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Financial Advisor or Robo
Old 07-20-2019, 10:29 AM   #1
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Financial Advisor or Robo

I know the forum does not prefer financial advisors but I have a question concerning financial advisers and robo advisers. I understand the financial impact advisors have on my investments but am willing to pay. I am trying to figure out how to pay less.

I have an 8+ year history with an advisor that creates his own portfolio. I am holding primarily stocks and bonds not mutual funds of a 60/40 portfolio. He has the leeway to time the market within a range of changing the ratio about 15% in either direction. Over the 8 years buying/selling has been minimal and the stock part of the portfolio has been closer to 65%.

Returns from 2010 to 2018 has been 9.2% after fees. I think I should be happy with that for a 60/40+ portfolio. The funds are weighted to USA large caps. Fixed income investments are held in individual companies.

I have negotiated a reduction in my rate but it would still be slightly more than double of a robo program. Betterment is at the top of my list if I were to change. Betterment is charging 0.25%. Betterment data shows in the same period, 2010 -2018 their increase is about 92%. I believe the financial advisor's growth is a bit higher. I do understand enough to realize if large caps out performed the total market in the last few years, the advisors account would be showing the benefit of their current investment approach vs a more total market/global approach. I am not sure if the level of risk for that approach. The adviser in general focuses on large caps but can be more diversified. They control the approach.

I am hoping you can help me think through this decision of staying where I am at or moving to the lower cost robo adviser. I will be with an adviser. I want to be sure my analysis does not miss the obvious and/or subtle questions. Obviously, if you have questions that you feel will guide your advice, I will try to answer them.

One last thing, I do not need to speak to an adviser and the money is not really needed to support our lifestyle. I treat it in the same fashion as my pre-retirement money.

Thanks
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Old 07-20-2019, 11:35 AM   #2
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I'm not sure the numbers are apples-apples, it would help if you could validate that, and put them in the same terms.

Your 9.2% after fees from 2010 to 2018 (I assume that is CAGR, JAN 2010, DEC 2018 - 9 years invested), would be 1.092^9 ~ 2.21x ( 121%). So if that's correct, that looks slightly better than a 60/40~65/35 index fund with annual rebalance approach ( ~ 2.05x ~ 2.12x). But that might be with a higher standard dev, with the lower diversification, and maybe higher yielding fixed income. And as you say, a different time frame might be better/worse for the FA's selection, hard to say.

What is he AA of Betterment? A 92% would be 1.92x, so under-performing the other numbers, if it is apples-apples.

OK, I have to ask, sorry. But if you have decided on an AA range, and have told your FA to stay within that, what do you gain from the FA? That's really a simple thing to do yourself.

http://bit.ly/30Io8ej << short link to portfolio analyzer

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Old 07-20-2019, 11:37 AM   #3
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Originally Posted by davef View Post
... I am hoping you can help me think through this decision of staying where I am at or moving to the lower cost robo adviser. I will be with an adviser. I want to be sure my analysis does not miss the obvious and/or subtle questions. ...
Well, maybe you should do what I did: I put a $100K test portfolio with the Schwab robot for a couple of years. Pick your favorite robot and try it (him?) out.

1) It junked up my reports with about 20 tiny positions in a variety of index-type mutual funds.

2) It required that (IIRC) about 5% be held in cash.

3) Performance results were slightly behind a simple $100K 65/35 total US/total International fund portfolio that I use as a benchmark. I would say that the performance was acceptble for someone who wanted a "fire and forget" portfolio. Certainly better than using stock-pickers.

4) I closed out the portfolio mainly do the the annoyance of seeing all those tiny position, but like any FA, the robot has to make investing look difficult an complex in order to convince the customer that the FA is worth using.
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Old 07-20-2019, 12:15 PM   #4
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I'm not sure the numbers are apples-apples, it would help if you could validate that, and put them in the same terms.

Your 9.2% after fees from 2010 to 2018 (I assume that is CAGR, JAN 2010, DEC 2018 - 9 years invested), would be 1.092^9 ~ 2.21x ( 121%). So if that's correct, that looks slightly better than a 60/40~65/35 index fund with annual rebalance approach ( ~ 2.05x ~ 2.12x). But that might be with a higher standard dev, with the lower diversification, and maybe higher yielding fixed income. And as you say, a different time frame might be better/worse for the FA's selection, hard to say.

What is he AA of Betterment? A 92% would be 1.92x, so under-performing the other numbers, if it is apples-apples.

