Bogleheads Redux

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Sep 18, 2010 6:39 pm

So Bogleheads are circilng the wagons to defend RIck Ferri.  After a seemingly innocuous post, I was banned quickly.  I pointed out that in fact, Mr. Ferri's fee structure is similar to most fee-only advisors.  And that his claim of .25% is a little shady.

Here is the post:

"So maybe this is the place to post this:

It seems all investment advisors (including ONE NOT TO BE MENTIONED) charge similar fees.

Take for example, a hypothetical, LOW-COST firm that charges .25% with a minimum of $500 per quarter.  In effect, any portfolio less than $800k will be charged more than .25%.

At 100k, this fee is 2%.  At 200k, this fee is 1%.  At $400k, this fee is .5%.

Is this still low-cost money management?  In order to achieve this .25%, you must have 800k in portfolio.

Isn't this similar to other advisors fees?"

That firm is Rick Ferri's Portfolio Solutions. 

Sep 19, 2010 10:05 pm

Ten years ago, when I was just getting the firm going, my minimum annual fee was only $500 and I did take $200,000 clients.  Because our clients are smart and they knew that their high fee advisor who charge 1% or more are ripping them off, we have done very well over the years. As a result of our tremendous growth in assets and clients, today our minimum account relationship is $1 million, which is clearly written on the slash page of our website for anyone who has been there to see. 

While we no longer take clients less than $1 million, there are new and fairly priced advisors who are just starting out. This new generation of advisors charge very low AUM fees and have low minimum sizes, and I enthusiastically support their efforts. The take-your-client to the cleaner heyday is over for high costs brokers and old school advisors. The low fee advisor revolution is here. I suggest  you join it or find a new occupation. 

Rick Ferri

Sep 20, 2010 8:07 am

[quote=Rick Ferri]

Ten years ago, when I was just getting the firm going, my minimum annual fee was only $500 and I did take $200,000 clients.  Because our clients are smart and they knew that their high fee advisor who charge 1% or more are ripping them off, we have done very well over the years. As a result of our tremendous growth in assets and clients, today our minimum account relationship is $1 million, which is clearly written on the slash page of our website for anyone who has been there to see. 

While we no longer take clients less than $1 million, there are new and fairly priced advisors who are just starting out. This new generation of advisors charge very low AUM fees and have low minimum sizes, and I enthusiastically support their efforts. The take-your-client to the cleaner heyday is over for high costs brokers and old school advisors. The low fee advisor revolution is here. I suggest  you join it or find a new occupation. 

Rick Ferri

[/quote]

You should update your ADV then.  Your ADV 1 says your average account size is $532,001.  Your ADV II says your minimum is $800k.  Which is it?  You also state on your ADV that up to 10% of your clients are NOT high net worth.  and only 51-75% (a large range) ARE high net worth.  What is interesting is that high net worth is defined as someone with $750k or more. 

Since you are well-versed in statistics, if your mean is $500k, it can be unduly influenced by higher or lower values.  However, since no advisor will likely take a zero account, and it would possibly be unethical to take a $2000 account, your distribution can be skewed with higher values.  If you have 1412 accounts (which your ADV 1 says you do), then you are looking at a large number of accounts under $500k, with fewer, larger accounts above the $1 million mark.  This is generally the case with most advisors as 20% of their book of business tends to be larger accounts. Which means you have a LOT of people paying more than 35 bps, and maybe paying even in the 1 and 2 percent ranges.

In addition, if your minimum is $500 a quarter (as you state on your website) and your minimum is $1 million, then why do you even have it on there?  Don't you realize that would make your minimum fee higher than $2000 a year, or is my math wrong (I'm pretty sure it isn't)?

So you tell me, is your ADV mistaken, or are you mistaken now?

You are far from as low cost as you claim.

By the way, great job building such a large business.  Who knew it would be so lucrative to pretend to be holier than thou and lowcost.

