Greedy Investor

[RetiredHappy]

My ex-ML Wealth Management FA charged 0.8% on our portfolio. After 12 years with them and we were going to bail, he offered to go down to 0.6%. They did a decent job while we were busy working. But we finally went on our own 3 years ago, 5 years after we retired. Our time is now free and we might as well pay attention to our portfolio, not that we do much with it. We take a look at our positions a couple of times a year and decide to sell the losers or swap positions.

 

[kgtest]

To answer your question frankly, I never paid an FA and I am never NOT beating the S&P. Okay that's an exageration, but look at the blue almost always outperforming the red on the graph. MOST of the time I am beating the S&P500.


I went into an FA (EJ) office in Hawaii back in 2014 arrmed with all my data, accounts, goals etc. We had a fun 15min conversation that ended with...you don't need me.

This is what I've managed to do SINCE that sit-down with the FA on my own.

My current expense ratio is .06% and that is my peak expense ratio as the cost of Vanguard ETFs slowly crept up the past few yrs.

That means for every $1mm I have invested I only pay $600 to manage it myself...vs what maybe a 1 to 1.5% management fee, ($10k -15k a year) if you pay an FA.

I had this same thought probably back in 2014... "Can they beat the S/P500, are they beating S/P500?" That introspection led me to invest in AAPL...a high flying tech company at the time.

Today I have 37% of our assets in AAPL. Probably close to 50% in the Magnificent 7...I'll have to do the math sometime on that.

All I know, is that I am invested in companies that beat the S&P500 and you can be too!

 

[Enuff2Eat]

Having had an advisor at one of the big companies for years, my general feeling is that they setup a call every quarter or half year, say "everything is balanced properly" and ask you if anything changed.

My gut tells me they have an internal robo-advisor that they "adjust" your balances by..nothing more unless you really demand something different.

For this., they take their 0.5%-2% fee .

If I'm correct-they will never beat S+P even with a 100% allocation because after you get it, they have to take their 0.5-2.0% away from the gain .

PWF

Good point. They need to beat the index by 1% since it's what they charge.

Wishful thinking again. Dang..

 

[OldShooter]

Good point. They need to beat the index by 1% since it's what they charge. ...

Not much new under the sun. Dr. William Sharpe told us this over 30 years ago: https://web.stanford.edu/~wfsharpe/art/active/active.htm

 

[Stormy Kromer]

OP, you can definitely do it yourself. You can buy anything similar to what your FA has you in at Vanguard without paying a AUM fee of 1-2% annually, plus the funds won't have near the internal expense that the funds sold by FA's typically have, that can often be around 1% on top of the AUM. When he set me up I told him I'd be happy to match the performance of the SP 500 long term. He told me that they consistently beat it by 2% after fees. They haven't.

I worked with a FA for years before I started putting my "new money" in a Vanguard account. My Vanguard funds have handily beaten the FA's. I use Total Stock Market Index for my IRS's and their Tax Managed Fund for non qualified funds. Both are very close to matching the SP after fees. I also have some in their SP 500 index for the fun of comparison.

I've seen FA's over complicate portfolios with many, many different funds and asset allocations divided to the tenth of a percentage. I think this is to make investing look complicated on purpose.

I'd recommend that you try going on your own. If you had enough interest to ask the question it tells me you saw the problem on your own and can fix it. You're instinct is correct.

 

[OldShooter]

... I've seen FA's over complicate portfolios with many, many different funds and asset allocations divided to the tenth of a percentage. I think this is to make investing look complicated on purpose. ...

Exactly. I put $100K into Schwab's original robo a few years ago and it burped out a bunch of tiny positions in too many funds. I shut it down after a couple of years mostly because I didn't want to track tiny positions.

I am on the investment committee of a nonprofit where it is necessary for us to have an FA. I had a private lunch with their lead investment guy and he quietly admitted that they needed to show complexity and activity to their clients, otherwise what is the client paying for? Certainly not buy and hold a couple of funds for yars.

 

[Sunset]

And which FAs take a 2% fee?
Even Edward Jones is less than that, right?
Or am I hopelessly outdated

A few years ago, I show my DFIL in the middle of the 30 pages year end statement of his Chase investments (full of legalise) was the fee they charged $2,000 on a $100K account.

It didn't include the fund charges for each of the many investments in the account.

So yeah, 2% fee + expenses is not out of the question at all.. And they take it even if the investment goes down.

A 2% fee on investments is half of the safe withdrawal rate !! So I'd need double my retirement savings.. to compensate.

 

[38Chevy454]

Just set an asset allocation (AA) and DIY the investments using widely diversified funds with low expense fees. You can do it, it's easy once you teach yourself to not follow the short term ups and downs of the market.

If your FA is taking just 1% AUM, that is 1% less going into your pocket of the total amount each year. On $1M portfolio, your FA is taking $10K fee each year, regardless if your investments make money or not! Let's be generous and say the FA is spending 10 hours/year on your investments and meetings with you; although probably less than that 10 hours in reality. That's $1000/hour, not a bad income for the FA.

Now add in the fact that only a small percentage of FAs can actually beat the indexes in a given year, so for many years you will get less than index income from the FA after the FA fees. DIY using low fee index funds you are going to get nearly the same income as market returns.

 

[pb4uski]

Good point. They need to beat the index by 1% since it's what they charge.

Wishful thinking again. Dang..

Nailed it. In order to outperform the index the FA needs to match the index plus their fee and then some. Unlikely.

