How Much Time

[ProGolferWannabe]

Would be interested in the thoughts of those here. After managing my (and my wife’s) nest egg independently for our entire working lives, I handed over the management of our money to a fee only CFP. I like the advisor, I am happy with the fee structure (fixed fee regardless of the amount of funds under management—-not an AUM approach), their investment style/approach is based on low cost ETFs, etc. Overall, happy.

They have a somewhat different allocation of assets than what I have traditionally had….they have more money in international and developing markets/countries than I have had, as well as more money in REITs. Theoretically, I am ok with this broader allocation, but practically speaking, my returns for the past year have lagged behind what I would have earned had I just kept a 60/40 portfolio.

I am a long term investor, so am not worried about shorter term performance deficiencies, but at what point would you be thinking about moving on or at least addressing the issue with advisor? Is there certain amount of time you think is reasonable (say 2-3 years) or a certain performance benchmark deviation (my portfolio performs 5% less than a balanced non-managed portfolio)?

Thanks in advance.

 

[OldShooter]

We're long term as well. 95% of our equity tranche is in VTWAX. Essentially we own all the investable stocks in the world at market cap weights. Currently, this results in a 55% home country bias. I see no reason for making sector bets. Look at any quilt chart to see this.

Re benchmarking my absolute minimum is 2 years, but this is really too short. 5 years would be better, but results after 5-10 years may not be of interest if I am not around to examine them.

 

[Dtail]

I would reconsider heavily just DIY again.
Ask @Old Shooter how much time a year he spends on his portfolio.

 

[bobandsherry]

If you are here asking that question, you don't seem to be overall happy with your investor. And for their underperformance you pay them a fee. You can keep waiting, but how long will you end up waiting and how much will you have "paid" (fees + lower return for subpar returns)? Then figure out how much they'd have to "beat" the DIY portfolio just to be even. Unless you are getting something else of value, you seem to be talking yourself into a simple DIY portfolio.

 

[Magus]

I don't put too much directly into international anymore since the S&P 500 revenue is already 30% international revenue so you get a fair amount of international exposure just from SPY or total stock index. I do about 10-12% intl/EM, which when combined with S&P 500 revenue, is already about 40% international in my equities bucket. I like REITs but I prefer private RE investments over REITs for that part of my portfolio. Probably worth asking if he takes the S&P 500 foreign earnings into account for asset allocation for international IMO. I do like RE investments as an inflation hedge here.

 

[Scratchy]

How much are the fees?

 

[ProGolferWannabe]

How much are the fees?

My portfolio is about $4 million; fees are $14,500 per year. As the portfolio grows (or shrinks) the fee will remain unchanged (so long as they don’t raise the fixed fee). If my math is right, that works out (currently) to about .4%. The underlying cost of the funds they invest in are negligible…..all index based ETFs.

 

[ProGolferWannabe]

If you are here asking that question, you don't seem to be overall happy with your investor. And for their underperformance you pay them a fee. You can keep waiting, but how long will you end up waiting and how much will you have "paid" (fees + lower return for subpar returns)? Then figure out how much they'd have to "beat" the DIY portfolio just to be even. Unless you are getting something else of value, you seem to be talking yourself into a simple DIY portfolio.

I need to articulate my thoughts more clearly or choose my words better. I am not unhappy with the advisor…not sure if I can be any clearer with that, but with my limited writing skills, that’s the best way I can express it. I engaged them about a year ago, and their portfolio has underperformed the 60/40 mix…about 1.5% lower after fees. It is not crazy, absurd under performance over a single year period. (I referenced the fee structure and size of the portfolio in another post.)

I didn’t want to get too much into the details, but one of the main reasons I decided to hire an advisor is that I have some concerns about my long term health, and want to make sure that if I go, my wife (who is a lovely person but really is not financially inclined) has someone solid, dependable, trustworthy to help her manage her financial affairs. The other thing I liked is that they do all of their clients’ income tax filings; I like that they coordinate the investment planning and tax management. Again, for my wife, this will make things simpler.

I think this firm is all of those things….most importantly, she likes them and is comfortable dealing with them. Having said that, there is a certain minimum level of investment management that is required regardless of their trustworthiness. I am trying to get a feel for how to evaluate them both in terms of performance over time.

 

[Gumby]

I understand the concerns that led to your decision. I have them too. The young wife is very intelligent, well educated, emotionally steady and quite capable of handling everything after I am gone, but she has absolutely no interest in investing or financial affairs.

So my goal for the year ahead is to simplify as much as I possibly can, consistent with sound financial considerations, so that she will not be burdened. That means corralling our far flung 401k, 403b, 457, Roth and tIRA accounts into one place (Vanguard) and investing it all in a set and forget reliable mutual fund (VWENX). I'll need to leave precise instructions about all the tax issues, and she may even need to hire an accountant for that, but I think the basic investment issue will be a non-event. An alternative would be a financial advisor, but we have sufficient funds that she will be fine with whatever returns VWENX can deliver and won't need anything more. Especially if she annuitizes my life insurance death benefit, because our two pensions (we chose 100% survivor option) plus that annuity will give her at least as much secure income as we have now, and she will rarely, if ever, need to draw on our portfolio.

