Help me refine my message to my advisor

[troutnut1]

It seems to me your interest is in negotiating and we are pretty much all suggesting termination. I negotiated for a while too. It didn’t work. But when I figured out in dollars and cents what this friend was costing me per month and year the solution became clear.

I’d been fired once before by a man I considered “wise”. He said “If you’re ever forced to cut off a dog’s tail just cut it in one clean and fast cut. Cutting it off an inch at a time is cruel. And I don’t want to do that to you. So you’re fired.” In hindsight it was a good thing for both of us. And I certainly had it coming.

So that is what I did with my FA. I said “Before we even start talking about this, I want to let you know you are being terminated. Your services, knowledge, and experience have been appreciated, but far exceed my simple needs. Nothing you can say will change my mind about this.”

Most of us have been where you are and have later come to self manage our funds. It is hard ending a long term relationship. The only good I see coming out of this kind of relationship is for those who panic easily and would sell everything every time the market tanks. If having the FA as a buffer to protect against that he may earn his fees that way.

 

[The HalfBreed]

It seems you've gotten the best advice from all of those above....


Point - Counterpoint issue.

2.4 - 2.8 % to me, means he'll do that much better than the market as a whole. So, if the "Market" averages 10%, he'll guarantee 12.4 - 12.8%


Well, you get my drift. Lots of low fee, low ER (expense ratio) mutual funds out there that are on average 50/50 plus or minus 10 either way. Maybe find one that spins off dividends quarterly if you're looking for income.

 

[RobbieB]

I have one of these guys too, my 1% Merrill Lynch stock picker. They have done well for me and are worth the fee. Which I verify from time to time comparing to S&P 500 index funds.

But over 2%? If your guy's results are better than (pick an index fund) fees included then he's worth the dough. If not then the answer is easy.

 

[latexman]

2) The "Natixis risk efficient portfolio" has a nice website, I can't find the fees. If they are less than 100 basis points I'll eat my hat!

Here they are, they call them Sales Charges .

 

[travelover]

Here they are, they call them Sales Charges .

Wow. Robbery.

 

[RobbieB]

Woo-hoo, six percent! Nah, I wouldn't buy any of that.

 

[racy]

... If I have learned anything here over the years is that investing doesn't need to be rocket surgery.

Nor, brain science.

 

[Foghorn Leghorn]

I struggled with leaving my FA ( an old friend of mine but his firm charged a 1.25% yearly fee) I told him in our last meeting that if I ever left it would be because I couldnt stomach the fee anymore. He offered no other options at lower fee rate.

I did my research, confirmed my research many times over and moved my money to Vanguard at a much lower fee ( I opted for the PAS for now)

My only regret is not doing it 5 years ago

 

[OldShooter]

@LeeLee2021, you must have met with your guy by now. Or decided to skip it. What is the news ?

 

[CRLLS]

Nor, brain science.

Ahh, you caught my little turned phrase.

 

[Retired Expat]

Thanks for all the thoughtful responses. It's funny how I thought I was asking one question, but you all answered the question at the back of my mind instead. I don't think we're ready to dump him yet, but I'm trying to figure out our plan to get there . FA has done a great job getting two uninvolved investors ready to retire at 50ish, so we feel like we have some loyalty to work through before we move on.

I just checked out "The Bogleheads Guide to Investing" to be clearer in our long term plan and our message to him.

BTW, the fee relationship so far has been a very, very modest annual fee, and I'm sure some skin in previous products sold to us.

Many here seem down on FA’s. But I don’t hold that few as my experience has been quite good. My returns after all fees has always equaled or exceeded those of friends and colleagues and other bonuses and services such as low cost loans, mortgage assistance, tax, legal, financial advice and referrals to other professionals has made me or saved me far more than the fees I have paid.

Sometimes it is not what you know, but who you know and what the people they know, know.

Anyway, I am not paying for his opinions but for the market experts at UBS. As my FA says he doesn’t pick stock for himself and his portfolio, he follows the advice of the hundreds or thousands really of analysts working for them and those of the other big firms they interact with.

 

[OldShooter]

... If your guy's results are better than (pick an index fund) fees included then he's worth the dough. If not then the answer is easy.

It's really not that simple. Research shows that stock picker results are essentially random. So in a year, not considering fees, half the pickers would be above average and half would be below. Fees result in more net losers, so the real world is maybe 30-40% of stock pickers win in a one-year race.

In the second year it's the same, so if you start with last year's winners, about 30-40% of them will win again. So now you are down to maybe 15% - 20% being two-year winners.

Rinse and repeat, even after ten years there are still usually a few lucky stock pickers who are winners. But since the results are random, there is no way to know ahead of time which of the stock pickers will end up in the winner's circle. Short video with Dr. Kenneth French https://www.morningstar.com/articles/946982/my-biggest-portfolio-mistake

The poster child for this phenomenon was a guy named Bill Miller at Legg Mason. Some would quibble about the claim, but he outperformed for around 15 years before his dice came up snake eyes. Here is a clip from a Morningstar article entitled "My biggest portfolio mistake."

