Should I Fire my Financial Advisor

[crispus]

I have used the same advisor since 2002 and have averaged gains of about 10% net per year. He uses a covered call strategy. I am invested 100% in stocks and pay a 1.25% commission per year. As of 6/30 we were only up 6.35% for the year. He told me that we are getting close to market returns in an up market and are somewhat protected in a down market.

Now as of today’s close, I am down over 5% in the last two weeks. So much for downside protection.

I have two questions. One should I change managers? Two, if I do change to lets say Vanguard or Fidelity how do I extradite myself from this covered call strategy?

Thank you, in advance

[teejayevans]

Quote:

Originally Posted by crispus I have used the same advisor since 2002 and have averaged gains of about 10% net per year. He uses a covered call strategy. I am invested 100% in stocks and pay a 1.25% commission per year. As of 6/30 we were only up 6.35% for the year. He told me that we are getting close to market returns in an up market and are somewhat protected in a down market. Now as of today’s close, I am down over 5% in the last two weeks. So much for downside protection. One should I change managers?

The dow is STILL up 8% even after today...you do the math.

BTW, are you returns with or without the commission, trading fees.

What kind of income is that strategy throwing off anyway, is it tax
friendly dividends, LT Gains....or is it a lot of ST gains that will be
taxed at your regular income rate.
If its the latter, I'd sue him for incompetence.
TJ

[MasterBlaster]

Covered calls get you too little income, all of the downside risk in stocks, and none of the upside potential.

In my opinion they are just there to generate trading commisions for your broker.

[Lsbcal]

Should you get rid of your FA -- YES, this is a no brainer. Hopefully you are not retired or near retirement because 100% stocks is playing with fire. Either Vanguard or Fidelity would be an excellent alternative. They may be able to advise you on how to get out of your positions. My $'s are at Vanguard so that is my bias.

Les

[Spanky]

Quote:

should I change managers?

The total stock market fund 's 5 year annualized return is 11.76% while your return under your adviser's guidance is 10% - you decide.

[pedorrero]

A broader, more important question is this: do you feel more comfortable having a financial advisor/money manager handle your investments? Lots of folks do. There is nothing wrong with that, assuming you don't mind the annual fees -- 1.25% in your case. That is pretty average. Assuming an honest, competent advisor (most are probably), you will get market returns (no better, no worse). Actually they will be worse - by 1.25% in your case. Many people here are DIY types, who can manage their own investments as costly or as cheaply as they want. You can get very close to 0.00% costs with simple techniques like an index fund. stick around if interested.

[Enuff2Eat]

interesting that the minute the financial advisor "lose" or not upto par with market. we immediately FIRE them..



enuff

[Bigritchie]

Quote:

Originally Posted by Enuff2Eat interesting that the minute the financial advisor "lose" or not upto par with market. we immediately FIRE them.. enuff

Burn the Witches! A DUCK!

[cute fuzzy bunny]

Well lets see...we could make this into one of those "two words!" posts.

You'd get a lot of replies with a variable first word and the second word "YES!"

[crispus]

My returns are after commission expenses.

Which Vanguard or Fidelity Funds do you recommend? I am looking to retire in about 5-7 years.

[Webzter]

Quote:

Originally Posted by crispus My returns are after commission expenses. Which Vanguard or Fidelity Funds do you recommend? I am looking to retire in about 5-7 years.

Well, what kind of investor are you? If you're a fire and forget kind of person, how about a Vanguard Targeted Retirement or Vanguard LifeStrategy? If you want a little more slice and dice, how about a model Vanguard balanced portfolio from Paul Merriman(FundAdvice.com - Suggested Portfolios)

Is your stuff tax-sheltered or taxable? Do you have some basics in place like an emergency savings fund? Can you sleep at night and be 100% stock?

What if I showed you this table from Larry Swedroe outlining a portfolio during the 1970's:

Max Equity - Exposure Max loss
20%...............5%
30%..............10%
40%..............15%
50%..............20%
60%..............25%
70%..............30%
80%..............35%
90%..............40%
100%.............50%

Can you still sleep at night with your allocation?

(p.s., that came from a very excellent response to my questions over at Diehards.org [my thread is here: Bogleheads :: View topic - Looking for Asset Allocation Guidance / Ideas]. pps, it made me go heavier into bonds)

If you have a large portfolio right now, and you don't want to go it alone, then start looking for a Registered Investment Advisor. One that you probably couldn't go wrong with is Rick Ferri's company, Portfolio Solutions (Portfolio Solutions). At the very least, you should read his book 'All about asset allocation'

We fired our FA's a while ago... we kept feeling that, in our case at least, they weren't on our side of the equation. However, there are also some great FAs in the world. Just interview and trial.

At the very least... don't make any sudden moves. Act rationally and keep your wits about you.

[chinaco]

I would fire the advisor (no matter who they were). Especially if I was using mutual funds. The average mutual fund fee is about 1.5% + 1.25% for the advisor + 3% for inflation + taxes on gains... I would have to make over 5.75% + taxes to make money. If I really felt I needed an advisor for investments... i would buy berkhatty. The only problem here is that WB is probably getting close to retirement.

IMHO - Low cost MF or ETFs are the way to go. Using those vehicles, one can create a well diversified portfolio.

