My understanding of Russell is it is made up of predominant large cap funds both domestic and foreign. With my style investing I would never use this fund company. That's just me.

NM has an office here, but it is very low key. I have never seen a client/prospect that owns Russell.

As an advisor/salesman I left a company that put blinders on us like a horse. They say they didn't, but call the kettle black. Being encouraged/forced to push a product is like telling an artist what colors he must use to paint with.  Sure he produces art, although the art would be totally different if given a choice.

My questions to you. Do you disclose that NM owns Russell?  Do you get paid more in anyway to sell Russell over say Franklin Temp? If so, do you disclose this.

Why do you think they encourage you to sell Russell?

Russell is a GREAT fund company, especially when you know how they operate.  They are definitely NOT just large cap funds.  They have many regular funds, but where they really succeed is their manager of managers approach.  The best part about it is that it is an actively managed account, but has a mutual fund ticker and therefore trades like a mutual fund.  The expenses aren't high, about 2% all in for their balanced fund.  What's really unique is that there is no 1 year CDSC for the client...so for CD buyers or clients who might need to draw some money out in less than a year, you can use a conservative 50/50 fund which generates income and capital appreciation (hopefully).

The real selling point with Russell is their story.  There are a few key things about the company and their clients that you can learn and it's a simple conversation to have with a prospect/client. 

For independents, such as myself, and others who have access to Russell, the exclusivity of having the opportunity to invest with Russell is a great selling point.  It is simple, you can't find Russell at Merrill, Morgan, UBS, or Smith Barney.  Prospects/clients easily understand when you tell them that those firms like to use their own proprietary platforms and in-house managers, which the firms make considerably more money from. 

I would suggest you learn the story of Russell...the whole family and how they started, what they do now, and WHO they manage money for.  You should tell people how fortunate you are that Northwestern Mutual bought them so you now have access to such an exclusive platform.  You would be surprised, a lot of people know about the Russell 1000, 2000, and Frank Russell himself...and it makes for a good conversation.

 They are definitely NOT just large cap funds. 

Frank Russell Eq II I, Frank Russell T/M Md&Sm S, Frank Russell Spec Gr S, and Frank Russell RelEstSec S. 4 out of  29 equity funds are not large cap weighted. I would say again that Russell is predominately large cap.

No offense, all I meant was that Russell is NOT just large cap funds.  That is a true statement.  Of the 29 funds you might be including, I would not include any of their LifePoint or Target Date funds.  That leaves just the Russell Funds, of which I count 17 funds that include 5 bond funds. 

I agree with you in that there are more large cap weighted funds than other funds, this you would find the same with most mutual fund companies. 

[quote=runswithbulls]Russell is a GREAT fund company, especially when
you know how they operate.  They are definitely NOT just large cap
funds.  They have many regular funds, but where they really
succeed is their manager of managers approach. [QUOTE]

Which allows for two levels of incompetance.

[quote]The best part about it is that it is an actively managed account, but has a mutual fund ticker and therefore trades like a mutual fund.  The expenses aren't high, about 2% all in for their balanced fund. [/quote]

That's real cheap for balanced fund.

How about you buy 50% TMW and 50% BND, for blended expense ratio of 15bp?

[quote]The real selling point with Russell is their story.  There are a few key things about the company and their clients that you can learn and it's a simple conversation to have with a prospect/client.[/quote]

NML bought them a while back, and Russell consults with pension plans. For their own internal benchmarking purposes they developed the Russell indexes, based on manager opportunity sets. 

What else is new?

[quote]For independents, such as myself, and others who have access to Russell, the exclusivity of having the opportunity to invest with Russell is a great selling point.

The fact that they are exclusive to NML etc, is neither good nor bad from the client perspective. That's hardly a "real" selling point.

[quote] It is simple, you can't find Russell at Merrill, Morgan, UBS, or Smith Barney.  Prospects/clients easily understand when you tell them that those firms like to use their own proprietary platforms and in-house managers, which the firms make considerably more money from. [/quote]

And this is different from NML flogging Russell how?

[quote]You should tell people how fortunate you are that Northwestern Mutual bought them so you now have access to such an exclusive platform.[/quote]

Do people really fall for that?

