Weaning my investment advisor

[Rich_by_the_Bay]

I have been using an Alliance-Bernstein investment advisor for a while. First it was for everything. Then I pulled bonds from him since at commissions as high as 1.5%, there was no value in that. Now I am getting ready to pull growth and international from him, but leave him with my value and REIT allocation management since those classes have done very, very well through Bernstein, even after commission.

I figure that those are two sectors where their legendary research may be worth something, compared to the other sectors and, at least for a few years, they have performed well compared to the closest Vanguard, low expense equivalent. I benchmark him annually against what I would have done myself ( usually a Vgd fund).

Does this sound sensible? I am not sure whether I am weaning me from him, or him from me but at this rate his tenure with me is limited. Nice guy, smart guy, good company but the fee$ are too high for most types of investments.

 

[LOL!]

Since fees are negotiable, why not negotiate to a lower fee? He has seen that you don't bug him nor cost him expenses, why not get your fee reduced to 0.0001%? If you don't ask, you will never know.

 

[saluki9]

Their strength is in LC Value. We have used them for outside management in LCV and have some portfolios of 100-200bps of alpha after expenses on 10 year+ track records.

 

[Lagniappe]

I thought Bernstein had a sliding, somewhat negotiable fee based on dollars under management. Moving assets may keep you in the high fee band (or bump you to an even higher fee band) since they'll be managing less for you, but dangling more assets may lead to a drop in fees.

But I agree with you, if you must use them, use them only where their research has been shown to give a performance advantage.

 

[HFWR]

Another one bites the dust...

 

[Rich_by_the_Bay]

Their strength is in LC Value. We have used them for outside management in LCV and have some portfolios of 100-200bps of alpha after expenses on 10 year+ track records.

That jives with my much less sophisticated impression. Their REIT fund has done very well, too, but I can't figure out what risk I am taking to be enjoying such good returns for the moment (is that the "beta?"). Know anything about their REIT fund?

Yep, I am in their high fee category, but that may still be OK for value and REIT. For the rest (LCG, SCG, International), I think a well designed mutual fund plan can match or beat them (net of fees).

 

[FinanceDude]

That jives with my much less sophisticated impression. Their REIT fund has done very well, too, but I can't figure out what risk I am taking to be enjoying such good returns for the moment (is that the "beta?"). Know anything about their REIT fund?

Yep, I am in their high fee category, but that may still be OK for value and REIT. For the rest (LCG, SCG, International), I think a well designed mutual fund plan can match or beat them (net of fees).

Rich, you need to ask them the internal beta of the REIT. If it's a small percentage of your total NW, not a big deal, but I would want to know. If they are managing a decent amount of money for you (over $100K), you should be having quarterly meetings anyway with the advisor.

As far as the 1.5% goes, some advisors just charge "what the firm says". Alliance IS a good firm, but like Merrill Lynch and others they believe because of their "name" they have the right to charge more than other firms. I would ask for a lower fee.

Also, most brokers have a "fee calculator" that gives different fees for the fixed income and equity portions of the portoflio........here's an example:

Portfolio is 60% FI/ 40% equities, the "mixed fee" should be about .50-.60 on the FI, and around 1% for the equities, so the number should be about .70-.75 bp a year. See if you can get that done..........and bug the advisor with all your tax/legal/investing questions.........might as well get them answered if you're paying a fee...........

 

[saluki9]

That jives with my much less sophisticated impression. Their REIT fund has done very well, too, but I can't figure out what risk I am taking to be enjoying such good returns for the moment (is that the "beta?"). Know anything about their REIT fund?

Yep, I am in their high fee category, but that may still be OK for value and REIT. For the rest (LCG, SCG, International), I think a well designed mutual fund plan can match or beat them (net of fees).

Which REIT fund are you in? They (Alliance Bernstein) have several, but the main difference is share class. I just looked them up and there is nothing special. They have a beta right around .99 and the net performance is right at the index after expenses.

 

[kcowan]

I would recommend a discussion on fees for sure. It may be that he just has to let you go and focus on trying to snare another unsophisticated investor.

When we took over the portfolio for MIL, we just sent her manager a nice letter summarizing how much she had been paid over the last 5 years and that we were switching to discount brokerage. Thanking her for her efforts. She replied that she was also offering lower cost services now but they were still higher than what we were going to do.

 

[FinanceDude]

I would recommend a discussion on fees for sure. It may be that he just has to let you go and focus on trying to snare another unsophisticated investor.

When we took over the portfolio for MIL, we just sent her manager a nice letter summarizing how much she had been paid over the last 5 years and that we were switching to discount brokerage. Thanking her for her efforts. She replied that she was also offering lower cost services now but they were still higher than what we were going to do.

Seems funny that she can "now offer" lower cost services, but never offered them to your MIL................

 

[Rich_by_the_Bay]

Which REIT fund are you in? They (Alliance Bernstein) have several, but the main difference is share class. I just looked them up and there is nothing special. They have a beta right around .99 and the net performance is right at the index after expenses.

ALLIANCEBERNSTEIN REIT INSTL F (ARIIX)

 

[lswswein]

http://finance.yahoo.com/q/bc?s=ARIIX&t=my&l=on&z=l&q=l&c=vgsix

That's the comaprison chart between ARIIX and the Vang REIT Idx. It does beat the Idx fund but barely! This is over 7yrs - whereas the 5yr version shows ARIIX performing better because I think they did well compared to the Idx around 2002.

I think statistically you might not find overperformance, so the question becomes do you want to have 3X the expense ratio compared to the Idx for a small probability of overperformance - something to think about

-h

 

[Rich_by_the_Bay]

http://finance.yahoo.com/q/bc?s=ARIIX&t=my&l=on&z=l&q=l&c=vgsix

That's the comaprison chart between ARIIX and the Vang REIT Idx. It does beat the Idx fund but barely! This is over 7yrs - whereas the 5yr version shows ARIIX performing better because I think they did well compared to the Idx around 2002.

Thanks - I must have screwed up my research when I last compared - there was a big discrepancy but maybe I put in the wrong REIT fund.

All things being equal, I'd rather do it myself.

 

[justin]

The yahoo chart linked a couple posts above this one doesn't include reinvestment of dividents. Not sure what the respective yields of the two funds were historically, but the vanguard REIT fund seems to be putting out an extra ~2% in yield over the ARIIX.

Rich, are you paying a wrap fee on top of the regular fund expense ratio?

 

[FinanceDude]

The yahoo chart linked a couple posts above this one doesn't include reinvestment of dividents. Not sure what the respective yields of the two funds were historically, but the vanguard REIT fund seems to be putting out an extra ~2% in yield over the ARIIX.

Rich, are you paying a wrap fee on top of the regular fund expense ratio?

I am sure he is, because the share class is F......... so he's paying 1.50% + .65%, or 2.15%............

 

[justin]

I am sure he is, because the share class is F......... so he's paying 1.50% + .65%, or 2.15%............

Maybe that's where the 2% in yield loss is going? I know the high expense funds typically have lower yields (since the expenses are paid from the div yield first many times). In other words, the VG REIT fund may have outperformed, if you include reinvested dividends at 2% a year for however many years.

 

[saluki9]

Maybe that's where the 2% in yield loss is going? I know the high expense funds typically have lower yields (since the expenses are paid from the div yield first many times). In other words, the VG REIT fund may have outperformed, if you include reinvested dividends at 2% a year for however many years.

Nope, wrap fees would not show up in a yahoo chart.