OK, I have to ask, sorry. But if you have decided on an AA range, and have told your FA to stay within that, what do you gain from the FA? That's really a simple thing to do yourself.

http://bit.ly/30Io8ej << short link to portfolio analyzer

-ERD50
The adviser does have flexibility and it was one of the reasons I selected him after the last market decline. When I was FA shopping, they claimed to have lost less that the 60/40 market portfolio decline at the time. But they got back into the market later as well. For me, it came down to piece of mind and a sense that some market timing is worthwhile.

I think your analysis is correct. FA has a different diversification on stocks and may take on higher risk in fixed income but I really do not know. One example is Morgan Stanley providing a 5.5% yield. It was recently purchased and is due in 2021. That does not seem too risky to me but I really do not know.
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Old 07-20-2019, 12:49 PM   #5
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I'm very happy with my Merrill stock pickers. They have beat the S&P 500 including their fees for 5 years straight now. I told him to go with large stable Co's with dividends. I have 70 to 80 companies and trading about 15 to 20% per year at no cost to me. The dividends get sent to my checking by them each month. I have no mutual funds and no bonds with them. Also I need to call them when I need dough so they can sell some stuff. Sounds weird eh? I can't even access my own account. But neither can any hackers.

My bonds are at Fidelity and Morgan Stanley. Totally separate and I have to call them also. I like having peeps to call.
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Old 07-20-2019, 01:03 PM   #6
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......... He has the leeway to time the market ............
Respectfully, he does not know how to time the market, nor does anyone else over any reasonable investment horizon.
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Old 07-20-2019, 01:16 PM   #7
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Respectfully, he does not know how to time the market, nor does anyone else over any reasonable investment horizon.
+1. If this advisor (or anyone else at his company who writes the guidance for your advisor) could really consistently time the market, they could become fabulously rich in a very short time by using options/leverage. $1000 could be turned into millions in a year or two with a string of correct, or even mostly correct, calls. They'd have no need to waste time selling investment management services to retail customers (and would be foolish to do it).
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Old 07-20-2019, 01:16 PM   #8
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... When I was FA shopping, they claimed to have lost less that the 60/40 market portfolio decline at the time. But they got back into the market later as well. ...
Also with respect, did they "claim" this, or did they show you what they did? And that needs to be coupled with the "got back into the market later as well". Overall, did this beat a buy & hold position?

If a professional makes a claim, I expect them to show me. If they hedge on that, they aren't a professional, IMO. Especially if they are managing my money!


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... For me, it came down to piece of mind and a sense that some market timing is worthwhile.. ..
What is this 'sense' based on? I have yet to see data that can back this up. Anyone can get lucky, but can it be done reliably? Not that I'm aware of.

Agree with travelover, I wouldn't trust this unless they can produce convincing evidence, not a one time might have been lucky thing.

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Old 07-20-2019, 01:23 PM   #9
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I'm very happy with my Merrill stock pickers. They have beat the S&P 500 including their fees for 5 years straight now. I told him to go with large stable Co's with dividends. ...
I know you like your "guy(s)", but it does sound a little strange to me that you pay them to manage your account, but you are telling them what sector to go into? Shouldn't they be telling you? How did you determine that "large stable Co's with dividends" would be the best sector for you?

I see you still do some selling, so it's not a "I will only live off the income" preference/mantra that some have either. Just curious.

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Old 07-20-2019, 01:31 PM   #10
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I think many people use FAs for how they make them feel rather than any testable objective results.

If the FA is lucky, the client will not run out of money and will happily not know the difference. This the relationship 'worked ' for all involved.

Unfortunately, this is not always the case. I have known two people who had traditional DB pensions which they cashed out and turned over to a FA to manage. In both cases the money did not last and they now live in mobile homes eking by on SS which they took early at 62.

Very sad.

I hope that OP winds up in the former group.

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Old 07-20-2019, 01:35 PM   #11
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I figured large stable co's would be less risky. And yes I spend all the dividends and then some. The equities are in different market segments but are all large caps.

We have regular sit downs and he asked me what my concerns were. I said I want income and I don't much like bonds. I mean if you can get about the same income and still have growth too...
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Old 07-20-2019, 03:08 PM   #12
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I explored personal capital and found that they use a bunch of ETF's. I like individual positions so I can control gains. Nothing worse than a big surprise in December of capital gains. Also you got add their fee on top of what the EFT expense charge is.
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Old 07-20-2019, 03:51 PM   #13
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It's very popular for people to compare their portfolio return to the total return of the S&P. But unless the portfolio is exclusively invested in the S&P this is apples and oranges.

