Skip navigation

Competing w/Fidelity

or Register to post new content in the forum

39 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Jul 4, 2007 3:12 am

[quote=Big Taco]

Oops, I mean it’s written:

My name, & Associates, a financial advisory practice.

[/quote]

I give out the really cheap slippery business cards I had printed and Kinko’s, and tell them that “I’m just practicing. You interested?”
Jul 4, 2007 4:29 am

[quote=AllREIT] [quote=Big Taco]

If cheapest is almost always best, and vanguard has "well managed active funds", why don't they pop in my filters, and why do my actively managed wraps always beat my etf wraps both on real returns and lower std dev?

Trust me, I wish the etf's won on both counts, because it would be that much easier to compare costs ON TOP of the better returns and lower std. dev.  but they don't.  my actively managed wraps beat the etf wraps by several percentage points (on mod, mod aggr, and aggr model portfolios) with (slightly) less standard dev.  lower risk, much higher returns (including the fees).  which one would you choose? 

[/quote]

1) I don't know what your filters are, so I don't know how they work. I normally don't use any of the VG active funds, but some of them like Wellington/Wellesley are nice, and number of the active funds (such as Int Value) are as cheap or almost as cheap as ETFs.

2) As for myself, knowing about the non-persistance of manager alpha, I'd have to look closer. You might be one of those rare active stock/fund pickers who can beat the market, or you could be lucky.
[/quote]

first of all, when i look at 5+yrs of my actively managed wraps' performance, I don't think that I'm just "lucky".  I don't think "luck" adds several points to the mean return of a 5 yr number, with lower standard deviation (as compared to the etf version of a model portfolio).  I have a system, and a discipline to stick with it. 

The whole Bogleheaded idea that cheapest is best, indexed is best (although VG offers actively managed funds), is a load of crap.  It's marketing flim-flam, and it's completely untrue in my experience.  I've (with necessary help from my colleagues) developed a few systems to find managers who understand their niches and asset classes to provide alpha consistently to my clients.  Other than just laziness/disinterest, why should anyone pay me 1% to invest them in index funds/etfs?!?  I know, it's for the hand holding and "incidental" investment advice, and execution...  But most of my clients aren't invested in indexed investments, but their portfolios are beating their relative benchmarks.  I make a point to compare real returns and std dev. to hypothetical etf returns, with fees as a part of review meetings.

Jul 4, 2007 4:31 am

[quote=joedabrkr] [quote=Big Taco]

Oops, I mean it's written:

My name, & Associates, a financial advisory practice.

[/quote]

I give out the really cheap slippery business cards I had printed and Kinko's, and tell them that "I'm just practicing. You interested?"
[/quote]

I'm sure that's what all the doctors and lawyers in your neck of the woods do, too.

Jul 4, 2007 9:37 am

[quote=Big Taco]first of all, when i look at 5+yrs of my actively
managed wraps’ performance, I don’t think that I’m just
"lucky".  I don’t think “luck” adds several points to
the mean return of a 5 yr number, with lower standard deviation (as
compared to the etf version of a model portfolio).  I have a
system, and a discipline to stick with it.  [/quote]

There is still no way to know if you haven't just been on hot streak for a few years running. I'd also note that the general market 2002-2007, has been on a upstreak, and so it take extra effort/bad luck to do badly.

If you passively owned high beta assets you would seemingly beat your benchmarks. Same thing with having value/small cap skews when comparing yourself to a general market benchmark.


[quote]The whole Bogleheaded idea that cheapest is best, indexed is best (although VG offers actively managed funds), is a load of crap.  It's marketing flim-flam, and it's completely untrue in my experience.  I've (with necessary help from my colleagues) developed a few systems to find managers who understand their niches and asset classes to provide alpha consistently to my clients.[/quote]

I'd say the whole boglehead idea is that you can't hope to do better than the general market except via luck. Thus the goal of investing is to get your fair share of market returns. It's about humility IMHO. 

