Poor financial advisor performance

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Topic Author
jjodod
Posts: 14
Joined: Sat Feb 15, 2014 9:39 am

Poor financial advisor performance

Post by jjodod » Mon Jul 15, 2019 4:25 pm

Hi Folks,

I am a 62 year old male. I’ve been investing since the mid-1980s. Over that time I have made just about every classic investing mistake possible. At some point I read about John Bogle and the power of indexing. His argument made complete sense to me and I became a convert. Unfortunately, I had a selection of Vanguard funds and traded in and out, usually selling low and buying high. I’ve often said that if I had invested everything in the IDX 500 Fund and kept investing in only that I would be retired by now. I tried using the Vanguard financial advisor but was dissatisfied with the results of their recommendations.

Eventually, in 2014 my wife and I decided to go with a certified no-fee financial advisor. We interviewed about a half dozen individuals and firms. We decided to go with a firm that seemed a good fit. They also had the lowest AUM rate at 0.9%. Over the past 5 years we have been satisfied with their service but less so with our portfolio performance. We meet with them for a review every 6 months.

At our most recent meeting we reviewed the performance of our portfolio as a whole. Our asset allocation is 60/40 stock/bond mutual funds only. The performance through 6/30/2019 was 5.2% with about $1.52 million under management. An internet search of a benchmark for 60/40 allocation over the same time period was 7.75%. This represents approximately a 30% underperformance relative to the benchmark. We feel this is unacceptable and are in a real dilemma about what to do.

We feel there are 3 possible choices:

1. Stay with the same advisor and discuss with him our dissatisfaction.
2. Leave and find a new advisor.
3. Go back to doing it myself.

I would be very grateful for any advice and recommendations the community would have.

mchampse
Posts: 253
Joined: Mon Feb 26, 2007 1:45 am

Re: Poor financial advisor performance

Post by mchampse » Mon Jul 15, 2019 4:29 pm

Go back to doing it yourself. You can tell your current advisor until you are blue in the face that you are dissatisfied and that isn’t going to raise the performance of your funds. Your going to have the same issue with any other advisor unless they recommend index funds.

just1question
Posts: 59
Joined: Thu Mar 21, 2019 1:36 pm

Re: Poor financial advisor performance

Post by just1question » Mon Jul 15, 2019 4:34 pm

Given the nature of this forum, I think most people here will tell you to DIY (including me).

02nz
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Re: Poor financial advisor performance

Post by 02nz » Mon Jul 15, 2019 4:36 pm

What does the advisor have you invested in? Is it 60/40 like the benchmark you mentioned? Is in actively managed funds, index funds, or a mix?

Assuming your math is correct, you’re underperforming the benchmark by just over 2 percentage points. That can easily be explained by the AUM fee and expense ratios of active funds, if that’s what you’re invested in.

But doing it yourself exposes you to the behavioral issues that you identified, if you haven’t addressed those.

Let me guess: You don’t have an IPS (investment policy statement - https://www.bogleheads.org/wiki/Investm ... _statement). Writing this down helps clarify goals, plans, risk tolerance, etc., and helps you refrain from constantly reacting to market ups and downs. I’d do an IPS statement and give serious thought to a Vanguard LifeStrategy or target retirement date fund. Or use PAS (is that what you had before) with a 0.3% AUM fee.

mortfree
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Re: Poor financial advisor performance

Post by mortfree » Mon Jul 15, 2019 4:37 pm

The performance wasn’t poor.

It was the fees that reduced the overall performance.

just1question
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Re: Poor financial advisor performance

Post by just1question » Mon Jul 15, 2019 4:39 pm

02nz wrote:
Mon Jul 15, 2019 4:36 pm
What does the advisor have you invested in? Is it 60/40 like the benchmark you mentioned? Is in actively managed funds, index funds, or a mix?

Assuming your math is correct, you’re underperforming the benchmark by just over 2 percentage points. That can easily be explained by the AUM fee and expense ratios of active funds, if that’s what you’re invested in.

But doing it yourself exposes you to the behavioral issues that you identified, if you haven’t addressed those.

Let me guess: You don’t have an IPS (investment policy statement - https://www.bogleheads.org/wiki/Investm ... _statement). Writing this down helps clarify goals, plans, risk tolerance, etc., and helps you refrain from constantly reacting to market ups and downs. I’d do an IPS statement and give serious thought to a Vanguard LifeStrategy or target retirement date fund. Or use PAS (is that what you had before) with a 0.3% AUM fee.
I was actually thinking the same thing about the 2% shortfall. Half of that is his management fee, the other is likely MF expense ratios and 12b fees.

Maybe go back and read one of Bogle's books or A Random Walk Down Wall Street. The latter converted me.

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unclescrooge
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Re: Poor financial advisor performance

Post by unclescrooge » Mon Jul 15, 2019 4:40 pm

Please list the funds, and the percentage allocation to each one.

From this we can drill deeper into your under performance.

livesoft
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Re: Poor financial advisor performance

Post by livesoft » Mon Jul 15, 2019 4:45 pm

There are many possible 60/40 portfolios and their performances will vary quite a bit. For instance, the Vanguard Balanced Index fund is 60/40, but it has no foreign stocks. The Vanguard LifeStrategy Moderate Growth fund has 60/40, but it has US and foreign stocks. The DFA DGSIX 60/40 Global asst allocation has a small-cap and value-tilted stock portfolio. Those three 60/40 fund have had the following 5 years performance numbers according to Morningstar.com:

7.79% Vg Balanced Index
6.02% Vg LifeStrategy Moderate Growth
4.90% DFA Global Allocation 60/50

Someone paying 0.9% a year would need to subtract 0.9% from those numbers.

