Another Financial Advisor Question

[LOL!]

The only way to "audit" one's portfolio performance is to enter all the transactions yourself into a separate piece of software. I recommend the free MS Money to do this. Then you can calculate performance numbers for any range of dates and investments. This will only require your time and account statements with a list of all transactions plus the current prices per share of your current investments.

I think financial advisors don't really provide this kind of information as it would be quite revealing. So to get independent performance numbers, one has to do the calculations themselves.

 

[RobbieB]

My account statement is 33 pages long...

 

[Floridatennisplayer]

I am up 16.21% ytd.

What was your return? You should have access to this easily.

 

[RobbieB]

Read page 1

 

[CoolRich59]

I am up 16.21% ytd.

What was your return? You should have access to this easily.

Yep. As OldShooter mentioned, this info should be (and is) in the quarterly account statements. I just got done looking at them:

Last 12 months:

- 7.41%

- 8.88%

- 12.05%

- 8.54%

Since Account Opened (July, 2015)

- 4.73%

- 5.91%

- 7.89%

- 4.56%

 

[growing_older]

While I like the "peace of mind" of having someone else watching my $$, I was only willing to do so if they are outperforming the market enough that it offsets the fees I'm paying. That's not happening from what I can tell

While this is often the promise of financial advisers, it is virtually impossible. If there were such an advisor who could consistently beat the market net of fees, they would either make millions running a fund, or simply trade on their own account. A retail adviser who beats the market net of fees was simply lucky during the period examined.

If you want an adviser because you want the warm fuzzy feeling of a professional watching your money and want them to at least not make major investing mistakes, then that is a valid reason to have an adviser. But you have to know that on average they will earn market returns and will lag by approximately their fee. That is after all what you are paying them to provide the services above.

 

[RobbieB]

I'll be happy with "simply lucky" as long as luck holds out.

 

[gcgang]

Thanks for the add'l comments. Since I'm not getting any younger ( ), I spent some time this afternoon opening an account with Vanguard. Once the account is funded and set up, I will be parting ways with the financial advisor and transferring my accounts to Vanguard. (My current 401k is with Fidelity, so that obviously needs to stay put.)

While I like the "peace of mind" of having someone else watching my $$, I was only willing to do so if they are outperforming the market enough that it offsets the fees I'm paying. That's not happening from what I can tell (but, as you suggest, I will be pulling out the statements tonight to check).

You've decided to "part ways" w your FA, and NOW you're going to pull out your statements to check performance? Don't let the facts stand in the way of your decision making. Lol.

I'm sure putting your $ in a Vanguard target date or other diversified portfolio will do fine.

Good luck.

 

[jazz4cash]

Yep. As OldShooter mentioned, this info should be (and is) in the quarterly account statements. I just got done looking at them:

Last 12 months:

- 7.41%

- 8.88%

- 12.05%

- 8.54%

Since Account Opened (July, 2015)

- 4.73%

- 5.91%

- 7.89%

- 4.56%

I can't tell what these numbers represent. It looks like negative returns for every period represented, but that can't be right so I'm guessing the negative sign is really just a dash. If those are all positive returns, I'd say maybe its decent performance depending on weather it is net of fees.

Years ago I had a strong preference for Vanguard over Fidelity, but since my 401k was at Fido, I opened additional accounts there and have been very pleased. Have you explored all the resources on Fido's website? You could probably compare your FA's results with comparable choices from any other provider. I think Fido's website is better than Vanguard. When I log on I see all my accounts in one place. There is a feature called Guided Portfolio Service that tallies all your accounts and calculates the AA for the combined portfolio.

 

[Sunset]

Yep. As OldShooter mentioned, this info should be (and is) in the quarterly account statements. I just got done looking at them:

Last 12 months:

- 7.41%

- 8.88%

- 12.05%

- 8.54%

Since Account Opened (July, 2015)

- 4.73%

- 5.91%

- 7.89%

- 4.56%

So that does not look good, unless it's simply a bad choice for bullet points

These numbers don't really mean much since I cannot tell if they are per fund, or per quarter, or if they are even positive ?

Did your statement also detail the fee they charge you, it's often buried many pages inside.

 

[CoolRich59]

You've decided to "part ways" w your FA, and NOW you're going to pull out your statements to check performance? Don't let the facts stand in the way of your decision making. Lol.

I'm sure putting your $ in a Vanguard target date or other diversified portfolio will do fine.

Good luck.

I never said I haven't been checking the performance of the portfolio. In fact, I track the performance regularly from their website. I said that I could not calculate the precise rate of return because there have been changes to the accounts over the last 2 years.

