold to "qualified investors". Qualified in the SEC sense, million dollar net worth or high income. However, I suspect most of the things you are talking about are actually tracked. If they have tickers we can look them up in EDGAR and maybe see.

IP listed ticker symbols that are standard class A retail shares from tracked mutual funds.
You sound like it's a very worrisome thing to have privately placed securities, as if the SEC registration process is a panacea for the safety, soundness of securities registered with the SEC, when the primary focus of the process is the adequacy of investment disclosure and information to prospective investors. Not all institutional or privately placed mutual fund shares have to go to accredited individual investors. They can be placed with pension funds and employer 401K plans. I own T.Rowe Price New Horizons Trust Class A Shares (no ticker symbol) through my former employer's retirement plan but my Class A shares have the same asset holdings as T. Rowe Price New Horizons (PRNHX), but with a lower expense ratio than PRNHX, no sales fees, no 12b-1, no redemption fees, period. If you asked me for a reference point for my holdings in the Class A Shares, I guess I couldn't refer to my "unregistered securities" but would have to refer to PRNHX and this would lead you to believe, I guess, that I'm being saddled with the fees and ER aligned with PRNHX.

If you can find my Class A Shares in EDGAR, let me know.
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