[quote]You would be surprised, a lot of people know about the Russell 1000, 2000, and Frank Russell himself...and it makes for a good conversation.[/quote]

The main quiet conversation people should be having is how you can use Russell+Vanguard ETF's to do the same thing for alot less.

We can agree to disagree on most of this Russell issue.  For NML people, yes it would be proprietary to them, however there are many independents and bank brokers who it isn't proprietary to them.

I understand using ETFs to make it cheaper, but for some clients, especially with a lot of wealth to preserve, they may not want to hear about how successful your ETF approach is, or how it can save them a few bps.

I'm sure you can explain your ETF approach very well, but I know many wealthy clients like to hear this:  Bill and Melinda Gates trust Russell to manage $30 billion.  The same people who are managing their money would be managing yours.  I'm sure AllREIT does a great job picking ETF's, but when it comes to preserving your wealth, wouldn't you rather have the time tested results that Bill Gates, Boeing, Toyota, GM, United HealthGroup, etc...have been getting through Russell?

We all have different approaches, this works for me, however mutual funds are a very small part of what I do.  All I'm saying is that it works for the right client...not everybody as we know that not one thing works for everybody.

[quote=runswithbulls]We can agree to disagree on most of this Russell
issue.  For NML people, yes it would be proprietary to them,
however there are many independents and bank brokers who it isn’t
proprietary to them. [QUOTE]

Then how do we play the exclusivity angle?

[quote]I understand using ETFs to make it cheaper, but for some clients, especially with a lot of wealth to preserve, they may not want to hear about how successful your ETF approach is, or how it can save them a few bps.[/quote]

Why would rich clients not want to hear about how they can save 15% or more on investment expenses? It works for Geico.

I'm not sure why wealthy clients would not want to hear about how you get the same or better results for less in an ETF wrap. Could you share some reasons?

[quote]I'm sure you can explain your ETF approach very well, but I know many wealthy clients like to hear this:  Bill and Melinda Gates trust Russell to manage $30 billion.  The same people who are managing their money would be managing yours.  I'm sure AllREIT does a great job picking ETF's, but when it comes to preserving your wealth, wouldn't you rather have the time tested results that Bill Gates, Boeing, Toyota, GM, United HealthGroup, etc...have been getting through Russell?[/quote]

Runs,

They may like to hear it, and they probably do, but its full of fallacious thinking. Your pitch could easily cost me a sale, if I wasn't there to poke holes in it.

First off, your using a logical fallacy (Bandwagon fallacy) to sell yourself. There is also an implied weak appeal to authority in there as well.

Why should anyone think that Bill Gates, Boeing, Toyota, GM or United HealthGroup have any skill at picking investment managers?




If Elizabeth Taylor, Paris Hilton and Linda Tripp all chose Russell,
should you choose them as well? Vanguard has over $1 Trillion in AUM,
so you should choose them, etc etc. Really a whole circus of weak
arguments is possible to try and dodge the main point about what does
and does not work in investing.



As Yogi Berra said; Without weak arguments, marketing would be very different.

After that you can take on/make skeptical attacks on the possiblity and detectability of investment skill, generally poor record of active management, ability to replicate portfolios via asset allocation, importance of controlling investment expenses (2% for a 50:50 stock/bond fund), fund-of-funds issues etc.

Whenever I hear time tested results, I reach for my copy of “Fooled by Randomness” and “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns”

http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

You might like both books…



I’m sure Russell is a fine management company, but I’ll stick to trying
to get my fair share cheaply. The history of people who sought to get
more than their fair share is pretty ugly.

ALLREIT,

I understand your philosophy, but respectfully, I think it is a little timid.  The best you can ever deliver your clients is their risk adjusted index performace minus your fee.

Mr.  Client:  "So what your telling me is in our portfolio, we can expect to do a percent or so worse than our (the mix of indexes that represent our risk tolerance) index every single year?" 

Where is the added value (i.e. Alpha)?  By the way, this is not a potshot, it's a legitimate question.  I use ETF's some myself, but not to the extent you do.

[quote=BankFC]

ALLREIT,

I understand your philosophy, but respectfully, I think it is a little timid.  The best you can ever deliver your clients is their risk adjusted index performace minus your fee.[/quote]

It's not clear that anyone else can consistantly do better, and alot of people do worse.

