samclem said: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...