It was at OldShooter's suggestion that I look at the statement to see if the financial advisor's statements to see if they contain a rate of return.

 

[Scuba]

We use an FA. For years i was DIY, but a few years before ER, we hired an FA. For us, the benefits have been:
1. Helped us confirm we were financially ready to ER
2. Created a cash flow plan utilizing various investments both within and outside of FA's control
3. Thinks of things we wouldn't necessarily know (tax optimization, as one example)
4. Provides a seamless transition for DH if something happens to me. He would definitely need an FA without me.
5. Provides additional peace of mind for me as well as allows me to focus the time I used to spend on portfolio management elsewhere.

So far, our FA's performance has been close to market returns net of fees. I don't expect them to beat market returns net of fees. Someday, we may decide to go back to DIY, but so far we've been happy with the relationship.

When I did DIY, I used Fidelity. I like their website much better than Vanguard, and I believe their personalized service is better too. Vanguard's fees are ultra low for a reason. They don't provide much in the way of service. Note that you can still hold Vanguard funds within a Fidelity account.

I don't think there is anything wrong with DIY for those who feel comfortable with that. I also don't think there is anything wrong with having an FA who is also a fiduciary. Just depends on your comfort level and whether you are a DIY person in general. I tend to be a "hire a professional" person whether that be an FA, a doctor, an auto mechanic, a plumber, a housekeeper, etc. YMMV

 

[DrRoy]

I spent some time this afternoon opening an account with Vanguard. Once the account is funded and set up, I will be parting ways with the financial advisor and transferring my accounts to Vanguard.

Before, I didn't have the knowledge and didn't want to spend the time. Now, while I still don't have the knowledge, I'm willing to get educated if it means doing away with the advisor's fees and so be able to keep and invest more $$.

Good choice. Well done.

Just got my ML statement. I am up 17.9% YTD. I looked up the S&P 500 and it is up 15.5% YTD. So net of fees (fees already deducted) my stock traders are up 2.4% compared to the "500 index"

I had a ML guy for a several years. He ran half of my $ and I ran half. I did better than he did (before fees) so I fired him.

 

[LiveBelowMeans]

I would suggest if you have to use a financial advisor, you choose a large company who wouldn't want to damage their reputation. I you use a small firm and they take off with your money ie Madoff, your screwed. If you use a large company such as schwab, fidelity, vanguard, they have a lot more to lose if one of their fa takes off with your money. You would likely get restitution. I know of a couple of people who have been swindled out of money at "small firms". JMHO

 

[Ready]

OP:

Lots of good comments already, so I"ll just summarize the few things that stand out from the posts so far:

1) Looking at 2 years of performance from an FA is pointless. As others have stated, anyone can get lucky for a couple of years. No FA can guarantee you that they will beat the market.

2) What is guaranteed by using an FA is that you will be paying a lot of fees. Whether this will work out is something you won't know until you look back after many years of returns, which of course will by then be too late.

3) Investing in index funds will yield market returns, but you are guaranteed not to pay high fees in doing so. This is the only thing you can really control about your investments. The rest is up to the fate of the market. But since you do have the ability to control fees, why wouldn't you?

 

[DanP]

Well, FWIW:

I have a little under 50% of my investments with one of the bigger FAs.

Another little under 50% is self-managed with Vanguard, or auto'd with Schwab etc.

The remainder is play/reserve accounts.

After a couple of years of this net is that my FA is well under the "1%", but the real thinking is that I expect that account to do better in a crappy economy so its a hedge.

Else lately yes we are all winners on index funds.

And I do get some comfort from having a specific relationship person that I meet with physically on a regular basis and also call or email whenever. Now if that person should leave the firm I may reconsider the firm.

So end message is that FA's can be of value but yes, hard sorting out the valuable ones.

Edit: also looking at the FA for guidance on tax minding in the context of ER withdrawals. In my experience FAs will consider the entire picture here, not just their managed part.

 

[OldShooter]

... the real thinking is that I expect that account to do better in a crappy economy so its a hedge. ...

That is one of the selling claims from the stock pickers, that they will do better in down markets because of the stocks they select. S&P did an extensive study to test this claim and found it to be bogus. There is a video but sorry to say I don't have the link and don't have time to look for it tonight. The video summary was on one the S&P video links pages last year IIRC.

Another claim, probably valid, is that a professional FA will keep his/her clients from bailing in a bad market. I talked to one guy who said that if he did that for clients once or twice he would have justified his AUM fee for the rest of their lives. Probably true.