 

[braumeister]

The young wife is very intelligent, well educated, emotionally steady and quite capable of handling everything after I am gone, but she has absolutely no interest in investing or financial affairs.
...
she will rarely, if ever, need to draw on our portfolio.

That exactly describes our situation.

I'm still mulling over the exact route to take to simplify our finances.

 

[luckydude]

I need to articulate my thoughts more clearly or choose my words better. I am not unhappy with the advisor…not sure if I can be any clearer with that, but with my limited writing skills, that’s the best way I can express it. I engaged them about a year ago, and their portfolio has underperformed the 60/40 mix…about 1.5% lower after fees. It is not crazy, absurd under performance over a single year period. (I referenced the fee structure and size of the portfolio in another post.)

I didn’t want to get too much into the details, but one of the main reasons I decided to hire an advisor is that I have some concerns about my long term health, and want to make sure that if I go, my wife (who is a lovely person but really is not financially inclined) has someone solid, dependable, trustworthy to help her manage her financial affairs. The other thing I liked is that they do all of their clients’ income tax filings; I like that they coordinate the investment planning and tax management. Again, for my wife, this will make things simpler.

I think this firm is all of those things….most importantly, she likes them and is comfortable dealing with them. Having said that, there is a certain minimum level of investment management that is required regardless of their trustworthiness. I am trying to get a feel for how to evaluate them both in terms of performance over time.

You made this arrangement with the long-term view of making sure your spouse is free of financial worries, and the fixed fee is the cost of such an arrangement. That makes sense.

But if you're not comfortable with either the portfolio performance or its higher risk profile, you should speak to your adviser immediately. After all, they work for you and should structure the portfolio based on your comfort level and not expose you to unnecessary risk.

I would add that IMO, the market has gotten really frothy, and if there's a pullback, a portfolio with larger international/developing market exposure would be more at risk of a sharp decline (this is especially true with Covid bouncing around). I personally wouldn't be comfortable with such exposure in this environment, but that's just me.

 

[Out-to-Lunch]

I would add that IMO, the market has gotten really frothy, and if there's a pullback, a portfolio with larger international/developing market exposure would be more at risk of a sharp decline (this is especially true with Covid bouncing around).

Of course, there is no way to know if you are right or not, but I would have thought that less concentration in the time of Covid would present LESS of a risk of a sharp decline.

 

[OldShooter]

... if there's a pullback, a portfolio with larger international/developing market exposure would be more at risk of a sharp decline ...

I have no idea why a statement like this would be reliably true.

 

[Delawaredave5]

There's two questions really:

1. What is your best asset allocation ?
2. How's advisor performance against benchmarks for that allocation ?

I'd guess anyone "heavy international" this year lost to US portfolio.

But going forward........

I've always been amazed by asset category swings year to year https://www.callan.com/periodic-table/

 

[luckydude]

I have no idea why a statement like this would be reliably true.

It isn't Just my PO and what I would do in that situation. YMMV of course.

 

[mrfeh]

Numerous thoughts:

• why didn't you continue DIY?
• the holdings the FA has you in should not be a surprise; you should have known what was coming before signing anything. Assuming you did know, it doesn't make sense to complain about it now.
• if you really trust this FA and their plan, 2-3 years is not enough to throw in the towel; you'd probably need to give them 10 years

 

[mrfeh]

My portfolio is about $4 million; fees are $14,500 per year. As the portfolio grows (or shrinks) the fee will remain unchanged (so long as they don’t raise the fixed fee). If my math is right, that works out (currently) to about .4%. The underlying cost of the funds they invest in are negligible…..all index based ETFs.

I don't see how any FA is worth $14K per year, unless they would stop you from panic selling.

 

[WhenIsItTime]

Would be interested in the thoughts of those here. After managing my (and my wife’s) nest egg independently for our entire working lives, I handed over the management of our money to a fee only CFP. I like the advisor, I am happy with the fee structure (fixed fee regardless of the amount of funds under management—-not an AUM approach), their investment style/approach is based on low cost ETFs, etc. Overall, happy.

They have a somewhat different allocation of assets than what I have traditionally had….they have more money in international and developing markets/countries than I have had, as well as more money in REITs. Theoretically, I am ok with this broader allocation, but practically speaking, my returns for the past year have lagged behind what I would have earned had I just kept a 60/40 portfolio.

I am a long term investor, so am not worried about shorter term performance deficiencies, but at what point would you be thinking about moving on or at least addressing the issue with advisor? Is there certain amount of time you think is reasonable (say 2-3 years) or a certain performance benchmark deviation (my portfolio performs 5% less than a balanced non-managed portfolio)?