"Miller was the epitome of the star manager, appearing frequently on the covers of magazines and on best-manager lists, owing to the success of his main charge, Legg Mason Value Trust. Notable, and frequently cited, was his unmatched streak of beating the S&P 500 in 15 consecutive years, from 1991 to 2005. During that time, the fund’s assets grew nineteenfold to more than $19 billion from under $1 billion.​

"And then it all came crashing down. After earning a cumulative return of 881% during those 15 years (compared with the S&P 500’s 414% return), the fund lost its way during the 2007-09 financial crisis, incurring a 72% peak-to-trough loss from October 2007 to March 2009. While the S&P 500’s 55% loss during that period was no picnic, investors who had jumped on the Legg Mason Value bandwagon along the way with expectations that Miller possessed a kind of investment sorcery that could indefinitely defy the laws of investment gravity were sorely disappointed."

​

The article is here, but you need a free M* basic membership to access it: https://www.morningstar.com/articles/946982/my-biggest-portfolio-mistake

The other thing to know is that when stock-pickers win it is usual by a small percentage, but when they lose it is typically more dramatic. So even when an investor has found a stock picker who is currently winning, a half-century of research says that they are skating on thin ice.

 

[RetiredHappy]

We were paying 0.8% and when we told our FA that we were leaving and what we were looking for, he dropped the fees to 0.6%. We were willing to pay 0.3% if he met our conditions. He said he could do what we wanted but his firm would not allow him to charge anything below 0.6%. We walked, now paying 0.0% at Fidelity. Our FA/VP/CFP at Fidelity called us if we wanted a consultation with her for the year-end and we decided no. We are good.

 

[Magus]

It's really not that simple. Research shows that stock picker results are essentially random. So in a year, not considering fees, half the pickers would be above average and half would be below. Fees result in more net losers, so the real world is maybe 30-40% of stock pickers win in a one-year race.

In the second year it's the same, so if you start with last year's winners, about 30-40% of them will win again. So now you are down to maybe 15% - 20% being two-year winners.

Rinse and repeat, even after ten years there are still usually a few lucky stock pickers who are winners. But since the results are random, there is no way to know ahead of time which of the stock pickers will end up in the winner's circle. Short video with Dr. Kenneth French https://www.morningstar.com/articles/946982/my-biggest-portfolio-mistake

The poster child for this phenomenon was a guy named Bill Miller at Legg Mason. Some would quibble about the claim, but he outperformed for around 15 years before his dice came up snake eyes. Here is a clip from a Morningstar article entitled "My biggest portfolio mistake."

"Miller was the epitome of the star manager, appearing frequently on the covers of magazines and on best-manager lists, owing to the success of his main charge, Legg Mason Value Trust. Notable, and frequently cited, was his unmatched streak of beating the S&P 500 in 15 consecutive years, from 1991 to 2005. During that time, the fund’s assets grew nineteenfold to more than $19 billion from under $1 billion.​

"And then it all came crashing down. After earning a cumulative return of 881% during those 15 years (compared with the S&P 500’s 414% return), the fund lost its way during the 2007-09 financial crisis, incurring a 72% peak-to-trough loss from October 2007 to March 2009. While the S&P 500’s 55% loss during that period was no picnic, investors who had jumped on the Legg Mason Value bandwagon along the way with expectations that Miller possessed a kind of investment sorcery that could indefinitely defy the laws of investment gravity were sorely disappointed."

​

The article is here, but you need a free M* basic membership to access it: https://www.morningstar.com/articles/946982/my-biggest-portfolio-mistake

The other thing to know is that when stock-pickers win it is usual by a small percentage, but when they lose it is typically more dramatic. So even when an investor has found a stock picker who is currently winning, a half-century of research says that they are skating on thin ice.

Great post - and Yup, we had this covered quite a bit in my MBA program at UNC. It's called the efficient market theory and makes a lot of sense:
https://smartasset.com/financial-advisor/efficient-market-theory

Paying big bucks for a financial advisor simply doesn't make sense today. Shoot, even if you want to use a financial advisor, simply give them a smaller amount like $20k to $50k to manage and then replicate their investments on your own without paying the fee. This cuts your fees down by 90%+ while still having someone else directionally tell you what to do.

 

[OldShooter]

Great post - and Yup, we had this covered quite a bit in my MBA program at UNC. It's called the efficient market theory and makes a lot of sense:
https://smartasset.com/financial-advisor/efficient-market-theory

Paying big bucks for a financial advisor simply doesn't make sense today. Shoot, even if you want to use a financial advisor, simply give them a smaller amount like $20k to $50k to manage and then replicate their investments on your own without paying the fee. This cuts your fees down by 90%+ while still having someone else directionally tell you what to do.