 

[CoolRich59]

Sorry. I did not see your post earlier.

So that does not look good, unless it's simply a bad choice for bullet points

Oops. Definitely should not have used hyphens. While modest, the returns are all in positive territory.

These numbers don't really mean much since I cannot tell if they are per fund, or per quarter, or if they are even positive ?

The numbers are for 4 of the 5 accounts the FA manages. So, e.g., for the first account, the rate of return was 7.41% over the last year, and 4.73% from the time I transferred the accounts to the FA in July, 2015.

Did your statement also detail the fee they charge you, it's often buried many pages inside.

Yes. The fees they charge are included in their statement. I haven't mentioned them because I would be even more embarrassed to disclose just how much I've paid for these mediocre results than I am now.

 

[DanP]

That is one of the selling claims from the stock pickers, that they will do better in down markets because of the stocks they select. S&P did an extensive study to test this claim and found it to be bogus. There is a video but sorry to say I don't have the link and don't have time to look for it tonight. The video summary was on one the S&P video links pages last year IIRC.

Thanks for the post OldShooter, your insight is always welcome.

I edited the original reply - having a percentage of our assets managed by a specific human that is aware of our specific ER goals, tax situation and concerns has value to us.

But yes, the ability to react more nimbly than Vanguard/Fidelity based on market conditions (or bad sentence because of the word react, they dont do that) does have some merit.

Still, no single answer and situations are unique that is why we love the interaction on this forum.

 

[RobbieB]

I will agree that you have to search to find the right firm to do the FA thing. I tried 3 (with equities) and kept the winner.

I have a question for all you low fee Vanguard, Fidelity, Schwab couch potato index guys.

Given that I get the same returns even including the 1% I pay as the low fee index funds and I also get;

1) A free line of credit backed by my securities
2) A physical place to visit
3) A team that knows my face and voice when I call and actually picks up the phone
4) Christmas presents

Why would anyone choose a lower level of service?

 

[DanP]

...the holiday basket is a treat, I will admit.

 

[aja8888]

I get Christmas presents and I don't have an FA!

 

[RobbieB]

I would certainly hope so. Everyone should get Christmas presents. Even if you have to buy them yourself -

Tis the season!

 

[Another Reader]

I will agree that you have to search to find the right firm to do the FA thing. I tried 3 (with equities) and kept the winner.

I have a question for all you low fee Vanguard, Fidelity, Schwab couch potato index guys.

Given that I get the same returns even including the 1% I pay as the low fee index funds and I also get;

1) A free line of credit backed by my securities
2) A physical place to visit
3) A team that knows my face and voice when I call and actually picks up the phone
4) Christmas presents

Why would anyone choose a lower level of service?

Well, I have #2 and 3 with Fidelity...

I have a HELOC and a ton of unsecured and unused credit on credit cards.

I don't like unwanted presents...

I agree you have done well with your stock guy so far. If he saves your butt when the market tanks, he will have earned his fee and then some.

 

[FlaGator]

We use an FA. For years i was DIY, but a few years before ER, we hired an FA. For us, the benefits have been:
1. Helped us confirm we were financially ready to ER
2. Created a cash flow plan utilizing various investments both within and outside of FA's control
3. Thinks of things we wouldn't necessarily know (tax optimization, as one example)
4. Provides a seamless transition for DH if something happens to me. He would definitely need an FA without me.
5. Provides additional peace of mind for me as well as allows me to focus the time I used to spend on portfolio management elsewhere.

So far, our FA's performance has been close to market returns net of fees. I don't expect them to beat market returns net of fees. Someday, we may decide to go back to DIY, but so far we've been happy with the relationship.

When I did DIY, I used Fidelity. I like their website much better than Vanguard, and I believe their personalized service is better too. Vanguard's fees are ultra low for a reason. They don't provide much in the way of service. Note that you can still hold Vanguard funds within a Fidelity account.

I don't think there is anything wrong with DIY for those who feel comfortable with that. I also don't think there is anything wrong with having an FA who is also a fiduciary. Just depends on your comfort level and whether you are a DIY person in general. I tend to be a "hire a professional" person whether that be an FA, a doctor, an auto mechanic, a plumber, a housekeeper, etc. YMMV

+1

Thanks for detailing your reasons. Related to your peace of mind comment, I like not having to monitor things on a regular basis while I'm getting the kids launched. May change that as time goes on and my responsibilities evolve.

My last engagement on this topic brought out the "you're too stupid/lazy to DIY" commenters. Glad we haven't devolved to that - yet