No one has 20/20 (or 60/40) hindsight, so there was no way 5 years ago to predict that foreign stocks would do worse than US stocks. There was no way to predict that a small-cap and value-tilted portfolio would be an underperformer.

I can say though if you had invested in Vanguard LifeStrategy ModerateGrowth since July 2014, then you would have gotten about 5.1% net CAGR. That's basically the 3-fund portfolio recommended commonly on this forum. You would have to be very lucky to get the higher number of 7.75% that you mentioned. I would go so far as to say it would have been impossible for you to do that while paying 0.9% AUM fees.

Now it is not my job to explain to you that your financial advisor did about average. They should have given you similar information that I just presented and tried to keep their job.
Last edited by livesoft on Mon Jul 15, 2019 5:03 pm, edited 1 time in total.
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KyleAAA
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Re: Poor financial advisor performance

Post by KyleAAA » Mon Jul 15, 2019 4:50 pm

Did you use an appropriate benchmark? If, for example, your portfolio contains international stocks (very likely) and the benchmark doesn’t (likely), it is not a valid comparison.

delamer
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Re: Poor financial advisor performance

Post by delamer » Mon Jul 15, 2019 5:03 pm

livesoft wrote:
Mon Jul 15, 2019 4:45 pm
There are many possible 60/40 portfolios and their performances will vary quite a bit. For instance, the Vanguard Balanced Index fund is 60/40, but it has no foreign stocks. The Vanguard LifeStrategy Moderate Growth fund has 60/40, but it has US and foreign stocks. The DFA DGSIX 60/40 Global asst allocation has a small-cap and value-tilted stock portfolio. Those three 60/40 fund have had the following 5 years performance numbers according to Morningstar.com:

7.79% Vg Balanced Index
6.02% Vg LifeStrategy Moderate Growth
4.90% DFA Global Allocation 60/50

Someone paying 0.9% a year would need to subtract 0.9% from those numbers.

No one has 20/20 (or 60/40) hindsight, so there was no way 5 years ago to predict that foreign stocks would do worse than US stocks. There was no way to predict that a small-cap and value-tilted portfolio would be an underperformer.

I can say though if you had invested in Vanguard LifeStrategy ModerateGrowth since July 2014, then you would have gotten about 5.1% net CAGR. That's basically the 3-fund portfolio recommended commonly on this forum. You would have to be very lucky to get the higher number of 7.75% that you mentioned. I would so far as to say it would have been impossible for you to do that while paying 0.9% AUM fees.

Now it is not my job to explain to you that your financial advisor did about average. They should have given you similar information that I just presented and tried to keep their job.
Very good analysis.

Not all 60/40 portfolios are created equal. And is the advisor’s return pre- or post-AUM?

You mentioned overall dissatisfaction over 5 years, but are the figures you posted annual average for that period? It isn’t clear.

As another poster mentioned, if you post your actual investments you’ll get better advice.

And also, the reduced return is, in part, the price you pay for your inability to “stay the course” on your own.

Jack FFR1846
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Re: Poor financial advisor performance

Post by Jack FFR1846 » Mon Jul 15, 2019 5:07 pm

Can you keep your mitts off of your investments? Your initial statement says no. If that's still the case, you're still better off with an FA who's ripping you off then screwing up yourself. Chances are, he sets up investments, then does nothing. If you can't "do nothing", then you really do need to stay with him.

I tell people to go into their online account if they want to DIY but can't seem to leave things alone. Write down a long, un-remberable password and change it. Then eat the paper with the password. Now, you can't make changes. You could try that.
Bogle: Smart Beta is stupid

MotoTrojan
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Re: Poor financial advisor performance

Post by MotoTrojan » Mon Jul 15, 2019 5:09 pm

KyleAAA wrote:
Mon Jul 15, 2019 4:50 pm
Did you use an appropriate benchmark? If, for example, your portfolio contains international stocks (very likely) and the benchmark doesn’t (likely), it is not a valid comparison.
This is important. VG's 60/40 fund with International achieved 6% so not far off from the OP's return.

Quirkz
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Re: Poor financial advisor performance

Post by Quirkz » Mon Jul 15, 2019 5:32 pm

Jack FFR1846 wrote:
Mon Jul 15, 2019 5:07 pm
Can you keep your mitts off of your investments? Your initial statement says no. If that's still the case, you're still better off with an FA who's ripping you off then screwing up yourself. Chances are, he sets up investments, then does nothing. If you can't "do nothing", then you really do need to stay with him.
+1. Yes, the smart move is to do it yourself, but you have to find ways to trust and stick to that plan. If you can't do that, I would try to find a less expensive advisor, or an advisor who at least understands Bogle principles, as the next best bet.

Topic Author
jjodod
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Joined: Sat Feb 15, 2014 9:39 am

Re: Poor financial advisor performance

Post by jjodod » Mon Jul 15, 2019 5:35 pm

Wow. Thanks for all the replies. First, I’d like to say that the performance number (5.2%) is NET of all fees. Secondly, my portfolio DOES include foreign stock mutual funds (DFA) and they’ve been dogs. The 60/40 benchmark does not. It is 60% S&P 500 and 40% Barclays Aggregate Bond.