IMHO if you are very good at picking winning managers, you should quit retail brokerage and go into managing Hedge FoF's while making 1 and 10, with an expense pass through. That's what I would do.

[quote]Other than just laziness/disinterest, why should anyone pay me 1% to invest them in index funds/etfs?!?  I know, it's for the hand holding and "incidental" investment advice, and execution...  But most of my clients aren't invested in indexed investments, but their portfolios are beating their relative benchmarks.  I make a point to compare real returns and std dev. to hypothetical etf returns, with fees as a part of review meetings.[/quote]

Because you explain that you can't add value (only add expenses) via fund selection. So you focus on the area's where you have control (investor behavior and asset allocation) vs the area in which you do not (asset class returns).

Also I think have a fairly unique niche, in that I don't manage vs benchmarks but instead against inflation and clients expected liabilities. My clients like the logic of my approach, people who think its dumb probably don't work with me.

Jul 4, 2007 1:26 pm

[quote=badmove?]Need some help, trying to pull in a Fidelity PAS
account (little over a mill, all qualified). The client is happy w/Fido
and I must admit the allocation and fund selection was impressive. My
angle will be that it is a cookie cutter program, the fee’s are a
little high (1.25) and the client will always be dealing w/a new rep
(the turnover there is ridiculous). Anyone have any luck pulling those
PAS accounts or are there any former Fido guys out there that can point
out some of the deficiencies in that program.TIA[/quote]



Someone that has over a milion dollars should be presented with a more
customized approach, should own the stocks and bonds directly as
apposed to mutual funds, and should have a plan that integrates their
assets with their life, goals, and other advisors. 


I would begin with a comprehensive risk profile and measure the
Fidelity portfolio to the profile.  You may find the portfolio is
excellent, but too risky for their taste (remember we have not had a
bad run here in a while).  This allows you to compliment them on
the portfolio and the decisions they have made thus far, but perhaps
things should just be re-visited.


I would do the probalistic planing tying their assets, life goals,
cash flow needs, all back to their risk profile.  You may find
here that their risk profile is telling you to be more conservative
than your portfolio is today (item 1) and your planning supports this
in that you do not NEED to take the risk in order to achieve your
goals.   This just supports changing the portfolio.


I would present a quarterly “Cash Flow Review” that ties their
assets, planning, and budget (“You said your would be spending $5,000
per month and youu have only been spending $4,000…there is extra
there so take a more expensive vacation or contribute to grandchilds
college fund…”)


I would outline the costs (Personal Fund.com) of the portfolio they
hold now, and do an ovelap and correllation analysis of their mutual
funds.


I would ask many, many questions about their personality, family,
and such and figure out how that should be imprinted on their
portfolio.  Maybe they lost a parent to lung cancer (do not own
any tobacco companies), and had a grand-dad who was a farmer and they
have fond childhood memories of tractor rides on his green tractor (own
John Deere).  Partner with them to make sure their personality
reflects the portfolio…something a mutual fund kit cannot do.





This may be a starting point to get them off the Fidelity bandwagon.
Jul 4, 2007 3:05 pm

[quote=AllREIT]
I've heard of alot of stockbrokers who call themselves financial advisors when in reality they are  mere representatives who's advice is "solely incidental" to the sale of securities.
[/quote]

And your fees grind their average annual returns down to crap over the long-term.

Dear Mr. Highhorse,

Some people on this forum realize what exactly it is we get compensated so well to do:

Bring home the kill.

If my managed strategy underperforms your passive strategy by .25% every year, I couldn't really give a damn.  You spend the time explaining passive vs. active strategy (and why you deserve a wrap fee) to your clients one by one and I'll bring in the bacon letting "those Ivy-Leaguers in New York" do the managing (C Shares).

You made a mention on here about least expensive, blah blah blah, also.  Try doing the absolutely best thing for the client and cutting your annual fee to 0% and see how long you've got a job.

