Fair price / fee

[quote=beramberger]

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign "client relationship agreement" with broker but want to change later on is it dificult to retrieve our funds?

Thank you

[/quote]

What's fair to pay depends completely on what services your broker is providing. From your letter I'm not sure exactly what those services are. Has a fee rate been presented to you yet? <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

As to "retrieving funds", that too depends. If your broker places you in proprietary investments it's possible that you wouldn't be able to move that investment to another firm should you decide to leave Merrill Lynch. You could be forced to liquidate it. That's a question to ask your broker whenever he proposes an investment idea to you, is it portable. If by "retrieve" you mean, could you be assured that you could liquidate an investment for no less than you paid for it at any point, well, no, most likely not.

[quote=beramberger]

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign “client relationship agreement” with broker but want to change later on is it dificult to retrieve our funds?

Thank you

It had better be less then 1%

Good luck

[quote=joedabrkr] [quote=beramberger]

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign "client relationship agreement" with broker but want to change later on is it dificult to retrieve our funds?

Thank you

[/quote]

I would submit to you that if you have been lead to believe that an 800K account is "small" that you are most likley working with the wrong advisor.

This suggests to me a very undesirable attitude on the part of the advisor, and one which will likely lead to poor service and accountability to you the client.

Just my two cents worth.
[/quote]

If that's the impression the writer has based on a feeling he got from his broker, I agree with you completely, Joe.

Fee mentioned was "about 1%" though nothing formally signed. Broker has mentioned "cash management account"(?)My "problem" is that this seems like a lot ($8,000) for an account that is stable; perhaps reviewed twice a year. I realize that this is better managed by a pro versus my scouring message boards for investment tips. Also realize that broker's job is not a cake-walk; many long hours; no loyalty from clients, etc.

[quote=beramberger]

Fee mentioned was "about 1%" though nothing formally signed. Broker has mentioned "cash management account"(?)My "problem" is that this seems like a lot ($8,000) for an account that is stable; perhaps reviewed twice a year. I realize that this is better managed by a pro versus my scouring message boards for investment tips. Also realize that broker's job is not a cake-walk; many long hours; no loyalty from clients, etc.

[/quote]

If he's only going to take an account, already invested, and review it twice a year, yes, the fee is too high. (OTOH, if that's all he's doing he's not much of an advisor.) If that's what's planned, you might want to consider a commission account, rather than a fee based one if few transactions are planned. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

I'm sure Merrill's compliance department is like most and at the end of the first year will send you a letter telling you what you paid in fees and what you would have paid if you'd paid commissions on the same transactions. You'll have the chance to choose which better suits you.

One thing to consider while you think about fees, how small of a mistake would you  have to make (and presumably your broker would avoid) to cost yourself 1% or more of the account value?  IOW, the broker doesn’t really have to bring much value to the account to overcome that 1% fee if the alternative is you using internet chat boards for investment ideas and strategies.

Thanks… I’m definitely going with a broker instead of doing the investing myself. My idea is that the broker presents and explains a proposed portfolio; which may or may not be tweaked based on our risk tolerance, etc. once set up , the account would be reviewed at least twice a year for possible modification. I wouldn’t anticipate that there would be numerous trades outside of those that may be made within some fund. I guess what I expect from the broker is that I should make more or lose less than the guy who uses dart boards, ouija boards or message boards for advice. !% for that would be OK with me…but 1% PLUS A HOST OF FUND MANAGEMENT FEES gives me pause.

[quote=beramberger]Thanks.. I'm definitely going with a broker instead of doing the investing myself. My idea is that the broker presents and explains a proposed portfolio; which may or may not be tweaked based on our risk tolerance, etc. once set up , the account would be reviewed at least twice a year for possible modification. I wouldn't anticipate that there would be numerous trades outside of those that may be made within some fund. I guess what I expect from the broker is that I should make more or lose less than the guy who uses dart boards, ouija boards or message boards for advice. !% for that would be OK with me..but 1% PLUS A HOST OF FUND MANAGEMENT FEES gives me pause.[/quote]

You have a fair point or two in there. Personally I wouldn't use an account that includes a fee to own mutual funds (although having the loads waived and the lowest fee version of the shares is definitely worth something) which have their own, internal management fees. Others here might differ with me on that. I'd prefer a flat fee account that used individual stocks and bonds or ETFs.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

With an $800k portfolio, you have enough assets to use a core/satellite system.  If the advisor is only reviewing the accts twice a year, then you've got problems.  Good money managers have a system for monitoring the investments inside of the portfolios, not just the portfolios.

We use positions that most "self-investors" would never even consider.  Unless you're retired, we also have an extra 8hr/day to monitor economic and market news.  Not to mention experience levels,... and the ever bothersome "emotional" factor involved with a disciplined strategy.

I’m sorry but I don’t know what a core/satellite system is

Think of it as using 2 different investment strategies.

The core portion usually will hold index ETFs, mutual funds, or other investments that will track the major markets.

The satellite portion will usually hold far fewer individual positions that the MM feels strongly about.  It is typically used to add alpha (or added performance.)  Think of it as your own personal mutual fund designed specifically for your risk tolerance and needs. 

In a proper mix you will have not only stocks & bonds, but also, international, small & mid caps, multiple duration bonds/CDs, emerging markets, country specific investments, real estate, growth & value, etc. 

Used properly the combination of the two can outperform the markets, which is every managers goal.

Hope this helps. 

Thanks… very helpful and tracks with what the ML fellow was telling me; something like put 600k in the core  more conservative , stable accounts and 50k each in 4 other accounts that might have more activity , taking advantage of current opportunities

In Charlotte North Carolina

With 800k, you can certainly be well diversified with individual stock holdings.  Your broker won't be tempted to churn your account, and has a long term interest in growing your account, as his fees increase with your account size.  You'll likely also pay the minimum ticket charges, so that the broker has no incentive not to sell when appropriate.  A 1% management fee is more than fair, I know some advisors who won't do it for less than 1.5%. 

Now, why are we giving free advice to a non-broker, particularly in the prospecting, marketing and selling department?

Ace

beramberger -

PROCEED WITH UTMOST CAUTION!

Some Myths Exposed!



Before Proceeding Consider These Facts!



1. There is no such thing as professional money managers - only professional money gatherers.



2. There is no correlation whatsoever that past performance has anything to do with the future - none - ZERO! PAY NO ATTENTION TO BRAND NAMES OR PAST PERFORMANCE



3. Only 20% of mutual funds or active managers beat or match their benchmarks in any given year. Unfortunately there is only a 7% chance that one of those will beat or match their bench mark the 2nd year. Better off trying to catching snowflakes!



4. No evidence that market timing adds any value! AVOID



5. Asset Allocation is responsible for over 90% of performance.



Solution: Engage an advisor who will use a rule based reallocation system to run an ETF portfolio that covers the entire market (it will take 9 different US Equity ETFs and 2 non US ETFs), slightly weighted to the small and mid cap equity areas. with 70% of your assets. Take the other 30% and buy

Treasury Zeros with maturities of 2,3,4,5 & 6 years out. NEVER BUY BOND FUNDS!



Do NOT pay more than 0.50% this should include portfolio establishment, ongoing reporting and rebalancing. And someone willing to tell you the truth and share over 25 years of industry experience when you feel the need to   call!



This will result in superior returns, complete liquidity and no surrender charges.





DO NOT GET INTO MANAGED ACCOUNT PROGRAM

DO NOT PURCHASE AN ANNUITY

DO NOT PURCHASE AN ACTIVELY MANAGED MUTUAL FUND

All of these are schemes to skim money from you!