[teejayevans]

Quote:

Originally Posted by chinaco I would fire the advisor (no matter who they were). Especially if I was using mutual funds. The average mutual fund fee is about 1.5% + 1.25% for the advisor + 3% for inflation + taxes on gains... IMHO - Low cost MF or ETFs are the way to go. Using those vehicles, one can create a well diversified portfolio.

Thats a managed fund fee, use index funds that are only .5% or less, and
index outperform managed funds as a group (after expenses).
TJ

[JohnDoe]

Quote:

Originally Posted by crispus Which Vanguard or Fidelity Funds do you recommend? I am looking to retire in about 5-7 years.

We need a lot more information to answer that question. Sounds like you should do some reading, starting with asset allocation.

[NinjaPigeon]

Quote:

Originally Posted by Enuff2Eat interesting that the minute the financial advisor "lose" or not upto par with market. we immediately FIRE them.. enuff

Is it? One of the main reasons for having an advisor is because they can supposedly beat the market through their "expertise". If they aren't doing that, why would you keep them?

Or was your point that having a bad couple weeks in an otherwise "successful" run is overreacting? If so, I'd agree if not for the fact the advisor is lagging the market annualized.

[crispus]

Let me explain my situation. My FA has about 280k spread in 2 roth ira's 1 traditional ira (old) and 1 simple ira. My wife also has 401k with fidelity 230k. She also has a defined benefit pension worth about 500k fully vested in less then 2 years. We also keep about 30k in an emergency fund with emmigrant bank. Our only debt is our home 15 yr 4.875 owe about 113k (house value 400k).

As far as my concideration of firing my FA, I was thinking about it before the recent downturn. This just put it on the front burner. I have not done anything thus far because, one I have known this advisor for a long time outside his current job and two I do not like to make lots of sudden moves on a whim.

[2B]

As a new poster you may not be familiar with the recommended "reading list." Do a search for recommended books. Also, you should google Scott Burns and read his articles on Couch Potato Investing.

You will come out way ahead by managing your own money. If you are smart enough to find this forum, you are definitely qualified to manage your own money.

Most of us have diversified, low fee index funds for the bulk of our investments. Some like individual bonds/CDs and some like bond mutual funds. Right from the start, we are all ahead of someone with a financial advisor by 1 to 2% a year. Most FA's put their clients into high fee mutual funds so there's another 1 1/2%. All told, the typical person with a FA is paying out about 3% in fees that can be almost totally avoided.

[FinanceDude]

Quote:

Originally Posted by 2B As a new poster you may not be familiar with the recommended "reading list." Do a search for recommended books. Also, you should google Scott Burns and read his articles on Couch Potato Investing.

Smart idea........

Quote:

Right from the start, we are all ahead of someone with a financial advisor by 1 to 2% a year. Most FA's put their clients into high fee mutual funds so there's another 1 1/2%. All told, the typical person with a FA is paying out about 3% in fees that can be almost totally avoided.

I don't know of any advisors that are getting 3% a year............

Investing is a commodity, advice is not. If you are not getting worthwhile advice, might as well do it yourself. Performance is just one piece of the puzzle..........

[2B]

Quote:

Originally Posted by FinanceDude I don't know of any advisors that are getting 3% a year............ Investing is a commodity, advice is not. If you are not getting worthwhile advice, might as well do it yourself. Performance is just one piece of the puzzle..........

I was referring to the total cost of the FA and the high fee funds that I have typically seen in the portfolios of people that take their advice. The FA gets their 1 to 2%. The high fee funds just add to the misery.

FinanceDude, you may know. Does the typical FA or their firm get a kick back from the high fee funds they put their clients into?

I think we're all aware you are a FA but I believe that they average person is better served by doing it themselves. The typical small investor (<$2MM) is more than capable of doing it all by themselves. Above $2MM, more estate planning is required but that would be through a lawyer.

During my recent stint of underemployment, I was offerred a position as a FA. As I reflected on it, I couldn't stand the thought of taking people's money when they should be doing it themselves. I turned the job down.

[Lsbcal]

Crispus, it's good that you do not like to make sudden moves on a whim. It's not good that you have connected up with an FA and have some emotional bond there. Personally, I try to have no emotional bonds with people I invest with. Even with Vanguard I own Vanguard and non-Vanguard funds (through their VBS service unit). I've talked to VG advisors but not followed all their advice. Better to stay independent.

The amount that you have with the FA could be transferred to Vanguard or Fidelity. Either way when you plan things out you should view it all as one portfolio. As a first step in determining your asset allocation (if not already done) you could go to the vanguard.com site. Select the Planning and Education tab. Then find the quesiton "How should I allocate my assets" and click on this. It will get you to a brief quesitonaire which at the end should give you a nice chart showing various stock/bond allocations and which one might be best for you. It includes data about how bad a loosing year has been in the past for given allocations plus average past gains. At least that is what I remember from using it in the past.

Keep in mind that if, in retirement, you are withdrawing 4% annually that extra 1% fee to an FA (or high cost fund) is going to loom large. Of course, an FA who really does his job may be worth it if you are not willing or don't have the temperment to do the work on your own.

Hope this helps.

Les