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Old 02-26-2014, 06:34 AM   #121
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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?
Thanks for the support Dash, but it is unlikely that we will convince them that I only pay the 1%. So be it. But this again goes back to my original comment on post 3 that one should focus more on net return than fees and expenses. Frankly, with the Mechanical Investing I did to grow our assets, the "too many expenses" camp would have had the same problem, given that some of the screens that I ran were weekly and could result in 20 trades per week. The results were by far worth it for me, but it is a style of investing that requires a high tolerance for volatility and strict discipline.

My FA, knowing my history with stocks, has suggested setting up a portion of the account for me to trade, which would have zero stock trading fees and would be outside his 1% which is not imposed on the individual stocks we have kept in our accounts. So why would he suggest transferring some of the assets to outside of his fee base? A happy client remains your client. Not all FAs are equal. MIL's is terrible, charging her 1% even on her money market account, and since he is an independent instead of affiliated with a large group, passes all the fees on to her. But that is another fight I just won't get involved in. Have to pick my battles.

And I love that this young guy has focused on a total family approach. Our kids get the benefit of the FA perks even with their relatively low balances. Eldest at 19 already has a robust Roth account, the growth of which has interested him in continuing to contribute to his Roth even at such a young age. He also has a free checking account with a fee free ATM card, no matter what ATM he uses world wide, at a much higher rate of return than the PNC account he opened because they have an ATM at school. This will come in handy when he does his semester abroad this summer, using the ATMs in Spain. No fee credit cards will be available as well when he starts to work again. These are perks that typically only are provided to those with considerable assets, but the FA realizes that these kids are his next generation of clients, and if he pulls them in now, they will likely stay with him when they too are making good money. No doubt he knows these are perks we value which makes it harder for us to leave, as long as his returns remain as good as they are. His focus on the family, being a trusted adviser to the kids about finances should something happen to us, propagating our vision for these funds after we pass, is something that sets him apart. Smart marketing and while I see through it to why it benefits him as well, I am impressed with his taking that approach.

There are pluses and minuses to everything, and a FA is not for everyone, nor is it necessarily for us at every point in our life. For now, it is working well for us. But frankly we would not have even had enough assets to go with him had I not challenged the mantra of low expenses rule. Net returns rule, and for some that will be achieved by low fees and expenses, for others, not.
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Old 02-26-2014, 07:06 AM   #122
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Originally Posted by brewer12345 View Post
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.
SNORT! Well Brewer, in the interest of full disclosure, I can be crazy sometimes. Life would get boring otherwise.

Yes, taxes are something we are putting on the table in next weeks meeting. Most of the FA assets are in retirement accounts, so the churn is less critical there, but we want our taxed account managed for taxes, even at the sacrifice of return, which is not the only factor in this case. We want to use our low tax rate to convert TIRAs to Roths, potentially qualify for reduction of college costs, and maybe even receive an ACA subsidy.

Our FA is not a tax guy, and will do no more regarding taxes than recommend someone else, so this is one area that we need to set the strategy and be firm. Having a FA does not equal abdicating all decisions to them. You have to discuss your goals and come up with a way to best meet them together. We meet in person once a year, (some sales commandment IMO about pressing the flesh to make sure your client feels valued,) something we would be happy to do without since we have full access to him via phone and email. My comments implied I was not involved at all, mostly because I was more interested in furthering the realization that NET RETURN TRUMPS LOW EXPENSES than talking about FAs.
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Old 02-26-2014, 07:18 AM   #123
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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
Yes. But I am not going there. I am not here for you guys to dissect our choices and confirm we are doing what we need to be doing. I feel comfortable with our approach at this time. Thank you for your interest. I will be sure to make it clear if I need analysis of something down the road.

I also don't think providing returns would further the "Is a FA a valid way to go" discussion, since the returns from our FA will not be the same as another.
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Old 02-26-2014, 07:56 AM   #124
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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.
Not worried at all, they are just different things. Remember IP indicated that she copied and pasted her information from a screen in her portfolio and then deleted the things from the screen that she didn't want us to see before posting it.

Quote:
Well, OK, that was a PITA to edit down so that you didn't see all the other info that copied and pasted with, but since you asked so nicely...
Basically, IP said, I bought 9 cars and she gave us the make and model (i.e. the ticker symbol). But we keep trying to say what if it was 9 stealth fighters. Interesting, but off topic.

I have no idea how to find a security like you are describing that is only "like" something else. I'll dig around a bit, but I doubt I'm going to get anywhere. Since I retired a few weeks ago, I only have the same basic access you do off the SEC site. It allows you to find filings for a known entity. But when you do full text searching for "T. Rowe Price New Horizons" you get more than 8000 results. You would need to narrow the info. There are huge numbers of institutional funds filings associated with this fund.
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Old 02-26-2014, 08:10 AM   #125
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My comments implied I was not involved at all, mostly because I was more interested in furthering the realization that NET RETURN TRUMPS LOW EXPENSES than talking about FAs.
There are two ways to increase returns. Successfully time buying and selling decisions, or allocate more assets to higher risk investments. My guess is most members here feel that successful timing is either not possible or can be done once or twice but not continuously. That leaves higher risk as the primary driver of satisfactory returns.