Good Luck!

1.25

Lance tells us;

PROCEED WITH UTMOST CAUTION!
Some Myths Exposed!

Before Proceeding Consider These Facts!

1. There is no such thing as professional money managers - only professional money gatherers.

Lance is obviously smarter than every major trust, endowment and retirement plan in the world, since they all believe there  is  such a thing as a professional money manager.

2. There is no correlation whatsoever that past performance has anything to do with the future - none - ZERO! PAY NO ATTENTION TO BRAND NAMES OR PAST PERFORMANCE

Mostly true, but then again, the same advice applies to everything he says below about "the" solution. The question you have to ask yourself is do you want a strategy that HAS past success or one that has NO past success.

3. Only 20% of mutual funds or active managers beat or match their benchmarks in any given year. Unfortunately there is only a 7% chance that one of those will beat or match their bench mark the 2nd year. Better off trying to catching snowflakes!

An oft-stated fiction that's based on comparing many mutual funds (not SMA managers) many that don't have beating the S&P 500 as a goal, against that same index. The fact is beating the S&P 500 IS a tough task for those that should be compared to that index. OTOH, the task is much easier, and it happens far more often when the correct index to measure against is the EAFE, and mid/small cap versions (which are probably going to be the majority of your account to begin with). Lance has simply overstated the case, as any trust, endowment or retirement plan trustee will tell you. They certainly aren't 100% indexers, not even close.

4. No evidence that market timing adds any value! AVOID

I would tend to agree, mostly. OTOH, so called "tactical" moves add great value. Ask yourself who would be better off the past few years, the guy that screamed "no timing" and bought his strategic model's standard percentage of 30 year bonds, or the guy who tactically avoided them.

5. Asset Allocation is responsible for over 90% of performance.

Agreed. OTOH, that doesn't mean his cookie cutter appraoch is the best way to impliment the wisdom gained by knowing AA is so critical.

Solution: Engage an advisor who will use a rule based reallocation system to run an ETF portfolio that covers the entire market (it will take 9 different US Equity ETFs and 2 non US ETFs), slightly weighted to the small and mid cap equity areas. with 70% of your assets.

Translated “I have the magic solution that works for (and I apply to) every single investor, regardless of their goals and situation. How lucky of you to have found me. Ignore the fact that smart money (that is pools of money larger than Lance will ever be allowed to touch as an advisor) largely ignore his pure indexing approach.

Take the other 30% and buy Treasury Zeros with maturities of 2,3,4,5 & 6 years out. NEVER BUY BOND FUNDS!

A flat recommendation to take every last fixed income dollar and buy non-income producing T zeros (in a rising interest rate environment?), and of relatively short maturities, ignoring every other category of fixed income is just silly. OTOH, like Lynch said, never, never, never, never buy a bond fund.

Do NOT pay more than 0.50% this should include portfolio establishment, ongoing reporting and rebalancing. And someone willing to tell you the truth and share over 25 years of industry experience when you feel the need to call!

Feel free to hire someone who obviously places little value on his time, will apply his cookie cutter to everyone who walks through the door and good luck ever reaching him again since he’ll have to have thousands of similar accounts in order to make a living.

This will result in superior returns, complete liquidity and no surrender charges.

OTOH, past performance has nothing to do with future returns and “complete liquidity” doesn’t mean you can get back what you started with.


DO NOT GET INTO MANAGED ACCOUNT PROGRAM

So "DO NOT" do what the largest pools of money in the world do. Strange advice there

DO NOT PURCHASE AN ANNUITY

IOW, I know nothing about you, but I already know an annuity could never be suitable for you. I also will, for a small fee, guess your weight and pick lotto numbers for you.

DO NOT PURCHASE AN ACTIVELY MANAGED MUTUAL FUND

Again, a blanket statement so broad as to be laughable.

All of these are schemes to skim money from you!

IOW, I’m the only honest person you’ll be meeting. Obviously Lance has confused HIS sole solution with ethical behavior. A dangerous mistake to make.

Good Luck!

You’ll need it if you run across someone as doctrinaire as Lance…

Hey Mike<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Thanks for the thoughtful rebuttal.  Unfortunately there is no math to support your point of view.

The only thing certain is the fees that will accrue tomorrow against his assets!  There is no other certainty!  Fees drag the return – of this there is no doubt.

I know my approach is not for everyone, it should only appeal to investors fed up with the BS fed to them by the mutual funds, brokers, bank trust companies trying to make as much fees as possible without having assuming any risk themselves.   These institutions that you speak of are just good at creating money skimming products and services to systematically transfer assets from their client base pockets to the managers who run these institutions.  You are just a pawn in the whole scheme.

Of the approximately $1.2 billion we have in AUM comes from bank trust departments, actively managed mutual funds, wrap programs and investors frustrated with mislead and disappointed.  The people who believe in our approach have found it to:

Eliminate excessive fees, manager risk, style risk and conflict of interest issues from their broker or institution.

Reduction in their anxiety that comes with investing into a chaotic market.

Raises their chances that they will achieve market like returns.

Creates a simple, efficient and rational rule based process to construct and rebalance their portfolios

Look at a 10 year chart of the well known AMCAP fund. AMCAP benchmark is the S&P 500.  Notice that the benchmark produced TWICE the value as the fund over 10 years.  Meanwhile “Capital Guardian” (that name is a joke) took out (aka pillaged) over $500 million in “professional management” fees during this same period.  Also the brokers raked in over $300 million in 12b1 fees over this same period.  That money came right out of the investors pockets into the fund managers and brokerage companies.  But what a great fund!  How about Fidelity Magellan the S&P produced 4 Times the return in the same 10 year period.

<?:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" />

Mike, Unfortunately it is difficult for you to understand this because your paycheck depends on your not understanding.

Evidence; here are Some Big Pools of Very Smart Money:

ATT 401(k) plan going to all Index options (that is only $25 Billion so!)

US Govt Thrift Plan on all Index Option (that is another $35 billion)

I can go on if you would like.  I can keep producing facts and you can keep producing sales material.  As long as there is Mikes out there will be Lances picking up the pieces!  Keep up the great work Mike you make my job of gathering assets easier!

Have a great day!

Lance  

you dont have 1.2B in AUM.

Hey Mike<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Thanks for the thoughtful rebuttal.  Unfortunately there is no math to support your point of view.

Tell that to every endowment, trust and retirement plan trustee in the country. They run real money and they don’t run it your way.

The only thing certain is the fees that will accrue tomorrow against his assets!  There is no other certainty!  Fees drag the return – of this there is no doubt.

And, no doubt, your approach is “feeless”, aside from your fee and the ETF’s fee (which on some ETFs runs over 60 bps, bringing your total to over 110 bps without a shred of individualization). Wait, say, there ARE fees. BTW, ever consider that cheapest doesn’t always equal best?

I know my approach is not for everyone, it should only appeal to investors fed up with the BS fed to them by the mutual funds, brokers, bank trust companies trying to make as much fees as possible without having assuming any risk themselves. 

IOW, your marketing is superior to their marketing. Got it.

  These institutions that you speak of are just good at creating money skimming products and services to systematically transfer assets from their client base pockets to the managers who run these institutions.  You are just a pawn in the whole scheme.

See above recommendation about you chatting with people that run real money. There are plenty of scams (including people who sell one-size-fits-all ETF based solutions), the problem with your argument is you paint with too broad a brush.

