Embarrassing question

[RobbieB]

This motivated me to check my Merrill Lynch stock picker again. So he is up 18.5% YTD compared to FXAIX (Fidelity 500 Index fund) at 18.1% with the fees included.

He is pretty good. He does this consistently (beats the S&P 500) with a handpicked collection of stocks. Not by much, less than half a percent this period, but including his fees. He earns his pay.

 

[OldShooter]

I could not read all the links, as a number of them asked to accept cookies, which I refused to accept. ...

All I can do is to lead you to the water.

... Our AUM is spread out over various sectors with different weightage.

That's actually called "stock picking." To the extent you have diversified holdings in all the sectors similar to their market cap weight in the total market, that is called "closet indexing" and is very popular with some FAs. It guarantees they will not fall on their noses because they got too creative and it makes investing look difficult. https://www.investopedia.com/terms/c/closetindexing.asp

The most extreme I have seen is an RBC portfolio of about $15M spread across over 200 individual stock issues. Their very own index fund, but at least is saves the client the expense ratio of just buying a mutual fund. Plus it make investing look incredibly comples and intimidating, which is the real objective.

 

[RetiredHappy]

This motivated me to check my Merrill Lynch stock picker again. So he is up 18.5% YTD compared to FXAIX (Fidelity 500 Index fund) at 18.1% with the fees included.

He is pretty good. He does this consistently (beats the S&P 500) with a handpicked collection of stocks. Not by much, less than half a percent this period, but including his fees. He earns his pay.

Mine is also a Merrill Lynch "stock picker".

 

[mystang52]

Here's some simple perspective. If your Assets Under Management are "only" 250,000, his fee is $3875. Are you willing to part with that?

 

[RobbieB]

I just told you that my FA made me more dough than the index fund including his fees.

So yeah, I'm glad I paid him! Very happy indeed! More dough to blow -

 

[CRLLS]

The issue is that as an individual, we are not going to hold the same funds as AUM. Of course if the investments are identical, then self-managed investments are going to net more, without paying for AUM fees.

Right now in one of my AUM accounts, there are 31 funds, not including the cash in money market. Individually, we don't have access to all the information that research teams have at these companies. When I peel one layer down of each holding, it makes sense as to why they buy those funds. But if I were to self-manage the funds, I would go simple with buying a couple of Vanguard ETFs.

Have you tried to backtest any of those Vanguard ETF's you might have taken against, say 10 years of your managed accounts? Maybe 20 years? If they were index ETF's, I would be surprised if , he can beat the index funds over the long haul. Again, past performance does not guarantee...blah blah blah. If you are not comparing your results to any particular index, then you are after something more than keeping up with the market. It's OK so long as you know how much you are actually paying for that and feel it is a fair price. The FA's have many techniques to convince their clients it is worth the money they pay. Such as" we have research teams in the back office watching the market and making good choices. He may even admit that he couldn't do it by himself. Anything to make it look hard. Many here believe that paying a FA based on AUM is not a good value

I do believe that either you or have drunk the Kool-Aid. Maybe both of us, but we like different flavors.

 

[RetiredHappy]

Have you tried to backtest any of those Vanguard ETF's you might have taken against, say 10 years of your managed accounts? Maybe 20 years? If they were index ETF's, I would be surprised if , he can beat the index funds over the long haul. Again, past performance does not guarantee...blah blah blah. If you are not comparing your results to any particular index, then you are after something more than keeping up with the market. It's OK so long as you know how much you are actually paying for that and feel it is a fair price. The FA's have many techniques to convince their clients it is worth the money they pay. Such as" we have research teams in the back office watching the market and making good choices. He may even admit that he couldn't do it by himself. Anything to make it look hard. Many here believe that paying a FA based on AUM is not a good value

I do believe that either you or have drunk the Kool-Aid. Maybe both of us, but we like different flavors.

We have never needed convincing by any FA. We decided that this is the model which works for us. No Kool-Aid is needed and it is insulting that you would even suggest. We have enough assets where we will never run out of money and with plenty to go to my heir. Because we are in a mix of growth and asset preservation, the managed assets have performed the way we would have liked it to. We pay 0.8% for a large part of our AUM and nothing for other instruments we have acquired through the FA, and those are not insurance products.

You like your flavor and we like our flavor.

 

[CRLLS]

RetiredHappy, I wasn't trying to insult you. For that I apologize if it came across like that. Not my intention. I'll leave it at that.

 

[OldShooter]

@Kayzmum, if you start with the books I recommended in post #22 you will not be led astray by discussions of professional management that began around post #68. If you really want a deep dive, check out some of the links in my post #99.

The short version is that using a professional manager is virtually certain to result in sub-par results. I have benchmarked a number of them over multiple years and that has always been the case. Here is one of the best results I have seen. The blue line is the professionally managed portfolio, the red line is the All Country World Index, and the green line is a completely unmanaged passive portfolio comprising US and International stocks. Here the FA is losing the race by around 1.5% per year, which is better than any other FA performance I have analyzed. 1.5% may not sound like much, but compounded over years it adds up to a serious amount of money.

I haven't taken the time to chase it down, but I also have a benchmarked Morgan Stanley portfolio that is a true train wreck. The amusing thing about this one is that the Morgan Stanley pitch was the same one that @RetiredHappy liked; Roughly: "our exceptional team of analysts has researched the unverse of mutual funds and selected only the very best." To hear M-S story, they even knew the names of the portfolio managers' dogs. Never mind that the results were terrible, as predicted by a half century of solid portfolio research.

 

[target2019]

A young friend once asked me about the FA-managed portfolio he inherited. I entered the exact funds and total into a Morningstar portfolio. I analyzed the 10 funds and simplified the asset allocation to Total Bond, Total Stock and Total int'l, then set up a portfolio to track. This started in June 2018. As of today my all Vanguard portfolio is 15.68% annualized. The FA portfolio is 16.05%. The Morningstar index for comparison is 16.21%.

Now subtract the advisor's fees of 1.5%. I have no special ability, just knowledge gained from forums of DIY investors and a few good books.

Kayzmum, hopefully you have not been discouraged by so many off-topic posts of FA vs. DIY management.

One of the first things to analyze is how much income you have in each of the next few years from pension, investments, IRA, etc. The next thing to analyze is your spending baseline. For example you may need $2000 per month to pay necessary bills. With these two pieces of information someone can help you identify the types of investments you need going forward.

 

[OldShooter]

A young friend once asked me about the FA-managed portfolio he inherited. I entered the exact funds and total into a Morningstar portfolio. I analyzed the 10 funds and simplified the asset allocation to Total Bond, Total Stock and Total int'l, then set up a portfolio to track. This started in June 2018. As of today my all Vanguard portfolio is 15.68% annualized. The FA portfolio is 16.05%. The Morningstar index for comparison is 16.21%.

Now subtract the advisor's fees of 1.5%.

That’s very consistent with Dr. Sharpe's paper I linked. He shows that the average actively managed fund must underperform the market by the amount of its costs. If anything, this result is a little better because the internal fund costs and market impact costs are usually higher than 16bps.

 

[target2019]

That’s very consistent with Dr. Sharpe's paper I linked. He shows that the average actively managed fund must underperform the market by the amount of its costs. If anything, this result is a little better because the internal fund costs and market impact costs are usually higher than 16bps.

And the oft-repeated mantra about the FA protecting the investor from rash decisions didn't pan out. There was a significant drop in the market and the FA changed the allocation according to the wishes of the investor. Went from something like 90% to 75% equities. Maybe even lower but I wasn't interested enough to follow up.