You know what?  I also noticed that on your site you have two examples of Total Cost.  One with a person who has $500k, and one with $1 million.  You should probably take that down.  http://www.portfoliosolutions.com/f-21.html

Sep 20, 2010 9:24 am

And fortunately for Rick, he doesn't post historical returns, which, I am sure, are less than impressive.

That's one thing I could never understand. Bogleheads will go to the end of the Earth to defend low-cost indexing, even if it means getting inferior returns and making less money on their investements.  It's as if expenses are the ONLY thing that matters.

Hey Rick, why don't you publish one of your model portolios so we can see the garbage you put out.

Sep 20, 2010 11:49 am

OMG, we're dinosaurs headed for exstinction! This guy had to dig deep into the Bogleshere to get that one. Bogle said exactly that 25 years ago. Yet, we are still here, bigger than ever. Go figure?

The discount tire business exists for a reason. The dealers selling theses low quality tires sleep just fine as they count their money. You will never convince one of their customers that it worth the money to put better tires on thier vehicles. in fact, quite the opposite is true. They will give you chapter and verse on why you are out of your mind to pay more for a tire as there is no such thing as a high quality tire.

Rick's numbers get published in the paper everyday. Why someone would pay a dime for his advice is beyond me.

But, we all gotta eat.

Sep 20, 2010 12:21 pm

My favorite tire retailer charges a few hundred bucks more for a set of tires, it's usually the house brand. These tires are made in the Bridgestone/Firestone/Michelin/Goodyear factory.

When you pull up to their stores, a service person will usually literally run out to your driver's window and find out what you need. Whether it's a rotation (free), fix a flat (free), or buy new tires, you can tell these uniformed (guys) are making good money and like working hard.

There's TV, newspapers, popcorn and spotless bathrooms inside. They'll consult and advise on everything.  Usually located next to the mall, so you can walk over and shop while you wait.

It's like buying Vanguard funds in a friendly, nifty, experienced and knowledgeable service wrapper. I've tried to model my small shop after these guys. I don't think they get to choose their working hours, but I guess my work is more stressful.

Sep 20, 2010 1:19 pm

[quote=B24]

And fortunately for Rick, he doesn't post historical returns, which, I am sure, are less than impressive.

That's one thing I could never understand. Bogleheads will go to the end of the Earth to defend low-cost indexing, even if it means getting inferior returns and making less money on their investements.  It's as if expenses are the ONLY thing that matters.

Hey Rick, why don't you publish one of your model portolios so we can see the garbage you put out.

[/quote]

I don't know who rick is but...

Expenses are the only things that can be guaranteed..

I am sure there are a lot of advisor on here who have less than stellar returns(EDJ advisors)..

Also not hard to BS returns on a blog site like this..Or come up with a portfolio that had decent returns going back 10 yrs..

Why is there such outrage with this guy..?

Sep 20, 2010 1:53 pm

Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption.

IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).

I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned.

We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why.

Sep 20, 2010 2:03 pm

[quote=B24]

Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption. How is that wrong.. He believes his way is correct and he is selling something..

IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).

I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned. Again he is selling something. So the point is to point out you competitors weakness while maximizing your strengths..

We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. Because he is a pud who were are not jealous of? (not saying he is).. But in this industry we hate people who succeed..Especially those who do it with a way that we don't think is superior.

I am not a full fan of bogle heads.. I think there is no reason to buy an Ishare when you can get a vanguard etf of the same index for 50% cheaper.

I don't believe in buy and hold(i thing bogle heads do), I don't believe in rebalancing for no reason except to say we rebalance 4x a year..

Do i think my returns are better than this Rick guys..probably... But i am jealous he has been able to articulate his message better than me.

[/quote]

Sep 20, 2010 2:25 pm

No one is saying that he isn't selling something and that he isn't doing it well (he's doing it damn well).  What I am saying is he is being misleading by saying he only charges .25% and that anybody who charges more than that is a crook.