Timidity and humility are very good qualities to have in an investment advisor. I'm not scared to admit I don't know.

Basicly, for most clients I don't want to create a situation where we rely on anyone's skill/assumptions too much nor pay more than is needed for risk exposure.

Runswithbulls example of Russell offering a 50:50 stock bond fund for a 2% expense fee is going to be blown out of the water in performance after replicating with ETFs.

Managers who had alpha after a %2 management fee would be collecting 20% of it running a hedge fund.

[quote]Mr.  Client:  "So what your telling me is in our portfolio, we can expect to do a percent or so worse than our (the mix of indexes that represent our risk tolerance) index every single year?"[/quote]

Yes, and we would be well pleased in that.

[quote]Where is the added value (i.e. Alpha)?  By the way, this is not a potshot, it's a legitimate question.  I use ETF's some myself, but not to the extent you do.[/quote]

The added value comes from many places.

1) Psychological strength. I'm less likely to be affected by psychological biases when it comes to money.
2) Handling the details.
3) Saving clients from unsound advice. I.e I discouraging them from buying an annuity in a moment of weakness.

Someone who has the guts and personal strength to stick to an index portfolio is going to have top quartile performance since 80% of active money doesn't beat its benchmark.

Alpha from security selection if any comes from my skill (luck?) in picking small deeply undervalued real estate/specialty finance companies. The goal here being to buy a leveraged dollar for ~ $0.82 cents, thus buying a long a growing stream of dividends cheaply.

That's an area that quite complex, and most small cap companies in this space have very little analyast coverage, and those who do cover typically don't understand the business very well. The really good analysts work for private equity/hedge funds rather than  sell-side or mutual funds.

Unfortunatly private equity buyers have hired good analysts, so alot of good stuff has been bought up. I.e SFC got bought out this year

And honestly, this sort of thing is not appropriate for many clients.

As financial advisors, I believe that we have a great opportunity to improve investor performance, but for most of us, almost no opportunity to improve investment performance.

Fortunately, it is investor performance that counts.

[quote=AllREIT]

[quote=BankFC]

ALLREIT,

I understand your philosophy, but respectfully, I think it is a little timid.  The best you can ever deliver your clients is their risk adjusted index performace minus your fee.[/quote]

It's not clear that anyone else can consistantly do better, and alot of people do worse.

Timidity and humility are very good qualities to have in an investment advisor. I'm not scared to admit I don't know.

Basicly, for most clients I don't want to create a situation where we rely on anyone's skill/assumptions too much nor pay more than is needed for risk exposure.

Runswithbulls example of Russell offering a 50:50 stock bond fund for a 2% expense fee is going to be blown out of the water in performance after replicating with ETFs.

Managers who had alpha after a %2 management fee would be collecting 20% of it running a hedge fund.

[quote]Mr.  Client:  "So what your telling me is in our portfolio, we can expect to do a percent or so worse than our (the mix of indexes that represent our risk tolerance) index every single year?"[/quote]

Yes, and we would be well pleased in that.

[quote]Where is the added value (i.e. Alpha)?  By the way, this is not a potshot, it's a legitimate question.  I use ETF's some myself, but not to the extent you do.[/quote]

The added value comes from many places.

1) Psychological strength. I'm less likely to be affected by psychological biases when it comes to money.
2) Handling the details.
3) Saving clients from unsound advice. I.e I discouraging them from buying an annuity in a moment of weakness.

Someone who has the guts and personal strength to stick to an index portfolio is going to have top quartile performance since 80% of active money doesn't beat its benchmark.

Alpha from security selection if any comes from my skill (luck?) in picking small deeply undervalued real estate/specialty finance companies. The goal here being to buy a leveraged dollar for ~ $0.82 cents, thus buying a long a growing stream of dividends cheaply.

That's an area that quite complex, and most small cap companies in this space have very little analyast coverage, and those who do cover typically don't understand the business very well. The really good analysts work for private equity/hedge funds rather than  sell-side or mutual funds.

Unfortunatly private equity buyers have hired good analysts, so alot of good stuff has been bought up. I.e SFC got bought out this year

And honestly, this sort of thing is not appropriate for many clients.

[/quote]

I appreciate the response.  Can't say I am sold on your philosophy, but at least you have one.