Thanks for the flowers. Sorry I'm going to be a little pedantic in the follow-up.

The randomness of the market can be seen in the data. Kind of like looking at your watch to see what time it is. The Efficient Market Hypothesis (EMH) is an attempt to explain how the watch works. The important point here is that whether we know how the watch works or not, we can still look at the data and clearly see the randomness.

The reason for this fussy point is that there are a lot of arguments that claim to show that the EMH is flawed or even false. The main objections come from the behavioral finance crowd, led by Richard Thaler. Personally, I believe that both fundamentals (EMH) and behavioral factors combine in establishing a stock price. Here is a great video in which Nobel winners Eugene Fama (EMH) and Richard Thaler discuss the topic: https://review.chicagobooth.edu/economics/2016/video/are-markets-efficient It's well worth the 45 minute time investment.

For those interested or skeptical, the best current reading IMO is "Winning the Loser's Game" by Charles Ellis https://www.amazon.com/Winning-Losers-Game-Strategies-Successful-dp-1264258461/dp/1264258461 (latest edition, May 2021) The grandaddy of them all, also quite good, is "A Random Walk Down Wall Street" by Burton Malkiel https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393330338

 

[Magus]

Thanks for the flowers. Sorry I'm going to be a little pedantic in the follow-up.

The randomness of the market can be seen in the data. Kind of like looking at your watch to see what time it is. The Efficient Market Hypothesis (EMH) is an attempt to explain how the watch works. The important point here is that whether we know how the watch works or not, we can still look at the data and clearly see the randomness.

The reason for this fussy point is that there are a lot of arguments that claim to show that the EMH is flawed or even false. The main objections come from the behavioral finance crowd, led by Richard Thaler. Personally, I believe that both fundamentals (EMH) and behavioral factors combine in establishing a stock price. Here is a great video in which Nobel winners Eugene Fama (EMH) and Richard Thaler discuss the topic: https://review.chicagobooth.edu/economics/2016/video/are-markets-efficient It's well worth the 45 minute time investment.

For those interested or skeptical, the best current reading IMO is "Winning the Loser's Game" by Charles Ellis https://www.amazon.com/Winning-Losers-Game-Strategies-Successful-dp-1264258461/dp/1264258461 (latest edition, May 2021) The grandaddy of them all, also quite good, is "A Random Walk Down Wall Street" by Burton Malkiel https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393330338

I'd argue fundamentals and behavior are both part of EMH/EMT - all known market information includes expectations of behavior by others and yourself. But we're quibbling a bit. The main point is the data shows professional investors after fees lose to the market and the longer the time horizon the more this is true.

 

[brett]

What is wrong with.....

It's been a slice, thanks for the fish, it is time to say goodbye. Have a nice life.

What else is there to say? Is this a marriage or a business relationship?

Why on earth torment yourself needlessly? Get it done, do it quickly, and move on with your life.

 

[travelover]

.............My only regret is not doing it 5 years ago

Oh, so he still sends you Christmas and birthday cards?

 

[RobbieB]

Yes, you guys have told me over and over that it's just impossible.

Yet my guy has done it 7 years straight. And I do check.

 

[travelover]

.......Paying big bucks for a financial advisor simply doesn't make sense today. ........

What? Next, you are going to tell us you don't call your travel agent when you need an airplane ticket.

 

[aja8888]

What? Next, you are going to tell us you don't call your travel agent when you need an airplane ticket.

What's a travel agent?

 

[Magus]

Yes, you guys have told me over and over that it's just impossible.

Yet my guy has done it 7 years straight. And I do check.

1) You have to adjust for risk profile of investments to market.
2) Let's say 40% of FI beat the market in a given year, you'll still have a # that beat the market through sheer luck.

The guy from Legg Mason is a great example mentioned above. He beat 15 straight years and over 17 years was actually lower than the S&P.

That said, FI that are truly looking out for their folks and not themselves AND are intelligent can get pretty close to the market and take out some concern from managing ones own money. They do exist, but they are rare. But even they will lose to passively investing in the comparative index fund by 0.2-1% a year on average.

 

[OldShooter]

Yes, you guys have told me over and over that it's just impossible. ...

Just to be clear, I have never said it is impossible. Long streaks occur but are statistically rare. The rarest of luck, though, is to have invested with a stock picker who ends up being a lucky one. Assuming you are comparing on a total return basis and your guy is winning, congratulations.

 

[24601NoMore]

Yes, you guys have told me over and over that it's just impossible.

Yet my guy has done it 7 years straight. And I do check.

But does your "guy" take increased risk (over whatever benchmark you're comparing to) to achieve those increased returns?

 

[RobbieB]

Of course. It's not the whole "500", just about 80 of them.

That seems to be the method of traditional "brokers" to compete with the index stuff. My EJ guy did it too, no mutual funds, just stocks. But he failed miserably compared to Merrill.