The funds that make up my portfolio with this advisor are:

Vngrd ST inv grade adm
Vngrd GNMA Adm
JP Morgan Core Bond
Vngrd Int-term bond index
DFA US Core Equity 1
DFA US Core Equity 2
Vngrd 500 Index
Vngrd Value Index Adm
Vngrd Mid Cap Index Adm
DFA US Targeted Value
DFA Tax-Advantaged World Ex. US Core Equity
IShares Core MSCI EAFE ETF
DFA International Small Cap Value
DFA Emerging Markets Core Equity
DFA Global Real Estate

Hope this answers your questions and thank you again for your valuable input.

barnaclebob
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Re: Poor financial advisor performance

Post by barnaclebob » Mon Jul 15, 2019 5:38 pm

mchampse wrote:
Mon Jul 15, 2019 4:29 pm
Go back to doing it yourself. You can tell your current advisor until you are blue in the face that you are dissatisfied and that isn’t going to raise the performance of your funds. Your going to have the same issue with any other advisor unless they recommend index funds.
OP has had a terrible DIY track record, why would this time be any different.

OP, the cost of a lack of discipline is the AUM fee and possible under performance. Is that worth it?

Topic Author
jjodod
Posts: 14
Joined: Sat Feb 15, 2014 9:39 am

Re: Poor financial advisor performance

Post by jjodod » Mon Jul 15, 2019 5:39 pm

And, I forgot...we do have investment philosophy plan. It was the first thing we went through when we selected the firm. This is how we came up with our target asset allocation of 60/40.

Topic Author
jjodod
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Joined: Sat Feb 15, 2014 9:39 am

Re: Poor financial advisor performance

Post by jjodod » Mon Jul 15, 2019 5:50 pm

>>Deleted<<
Last edited by jjodod on Wed Jul 17, 2019 9:24 am, edited 1 time in total.

SuperSaver1975
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Re: Poor financial advisor performance

Post by SuperSaver1975 » Mon Jul 15, 2019 5:56 pm

jjodod wrote:
Mon Jul 15, 2019 5:35 pm
Wow. Thanks for all the replies. First, I’d like to say that the performance number (5.2%) is NET of all fees. Secondly, my portfolio DOES include foreign stock mutual funds (DFA) and they’ve been dogs. The 60/40 benchmark does not. It is 60% S&P 500 and 40% Barclays Aggregate Bond.

The funds that make up my portfolio with this advisor are:

Vngrd ST inv grade adm
Vngrd GNMA Adm
JP Morgan Core Bond
Vngrd Int-term bond index
DFA US Core Equity 1
DFA US Core Equity 2
Vngrd 500 Index
Vngrd Value Index Adm
Vngrd Mid Cap Index Adm
DFA US Targeted Value
DFA Tax-Advantaged World Ex. US Core Equity
IShares Core MSCI EAFE ETF
DFA International Small Cap Value
DFA Emerging Markets Core Equity
DFA Global Real Estate

Hope this answers your questions and thank you again for your valuable input.
If you take the above information, and the percentage of each in the portfolio and put it into something like this:

https://www.portfoliovisualizer.com/backtest-portfolio

You can back-test the performance of your advisor's overly elaborate portfolio with a 3-fund portfolio. I also got some advice from a financial advisor. He wanted 1.2% AUM. I took his very complicated portfolio and put it in the analyzer above, and it was not as good as the 3-fund portfolio. I made the % of bonds the same between the 2 portfolios.

alex_686
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Re: Poor financial advisor performance

Post by alex_686 » Mon Jul 15, 2019 5:56 pm

jjodod wrote:
Mon Jul 15, 2019 5:35 pm
Wow. Thanks for all the replies. First, I’d like to say that the performance number (5.2%) is NET of all fees. Secondly, my portfolio DOES include foreign stock mutual funds (DFA) and they’ve been dogs. The 60/40 benchmark does not. It is 60% S&P 500 and 40% Barclays Aggregate Bond.
I don't think it is poor financial advice. The fees and foreign stocks "explain the under performance". Your not - your getting average performance. Then we have this quote "I’ve often said that if I had invested everything in the IDX 500 Fund and kept investing in only that I would be retired by now." Lots of cognitive basis here.

And then we have this quote "Unfortunately, I had a selection of Vanguard funds and traded in and out, usually selling low and buying high." Another set of cognitive basis.

Not to be harsh but you are your own worst enemy. I think you know that. Has your financial adviser held your hand and stopped you from trading? If they have then they are worth the .9% fee.

MathWizard
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Re: Poor financial advisor performance

Post by MathWizard » Mon Jul 15, 2019 5:58 pm

1) It looks like the portfolio is too complicated.
2) It sounds like you want to tinker too much.
3) Get rid of a high fee advisor.

All of the 3 above are killing your performance.

You can't change the past, so don't try to make up ground by again trying to beat everyone
else's performance.

My advice: Pick an allocation and keep pumping money into that allocation.
If you can, turn on automatic rebalancing.
If you can't do that, choose a target date fund.

Don't even look at your balance if you can help it.

You will be much better off than what you are doing.

I just checked my Vanguard account. Over the last 5 1/2 years, I was
100% VTSAX (total market equities) for 3 years,
70% VTSAX, 30% VBLAX (total bond) for the last 2 1/2 years

My return is listed at 10.5% annualized compound return.
I think that is after fees, but at 0.04% and 0.07% resp. the fees are in the rounding error.

This is with the one change from 100/0 to 70/30 which was mainly due to reaching Net Worth and age milestones.