Of the approximately $1.2 billion we have in AUM comes from bank trust departments, actively managed mutual funds, wrap programs and investors frustrated with mislead and disappointed.  The people who believe in our approach have found it to:

Right, you have 1.2B in AUM and in your part time you’re the Queen of <?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />England…

Look at a 10 year chart of the well known AMCAP fund.

Why bother? I never recommended a fund….and why limit your examples of indexes to the S&P 500? (Hint, because the other indexes, which should be the majority of your portfolio, don't make such a good case for indexing)

Mike, Unfortunately it is difficult for you to understand this because your paycheck depends on your not understanding.

You mean my “understanding” that you picked two lame mutual funds to compare yourself to and my “understanding” that real pools of money aren’t run in a pure indexing style?

Evidence; here are Some Big Pools of Very Smart Money:

ATT 401(k) plan going to all Index options (that is only $25 Billion so!)

No doubt you have a link….we'll wait here for you while you get it...

US Govt Thrift Plan on all Index Option (that is another $35 billion)

ROFLMAO, the Thrift plan has only SIX OPTIONS (until 2001 there were only three choices) and you cite that as proof that active management is dead?

Sorry, pal, but you’re yet to account for the largest pools of money (and not your examples of retirement plans off-loading risk via selection to plan members) with trustees with real fiduciary responsibilities using active management.

I can go on if you would like.  I can keep producing facts and you can keep producing sales material.

You’ve produced a fact? Where? You got a “fact” to support your joke of a fixed income plan?

 As long as there is Mikes out there will be Lances picking up the pieces!  Keep up the great work Mike you make my job of gathering assets easier!

Say, with 1.2B AUM and god-knows how many millions of clients, why do you still need to gather assets?

Have a great day!

I will, thanks. You too, and say Hi to Prince Charles for me 

BTW, if fees are the be all and end all of your approach, the questioned begged is why you are even needed. Why not just produce a book for $10, explain to the buyer how to run your “all T zeros and 7 ETFs” strategy and allow the guy to do it all for $7/trade without paying your 50bps fee forever?

<?:NAMESPACE PREFIX = V /> 

Mike

Are you actually a woman?  You sound like my ex-wife twisting things that I say into what she wants them to mean. Are you sure your name isn't actually Angie - do you live in Tampa?

The book idea has already been done by John Bogle and more recently David Swenson.  But thanks for thinking of me anyway.

It is amazing when the truth hits you - you react in the same way as Angie did....just start calling me names and insulting me. Are you sure your not really Angie?

If so....somehow I am making it without you! 

Love

Lance

Nobel Prize winners entrust their nest eggs to DFA, where investing is a science, not a spectator sport.

Suppose you made a list of the smartest people alive in finance--those who have done the most to advance our understanding of how the stock market really works. Somewhere near the top you'd surely place Eugene Fama of the University of Chicago, the leading champion of the efficient-market theory and a favorite to win a Nobel Prize one day. You'd obviously want to include Merton Miller of Chicago, who earned a Nobel by analyzing the effect of a corporation's capital structure on its stock price, and Myron Scholes of Stanford, who won his Nobel by explaining the pricing of options. You'd also pencil in Fama's collaborator Kenneth French of MIT, as well as consultant Roger Ibbotson and master data cruncher Rex Sinquefield, who together compiled the most trusted record of stock market returns going back to 1926.

What would you give to know how these titans invest their own money? Well, don't give too much, because all you have to do is look at the funds of one Santa Monica money management firm, Dimensional Fund Advisors. Sinquefield and partner David Booth, both former students of Fama, founded DFA and now run the funds. Fama and French map out many of the investment strategies (and earn royalties for doing so). Miller, Scholes, and Ibbotson are directors. All except Miller, who believes directors should not invest in their own funds, have large chunks of their own money in DFA.

If you want to invest like these giants, however, you may have to check one of your most cherished investment notions at the door. Unlike any other money management firm, DFA insists that each of its funds follow a strategy based on rigorous academic research. And for the past three decades that research has squarely challenged the industry's fundamental assumption--namely, that a stock picker, given enough smarts and enough research, can consistently beat the market. To the Uber-intellects at DFA, the genius stock picker is a myth. "I'd compare stock pickers to astrologers," says Fama. "But I don't want to bad-mouth the astrologers."

Such talk may seem harsh in these stock-mad days--when top mutual fund managers are as celebrated as sports stars--but DFA has the numbers to back it up. Sinquefield and Booth will be happy to share the reams of academic research supporting the theory that stocks are, with a few exceptions, an efficient market, in which prices fairly reflect all available information and stock pickers can't really add much value. They can also point to the wildfire spread of indexing among professional and retail investors, an investment strategy they helped pioneer.

Sinquefield and Booth might also bring up the success of their own firm. After being hooted at by Wall Street 20 years ago, the pair today manage $29 billion in 22 funds, making their firm the ninth-largest institutional fund manager in the country. The client list includes the pension funds of PepsiCo, BellSouth, and the state of California, and the endowment of Stanford University. The firm is also the most popular choice of the mutual fund industry's fastest-growing retail distribution channel, fee-only financial planners. (If you want to invest your own money in DFA funds, you'll need to go through one of them.) DFA collects fees averaging about a quarter of a percent on that asset base, for a gross of some $70 million a year. Which pretty much disposes of the notion that ivory-tower ideas never make you rich.

If nothing else, DFA's success is a measure of how deeply the once thorny theories of academic finance have taken hold in mainstream investment practice. And that is due in no small part to the two founders' own tireless proselytizing. Sinquefield and Booth met in 1971 at the University of Chicago Graduate School of Business. Booth, a Ph.D. candidate, was grading papers and advising students in Fama's finance course. Sinquefield, an MBA student, regularly bombarded Booth with doctorate-sized questions. Both were already ardent believers in the efficient-market hypothesis, a theory that Fama first espoused in his Ph.D. thesis in 1964 and elaborated on in subsequent articles and academic confabs. Booth, a blond, Midwestern computer jock, came across Fama's thesis as a master's candidate in computer sciences at the University of Kansas. Dazzled by Fama's intellectual footwork, he gave up his IBMs to move to Chicago and study under Fama.

For Sinquefield, it was a case of one theology replacing another. Raised from age 7 in Saint Vincent's Catholic orphanage in St. Louis, he earned his keep there making beds and waiting on tables. He went on to study for the priesthood but left the seminary after three years. Sinquefield first encountered Fama's theories at the University of Chicago and, like Booth, had an epiphany. "It reminded me of studying Aristotle and Thomas Aquinas," he says. "The theories were so ordered and logical."

The object of their devotion, Eugene Fama, is a blunt, brilliant rebel, the scion of a working-class Boston family, whose greatest love is upsetting the status quo. As restless physically as he is mentally, Fama is a fanatic tennis player and athlete who rises at dawn to work out in his basement to blaring Wagner operas. On visits to DFA's California headquarters, he wears a special beeper that goes off whenever the wind is right for windsurfing. Once alerted, the 59-year-old Fama packs up his sailboard and heads for the beach--or if he's stuck in a meeting, he exhorts the participants to hurry up. Although considered a front-runner for a Nobel, Fama refuses to shed his curmudgeonly ways, even to compete for the prize. When well-wishers gently suggested that he might help his chances by chatting up the Nobel committee, his response was pure Fama: "If they come over here, I'll chat, but I'm not dragging my behind over to Sweden."