Jul 4, 2007 3:36 pm

Drew, it’s starting to wear a bit thin for me also.  Believe it or not, my actively managed portfolios consistently beat the indexes and have for the past seven years.  I believe that’s more than luck, and I also don’t believe an advisor deserves a fee for guaranteeing underperformance.

Jul 4, 2007 3:38 pm

[quote=AllREIT]

[quote=Big Taco]

Yes, our filters don’t pop up any VG

funds. some folks are cheap, some are spendthrifts, and then

there’s those who I want to work with: folks who can discern

"value".



It’s easy to sell something because it’s “cheap” or

inexpensive. but is the cheapest product usually the best

product? not in my experience (neither is the most expensive

product, of course). Why would someone sell a VG index fund when

they can buy an etf with typically lower internal expense? (I’m not

saying that any of you are doing this).



When someone can’t get past fee this, fee that, I suddenly realize

that I don’t have to work with this person, and I’ll probably be

happier that I didn’t, long term. Because it shows a myopia, and

it peeves me when people can’t shift their paradigms… or else I just

put them in an etf wrap (low expense) and show them how

they’ve underperformed my non-etf portfolios’ real returns in

follow-up meetings.

[/quote]



When it comes to investments, cheapest is almost always the best and usually close to it if it not the best.



What I tell clients is that the money they spend on an FA goes into two

buckets. Advice and Investments. Money spend on active investments is

odds on not valuable. Money spent on advice is possibly valuable.



As for VG funds vs ETFs, the main benefit is automatic

reinvestment/ease of rebalancing on the index funds, and cheap well

managed active funds.

[/quote]



There was a recent study done that shows manager tenure is far more relevant to long term performance than a low expense ratio, this is common sense to me, but you don’t see anyone talking about it.don’t see
Jul 4, 2007 6:38 pm

[quote=drewski803]

[quote=AllREIT]
I've heard of alot of stockbrokers who call themselves financial advisors when in reality they are  mere representatives who's advice is "solely incidental" to the sale of securities.
[/quote]And your fees grind their average annual returns down to crap over the long-term.

Dear Mr. Highhorse,

Some people on this forum realize what exactly it is we get compensated so well to do:

Bring home the kill.

[/quote]

I don't think thats what I get compensated for at all. I'm paid for advice, good taste, and keeping my cool under pressure.

As I tell clients, let the bulls, bears and hogs slaughter each other, so long as we own the killfloor.

[quote]If my managed strategy underperforms your passive strategy by .25% every year, I couldn't really give a damn.  You spend the time explaining passive vs. active strategy (and why you deserve a wrap fee) to your clients one by one and I'll bring in the bacon letting "those Ivy-Leaguers in New York" do the managing (C Shares).[/quote]

You seem very insecure. 

And BTW how much do those C-shares cost all in?
Why do you deserve a 12b-1 fee?

[quote]You made a mention on here about least expensive, blah blah blah, also.  Try doing the absolutely best thing for the client and cutting your annual fee to 0% and see how long you've got a job.[/quote]

You should ask my hourly fee clients about that.

Jul 4, 2007 6:40 pm

[quote=bankrep1]
There was a recent study done that shows manager
tenure is far more relevant to long term performance than a low expense
ratio, this is common sense to me, but you don’t see anyone talking
about it.don’t see [/quote]



That could also be explained by surviorship effects. E.g people stick with a manager who’s been lucky in the past.








Jul 4, 2007 11:19 pm

Whatever the reason, if your using a single quantitative determinant (such as expense ratio), the single determinant with the highest backtested confidence is management tenure. Why then would you make a statement like “cheapest is best”, when in fact the most important single determinant is the number of years the manager has been managing that specific asset class?



The reason I believe no one discusses this is because fund companies have very few long term managers, they don’t want the ones with long track records demanding higher fees etc. whereas expense rations are almost irrelevant, the fees genertaed in mutual funds can be buried in the SAI.