That would be like me going around saying, "you shouldn't work with squash, he charges 1.25%, while I only charge .25%", yet I only charge that .25% on $1 million or more.

Where is the threshold?  What I am saying is, how can you advocate that low fees are this Shangri-la, and say that other advisors are charging that, when they are chargin basically what you are?  If I set my $2 million threshold at .25%, does that make me less of a manager than Mr. Ferri?  Does it make me a crook?  What if I charge .25% on all accounts higher than $500k?  Does that make Mr. Ferri a crook?  Nope.

And to be fair, I don't think it's all Rick's fault.  I think that part of it is that his boglehead compatriots will say things like, "Why would you pay anyone other Rick to manage your money, because he only charges .25%?".  As if he is the only one who charges this low fee for people with $1 million or more.

He thinks his fees are fair, and because he espouses the boglehead philosophy, he gets a pass.  Whereas as squash2 may charge even less at that threshold, but he would get banned from the bogleheads site (which, btw, there are some on there who let Rick manage their money) simply because he has a different investment philosophy.

Sep 20, 2010 2:57 pm

[quote=squash2]

[quote=B24]

Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption. How is that wrong.. He believes his way is correct and he is selling something..

IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).

I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned. Again he is selling something. So the point is to point out you competitors weakness while maximizing your strengths..

We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. Because he is a pud who were are not jealous of? (not saying he is).. But in this industry we hate people who succeed..Especially those who do it with a way that we don't think is superior.

I am not a full fan of bogle heads.. I think there is no reason to buy an Ishare when you can get a vanguard etf of the same index for 50% cheaper.

I don't believe in buy and hold(i thing bogle heads do), I don't believe in rebalancing for no reason except to say we rebalance 4x a year..

Do i think my returns are better than this Rick guys..probably... But i am jealous he has been able to articulate his message better than me.

[/quote]

[/quote]

Actually, Squash, if that guy had come on here and been reasonable, I would have no problem with it.  As I said, I have no problem with people that believe in low-cost indexing.  My problem is with the way the message comes across.  Sure, I'd love to be managing 750mm.  But I would do so in a bit more humble a manner.  Then again, maybe he wouldn't be managing 750mm if he was humble.  But I don't hate the guy for being successful, I just dislike him for being a dikc.  I honestly admire guys that can build a great business in this industry, and I think we can all learn from them.  I think Rick has actually done a lot of things very well, and we could probably learn from him.  But his supreme childeshness gets in the way of that message.

Sep 20, 2010 4:00 pm

[quote=lovindaindy]

No one is saying that he isn't selling something and that he isn't doing it well (he's doing it damn well).  What I am saying is he is being misleading by saying he only charges .25% and that anybody who charges more than that is a crook.


That would be like me going around saying, "you shouldn't work with squash, he charges 1.25%, while I only charge .25%", yet I only charge that .25% on $1 million or more. I agree it is misleading at best, but that is his sales pitch.. Have to read the fine print..just like car leases,financing, discount brokers, etc..

Where is the threshold?  What I am saying is, how can you advocate that low fees are this Shangri-la, and say that other advisors are charging that, when they are chargin basically what you are?  If I set my $2 million threshold at .25%, does that make me less of a manager than Mr. Ferri?  Does it make me a crook?  What if I charge .25% on all accounts higher than $500k?  Does that make Mr. Ferri a crook?  Nope.

And to be fair, I don't think it's all Rick's fault.  I think that part of it is that his boglehead compatriots will say things like, "Why would you pay anyone other Rick to manage your money, because he only charges .25%?".  As if he is the only one who charges this low fee for people with $1 million or more. So your complaint is with people who hold him up bigger than he is, not exactly him..

He thinks his fees are fair, and because he espouses the boglehead philosophy, he gets a pass.  Whereas as squash2 may charge even less at that threshold, but he would get banned from the bogleheads site (which, btw, there are some on there who let Rick manage their money) simply because he has a different investment philosophy. I think part of the reason he does the boglehead philosophy: 1. Marketing already in place 2. Millions of investors who might need a little bit more help than going it alone, but you don't have to beat and index or any other sort of return.. I think he is more marketing brilliance than anything..