While other thinkers had long questioned whether stock prices were really predictable, Fama's work gave the efficient-market hypothesis its most rigorous intellectual grounding (as well as its name). Fama argued that the stock market is a matchless information-processing machine, whose participants collectively price shares correctly and instantaneously. Unlike the market portrayed in mutual fund advertisements and personal-finance magazines, it is not a place where the smartest managers outwit the less smart. Instead, the market is so full of well-trained, well-motivated investors avidly gathering information and acting on it that not even Nobel Prize winners can hope to beat it consistently. Sure, some managers will outpace the market for a few years, but it is impossible to prove that those runs are more than just sheer chance.

The efficient-market theory still raises hackles on Wall Street, for obvious reasons. But in academia the debate is all but over, and among pension fund fiduciaries Fama's theories are now so accepted that an estimated 24% of the trillions of dollars in pension assets is invested in index funds.

When Sinquefield and Booth joined the work force after leaving Chicago, however, the efficient market was a revolutionary idea. While working as a trust officer at American National Bank in Chicago, Sinquefield evaluated the bank's money managers and discovered just what Fama had predicted: Funds that actively pick large-company stocks collectively do no better than the S&P--worse, in fact, once you count their fees of 0.5 to 1.5 percentage points a year. Why not create a fund that simply tracked the index? asked Sinquefield. As long as fees were low, it would be all but certain of beating most professional stock pickers over time.

The new concept was the ultimate hard sell. "You think John the Baptist had it tough!" recalls Sinquefield. But he finally persuaded New York Telephone to invest in an S&P 500 fund if American National started one. So in 1975 Sinquefield and American National launched the first index fund to mimic the S&P. (Or maybe the second--Wells Fargo, which came out with a similar fund at the same time, claims it got there first.)

Meanwhile, at investment firm A.G. Becker in New York City, Booth was advising pension fund managers on where to put their money. He noticed that almost all the managers invested in big companies. Booth pleaded to start a small-cap index fund, but his colleagues guffawed at his presentation. "They were saying, 'Don't let the door hit you on the way out,' " recalls Booth. The next day Booth started DFA in his Brooklyn apartment, ripping out the sauna to put in a Quotron machine.

As Booth began looking for clients, another of Fama's graduate students, Rolf Banz, was researching the performance of small stocks vs. large. Banz's research proved for the first time what most professional investors take for granted today: that small-cap stocks produce higher returns than big ones over long periods. The reasoning is pretty straightforward. Smaller companies are riskier than larger companies and have a higher cost of capital. No one would invest except in expectation of earning a commensurately higher return.

Sinquefield, who had been following Banz's research, immediately proposed a small-cap index fund at American National. The bank nixed the idea. By coincidence, Booth called shortly afterward to say his fledgling firm was hatching a product just like the one Sinquefield's employer had deep-sixed. Sinquefield quit his job and joined Booth. DFA was in business.

In keeping with Banz's research, the fund would own all the stocks that made up the smallest two deciles, measured by market capitalization, of the companies on the New York Stock Exchange. (The name, the 9-10 fund, derives from the two deciles.) True efficient-market believers, Sinquefield and Booth made no effort to sort the winners from the dogs among the fund's holdings. Thus, there would be no research department or celebrity money managers, and costs could be held to a modest half percentage point, a third of what the average small-cap fund charges today. The result was a fund with the efficiency of an S&P indexer but the promise of higher returns in the long run.

One of DFA's first moves was to recruit Fama, Miller, Scholes, and Ibbotson as advisers. Fama was delighted with the idea of a fund based on his principles. "In class he kept telling us that the efficient-market theory was the most practical thing we'd ever learn," recalls Booth. "I think Rex and I were the only people who believed him." Over the years Wall Street firms, including Goldman Sachs, have tried to lure Fama away, but he always refused to leave his brainchild.

At first things went splendidly. From July 1982 to mid-1983, DFA's small-cap fund gained nearly 100%, and pension funds rushed to sign up. Then Sinquefield and Booth experienced a corollary of Banz's research: When small stocks fall, they fall harder than big ones. From 1984 to 1990, small caps went through the worst seven years in their history, returning just 2.6% a year, vs. 14.7% for the S&P. "At least it discouraged the competition," muses Booth.

What saved DFA during this period was that Sinquefield and Booth had not overpromised when selling the fund. They never told clients that small stocks would outpace big ones in any given period, even one lasting seven years. They did pledge that DFA would beat most competing small-cap funds, saddled as they were by high fees. And so it did: All small-cap funds underperformed the S&P, but DFA did better than most. Moreover, since the small-stock dry spell ended in late 1990, the 9-10 fund has waxed the S&P 500, the Russell 2000 small-stock index, and the average small-company mutual fund (see first graph).

Then as now, DFA owed much of its outperformance to a fierce attention to costs. After all, in an efficient market, costs are the one thing you can control. In addition to charging low management fees, DFA gains on the competition by sharp trading. Part of its advantage is size: As the nation's largest market maker in small caps, DFA is the first stop for active managers desperate to buy or sell blocks of small stocks. Says Robert Deere, the head of trading: "We make it as painful for them as possible."

While the 9-10 fund remained a moderate success, it took another breakthrough by Fama to really push DFA into the big time. The study, conducted with Kenneth French, then of Yale, confirmed Banz's small-stock effect but also showed convincingly that the lower the company's ratio of price to book value, the higher its subsequent stock performance tended to be. No other measures had nearly as much predictive power--not earnings growth, price/earnings, or volatility. While "value" managers such as Warren Buffett and Michael Price had long maintained that it was smarter to buy companies when they were out of favor--thus trading at low price-to-book ratios--Fama and French proved the point with statistical rigor. According to Fama and French's most recent data, downtrodden "value" stocks have outpaced high price-to-book growth stocks annually by an average of 15.5% to 11% over the past 34 years.

What makes the numbers so dramatic is that growth stocks--the Coca-Colas and Gillettes--are inevitably the most highly regarded issues, with the most predictable earnings streams. The only problem is that you have to pay for that reliability. That leaves less room for future appreciation. Value stocks, by contrast, have low prices but big upside potential. They have to offer investors higher return to compensate for the extra risk of owning them, just as Kmart must offer higher rates to sell its bonds than Wal-Mart. In a way, the value effect is similar to the small-stock effect: Bigger risk pays off, in aggregate, with higher returns. In fact, small stocks that also trade at low price-to-book ratios provided the best results of all in Fama and French's study, returning an annual 20.2% over 70 years, eight points more than big growth stocks.

DFA was quick to launch a small- and a large-cap value fund based on Fama and French's research. The funds buy only stocks that fall into low price-to-book deciles, and they make no attempt to distinguish "better" value stocks from worse ones. Partly on the strength of Fama's research, the two funds have proved enormously popular and now contain some $8 billion. One believer is Robert Boldt of Calpers, which invests $1.7 billion with DFA. "I'm convinced the value effect is real," says Boldt. "You have to expect higher returns for investing in beaten-down companies."

With a certain amount of academic prudence, the DFA sages are careful to warn that their research is no substitute for a balanced investment plan. They don't, for example, recommend that you invest only in small-cap and value stocks; the two strategies sometimes badly underperform. For stability, they recommend holding about 45% of your equities in an S&P index fund.

None of that diminishes their evangelical--some would say arrogant--attachment to their strategies. The zealots at DFA believe that their methods have not only the weight of evidence behind them but also the force of history. "Today the only people who don't think markets work are the North Koreans, the Cubans, and the stock pickers," says Sinquefield.

Who could argue, given all the brainpower at DFA? Still, hope springs eternal in investors' hearts. The temptation to try to pick the next Microsoft or Peter Lynch is--let's face it--pretty hard to overcome. And besides, at least one DFA giant thinks it's okay to indulge such guilty pleasures as long as you recognize them for what they are. "I choose a few stocks myself," says Nobel laureate Merton Miller. "But I do it strictly for entertainment."