Full disclosure:
I will admit a bit of market timing pulling back from 100/0,in that I believe the market is overvalued.
But at my age, most people on this forum would argue that I should not be 100% equities.

delamer
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Re: Poor financial advisor performance

Post by delamer » Mon Jul 15, 2019 6:01 pm

jjodod wrote:
Mon Jul 15, 2019 5:39 pm
And, I forgot...we do have investment philosophy plan. It was the first thing we went through when we selected the firm. This is how we came up with our target asset allocation of 60/40.
Did that original target include international and small/mid-cap US? Because you can’t fault the advisor for not beating the S&P 500 if you agreed to other types of stocks.

And, of course, you lose almost one percentage point off any return due to the AUM. That is literally the price you pay to keep yourself on track.

How much do you need to retire comfortably?

Trader Joe
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Re: Poor financial advisor performance

Post by Trader Joe » Mon Jul 15, 2019 6:08 pm

jjodod wrote:
Mon Jul 15, 2019 4:25 pm
Hi Folks,

I am a 62 year old male. I’ve been investing since the mid-1980s. Over that time I have made just about every classic investing mistake possible. At some point I read about John Bogle and the power of indexing. His argument made complete sense to me and I became a convert. Unfortunately, I had a selection of Vanguard funds and traded in and out, usually selling low and buying high. I’ve often said that if I had invested everything in the IDX 500 Fund and kept investing in only that I would be retired by now. I tried using the Vanguard financial advisor but was dissatisfied with the results of their recommendations.

Eventually, in 2014 my wife and I decided to go with a certified no-fee financial advisor. We interviewed about a half dozen individuals and firms. We decided to go with a firm that seemed a good fit. They also had the lowest AUM rate at 0.9%. Over the past 5 years we have been satisfied with their service but less so with our portfolio performance. We meet with them for a review every 6 months.

At our most recent meeting we reviewed the performance of our portfolio as a whole. Our asset allocation is 60/40 stock/bond mutual funds only. The performance through 6/30/2019 was 5.2% with about $1.52 million under management. An internet search of a benchmark for 60/40 allocation over the same time period was 7.75%. This represents approximately a 30% underperformance relative to the benchmark. We feel this is unacceptable and are in a real dilemma about what to do.

We feel there are 3 possible choices:

1. Stay with the same advisor and discuss with him our dissatisfaction.
2. Leave and find a new advisor.
3. Go back to doing it myself.

I would be very grateful for any advice and recommendations the community would have.
#3. Do it yourself. Best of luck.

Tdubs
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Re: Poor financial advisor performance

Post by Tdubs » Mon Jul 15, 2019 6:28 pm

jjodod wrote:
Mon Jul 15, 2019 5:35 pm
Wow. Thanks for all the replies. First, I’d like to say that the performance number (5.2%) is NET of all fees. Secondly, my portfolio DOES include foreign stock mutual funds (DFA) and they’ve been dogs. The 60/40 benchmark does not. It is 60% S&P 500 and 40% Barclays Aggregate Bond.

The funds that make up my portfolio with this advisor are:

Vngrd ST inv grade adm
Vngrd GNMA Adm
JP Morgan Core Bond
Vngrd Int-term bond index
DFA US Core Equity 1
DFA US Core Equity 2
Vngrd 500 Index
Vngrd Value Index Adm
Vngrd Mid Cap Index Adm
DFA US Targeted Value
DFA Tax-Advantaged World Ex. US Core Equity
IShares Core MSCI EAFE ETF
DFA International Small Cap Value
DFA Emerging Markets Core Equity
DFA Global Real Estate

Hope this answers your questions and thank you again for your valuable input.
Confirmation that FAs put you in enough funds that most clients won't be able to figure out that they are getting screwed.

KyleAAA
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Re: Poor financial advisor performance

Post by KyleAAA » Mon Jul 15, 2019 6:30 pm

The portfolio you posted is more complex than it needs to be, but in general is quite good. I would not fault an advisor for those picks. International and small value have lagged large growth over the last several years. That’s the point of diversification: something is always underperforming. The benchmark you cited is inappropriate for your portfolio.
Last edited by KyleAAA on Mon Jul 15, 2019 6:33 pm, edited 3 times in total.

Ferdinand2014
Posts: 479
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Re: Poor financial advisor performance

Post by Ferdinand2014 » Mon Jul 15, 2019 6:30 pm

jjodod wrote:
Mon Jul 15, 2019 5:35 pm
Wow. Thanks for all the replies. First, I’d like to say that the performance number (5.2%) is NET of all fees. Secondly, my portfolio DOES include foreign stock mutual funds (DFA) and they’ve been dogs. The 60/40 benchmark does not. It is 60% S&P 500 and 40% Barclays Aggregate Bond.

The funds that make up my portfolio with this advisor are:

Vngrd ST inv grade adm
Vngrd GNMA Adm
JP Morgan Core Bond
Vngrd Int-term bond index
DFA US Core Equity 1
DFA US Core Equity 2
Vngrd 500 Index
Vngrd Value Index Adm
Vngrd Mid Cap Index Adm
DFA US Targeted Value
DFA Tax-Advantaged World Ex. US Core Equity
IShares Core MSCI EAFE ETF
DFA International Small Cap Value
DFA Emerging Markets Core Equity
DFA Global Real Estate

Hope this answers your questions and thank you again for your valuable input.
IMO all you need is the Vanguard S&P 500 index fund and Vanguard bond fund at your 60/40 allocation. Dump the advisor if you can learn to leave it alone.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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AerialWombat
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Re: Poor financial advisor performance

Post by AerialWombat » Mon Jul 15, 2019 6:37 pm

Based on the information provided, OP sounds like a good candidate for Vanguard PAS. Having an advisor will help with the behavioral finance challenge, but reduce the AUM fee to 0.3%.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

milktoast
Posts: 37
Joined: Wed Jul 10, 2019 8:17 pm

Re: Poor financial advisor performance

Post by milktoast » Mon Jul 15, 2019 6:40 pm

Vanguard's advisor service is cheaper 0.3%.