For example, a bitcoin portfolio would have spectacularly outperformed and spectacularly underperformed in the past couple of years, just depending on what time period was chosen. Similarly, I think over the last 10 years a portfolio invested solely in non-US stocks would have underperformed, but that does not mean that picking those stocks ten years ago was unwise. It just means that the picker was unlucky. Until the nature of the portfolio and its risks is known, benchmarking against specific sectors (S&P, small cap, large cap, etc.) is meaningless. If one must compare, the ACWI or the Russell 3000 are IMO much better choices.
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Old 07-20-2019, 04:17 PM   #14
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... benchmarking against specific sectors (S&P, small cap, large cap, etc.) is meaningless. If one must compare, the ACWI or the Russell 3000 are IMO much better choices.
While I agree in theory, in practice the difference between IWV, VTI, and SPY is tiny. Nevertheless, I am moving from SPY to VTI when the opportunity arises.

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Old 07-20-2019, 05:35 PM   #15
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Well, maybe you should do what I did: I put a $100K test portfolio with the Schwab robot for a couple of years. Pick your favorite robot and try it (him?) out.

1) It junked up my reports with about 20 tiny positions in a variety of index-type mutual funds.

2) It required that (IIRC) about 5% be held in cash.

3) Performance results were slightly behind a simple $100K 65/35 total US/total International fund portfolio that I use as a benchmark. I would say that the performance was acceptble for someone who wanted a "fire and forget" portfolio. Certainly better than using stock-pickers.

4) I closed out the portfolio mainly do the the annoyance of seeing all those tiny position, but like any FA, the robot has to make investing look difficult dsan complex in order to convince the customer that the FA is worth using.
I did practically the same thing. However, I note that the most aggressive portfolio allowed me had only 85% in equities. The other 15% was in a mix of bonds, gold, and Schwab MM accounts with low interest rates. While 15% is not a lot, it does reduce the potential loss in a downturn in the stock market and should be factored in. One way Schwab makes money in their Robo accounts is that they pay below market interest on their MM funds. So, if you choose a very aggressive portfolio you get only about 8% of your money tied up in these funds. However, if you choose a less aggressive portfolio you have more of it earning very low interest in Schwab MM funds and you are, in effect, paying a higher price.
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Old 07-20-2019, 05:54 PM   #16
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I did practically the same thing. However, I note that the most aggressive portfolio allowed me had only 85% in equities. The other 15% was in a mix of bonds, gold, and Schwab MM accounts with low interest rates. ...
Yes. It took me quite a few tries before I was able to game their investor questionnaire into giving me an all-equity portfolio with only 5% cash. I don't remembe what specific lies I told it, though.

But to be fair, the service was "free." So the low yielding piece was engineered to be some payment for the service. 1/20th of the portfolio foregoing 2% of yield is equivalent to a 10bps fee. I don't begrudge them that but I tried like crazy to eliminate it.
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Old 07-20-2019, 10:01 PM   #17
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[QUOTE=OldShooter;2269753]It's very popular for people to compare their portfolio return to the total return of the S&P. But unless the portfolio is exclusively invested in the S&P this is apples and oranges.

I do not think I agree. There can be two comparisons. One is as you say. I need to take a subset of the S&P and prove I selected the right subset. The other however is to say, if on my own, I would have selected the S&P. In that case, I want to know if someone else would select better alternatives.

My issue with FAs is that one time it is the S&P and next time the Russell XYZ. That is moving the goal post.

As for my question, perhaps the best way to look at is simply on a 60/40 portfolio type comparison. If someone has a 60/40 portfolio, how does the return that I put in my original post compare? It seems better than Betterment. But that is a sample of one. Are there other examples that should concern me in terms of actual performance from those that know the return on their portfolios over the same period? That would help me more than telling me I am being taken my my FA.

I understand the research. But I also expect it is influenced by FAs that purchase mutual funds or ETFs. The history I provided is only a few years but it is my history. The most helpful thing for me would be to provide feedback with my results. Respectfully asked.
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Old 07-21-2019, 07:16 AM   #18
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For me, it came down to piece of mind and a sense that some market timing is worthwhile.
It isn't.

If you aren't willing to manage it yourself, go the robo route.
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Old 07-21-2019, 07:28 AM   #19
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Not sure the right answer for you, but your FA seems to have done well for you.... for 2010-2018 a 65/35 portfolio has returns about 8.7% and your FA is beating that.
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Old 07-21-2019, 07:48 AM   #20
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I would stick with your FA. He's done a good job so no need to change imo.
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