First of all I will agree with:

Higher fees equal lower return.  It’s simple math that if you take it to the extreme proves the point.  BUT, avoiding all fees does not necessarily increase return!  There is a happy medium.  In my opinion it is anywhere from .4-1%.  But if all you are doing is putting money into an asset allocation model, investing in indexes and mostly ignoring it, the client would usually be better off with an hourly rate.  How on earth does a client with $5 million garner more of your time than the client with $3 million under this scenerio?

Timing does not outperform the market.  Well sure but active money management does usually outperform the market - over time.  If your investment horizon is 1 year, no you are likely to fail if you attempt to outperform an index.  If your time horizon is 20 years, active management will usually prevail.  It’s not one single sector of the market we are worried about, it’s all of the sectors and it isn’t one year, it’s 20-30 years usually.

No bond funds?  I would agree to an extent but it depends on the account and the goal of the investor.  If we are looking for a riskier bond portfolio structure in an attempt to increase yield with limited funds to build with, buying individual bonds would be impossible without accepting massive risk levels compared to what we might be willing to accept.  Buying a CEF with a significant discount and low cost basis would more than make up for the increase in expense.  It’s silly to make the blanket - no bond funds.  For example, buying emerging market debt with $100k would be impossible (taking cost and diversification into consideration) without tapping a bond fund. 

There are lots of little industry quotes that make any opinion look like the only honest opinion.  Look past them. 

DFA is a fine choice.  Are you counting their assets under management as YOUR assets under management?

Beagle

Thanks for your thoughtful input.  However I emphatically disagree with your assertion that active management out performs the benchmarks over time.    The math and several academics would say quite the contrary!

We have about 65% - 70% of our AUM built with DFA. The balance is either in TZ or straigt Ts.  We have believe that the straight Treasury's provide certainty and most of all the clients understand and feel comfortable with them.  The added risk and/or expense structure is not justified and from our experience have only created account service problems.

Our AUM fees are a flat 50 bps.  Well below the market, but still a pretty good a slug!.  I guess we will continue to charge this until the clients rebel!  The mfs, and "professional managers" set the stage for this compensation model.  So we look like heros relative to the 1.50% hos.  It is kind of "software" model - very profitable.    

Best

Lance

[quote=beramberger]Thanks.. I'm definitely going with a broker instead of doing the investing myself. My idea is that the broker presents and explains a proposed portfolio; which may or may not be tweaked based on our risk tolerance, etc. once set up , the account would be reviewed at least twice a year for possible modification. I wouldn't anticipate that there would be numerous trades outside of those that may be made within some fund. I guess what I expect from the broker is that I should make more or lose less than the guy who uses dart boards, ouija boards or message boards for advice. !% for that would be OK with me..but 1% PLUS A HOST OF FUND MANAGEMENT FEES gives me pause.[/quote]

Sorry this has degenerated into name calling and competing allegations, but I'll throw in my two cents worth.

1% is a reasonable fee if you advisor is doing his/her job.  That means reviewing YOUR portfolio every month, and meeting with you at least annually, with several contacts in between by phone, mail, etc.  It also means working with your acountant to ensure that what is done with your investments isn't causing unfoseen tax issues.  It also means meaningful discussions about income flow during retirement, projections of asset growth or shrinkage based on you distributions and the advisor's fees.  It means discussion about estate planning and asset transfer issues.  It mean a lot more than picking a few investments for you and letting them ride for the next thirty years.  If your poposed advisor isn't articulating these things and more, then you're not getting the full picture of what an advisor does for their fees.

What bothers me is the fee ambiguity.  The advisor states that the fee "is about 1%".  In my opinion, 1.5% is "about 1%", but it sure is a lot more on paper.  You need to pin this number down before you make your final decision.  I don't like it when advisors are reluctant to just flat-out say what their fees are.  Mine for an $800,000 account is 1%. Period.  I'm not ashamed about the fee and I feel like my clients get an excellent deal, considering the work I put in on their behalf.

As far as fund management fees go, those folks have to be paid also.  It is my job to search for fund managers or other investments that consistently outperform their benchmarks when all costs are included.

The "fluff" reports your advisor mentioned are probably benchmarked performance reports and I would not want an account without them.  This is the most objective "report card" that you'll get on your advisor, and can be very valuable when deciding how well your advisor is doing for you.  Use these reports to determine whether or not your advisor is consistently beating the averages for you...don't just take his/her word for it.  If you have problems reading the reports, go over them with your CPA or other trusted advisor.

The bottom line is, don't sign until you are comfortable with the arrangement.  If necessary, meet with other advisors to get comparison proposals.  It is nice to want to support your daughter, but you still need to feel good about the advisor you ultimately entrust with your life savings.

Indy

There is no evidence that monthly, quarterely or even annual hand holding sessions has any impact on returns.   The reality is that you should speak to your clients when you need to - depends on how well you "train" your clients.

Let me know when you found that active manager that consistantly beats his performance benchmark.  You would be the first person in history to have found one, unfortunately past performance is not indicative of future results.  So it is a dice roll going forward whether or not that manager will beat his bogey or not.  

The fees that active managers impose are a constant drag on the relative performance.  The longer the time frame the more unlikely that an active manager will beat their benchmark.  This math is quite simple to understand.   

I get back to my software analogy.  If we have developed a good piece of software that we "license" to our clients for .50 bps and they are happy and they pay - who cares how often we hold their hands.

The problem with your conclusion, and I say this respectfully is that "comfort level" is not indicative of future results.  I would argue that his selection should be as objective as possible.  Objectivity will lead to active allocation utilizing the lowest cost vehicles for the lowest price.

Best

Lance 

[quote=Lance Legstrong]

Mike

Are you actually a woman? 

[/quote]

I figured your answer would be weak, just as your first non-response was, but I never expected it to be that bad. It's a shame you couldn't answer a single question posed to you...

Mike (Angie)

The Fortune Magazine Article that I posted definitively "answers" your questions and supports my assertion.

Love

Lance

[quote=Lance Legstrong]

Nobel Prize winners entrust their nest eggs to DFA, where investing is a science, not a spectator sport.

[/quote]

Say, speaking of your definition of the term “smart money” guess who ran the hedge fund, LTCM? 

Such a nifty marketing piece for DFA funds (which are not an entirely bad choice, just not the center of the universe as you would have us believe). Then again, it has nothing to do with the fact that large, important pools of money like trusts, endowments and retirement plans aren't run as you claim. There you’ll find a mix of active and passive management and a rational fixed income policy. For example;

http://www.calpers.ca.gov/index.jsp?bc=/investments/assets/e quities/external-mgrs/externalusequitymgrs.xml

I suppose you can't answer any questions because you're simply regurgitating the lessons that have been stuffed into your head from the hard core MPT types (1.2B AUM, ROFLMAO) and the DFA sales team. Ahhh, the fervor of the recently converted....

BTW, among the questions you weren’t able to answer is the just why you should be paid anything, much less 50 bps forever for applying your “7 ETFs and T zeros” to everyone who walks through the door (total fees between 70 bps to north of 110 bps, so much for “cheap“). That service, if it’s worth anything, shouldn’t cost more than a $10 book from the discount bin.