Less personal service than Morgan Stanley Smith Barney, but way cheaper. Vanguard advisor main role seems to be creating a plan and force you to stick with it.

I was one of the first advisory accounts (signed up at launch) and was relatively happy with Vanguard.

Just recently switched to DIY because they couldn't manage my AA across both my vanguard and employer accounts. And the more complex employer side account was creating enough work for me that I just took it all over. I'm still executing the vanguard plan across my full portfolio.

That said, you'll only gain the 0.6% because your mix isn't bad.

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Sandtrap
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Location: Hawaii No Ka Oi , N. Arizona

Re: Poor financial advisor performance

Post by Sandtrap » Mon Jul 15, 2019 6:47 pm

jjodod wrote:
Mon Jul 15, 2019 4:25 pm
. . . .
We feel there are 3 possible choices:

1. Stay with the same advisor and discuss with him our dissatisfaction.
2. Leave and find a new advisor.
3. Go back to doing it myself.

I would be very grateful for any advice and recommendations the community would have.
Welcome.

Some considerations:

1. No. Absolutely do not do this.

2. A. Yes. Leave. Do not ask permission. Just leave. This move will instantly save you ".9%" !!!!
2. B. No. Do not find a new advisor.

3. Don't do this completely by yourself, yet.

4. Read this:
GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started

5. Then do this:
(Follow the format as best you can. Be sure to include "Portfolio Review Request" in the title of the post so the best portfolio reviewers will see it and respond).

Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212

Include a list of your questions, concerns, and short and long term goals. The better the information you provide, the better the results. If you leave out things, then we have to "guess".

You can edit your original post to include the portfolio review format or post a new thread. If you bury the information inside of this thread then results might not be as good.

6. While you are doing the above, get to work on this.
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement

Your long term plan and portfolio strategy is only as good as your IPS Statement.
Why?
Because it will fit "you", not a "one size fits most", or "a pretty good portfolio for most like you".

See you in a bit.
j
Wiki Bogleheads Wiki: Everything You Need to Know

tibbitts
Posts: 9014
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Re: Poor financial advisor performance

Post by tibbitts » Mon Jul 15, 2019 6:50 pm

jjodod wrote:
Mon Jul 15, 2019 4:25 pm
Hi Folks,

I am a 62 year old male. I’ve been investing since the mid-1980s. Over that time I have made just about every classic investing mistake possible. At some point I read about John Bogle and the power of indexing. His argument made complete sense to me and I became a convert. Unfortunately, I had a selection of Vanguard funds and traded in and out, usually selling low and buying high. I’ve often said that if I had invested everything in the IDX 500 Fund and kept investing in only that I would be retired by now. I tried using the Vanguard financial advisor but was dissatisfied with the results of their recommendations.

Eventually, in 2014 my wife and I decided to go with a certified no-fee financial advisor. We interviewed about a half dozen individuals and firms. We decided to go with a firm that seemed a good fit. They also had the lowest AUM rate at 0.9%. Over the past 5 years we have been satisfied with their service but less so with our portfolio performance. We meet with them for a review every 6 months.

At our most recent meeting we reviewed the performance of our portfolio as a whole. Our asset allocation is 60/40 stock/bond mutual funds only. The performance through 6/30/2019 was 5.2% with about $1.52 million under management. An internet search of a benchmark for 60/40 allocation over the same time period was 7.75%. This represents approximately a 30% underperformance relative to the benchmark. We feel this is unacceptable and are in a real dilemma about what to do.

We feel there are 3 possible choices:

1. Stay with the same advisor and discuss with him our dissatisfaction.
2. Leave and find a new advisor.
3. Go back to doing it myself.

I would be very grateful for any advice and recommendations the community would have.
The imprecision with which you're attempting to benchmark your performance suggests to me that you should have an adviser, whether the one you have or another one. It doesn't seem the current one is necessarily doing a poor job but certainly isn't the lowest cost available. But you say you tried lower-cost advisers ("I tried using the Vanguard financial adviser but was dissatisfied with the results of their recommendations"), and chose not to use them, so it might be best to just stay put.

The fact is that you've tried d-i-y and there are just some people it won't work for.

mighty72
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Re: Poor financial advisor performance

Post by mighty72 » Mon Jul 15, 2019 6:58 pm

OP, let me ask you this. In the last 5 years, how many times did your FA stopped you from selling or you discussed if it is time to get out of equity? Based on your history, maybe a cheaper FA like vanguard PAS. Don't do robo- investment. Too easy to change the allocation.

Topic Author
jjodod
Posts: 14
Joined: Sat Feb 15, 2014 9:39 am

Re: Poor financial advisor performance

Post by jjodod » Mon Jul 15, 2019 7:25 pm

Since we have been with this advisor, we haven’t suggested any changes. He has from time to time and we have agreed to his suggestions.

Once we agreed on an asset allocation there have not been any significant changes.

dbr
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Re: Poor financial advisor performance

Post by dbr » Mon Jul 15, 2019 9:03 pm

The answer is pretty simple:

1. Stop losing 0.9% a year to an advisor.

2. Buy that benchmark portfolio using low cost index funds.

Note: A portfolio that is not exactly the benchmark portfolio you referenced is not going to match the benchmark. Compared to what you held what funds or indices are you using for a benchmark?