Thanks in advance.

Seems the concern is largely about asset allocation. You accepted a more diverse portfolio, but want to compare to the previous AA. Are your goals/risk tolerance to match a certain benchmark or something else? Maybe clarify to set a path forward.

 

[ProGolferWannabe]

Numerous thoughts:

• why didn't you continue DIY?
• the holdings the FA has you in should not be a surprise; you should have known what was coming before signing anything. Assuming you did know, it doesn't make sense to complain about it now.
• if you really trust this FA and their plan, 2-3 years is not enough to throw in the towel; you'd probably need to give them 10 years

I am not complaining. I think I have been more than clear that I am in general satisfied with the advisor and recognize that the one year under performance of the previously mentioned 1.5% vs a 60/40 portfolio is likely not large enough or a long enough period of time to consider changing anything. And yes, the advisor made me aware of the structure of the portfolio before investing….the allocation is well within my comfort level with regard to risk and return. I am asking what might be better parameters to make such an evaluation.

(2) I mentioned before, I moved from DIY to a planner as I have some concerns about my long term health, and my wife is not interested/financially equipped to manage a 7 figure investment portfolio.

(3) Thank you for your thoughts re the evaluation period parameters.

 

[ProGolferWannabe]

I don't see how any FA is worth $14K per year, unless they would stop you from panic selling.

Very useful, thank you.

 

[travelover]

I don't see how any FA is worth $14K per year, unless they would stop you from panic selling.

That is my thinking, as well. It seems like it would be simple enough to just invest it all in Wellesley or Wellington or 50/50 and the survivor wouldn't have to do anything but pull off 4% yearly and take RMDs and pay the taxes on them. I'm sure the broker would take care of that for free.

 

[luckydude]

I am not complaining. I think I have been more than clear that I am in general satisfied with the advisor and recognize that the one year under performance of the previously mentioned 1.5% vs a 60/40 portfolio is likely not large enough or a long enough period of time to consider changing anything. And yes, the advisor made me aware of the structure of the portfolio before investing….the allocation is well within my comfort level with regard to risk and return. I am asking what might be better parameters to make such an evaluation.

The answer seems pretty obvious given that your concern is prompted by the adviser's portfolio underperforming the 60/40 portfolio in 2021. You want the adviser's portfolio to exceed or at least match the 60/40 portfolio in terms of annual return (especially given the $14k fee that you pay). Since that didn't happen in 2021, you need to talk to your adviser to adjust the portfolio for the upcoming year. Either way it's a good idea to review/adjust your portfolio annually, whether DIY or through professional money management.

 

[Scratchy]

My portfolio is about $4 million; fees are $14,500 per year. As the portfolio grows (or shrinks) the fee will remain unchanged (so long as they don’t raise the fixed fee). If my math is right, that works out (currently) to about .4%. The underlying cost of the funds they invest in are negligible…..all index based ETFs.

I'm a big fan of DIY with respect to portfolio management but as you've described your situation, I think their fee is reasonable. I like that they invest in low cost passive index funds rather than funds that enrich them. They are doing your taxes which has value. Hopefully they wil be advising you on draw down strategies and things like social security, IRMAA optimization if applicable and tax loss harvesting. And they will be more than worth the fee if the time comes where your wife must manage the portfolio.

Their asset allocation sounds reasonable. I would not base a decision to fire them on how they are performing relative to some other portfolio allocation, as long as they remain invested in low cost index funds and are not attempting to market time. However, if you really would prefer to be in a simple 60:40 portfolio of U.S equity to bonds, couldn't you just tell your advisor that is what you want? I would imagine they would be happy to comply, as such an allocation is eminently reasonable.

 

[Scratchy]

My portfolio is about $4 million; fees are $14,500 per year. As the portfolio grows (or shrinks) the fee will remain unchanged (so long as they don’t raise the fixed fee). If my math is right, that works out (currently) to about .4%. The underlying cost of the funds they invest in are negligible…..all index based ETFs.

I'm a big fan of DIY with respect to portfolio management but as you've described your situation, I think their fee is reasonable. I like that they invest in low cost passive index funds rather than funds that enrich them. They are doing your taxes which has value. Hopefully they wil be advising you on draw down strategies and things like social security, IRMAA optimization if applicable and tax loss harvesting. And they will be more than worth the fee if the time comes where your wife must manage the portfolio.

Their asset allocation sounds reasonable. I would not base a decision to fire them on how they are performing relative to some other portfolio allocation, as long as they remain invested in low cost index funds and are not attempting to market time. However, if you would prefer to be in a simple 60:40 portfolio of U.S equity to bonds, couldn't you just tell your advisor that is what you want? I would imagine they would be happy to comply, as such an allocation would be eminently reasonable.

 

[DrRoy]

I had a FA for several years in the early 2000's. He managed about half of my investments and I kept the rest. I consistently outperformed his return, and I fired him. I tried a different one with the same result. No more FA's for me.