Mike

Thanks for supplying that link to Calpers. Maybe you should examine your own evidence further.  You will see that Calpers negotiated an average rate of less than 8 bps with their active managers (Capital Guardian, Putnam, Alliance etc).  That is how much value they placed on active managers! Capital Guardian you will see manages "only" $590 million for Calpers and gets away with 10 bps.  The same bandits charge 40 bps on their New Perspective Fund with over $22 billion. Of course whatever benchmark you want to use the New Perspective Fund terribly lagged its benchmark over a ten year period.  

Again, it is hard for you to understand something when your paycheck is based on your not understanding it.

I do apprieciate your input becuase it helps me support my position even further.  Maybe some day I will take some frustrated clients away!

Cherio!

Lance

Value investing has been favored for what the past 6 years?  When growth comes back into favor let’s have this discussion again

[quote=Lance Legstrong]

Mike

Thanks for supplying that link to Calpers. Maybe you should examine your own evidence further.

[/quote]

I did, but thanks for caring. Too bad the facts there are have no chance on sinking in on you.

[quote=Lance Legstrong]

You will see that Calpers negotiated an average rate of less than 8 bps with their active managers (Capital Guardian, Putnam, Alliance etc).

[/quote]

And of course you can provide a link for that claim, right? 8 bps all in? We’ll wait right here…..

[quote=Lance Legstrong]

That is how much value they placed on active managers!

[/quote]

So deeply confused..... that's not an indication of how they "value" active managers, it's an indication of what they can negotiate fees down to since they control massive amounts of money (BTW, they pay management fees and commission separately) .

The fact is they value active management over passive, which is universally the case with serious money. In fact, they run 60% managed, 40% passive and ZERO % “buy T zeros with short maturities”.

[quote=Lance Legstrong]

Of course whatever benchmark you want to use the New Perspective Fund terribly lagged its benchmark over a ten year period.

[/quote]

Your fixation on mutual funds is as bizarre are your inability to answer the simplest of questions….

[quote=Lance Legstrong]

Again, it is hard for you to understand something when your paycheck is based on your not understanding it.

[/quote]

Sounds like you’re talking about your “7 ETFs for everybody” theory again. No doubt the guys that employ you to hustle up more accounts for their “we do it cheap, we do it the same for everyone” chopshop have beaten the extreme version of the MTP model into your head. Too bad they couldn't get anythign better of you than links to Fortune mag reprints.

Do ask those folks at CALPERS (they manage REAL money, not your 1.2B in Monopoly money) why they aren’t as smart as you are….

[quote=Lance Legstrong]

I do apprieciate your input becuase it helps me support my position even further. Maybe some day I will take some frustrated clients away!

Cherio!

Lance

[/quote]

ROFLMAO, sure you will, right when you cross the $1.3B mark and figure out why you’re getting paid anything, much less 50 bps for life for something that sounds so very simple.

This could have been an interesting thread, but your “you’re all dumb and crooked or you’d do exactly as I do with my fictional $1.2B book of business” act saw to it that nothing productive would result of the conversation.

Mike



Again - are you sure your not really my ex-wife



You behave just like her



BTW - Simpler is generally better! Most people understand it.

Would you stop calling me names…it hurts my feelings





Best



Lance

[quote=Lance Legstrong]

BTW - Simpler is generally better! Most people understand it.

[/quote]

Then write that book and stop pretending you deserve 50 bps for life for putting people (every last one of them) in 7 ETFs and a laughable short-term T zero portfolio.

And while you're at it, help out those poor, ill-informed people running real money like CALPERS. I'm sure they'd find the yapping of a guy with 3 years in the biz (who pretends to have 25 yrs and $1.2B AUM) to be informative. 

Again, our program is not for everyone.  It should only appeal to people who are sick and tired of being sold a bunch of BS.  We provide rational, simple, inexpensive strategies that will optimize most peoples situations with the least cost.  If you would bother to look you will see that most major DB plans have a good deal of their fixed income portfolios in immunized bond portfolios. 

This is our simplified version of that.  The laddered treasuries provide certainity, it is easily understood, very inexpensives and has no real market risk.  We buy blocks of a millions at a time and allocating them into the client accounts.  We do not mark them up - again something that you may not understand.   

If all you have left is insults maybe you should say "Uncle"

Best

Lance

[quote=beramberger]Thanks.. I'm definitely going with a broker instead of doing the investing myself. My idea is that the broker presents and explains a proposed portfolio; which may or may not be tweaked based on our risk tolerance, etc. once set up , the account would be reviewed at least twice a year for possible modification. I wouldn't anticipate that there would be numerous trades outside of those that may be made within some fund. I guess what I expect from the broker is that I should make more or lose less than the guy who uses dart boards, ouija boards or message boards for advice. !% for that would be OK with me..but 1% PLUS A HOST OF FUND MANAGEMENT FEES gives me pause.[/quote]

Maybe you should consider not being in a fee based account.  I have clients with over $800,000 in assets that aren't paying me yearly fees, with the exception of the mutual funds they are in.  Mutual funds comprise less than 1/8th of their account, however.  Most of the rest is stocks and it's pretty much a buy and hold strategy.

[quote=Lance Legstrong]beramberger -
PROCEED WITH UTMOST CAUTION!
Some Myths Exposed!

Before Proceeding Consider These Facts!

1. There is no such thing as professional money managers - only professional money gatherers.

2. There is no correlation whatsoever that past performance has anything to do with the future - none - ZERO! PAY NO ATTENTION TO BRAND NAMES OR PAST PERFORMANCE

3. Only 20% of mutual funds or active managers beat or match their benchmarks in any given year. Unfortunately there is only a 7% chance that one of those will beat or match their bench mark the 2nd year. Better off trying to catching snowflakes!

4. No evidence that market timing adds any value! AVOID

5. Asset Allocation is responsible for over 90% of performance.

Solution: Engage an advisor who will use a rule based reallocation system to run an ETF portfolio that covers the entire market (it will take 9 different US Equity ETFs and 2 non US ETFs), slightly weighted to the small and mid cap equity areas. with 70% of your assets. Take the other 30% and buy
Treasury Zeros with maturities of 2,3,4,5 & 6 years out. NEVER BUY BOND FUNDS!

Do NOT pay more than 0.50% this should include portfolio establishment, ongoing reporting and rebalancing. And someone willing to tell you the truth and share over 25 years of industry experience when you feel the need to   call!

This will result in superior returns, complete liquidity and no surrender charges.


DO NOT GET INTO MANAGED ACCOUNT PROGRAM
DO NOT PURCHASE AN ANNUITY
DO NOT PURCHASE AN ACTIVELY MANAGED MUTUAL FUND
All of these are schemes to skim money from you!

Good Luck!

[/quote]

First, I can't believe you are giving investment advise to someone you don't know from Adam.  (Ever heard of Rule 405?)

Second, if all you're doing is indexing with ETFs, you don't even deserve the 50 bps that you're charging.  You may want to consider charging hourly. 

Third, two non-US equity ETFs?  Wow, I bet you are missing a large part of the international markets.  (I use a min. of 5 depending on client profiles, again, rule 405.)

Fourth, without active management you will never beat the indexes that you accused the mfds of not being able to beat.  (Plus you're adding your 50 bps.)

I just hope that you don't really believe the crap that is coming out of your mouth.  If so, it's no wonder the industry has such a bad rap from Joe Public. 

exEJIR

Thanks for the post.  When I did the CFP training the guy leading one of the classes used DFA funds exclusively and his arguement was always “Active managers NEVER outperform indexes long term.”  Well guess what?  His 1% fee was taking 10% of their return away and he was underperforming almost all of the “horrible” active managers.  He denied it the entire class until the last week it sort of dawned on him - 10% yearly return minus 1% fee = 9% (a 10% drop in their return).  For some reason this math completely escaped his mental grasp.  It was fun for each of us in the room to see the light switch turn on in his head that his “professional” portfolio management was little more than an exercise in liability reduction from the front office.