We all have different combinations of private & public pension / annuity / self-financed retirement income streams, but as the reliance on portfolio increases, risk management becomes more important. If you want the conversation to focus on the point you highlighted it might be interesting to know how you manage portfolio risk to get those returns.
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Old 02-26-2014, 08:14 AM   #126
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mostly because I was more interested in furthering the realization that NET RETURN TRUMPS LOW EXPENSES than talking about FAs.
If what you are interested in is did I make money or did I lose money. Then bottom line returns are quite appropriate and certainly the gold standard indicator.

If you are trying to determine if the value added by the FA is appropriate, then you start comparing your performance to that of other similar things without the FA. Additionally you, and only you, have to decide what the intangibles like hand holding and/or support for kids should you get hit by a bus are worth. All other people can do is identify the other things and point out the difference in the basic numbers.

Like others I am troubled, that your FA sounds like he is day trading mutual funds. I can't fathom why he would do this. Do you know why?
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Old 02-26-2014, 08:23 AM   #127
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"you need to focus on net return after fees and expenses are accounted for"

I did at the end of third quarter last year. In a great market my 65/35 portfolio was making 3%. Fees and commissions were one third of that 3% leaving me with a net of 2%.

My former FA was a fiduciary.................for himself.
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Old 02-26-2014, 08:37 AM   #128
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Thanks for the support Dash, but it is unlikely that we will convince them that I only pay the 1%. So be it. But this again goes back to my original comment on post 3 that one should focus more on net return than fees and expenses. Frankly, with the Mechanical Investing I did to grow our assets, the "too many expenses" camp would have had the same problem, given that some of the screens that I ran were weekly and could result in 20 trades per week. The results were by far worth it for me, but it is a style of investing that requires a high tolerance for volatility and strict discipline.
I don't think anyone has trouble believing that the front end load charges are waived. As others have pointed out, 401Ks often have that kind of arrangement where load and/or deferred sales charges are waived.

Certainly the expense ratio is a different matter. You showed us 9 funds from 9 different firms. To waive those fees would require a special relationship with each and every one of those firms. Something I have never seen. Or perhaps your FA pays those fees out of his own pocket. That I have seen. But I don't think your 1% FA fee is high enough to cover that. Unless your FA is a really close friend that is doing you a huge favor and is making almost nothing from your business.
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Old 02-26-2014, 08:37 AM   #129
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There are two ways to increase returns. Successfully time buying and selling decisions, or allocate more assets to higher risk investments. My guess is most members here feel that successful timing is either not possible or can be done once or twice but not continuously. That leaves higher risk as the primary driver of satisfactory returns.

We all have different combinations of private & public pension / annuity / self-financed retirement income streams, but as the reliance on portfolio increases, risk management becomes more important. If you want the conversation to focus on the point you highlighted it might be interesting to know how you manage portfolio risk to get those returns.
Michael, the first step in investing is to set your goals, which include risk tolerance and portfolio allocation. This is a pretty individual thing and has absolutely nothing to do with my assertion that you can not look at fees and expenses without considering return. You then look at ways to invest to achieve those goals.

For example, if in comparing two funds of similar risk, funds A and B, you see that fund A has a fee of 0.5%, while fund B will cost you 2%, do you know what fund you will go with? No. You don't have enough information. It is highly unwise to make a decision based on one data point in isolation of all other factors, which is how the How Low Can You Go crowd was coming across to me. You need to see the history of rates of return to start the analysis, realizing of course that past performance is no indication of future results and YMMV. Educated guesses have to be made when figuring out how to invest. If you want predicted results, you take the money market with it's low returns that reflect low risk, or buy a cd.

So if the historical returns of these funds with equal risk show that Fund A's returns are 7% and B's are 12%, (assuming analysis to determine if there were extenuating factors for the difference,) which would you chose? Net return on A is 7-0.5=6.5. Net return for B is 12-2=10. Obviously, numbers are for demonstration purposes only.

This really is not radical thought, and does not even challenge the assertion here that typically lower costs correlate to higher returns. It is simply a reminder that you need to consider all factors, including those well beyond this simplistic example, when deciding where to put your money.
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Old 02-26-2014, 08:46 AM   #130
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Michael, the first step in investing is to set your goals, which include risk tolerance and portfolio allocation. This is a pretty individual thing and has absolutely nothing to do with my assertion that you can not look at fees and expenses without considering return. You then look at ways to invest to achieve those goals.

For example, if in comparing two funds of similar risk, funds A and B, you see that fund A has a fee of 0.5%, while fund B will cost you 2%, do you know what fund you will go with? No. You don't have enough information. It is highly unwise to make a decision based on one data point in isolation of all other factors, which is how the How Low Can You Go crowd was coming across to me. You need to see the history of rates of return to start the analysis, realizing of course that past performance is no indication of future results and YMMV. Educated guesses have to be made when figuring out how to invest. If you want predicted results, you take the money market with it's low returns that reflect low risk, or buy a cd.