Jul 5, 2007 4:56 am

[quote=AllREIT][quote=Big Taco]first of all, when i look at 5+yrs of my actively managed wraps’ performance, I don’t think that I’m just “lucky”.  I don’t think “luck” adds several points to the mean return of a 5 yr number, with lower standard deviation (as compared to the etf version of a model portfolio).  I have a system, and a discipline to stick with it.  [/quote]

There is still no way to know if you haven't just been on hot streak for a few years running. I'd also note that the general market 2002-2007, has been on a upstreak, and so it take extra effort/bad luck to do badly.

If you passively owned high beta assets you would seemingly beat your benchmarks. Same thing with having value/small cap skews when comparing yourself to a general market benchmark.


[quote]The whole Bogleheaded idea that cheapest is best, indexed is best (although VG offers actively managed funds), is a load of crap.  It's marketing flim-flam, and it's completely untrue in my experience.  I've (with necessary help from my colleagues) developed a few systems to find managers who understand their niches and asset classes to provide alpha consistently to my clients.[/quote]

I'd say the whole boglehead idea is that you can't hope to do better than the general market except via luck. Thus the goal of investing is to get your fair share of market returns. It's about humility IMHO. 

IMHO if you are very good at picking winning managers, you should quit retail brokerage and go into managing Hedge FoF's while making 1 and 10, with an expense pass through. That's what I would do.

[quote]Other than just laziness/disinterest, why should anyone pay me 1% to invest them in index funds/etfs?!?  I know, it's for the hand holding and "incidental" investment advice, and execution...  But most of my clients aren't invested in indexed investments, but their portfolios are beating their relative benchmarks.  I make a point to compare real returns and std dev. to hypothetical etf returns, with fees as a part of review meetings.[/quote]

Because you explain that you can't add value (only add expenses) via fund selection. So you focus on the area's where you have control (investor behavior and asset allocation) vs the area in which you do not (asset class returns).

Also I think have a fairly unique niche, in that I don't manage vs benchmarks but instead against inflation and clients expected liabilities. My clients like the logic of my approach, people who think its dumb probably don't work with me.

[/quote]

I think you're exhibiting an arrogant penchant for reading only what you want to read, and believing everyone on this board is an idiot.  and then you speak of humility?

As I've written before: my actively managed wraps, based on a model asset allocation, beat my indexed wraps (etfs) based on the same. exact. model. asset. allocation...... consistently for over 5 years (as long as I've used wraps in my practice)..... by hundreds of basis points (even in my "mod. cons." portfolios), and with slightly less standard deviation. 

talk about "high beta" this and that, but I'll talk about higher returns, and LOWER std dev. than the indexed version, which makes your argument moot.

Also, if you're really not comparing your portfolios to the indexed version (apples to apples based on the asset allocation), then it may be because your wrap fee is the single factor for which you're underperforming?  Which would then beg the question in your clients' minds:  "What are we paying you for?, Why don't I just get a target retirement fund from fidelity?"

Jul 5, 2007 5:04 am

[quote=bankrep1] There was a recent study done that shows manager tenure is far more relevant to long term performance than a low expense ratio, this is common sense to me, but you don't see anyone talking about it.don't see [/quote]

can you elaborate on this study, or link to info about it? 

It would be nice to know an iota about its methodology before allreit explains it all away as "survivorship bias"

Jul 5, 2007 11:40 am

[quote=bankrep1]Whatever the reason, if your using a single
quantitative determinant (such as expense ratio), the single
determinant with the highest backtested confidence is management
tenure. Why then would you make a statement like “cheapest is best”,
when in fact the most important single determinant is the number of
years the manager has been managing that specific asset class? [/quote]



Because manager tenure is going to be very hard to distinguish from
surviorship bias. The longest lasting managers are those who have
lasted the longest. This may be because of good fund performance caused
by manager skill or it may be due to luck.