[/quote]

Sep 20, 2010 4:02 pm

[quote=B24]

[quote=squash2]

[quote=B24]

Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption. How is that wrong.. He believes his way is correct and he is selling something..

IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).

I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned. Again he is selling something. So the point is to point out you competitors weakness while maximizing your strengths..

We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. Because he is a pud who were are not jealous of? (not saying he is).. But in this industry we hate people who succeed..Especially those who do it with a way that we don't think is superior.

I am not a full fan of bogle heads.. I think there is no reason to buy an Ishare when you can get a vanguard etf of the same index for 50% cheaper.

I don't believe in buy and hold(i thing bogle heads do), I don't believe in rebalancing for no reason except to say we rebalance 4x a year..

Do i think my returns are better than this Rick guys..probably... But i am jealous he has been able to articulate his message better than me.

[/quote]

[/quote]

Actually, Squash, if that guy had come on here and been reasonable, I would have no problem with it.  As I said, I have no problem with people that believe in low-cost indexing.  My problem is with the way the message comes across.  Sure, I'd love to be managing 750mm.  But I would do so in a bit more humble a manner. Never know until you get there.. Then again, maybe he wouldn't be managing 750mm if he was humble.  But I don't hate the guy for being successful, I just dislike him for being a dikc All good advisors can't be nice guys( and when I say good advisors i don't mean returns, I mean building a business.  I honestly admire guys that can build a great business in this industry, and I think we can all learn from them.  I think Rick has actually done a lot of things very well, and we could probably learn from him.  But his supreme childeshness gets in the way of that message. Not sure what you are referring to here..

 

Disclaimer.. No idea who this guy is...

[/quote]

Sep 20, 2010 4:23 pm

I think it makes perfect sense to call him out if he is being misleading.

Also, the reason I titled this "boglehead redux" was to show the stupidity of blindly following someone and thinking they are low cost and fair.  My argument is, if fees matter, why the pass?  I attempted to point this out, and was banned for my troubles, becuase anybody who rocks the boat over on bogleheads or presents an alternate idea, gets banned.

For example, I can't imagine a single advisor that I know charging 1% on $1 million.  Yet, Mr. Ferri goes on about how advisors who charge 1% are fleecing the investor, when in fact, when it boils down to it, his cost structure is similar to other advisors.

I know advisors who charge as high as 2.5% (on $50k accounts) and as low as .25% on accounts from $200k - $500k. When it boils down to it, if you do the math, the cost structure is the same whether you are Rick Ferri or Joe RIA.

Once again, hat tip to Rick for growing such a robust business by basically having the same fee structure as the rest of us, but pretending to not.  When I went independent, I had a stated minimum of $500 per YEAR. 

I mean, really?  25 bps on the first TEN MILLION? 

Sep 20, 2010 8:57 pm

Honestly, don't you all have better things to do with your time than worry about me? Don't you think that talking with client's about fees is a better use of your time because if you don't, they're soon going to be talking to you about why you're charging so much. So, you can stick your heads in the sand about your high fees if you please, but it's not going to make any difference. The low-fee adviser  revolution is coming to your doorstep. Either get on board or get a new occupation.

Rick Ferri

Sep 20, 2010 9:00 pm

This is what I am saying.  You charge the same as everybody else, but pretend not to.

We are just as low-fee as you are.  Nobody charges 1% on a million except mutual funds.  Get off of your high horse.  My clients would pay more at your shop and receive less value.  Indexing indeed!

Sep 20, 2010 9:26 pm
lovindaindy, I think you've been lying to client's for so long that you actually believe your own BS. Add high advisor fees, high active  fund fees, trading costs, and behind the curve market-timing advice together, and the drag on your $1 mm client's portfolio is probably over 2% per year. 
Sep 20, 2010 11:10 pm

Rick - why do you villianize everyone but those in your congregation?