Be aware that if you are adding to or withdrawing from your investments the performance will not be the same as simply placing a lump sum in the investment and leaving it there.

Is there anything in the above that seems like it would not work for you?

CurlyDave
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Re: Poor financial advisor performance

Post by CurlyDave » Mon Jul 15, 2019 9:40 pm

jjodod wrote:
Mon Jul 15, 2019 4:25 pm

...The performance through 6/30/2019 was 5.2% with about $1.52 million under management...
How did you get to $1.5 M with poor performance?

JBTX
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Re: Poor financial advisor performance

Post by JBTX » Mon Jul 15, 2019 10:07 pm

Normally I'd say do it yourself, put it in a target date fund and be done with it, but by your own admission you don't have the discipline to stay the course, so you probably need an advisor to keep you on track.

The fact that you are spooled up over a 2% performance deficit over five years shows you really arent looking at this correctly. Half of that is AUM, and the other half could be fund fees or just fairly normal fund style deviation. I'm not sure in 30 years I've ever tracker my performance vs a benchmark over a 5 year span (with the exception of the 2000 and 2008 downturns)

Having said that with $1.5m you are better off than most. Don't look backwards. Don't look for advisors for performance. Look for them to help you Implement an acceptable risk adjusted (and tolerable) strategy for you, at the same time keeping aum fees reasonable and fund fees low.

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Re: Poor financial advisor performance

Post by MotoTrojan » Mon Jul 15, 2019 10:11 pm

KyleAAA wrote:
Mon Jul 15, 2019 6:30 pm
The portfolio you posted is more complex than it needs to be, but in general is quite good. I would not fault an advisor for those picks. International and small value have lagged large growth over the last several years. That’s the point of diversification: something is always underperforming. The benchmark you cited is inappropriate for your portfolio.
Agreed. You could get similar exposure with ~1/2 the funds or even less, but overall the portfolio seems quite reasonable. Not sure what the ERs are on those funds but most seem cheap and given the value/international tilt your 5% net fees is quite good.

I wouldn't beat yourself up too much. If you are bought-in the index investing and want someone to talk you off a cliff then Vanguard PAS may be worth looking at. I've noticed they have started to overcomplicate portfolios too but not nearly this much and the 0.3% AUM fee is a big savings, as will be the low ER funds.

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Dialectical Investor
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Re: Poor financial advisor performance

Post by Dialectical Investor » Mon Jul 15, 2019 10:52 pm

jjodod wrote:
Mon Jul 15, 2019 4:25 pm

I tried using the Vanguard financial advisor but was dissatisfied with the results of their recommendations.
I think you need to decide what you want from an advisor. I sense there is an expectations problem, not an advisor problem.

venkman
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Re: Poor financial advisor performance

Post by venkman » Mon Jul 15, 2019 10:58 pm

jjodod wrote:
Mon Jul 15, 2019 4:25 pm
I tried using the Vanguard financial advisor but was dissatisfied with the results of their recommendations.
What did the Vanguard FA recommend that you were dissatisfied with?

tibbitts
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Re: Poor financial advisor performance

Post by tibbitts » Mon Jul 15, 2019 11:04 pm

MotoTrojan wrote:
Mon Jul 15, 2019 10:11 pm
KyleAAA wrote:
Mon Jul 15, 2019 6:30 pm
The portfolio you posted is more complex than it needs to be, but in general is quite good. I would not fault an advisor for those picks. International and small value have lagged large growth over the last several years. That’s the point of diversification: something is always underperforming. The benchmark you cited is inappropriate for your portfolio.
Agreed. You could get similar exposure with ~1/2 the funds or even less, but overall the portfolio seems quite reasonable. Not sure what the ERs are on those funds but most seem cheap and given the value/international tilt your 5% net fees is quite good.

I wouldn't beat yourself up too much. If you are bought-in the index investing and want someone to talk you off a cliff then Vanguard PAS may be worth looking at. I've noticed they have started to overcomplicate portfolios too but not nearly this much and the 0.3% AUM fee is a big savings, as will be the low ER funds.
I would say that the OP bought into and implemented the Bogle/VG philosophy already, even tried using a VG adviser, and abandoned both. And ended up with this current adviser, apparently after a diligent selection process involving interviewing a half dozen firms.

There hasn't been any mention of adviser services outside of choosing these investments, but assuming that's the entire scope, there are less expensive alternatives. However some Bogleheads pay a certain amount for access to DFA, and even Vanguard charges .3% just for selecting among its own funds. It's actually possible that if you analyze it closely enough the adviser may have earned back a part of his .9% vs. a much more accurately constructed benchmark, but the point is that he has constructed a reasonable portfolio (I own more funds than the OP, incidentally) for a non-outrageous (though pricey by Boglehead standards) fee.

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Sandtrap
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Re: Poor financial advisor performance

Post by Sandtrap » Mon Jul 15, 2019 11:10 pm

For convenience: All data so far.
Hope this helps everyone.
jjodod wrote:
Mon Jul 15, 2019 5:50 pm
These are the numbers through 6/30/19:
https://share.icloud.com/photos/0otjdJM ... bKZadFdKyg
Image
Wow. Thanks for all the replies. First, I’d like to say that the performance number (5.2%) is NET of all fees. Secondly, my portfolio DOES include foreign stock mutual funds (DFA) and they’ve been dogs. The 60/40 benchmark does not. It is 60% S&P 500 and 40% Barclays Aggregate Bond.