I.e if you are on a multi year hot streak you will stick around, if you
blow up the first quarter on the job, you get fired. The main question
is if manager tenure has “information content” with respect to future
performance?



IMHO I think the answer to that it may have slight ability to predict
future performance, although it is very associated with past
performance.



What I think happens is that some managers get (lucky/skillfull?) and
latch onto a theme (Energy, REITs, Internet stocks, Homebuilders etc)
and then seemingly outperform for a while. But unless they are able to
swing from rope to rope, that outperformance doesn’t last.



If the evidence for manager alpha/outperformance/persitance of that
outperformance was much stronger, then we wouldn’t be having this
debate.


[quote]The reason I believe no one discusses this is because fund
companies have very few long term managers, they don’t want the ones
with long track records demanding higher fees etc. whereas expense
rations are almost irrelevant, the fees genertaed in mutual funds can
be buried in the SAI.[/quote]



I think that is one reason. Fund industry would be embarrased if people
know how few people lasted in this business. There is an enourmous
effort at creating smoke and mirrors to hide the unimpressive
performance of most assets under professional management.



Expense ratio’s have been found to be pretty much the only thing
strongly correlated with future fund performance. Of course there are
exceptions, the typical result is that after you do a factor regression
on mutual fund returns, you find that the negative alpha is usually
pretty close to the funds underlying expense ratio.



Mangers who are really good would skip out of the mutual fund world and
charge 2/20 in a hedgefund. It’s funny but the higher pay in the world
of hedge funds/private equity has really hurt buy/sell side research and portfolio management as well.



To give a funny example, Arthur Penn, former CEO of AINV, where Apollo
was earning 2/20 on assets, skipped out to start PNNT where he will
make the 2/20.


Jul 5, 2007 12:18 pm

[quote=Big Taco]I think you’re exhibiting an arrogant penchant for
reading only what you want to read, and believing everyone on this
board is an idiot.  and then you speak of humility? [QUOTE]



I dont think anyone on this board is an idiot. Even you.



With respect to thinking I can beat the market, I don’t think it can be
done at the asset class level, and thus investor returns are a fuction
of asset allocation.

[quote]As I've written before: my actively managed wraps, based on a model asset allocation, beat my indexed wraps (etfs) based on the same. exact. model. asset. allocation...... consistently for over 5 years (as long as I've used wraps in my practice)..... by hundreds of basis points (even in my "mod. cons." portfolios), and with slightly less standard deviation. 

talk about "high beta" this and that, but I'll talk about higher returns, and LOWER std dev. than the indexed version, which makes your argument moot.[/quote]

But are you lucky or good?

[quote]Also, if you're really not comparing your portfolios to the indexed version (apples to apples based on the asset allocation), then it may be because your wrap fee is the single factor for which you're underperforming?  Which would then beg the question in your clients' minds:  "What are we paying you for?, Why don't I just get a target retirement fund from fidelity?"[/quote]

It's what I tell clients, your performance is going to be: Index - Investment cost - Supervisiory Fees. And it won't be worse than that.

For an all-in cost of ~1.25% which compares very favorably with active MF wraps where you have a wrap fee of 1-1.5% on top of active fund expenses of 0.75-1.25% for all-in costs approaching 2%.

And as for the target date fund from Fidelity. I have clients who own nothing but.Hourly clients. I tell them to give me a call when they need an income portfolio.

IMHO traget date retirement funds will destroy this industry but thats not for a long time in the future.

Jul 5, 2007 12:32 pm

[quote=AllREIT] [quote=Big Taco]I think you’re exhibiting an arrogant penchant for

reading only what you want to read, and believing everyone on this

board is an idiot. and then you speak of humility? [QUOTE]



I dont think anyone on this board is an idiot. Even you.



With respect to thinking I can beat the market, I don’t think it can be

done at the asset class level, and thus investor returns are a fuction

of asset allocation.