His biggest problem was that his clients kept moving after they got his portfolio asset allocation strategy.  Why continue to pay yearly if his work was all done the first year?  He’s now out of the business and selling annuities only.

First, I can't believe you are giving investment advise to someone you don't know from Adam.  (Ever heard of Rule 405?)

It is chat-room for heavens sake! Litghted Up

Second, if all you're doing is indexing with ETFs, you don't even deserve the 50 bps that you're charging.  You may want to consider charging hourly.

As I said before the Mutual Fund and Professional Managers, set the stage for AUM fee based compensation system.  I guess our clients would be better off paying 1.50% in SMA .  It is an absolute travesty for the investing public to pay a mutual fund 80 bps for underperforming their benchmark. 

Third, two non-US equity ETFs?  Wow, I bet you are missing a large part of the international markets.  (I use a min. of 5 depending on client profiles, again, rule 405.)

We stay from the inefficient lower capitlized non-US stuff. Plus we do not want any overlap.  I will let those bets for "The Pros" 

Fourth, without active management you will never beat the indexes that you accused the mfds of not being able to beat.  (Plus you're adding your 50 bps.)

No active manager can consistantly beat their benchmark. Never have - never will and we never claimed that!  We just use ETFs and Index like funds (15 - 30 bps) to give our clients the most efficient exposure to equity market segments and rebalance and we add on 50 bps which covers trading and IRA fees.  TOTAL COST to our clients last year averaged 68 bps. Well below the average equity fund expense ratio of 85 bps.

I just hope that you don't really believe the crap that is coming out of your mouth.  If so, it's no wonder the industry has such a bad rap from Joe Public. 

The industry has a bad rap becuase reps are trying to win trips to Bermuda!  Or selling annuities to 80 year olds or churning or non-disclosing compensation deals or selling proprietary products or churning and burning or stealing money from people.   As I said I want you clowns out the selling the BS that you are paid to believe - it just makes our job easier when we turn on the lights for people.

Again; It is hard for a man to understand something when his paycheck depends on him not understanding it!

Keep the comments coming boys - it is honing up my presentation skills!

Lance! 

Again, our program is not for everyone.  It should only appeal to people who are sick and tired of being sold a bunch of BS. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

So, you figure they’ll buy your BS now? I feel bad for you Lance, all the pressure you must be under, being the only honest investment rep in the world and all…

 We provide rational, simple, inexpensive strategies that will optimize most peoples situations with the least cost. 

“We”? You got a mouse in your pocket? The rest of your line is suitable for a marketing brochure, but those of us in the biz can see right through it.

 If you would bother to look you will see that most major DB plans have a good deal of their fixed income portfolios in immunized bond portfolios. 

This from the guy that can’t even admit REAL money is run largely with active management.  BTW buying nothing short term T zeros does not an “immunized bond portfolio” make.

This is our simplified version of that.  The laddered treasuries provide certainity, it is easily understood, very inexpensives and has no real market risk. 

Real answer, it’s easy for you and your clients are too dumb to know how much FI return they’re missing….

 We buy blocks of a millions at a time and allocating them into the client accounts.  We do not mark them up - again something that you may not understand.   

ROFLMAO, again with the “we”. “We” with the 1.2B in AUM…. Btw, just what is it about buying blocks and not marking up you figure other people with far more time in the biz than you won’t understand. If you knew anything about flat-fee accounts or managed accounts you’d know that’s nothing special, it’s common practice.

If all you have left is insults maybe you should say "Uncle"

I asked plenty of point questions that you’ve dodged. BTW, if you’re too dimwitted to understand that your entire thread consisting of “If you were honest and smart like me you’d run money like this, there rest of you are fools and thieves” mantra set the tone of the follow-on conversation, you’re too dimwitted to bother with.

Best

Lance<?:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" />

Say Hi to Prince Charles for me

I guess our clients would be better off paying 1.50% in SMA. 

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

Why not, you're charging them between 75 bps to north of 110 bps, with ZERO personalization, they'll NEVER beat the indexes with your method and god only knows how much they're losing in your joke of a FI strategy....

 It is an absolute travesty for the investing public to pay a mutual fund 80 bps for underperforming their benchmark.  <?:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" />

Yeah, they should pay you from 70 to over 110 bps to be folded into a one-size-fits-all 7 ETFS and T zeros strategy that assures them they'll never even match index returns.

We stay from the inefficient lower capitlized non-US stuff.

"We" are missing returns.....the ability to profit from said inefficiencies is called "Alpha"....

No active manager can consistantly beat their benchmark.

A claim you continue to make even though it's been pointed out to you repeatedly that trustees who run major pools of money reject your theory...

 We just use ETFs and Index like funds (15 - 30 bps) 

More like 25 to 60 and then you toss in your 50 which you charge forever even though your work is done after the first buys and sells...

 TOTAL COST to our clients last year averaged 68 bps. 

Absolutely false... 25 + 50 is 75 MINIMUM..and that's for the promise of eternal underperformance, zero personalization and a FI strategy that is best described as amateurish at best.

 The industry has a bad rap becuase reps are trying to win trips to <?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Bermuda!  Or …

And since there are some bad apples everyone but you and your mouse are crooks. Got it

  As I said I want you clowns out the selling the BS that you are paid to believe - it just makes our job easier when we turn on the lights for people.

Again, when will you be "turning on the lights" for those poor, dimwitted souls like the ones at CALPERS who run real money? You figure the "everyone but me in this biz is a thief, Mr and Mrs Prospect" is a winning strategy?

Keep the comments coming boys - it is honing up my presentation skills!

"Presentation skills"? If they're as weak as the skills you've shown here, you'll be back to selling patio furniture inside 6 months...

Lance! 

AKA, the Queen of England...

[quote=mikebutler222]

Keep the comments coming boys - it is honing up my presentation skills!

"Presentation skills"? If they're as weak as the skills you've shown here, you'll be back to selling patio furniture inside 6 months...

[/quote]

Amen, Brother Mike!!!  

Our average fees result from being 30-35% in non-fund incumbered treasuries.  So please correct your math.

Regardless what anyone claims there is no active manager that consistantly beats their benchmark. In fact if a manager beats their benchmark it raises skeptism that their style drifted from what they are supposed to be doing and they are taking on more risk than they are supposed to.

There is no such thing as a professional money manager, only professional money gatherers. At least I will admint what I do - I gather assets and provide an innovative value for investors.

Again, this rational, simple yet effective strategy appeals to a lot of people. Especially non-industry technical people like attorneys, accountants, engineers and doctors.  It is certainly not for everyone - only those fed up with BS that is pumped at them. 

Can any of y'all show any correlation that performance is in any way linked to "personalized" portfolios or "customized" investment programs or that "tailored" approach.   All superficial meaningless marketing terms that have ZERO to do with performance.

The only determining factor in performance is allocation and cost.  If you are concerned about risk, then make sure that you have a rational portfolio construction policy with rebalancing triggers that make sense.

Again - you fellas should say UNCLE becuase all you have left is insults and baseless marketing bullets for Ol' Lance! 

Our average fees result from being 30-35% in non-fund incumbered treasuries.  So please correct your math. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Every other claim you’ve made has been demonstrably false, and now you want us to believe you do the FI part of your portfolios for free? Please….

Regardless what anyone claims there is no active manager that consistantly beats their benchmark.