I have to admit that you do have balls coming here, since any posthere with a hint of being a "non-believer" isn't automatically deleted by Mel and Taylor.

BTW - I've been reading your Forbes "articles", you may want to charge your clients an extra bp to afford a lesson on the Adviser's Act.

Sep 21, 2010 7:00 am

[quote=Rick Ferri]

lovindaindy, I think you've been lying to client's for so long that you actually believe your own BS. Add high advisor fees, high active  fund fees, trading costs, and behind the curve market-timing advice together, and the drag on your $1 mm client's portfolio is probably over 2% per year. 

[/quote]

I wasn't going to use the word lie, but since you bring it up...


Which place are you lying on?  You are either lying on your ADV or on your website, or here.  Which one?  Because you CLEARLY state on your website that you charge a minimum of $2k a quarter, but don't talk about account minimums. 

On here you say you take no account less than $1 million, but your ADV states differently.

I find it hard to believe you can't do the math.

$100,000 at $2k a year = 2%!

I can gurantee this much, my transaction charges and expense ratio is lower than yours. 

Sep 21, 2010 9:40 am

I think Rick is suffering from a serious case of RIAitis.  Not all RIA's have the disease, but the ones that do are obvious.  The symptoms are incessant blathering about mutual fund costs, overinflated ego, inability to see differing points of view as legitimate, and a general sense of euphoria in belittling anyone who doesn't believe the way you do. 

There's a guy on the radio in my area, Bryan Binkholder, that could be Rick's doppelganger.  They both talk about how the mutual fund industry is corrupt, dragging down performance, using wirehouses, etc.  Bryan spends his couple of hours on the radio every week, or at least when I've caught parts of his show, talking about how the investing public has been duped by the brokerage firms.  It's the same drivel as Rick.  They've both got a serious case of RIAitis. 

I think Rick's investing style appeals to a lot of people.  There are obviously a ton of people who believe that cost is the only thing that's important in investing.  I disagree, but Rick probably won't have an intelligent discussion about it, so why waste the time. 

I do however, find it interesting that in a very unscientific study I performed myself this morning, I found that even the lowly preferred funds of EDJ (Rick probably just wet his pants on the preferred funds remark) have a large percentage of money managers who have beaten their Morningstar category averages and their respective indices over a meaningful amount of time.  Heck, if I would have put ALL of my client's money in CAIBX over the last 10 years I would have beaten all of the major indices with the exception of maybe small and mid caps.  Maybe emerging markets, but I don't have that in my research notes (the preferred funds list on Jonesnet). 

That's the thing that most Bogleheads and RIAs fail to recognize:  It doesn't take an incredible money manager to beat an index.  The figure that because American Funds charges 5 times as much for CAIBX as an index fund or Vanguard does that they can't possibly make more money.  In fact, on Rick's website it he says that it is intuitive that that is the case: 

"Over the long-term, it is not possible for actively managed mutual funds to charge more and earn more. Properly measured, the average actively managed dollar must underperform the average passively managed dollar because they charge five times more in fees. Empirical analyses that appear to refute this principle are guilty of improper measurement."

I find it laughable, and perhaps a bit unethical to say that something can't possibly happen and if it does it was measured improperly.  That's pretty convenient Rick.  You tell your clients that you're right and if they find something that proves otherwise, that other source is lying. 

Other active strategies like Ivy Asset Strategy have KILLED the indices over the last 10 years.  Simply because they can employ market timing, asset allocation strategies, AND active management into their portfolios.  How does your analysis stack up against something like that, Rick? 

Finally, Rick, why does the Fund Selection page on your website say DFA funds on the tab?  I was under the impression that you did all of your own research, market timing calls, and asset allocation strategy implementation.  Please tell me you aren't farming out your portfolio management to DFA.  You aren't, are you?  Cause that would be really lame.