[quote]As I’ve written before: my actively managed wraps, based on a

model asset allocation, beat my indexed wraps (etfs) based on the same.

exact. model. asset. allocation… consistently for over 5 years (as

long as I’ve used wraps in my practice)… by hundreds of basis

points (even in my “mod. cons.” portfolios), and with slightly less

standard deviation.



talk about “high beta” this and that, but I’ll talk about higher

returns, and LOWER std dev. than the indexed version, which makes your

argument moot.[/quote]



But are you lucky or good?



[quote]Also, if you’re really not comparing your portfolios to the

indexed version (apples to apples based on the asset allocation), then

it may be because your wrap fee is the single factor for which you’re

underperforming? Which would then beg the question in your

clients’ minds: “What are we paying you for?, Why don’t I just

get a target retirement fund from fidelity?”[/quote]



It’s what I tell clients, your performance is going to be: Index -

Investment cost - Supervisiory Fees. And it won’t be worse than that.



For an all-in cost of ~1.25% which compares very favorably with

active MF wraps where you have a wrap fee of 1-1.5% on top of active

fund expenses of 0.75-1.25% for all-in costs approaching 2%.



And as for the target date fund from Fidelity. I have clients who

own nothing but.Hourly clients. I tell them to give me a call when they

need an income portfolio.



IMHO traget date retirement funds will destroy this industry but thats not for a long time in the future.



[/quote]



I will find the study and send a link later today. If you think target date funds you are a moron. That is like saying cough syrup OTC makes going to the doctor irrelevant. Products my friend are a solution, identifying and fixing problems are what advisors do hence the underlying word “advice” from which advisor is derived.
Jul 5, 2007 1:17 pm

[quote=bankrep1]
I will find the study and send a link later today.
If you think target date funds you are a moron. That is like saying
cough syrup OTC makes going to the doctor irrelevant. Products my
friend are a solution, identifying and fixing problems are what
advisors do hence the underlying word “advice” from which advisor is
derived.[/quote]



So now we come full circle back to what I’ve been saying. Clients
should spend money on where it adds value (e.g advice) and not where it
won’t/can’t/is unlikely to (e.g investment products).



I’m glad we agree.



As for target date funds, I think they take care of needs of perhaps
73% of the people out there currently working with investment advisors.
(I’m including all the folks $70K accounts as EDJ as well). Most of the
folks on this board work with higher level clients.

Jul 5, 2007 1:45 pm

It appears that you still feel that all retail accessable money managers who consistently add alpha to their asset class focus are either a) lucky, or b) stupid for not managing a hedge fund. 

It also appears that you feel that all advisors who are able to find these managers to manage their clients' money are either a) lucky, or b) stupid for not managing a hedge fund.

fortunately I'm not too narrow minded to find excellent ways to get return on investment, with lowered volatility for the people I work for, regardless of how lucky or stupid I am.

Jul 5, 2007 9:15 pm

[quote=AllREIT]

[quote=bankrep1]I will find the study and send a link later today.

If you think target date funds you are a moron. That is like saying

cough syrup OTC makes going to the doctor irrelevant. Products my

friend are a solution, identifying and fixing problems are what

advisors do hence the underlying word “advice” from which advisor is

derived.[/quote]



So now we come full circle back to what I’ve been saying. Clients

should spend money on where it adds value (e.g advice) and not where it

won’t/can’t/is unlikely to (e.g investment products).



I’m glad we agree.



As for target date funds, I think they take care of needs of perhaps

73% of the people out there currently working with investment advisors.

(I’m including all the folks $70K accounts as EDJ as well). Most of the

folks on this board work with higher level clients.

[/quote]



I agree people with a 50K portfolio most likely do not need to worrry about creating alpha but rather about saving money, and most people on this board won’t be here in two months so who cares.



Do you believe indexing is best used in all asset classes and that no manager in any asset class can outperform the index with his/her fees included over the long term?