 

[sakowitzm]

I despise Merrill Lynch

When I took over managing my girlfriend's investments, she had two accounts with Merrill - a taxable account and a traditional IRA. In the taxable account ML took something like 1.5% of assets and had her invested in reasonable stuff - a couple of broad ETF index funds. In the Traditional IRA, where ML did NOT get an annual management fee they had her in more than 100 mutual funds where they got a kickback and churned the positions every month. We could not escape ML fast enough.

 

[OldShooter]

It's mild compare to some of these horror stories but when I took over my monther's account management I found a ticket to buy a Dreyfus Muni bond fund with the ticket marked "unsolicited." She didn't have enough income to file taxes and the rep knew it. Munis were clearly an unsuitable investment but obviously Dreyfus was running some kind of sales contest so he was stuffing their crap into every available nook an cranny. The "unsolicited trade" was a CYA in case his own compliance people came calling.

 

[MacsNMore]

I would not expect anyone to consistently beat the S&P. I also would not pay a FA. I just invest in index funds myself.

This

 

[Nightcap]

I honestly don’t know. It’s the same thing I tell my friends who are into derivatives, day trading, and crypto: I’m not smart enough or rich enough. I’m sure if I had oodles of money, there might be some rock star FA who could get me a higher rate of return than the S&P, but such paragons don’t handle accounts like mine. So I just leave my money in my brain-dead Vanguard fund of funds. It’s worked thus far.

That’s the same reply

 

[Chuckanut]

Exactly. I put $100K into Schwab's original robo a few years ago and it burped out a bunch of tiny positions in too many funds. I shut it down after a couple of years mostly because I didn't want to track tiny positions.

+1

Same experience. Plus I had no feel for what the overall sum of all the investments was supposed to be doing. I compared it to the S&P 500 because it was very aggressive into stocks. But I never had a sense of the strategy of there was one.

I would love to find a good unbiased academic study of robo advisors compared to things like the 60/40 AA, Wellesley fund, Wellington fund, 80/20, etc. And a comparison of the various robo advisors - given the same customer needs - against each other.

 

[Jeb-NY]

I'm on the finance committee of an organization that wants a safe place ro park extra money for future projects and decided not to do self investing to eliminate finger pointing in the organization if we lost money. We hired them in the down market a couple of years ago and have been trying to be patient but they have barely broke even this past year. We were not asking for SP500 rates but if they can't do well in a down or up market why pay them 1%. We asked for conservative, but a passbook account would have done as well or better this year.

I have been trying not to bring up self investing for them because of the potential finger pointing but have been doing my own for year. I have my accounts in 3 buckets IRA conservative and runs below SP500 but still does a bit better than current CD rates. My ROTH is a bit more aggressive and is consistently doing around 10% on 10 year average and my brokerage account which is kind of between and doing less than CD rates because of a large cash clump right now but still not bad and should be better because I have moved to high interest MM and CDs for most of the cash the last 6 months or so.

Long way around to say you can probably do better buying broad market index funds. Decide how risky you are and pick the percentage you want in equities verses bonds, CDs and high interest MM and save the advisor fees. But if you expect to be close to the SP500, be prepared for losses close to the SP500 in bad years.

 

[pc95]

Is it wishful thinking or greedy of me to ask my financial advisor to get us a higher return than the index SP500? The financial advisor says that "he can help me and manage my portfolio" . If not, what is the point of paying them? I could just stick with what I already have....

FA can't even beat sp500...so they hoover around 5-6%.... maybe I just buy CD ladder?

enuff2eat

I've never had a financial advisor with investing, but I dont think its a bad idea. Anyway, I invest in both CDs and stocks. CDs are still good rates right now compared to the last 15 years. I am considering selling additional stock for another medium term CD at 5%.

DollarSavingsDirect still has a 3-year 5% CD. Just opened one, and thinking about another. Especially with Fed reserve talk to start lowering rates again.

dollarsavingsdirect.com/securebanking/login.do

 

[imnontrad]

Look at the investment strategies by Paul Merriman that beat the S&P 500 - long term (as in decades). Alll of his strategies are based on academic study of returns over decades (of course, they cannot predict the future) This may also simplify your portfolio and the advisor may not be needed. You also need to consider your age and risk tolerance plus if you have enough money already and do not need to have higher risk.

 

[OldShooter]

Look at the investment strategies by Paul Merriiman that beat the S&P 500 - long term (as in decades). This may also simplify your portfolio and the advisor may not be needed.

I looked here: https://www.paulmerriman.com/these-7-simple-portfolios-have-beat-the-sp-500-for-more-than-50-years These appear to be portfolios constructed by backtesting. To use backtesting to find winners is the easiest thing in the world. You just follow Will Rogers' advice: "If it don't go up, don't buy it."

 

[mickeyd]

I suggest that you fire your current FA and purchase 100% VG TSM fund then let 'er ride. If this does not work after 15-20 years, get back to me and I will come up with something else.

 

[WannabeRetired]

A few years ago, I show my DFIL in the middle of the 30 pages year end statement of his Chase investments (full of legalise) was the fee they charged $2,000 on a $100K account.

It didn't include the fund charges for each of the many investments in the account.

Emphasis mine.

I noticed this in the account a parent had that was managed by Raymond James. The loaded funds and also funds of funds that RJ was putting their money in plus the AUM would have cut a huge chunk in their retirement balance had they not changed to just indexing at Vanguard many years ago.