You keep saying that and the people that really do run large pools of money don’t believe you….

 In fact if a manager beats their benchmark it raises skeptism that their style drifted from what they are supposed to be doing and they are taking on more risk than they are supposed to.

“Raises skeptism” (sp)? Hardly, that’s what attribution reports are all about. It happens all the time and with regular consistency.

There is no such thing as a professional money manager, only professional money gatherers.

You keep repeating that mantra and who knows, some day you might even believe it yourself. Just remember, as you read those DFA brochures as bedtime stories, there are boatloads of very smart, very experienced people running real money, the sort you’ll never be entrusted with, who think you’re deluded.

 At least I will admint what I do - I gather assets and provide an innovative value for investors.

Now it’s you and not “we”? Great, progress is being made. Someday you might progress to the point that you’ll understand that the “service” you provide is little more than an amateur’s way to guarantee underperformance.

Again, this rational, simple yet effective strategy appeals to a lot of people.

There’s always an audience for something…Amway sells big too, I’m told…

Especially non-industry technical people like attorneys, accountants, engineers and doctors.  It is certainly not for everyone - only those fed up with BS that is pumped at them. 

And your BS smells different. Just wait until they figure out you did all the “work” you’ll ever do in the first 2 weeks of the accounts existence and they move to Etrade to avoid your 50 bps for nada trails…

Can any of y'all show any correlation that performance is in any way linked to "personalized" portfolios or "customized" investment programs or that "tailored" approach.  

I don’t think the folks that run real money and people like Warren Buffett (let me guess, you’re not only more ethical than ‘ol <?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Warren, you’re smarter too) wouldn’t have a problem with doing that.  Good luck selling your “one size fits all” portfolio management with no consideration of the client’s goals, objectives or risk tolerance….

The only determining factor in performance is allocation and cost. 

And that’s why every large, smart pool of money is indexed.

No, wait, they aren’t. Back to the drawing board, Skippy….

 If you are concerned about risk, then make sure that you have a rational portfolio construction policy with rebalancing triggers that make sense.

Golly, is that what we should be doing? Will all my friend do it to? Say, could you explain where “rational portfolio construction policies” fit into a “one fit fits all” process?

Again - you fellas should say UNCLE becuase all you have left is insults and baseless marketing bullets for Ol' Lance!<?:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" />  

You’re the one that started this by calling everyone else a fool and a crook and now you whine about getting a response. Go study for your Series 65….

Oh boy, here we go.  This is why I tend to stay off these boards.

[quote=Kargon]Oh boy, here we go.  This is why I tend to stay off these boards.[/quote]

Nah, don't sweat it. I've had all the fun I care to have with HRH Q.E..

I never said what you were doing was wrong; I may have implied it is baseless, conflicted, misguided and self-serving.  However I do respect you fellas.  Ya’ got a lot of parties to look after; Y’all got to feed your families, you got to keep your sales manager off your back, you need to keep your compliance department at bay - all the while keeping your clients happy.   No easy task!<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Can you honestly say that these different conflicting parties do not impact your judgment on what you communicate to your clients on any given day? Especially the last 3 production days of the month!

We have found that our approach provides our clients with market like returns at a very low cost.  Why would anyone expect to get better than a market like return?  If they are expecting that – then they are fools!  Again our approach is not for everyone.  However it does serve all interest at an optimal level.  

We have three model portfolios for our clients to use.  Each one is constructed the same and here is the average returns that they experienced in each. Here are the average net returns that our clients experienced after all fees and expenses                                                                                                                                                                                                                                                                                                    

             2003                  2004                 2005                 Bond Component %

Con     14.39%         8.91%        5.91%                          60%         

Mod    26.77%         12.17%         8.05%                      34%   

Agg     30.27%         13.44%         8.45%                      20%

S&P    28.73%         10.87%         4.93%                      ZERO

While we do not use the S&P as a benchmark I wanted to include it for y’all just to see how we did.  This year we have added an all equity portfolio and we do have aggregate results yes.

Do you have clients that have done better?  Of course you have! I do not doubt that!  

Do you have a program that has done better with the same risk?  Now that I would doubt!

My point is that our clients are getting market like returns with an acceptable level of risk and the certainty that the Treasury bonds offer. In other words we are delivering what we promise!  Low Cost, Acceptable Risk = Market Like Returns.  We help them select which level of risk is appropriate.  65% of our clients are in the moderate. Only 15% in the aggressive. 20% in the conservative.  Is this right? Is this wrong?  That is completely subjective.  I can tell you that it works for all parties!

Thank you for the opportunity to lay this out for y’all.  This whole string has sparked some new client communication pieces and exposed more myths for us to exploit!

Cheers

Lance

[quote=Lance Legstrong]

Can any of y'all show any correlation that performance is in any way linked to "personalized" portfolios or "customized" investment programs or that "tailored" approach.   All superficial meaningless marketing terms that have ZERO to do with performance.

[/quote]

My Mod portfolios, using a core/satelitte strategy averaged approx 2% better than your strick ETF allocation.  Keep in mind this is after their "too high" fees and commissions from their brokerage firms.  To the "average Joe" 2% may not sound like much, but we all know that 2% over the life of an investment portfolio is a big difference. 

[quote=exEJIR][quote=Lance Legstrong]

Can any of y'all show any correlation that performance is in any way linked to "personalized" portfolios or "customized" investment programs or that "tailored" approach.   All superficial meaningless marketing terms that have ZERO to do with performance.

[/quote]

My Mod portfolios, using a core/satelitte strategy averaged approx 2% better than your strick ETF allocation.  Keep in mind this is after their "too high" fees and commissions from their brokerage firms.  To the "average Joe" 2% may not sound like much, but we all know that 2% over the life of an investment portfolio is a big difference. 

[/quote]

It's true that your 2% improvement over HRH's performance means real money to the client, but you have to give HRH credit for delivering what was promised; cheaply run portfolios guaranteed to underperform the market.

I love it when two continue to bash each other in the head in a board where nothing really matters!  MikeButler loves to argue and is instantly going to take the opposite view of anyone else.  Lance has to stop repeating what he learned at the hiring seminar and monthly sales meetings.

Dear Mr. Client from the Carolina's area,

The foregoing is the exact reason you never want to take your business to a "Wirehouse" - ie Merri..  or  Morg.. or etc.  Those places are full of competitive maniacs that are constantly vying for each others clients by screaming at the tops of their lungs and privately sucking up to the Branch Manager so they "orphan" the offending nincompoops clients after they talk the Branch Manager into firing him.  Go to a nice, small, independent boutique firm in your area that has a good reputation that you've heard about from your associates and big dogs down at the club.  Compare 2 or 3 of them and see what you feel comfortable with.  Your daughter, which works at the firm, has been pressured to get your money in there.  I promise.

[quote=dogdooki]

Dear Mr. Client from the Carolina's area,

The foregoing is the exact reason you never want to take your business to a "Wirehouse" - ie Merri..  or  Morg.. or etc.  Those places are full of competitive maniacs that are constantly vying for each others clients by screaming at the tops of their lungs and privately sucking up to the Branch Manager so they "orphan" the offending nincompoops clients after they talk the Branch Manager into firing him.  Go to a nice, small, independent boutique firm in your area that has a good reputation that you've heard about from your associates and big dogs down at the club.  Compare 2 or 3 of them and see what you feel comfortable with.  Your daughter, which works at the firm, has been pressured to get your money in there.  I promise.

[/quote]

I've read some dumb things here, but the above is perhaps the dumbest. In my entire time in the biz I've never seen anything like what's claimed above happen, period.