The funds that make up my portfolio with this advisor are:

Vngrd ST inv grade adm
Vngrd GNMA Adm
JP Morgan Core Bond
Vngrd Int-term bond index
DFA US Core Equity 1
DFA US Core Equity 2
Vngrd 500 Index
Vngrd Value Index Adm
Vngrd Mid Cap Index Adm
DFA US Targeted Value
DFA Tax-Advantaged World Ex. US Core Equity
IShares Core MSCI EAFE ETF
DFA International Small Cap Value
DFA Emerging Markets Core Equity
DFA Global Real Estate
Wiki Bogleheads Wiki: Everything You Need to Know

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Re: Poor financial advisor performance

Post by ohai » Tue Jul 16, 2019 12:27 am

I think the overall portfolio seems pretty reasonable actually, even if it pretty complicated and has some funds that might have overlapping purposes. The expense ratios are ok - a couple are maybe 10bp higher than the cheapest funds, but that is not egregious. The asset allocation looks pretty rational. For the average person who has zero investment knowledge and sub $1 million portfolio, it could very well be worth 0.90% to hire someone to keep them in a disciplined investment strategy like this.

Of course, for you, 0.9% is $14k a year, and it sounds like you are on the path to educate yourself to invest efficiently for the long term. So, I don't see why you need to pay someone this yearly fee in perpetuity for something that you can do yourself just as well. You even have the actual asset allocation that they constructed, and this is unlikely to change much over time.

Some people say, oh... I feel guilty not paying the advisor for their work. This thinking is not rational, as you have already paid them for their work in previous years. You should never feel guilty about cutting them off. I just wanted to put that here, in case it is an emotional issue. Finance is about further value added, or it should be.

In terms of the underperformance - other than fees and international allocation, your portfolio also has small cap and mid cap exposure, which have both underperformed S&P 500 after 2008. I don't think we can really blame the advisor for underperformance due to international or non-US large cap stock exposure; no one could have really predicted that.

You still don't need to pay the 0.90%. Also, if no one has mentioned it yet, since your portfolio is relatively large, you might get some benefits or incentives to moving it to some other (non fee, self directed) accounts somewhere else.

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Ben Mathew
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Re: Poor financial advisor performance

Post by Ben Mathew » Tue Jul 16, 2019 2:08 am

jjodod wrote:
Mon Jul 15, 2019 4:25 pm
Hi Folks,

I am a 62 year old male. I’ve been investing since the mid-1980s. Over that time I have made just about every classic investing mistake possible. At some point I read about John Bogle and the power of indexing. His argument made complete sense to me and I became a convert. Unfortunately, I had a selection of Vanguard funds and traded in and out, usually selling low and buying high. I’ve often said that if I had invested everything in the IDX 500 Fund and kept investing in only that I would be retired by now. I tried using the Vanguard financial advisor but was dissatisfied with the results of their recommendations.

Eventually, in 2014 my wife and I decided to go with a certified no-fee financial advisor. We interviewed about a half dozen individuals and firms. We decided to go with a firm that seemed a good fit. They also had the lowest AUM rate at 0.9%. Over the past 5 years we have been satisfied with their service but less so with our portfolio performance. We meet with them for a review every 6 months.

At our most recent meeting we reviewed the performance of our portfolio as a whole. Our asset allocation is 60/40 stock/bond mutual funds only. The performance through 6/30/2019 was 5.2% with about $1.52 million under management. An internet search of a benchmark for 60/40 allocation over the same time period was 7.75%. This represents approximately a 30% underperformance relative to the benchmark. We feel this is unacceptable and are in a real dilemma about what to do.

We feel there are 3 possible choices:

1. Stay with the same advisor and discuss with him our dissatisfaction.
2. Leave and find a new advisor.
3. Go back to doing it myself.

I would be very grateful for any advice and recommendations the community would have.
Five years of performance is mere noise--you can't really use it to evaluate your advisor. But you can use the well known fact that advisors generally underperform the market. It's unlikely that your advisor is an investing genius. Like other advisors, odds are he will likely underperform the market after trading costs and fees over the long run.

DIY is best. But you have to figure out what has been preventing you from sticking to a simple index strategy. It seems you still believe that skilled investors can beat the market by timing. You tried to time the market when you were DIY investing, and now you are disappointed that your advisor can't beat the market either. You just have to realize that market timing won't work. Once you come to terms with that, the rest is easy.

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Re: Poor financial advisor performance

Post by onourway » Tue Jul 16, 2019 5:19 am

Your biggest problem is not your advisor, but rather that person looking back at you in the mirror. You have switched from self-managed active to self-managed passive indexing to Vanguard’s PAS to this current advisor. You will NEVER have full market returns with this strategy because you jump ship just when things get the slightest bit rocky. Those rocky times are when you make the purchases that earn you the real money in the long run!

This is a common occurrence - the average investor is their own worst enemy.

Image

I think you should probably stick with this advisor and commit, in writing, with your wife, that you will not make any changes for at least 10 years.

And I don’t even think there is anything to ‘discuss’ with your advisor. Given your situation they are giving you exactly the return you should expect.

student
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Re: Poor financial advisor performance

Post by student » Tue Jul 16, 2019 6:00 am

It seems that you have doubt about managing the portfolio yourself. I think even Vanguard PAS is not necessary. Just pick a lifestyle strategy index fund or target date index fund.

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Re: Poor financial advisor performance

Post by Katietsu » Tue Jul 16, 2019 6:30 am

This forum is made up of mostly DIY investors. And the most common portfolio discussed here a three fund portfolio with its simplicity. Therefore, you will get answers that skew this way.