So if the historical returns of these funds with equal risk show that Fund A's returns are 7% and B's are 12%, (assuming analysis to determine if there were extenuating factors for the difference,) which would you chose? Net return on A is 7-0.5=6.5. Net return for B is 12-2=10. Obviously, numbers are for demonstration purposes only.

This really is not radical thought, and does not even challenge the assertion here that typically lower costs correlate to higher returns. It is simply a reminder that you need to consider all factors, including those well beyond this simplistic example, when deciding where to put your money.
And now you sound like most everybody else on this forum. Different than you sounded 7 pages ago.
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Old 02-26-2014, 09:20 AM   #131
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And now you sound like most everybody else on this forum. Different than you sounded 7 pages ago.
Which is because you have finally gotten rid of your furor over my initial example to this extraordinarily simple way of looking at something. You got distracted by the example, the imagined and perceived bragging, the example offered sans data to "prove" I was not lying, to see the message. Why do you think I kept on trying to get away from the whole FA example? It really had nothing to do with the concept.
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Old 02-26-2014, 09:34 AM   #132
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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.....
We shall see. Me, I'm gonna pop some more popcorn.
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Old 02-26-2014, 09:37 AM   #133
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We shall see. Me, I'm gonna pop some more popcorn.
Gee, I guess this site isn't all that different from TMF after all!
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Old 02-26-2014, 09:39 AM   #134
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We shall see. Me, I'm gonna pop some more popcorn.




I wish I could actually get some tips or pointers here instead of just reading all this stuff about low expenses, front end loads, waived fees, the FA on the pedestal, MM (?), churning mutual funds, nets return is golden, etc, etc. But it is a hoot to watch this go on.
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Old 02-26-2014, 09:42 AM   #135
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Yes, taxes are something we are putting on the table in next weeks meeting. Most of the FA assets are in retirement accounts, so the churn is less critical there, but we want our taxed account managed for taxes, even at the sacrifice of return, which is not the only factor in this case. We want to use our low tax rate to convert TIRAs to Roths, potentially qualify for reduction of college costs, and maybe even receive an ACA subsidy.

Our FA is not a tax guy, and will do no more regarding taxes than recommend someone else, so this is one area that we need to set the strategy and be firm.
In that case, I think your only realistic option will be to set up a traditional low cost ETF buy and hold allocation portfolio in the taxable account where trades are done once a year and focus on a combination of rebalancing and tax maneuvers. You will either have to take this over yourself or get him to agree that there is a once a year rebalance and the trades get your OK first.
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Old 02-26-2014, 09:43 AM   #136
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It certainly was not my intent when I posted this initial thread to generate so much discussion. I figured I was posting an article that pretty much said what the members on this forum already knew. I guessed a few people would read it and said, yup agree with that, and it would fade into oblivion.

After reading 135 responses, all seemingly focused on trying to read the mind of one individual, I am left trying to ponder what we have learned from all of this.
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Old 02-26-2014, 09:43 AM   #137
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Which is because you have finally gotten rid of your furor over my initial example to this extraordinarily simple way of looking at something, and got distracted by the example, the imagined and perceived bragging, the example offered sans data to "prove" I was not lying, to see the message. Why do you think I kept on trying to get away from the whole FA example? It really had nothing to do with the concept.
You did open with a very fantastic claim. You then got what I would consider very mild jabs from people on the forum. Most of the initial comments were on point. I seriously doubt there was any malice or furor directed your way. Mild amusement was the strongest emotion I have personally been able to muster in this thread.
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Old 02-26-2014, 09:46 AM   #138
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After reading 135 responses, all seemingly focused on trying to read the mind of one individual, I am left trying to ponder what we have learned from all of this.
See post 134 above.
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Old 02-26-2014, 09:46 AM   #139
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It certainly was not my intent when I posted this initial thread to generate so much discussion. I figured I was posting an article that pretty much said what the members on this forum already knew. I guessed a few people would read it and said, yup agree with that, and it would fade into oblivion.

After reading 135 responses, all seemingly focused on trying to read the mind of one individual, I am left trying to ponder what we have learned from all of this.
That you're are a trouble maker.
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Old 02-26-2014, 10:01 AM   #140
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You did open with a very fantastic claim. You then got what I would consider very mild jabs from people on the forum. Most of the initial comments were on point. I seriously doubt there was any malice or furor directed your way. Mild amusement was the strongest emotion I have personally been able to muster in this thread.
I don't care. The only impact of the way my statements were received was on my willingness to go into details.

But as to your assertion that my message changed, I quite literally opened with "Hmmm, it's all about net returns after fees." Ended with "NET RETURN TRUMPS LOW EXPENSES." Chilling how very different those two statements are. (Being sarcastic, in case you are uncertain. Don't want another 100 posts or so analyzing it.)
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