However, your advisor has you in a very solid portfolio with low fee funds. You have admitted to behavioral finance issues in the past. You are here only because your appropriately allocated portfolio is performing below a benchmark with a different allocation and no costs. Therefore, you still have the tendency to sell low and buy high. This advisor has given you good advice. FYI, the DFA international funds are solid funds based on solid principles run by smart guys. No advisor can predict whether international will be better than US during a specific year or five. This is why a good advisor will recommend diversification otherwise summed up as don’t put all your eggs in the same basket.

If you are a client that does not require much work (not many changes, phone calls, etc), I would consider asking for a reduction in the AUM fee. And then leave it alone.

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Re: Poor financial advisor performance

Post by dbr » Tue Jul 16, 2019 8:44 am

I can't follow what exactly is the problem here.

So far the following seem to be suggested:

1. The AUM takes a cut from performance. Everyone grants this. It looks like about half the shortfall from the benchmark is right here. What are the ERs and trading costs in the funds? That could account for more. Is your benchmark an index or other funds?

2. Are you buying and selling? I thought I understand you are not, but if you are that might explain a lot.

3. Have you added money over time. If so trying to run a calculation to compare either dollar or time weighted results takes some work and your benchmark data probably are wrong.

4. What is the benchmark? If you don't actually own the benchmark it is natural that there are variations even for times much longer than five years.

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jjodod
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Re: Poor financial advisor performance

Post by jjodod » Tue Jul 16, 2019 8:45 am

I think I may have misstated my investment behavior in the original post which has led to some wrong perceptions.

In the 5 years we’ve been with the FA we have not once asked him to add or drop a fund. He has proposed a few changes over the period which we approved. Historically, I have been in only a handful of mutual funds, mostly Vanguard. I have been guilty of changing allocation in market swings, e.g., transferring or decreasing contributions to stock funds in market downturns rather than realizing stocks are on sale and I should be buying. I am just stating a fact that the IDX 500 alone would have performed better than this strategy (11% lifetime of fund).

The two biggest fund changes occurred when switching advisors: first, when I went from DIY to Vanguard FA, and second, when I went from DIY to the current advisor.

I actually had a fairly simple Vanguard portfolio originally which their FA made more complicated. I didn’t agree with some of his actions (selling my long held Health Care Fund) and I felt the subsequent performance bore my misgivings out.

The most important advice our new FA has given us is the importance of asset allocation and having a formal plan.

Finally, the value of our portfolio is a result of our dedication to savings and not a reflection of our investing acumen.

dbr
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Re: Poor financial advisor performance

Post by dbr » Tue Jul 16, 2019 8:58 am

jjodod wrote:
Tue Jul 16, 2019 8:45 am
I think I may have misstated my investment behavior in the original post which has led to some wrong perceptions.

In the 5 years we’ve been with the FA we have not once asked him to add or drop a fund. He has proposed a few changes over the period which we approved. Historically, I have been in only a handful of mutual funds, mostly Vanguard. I have been guilty of changing allocation in market swings, e.g., transferring or decreasing contributions to stock funds in market downturns rather than realizing stocks are on sale and I should be buying. I am just stating a fact that the IDX 500 alone would have performed better than this strategy (11% lifetime of fund).

The two biggest fund changes occurred when switching advisors: first, when I went from DIY to Vanguard FA, and second, when I went from DIY to the current advisor.

I actually had a fairly simple Vanguard portfolio originally which their FA made more complicated. I didn’t agree with some of his actions (selling my long held Health Care Fund) and I felt the subsequent performance bore my misgivings out.

The most important advice our new FA has given us is the importance of asset allocation and having a formal plan.

Finally, the value of our portfolio is a result of our dedication to savings and not a reflection of our investing acumen.
Thank you. This is what I understood.

I would suggest there are only two very simple things going on here. The first is paying 0.9% AUM plus any excessive fund costs if there are any. (Why do you call 0.9% no fee? But, whatever). The second is that you might not understand the concept of a benchmark and not appreciate that different investment selections vary in performance from each other over time even if they have the same stock/bond ratio. As an example if the S&P 500 index is your benchmark for stocks, then any stock selection that is not actually a fund that accurately samples the S&P 500 will hardly be expected to match that index as a benchmark. And so on.

onourway
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Re: Poor financial advisor performance

Post by onourway » Tue Jul 16, 2019 9:01 am

Fiddling with your investments every 5 years or so when you begin to get anxious they are not performing up to some arbitrarily picked benchmark is exactly how we understood the situation. You need to pick a strategy and then forget about it. For decades, if not forever.

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Stinky
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Re: Poor financial advisor performance

Post by Stinky » Tue Jul 16, 2019 9:35 am

jjodod wrote:
Tue Jul 16, 2019 8:45 am
I have been guilty of changing allocation in market swings, e.g., transferring or decreasing contributions to stock funds in market downturns rather than realizing stocks are on sale and I should be buying
____________

The most important advice our new FA has given us is the importance of asset allocation and having a formal plan.
Does your "formal plan" anticipate "changing allocation in market swings"? I expect not. So, even though you may have a formal plan, it doesn't sound like you're following it rigorously.

OP, your posts in this thread indicate that you're aware of what you need to do - adopt a plan and stick to it. If you are behaviorally able to do that, then you could save yourself about 2% in investment management and advisor fees over time, and run the investments yourself.

Behavior is the key here - not investment performance.
It's a GREAT day to be alive - Travis Tritt

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goingup
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Re: Poor financial advisor performance

Post by goingup » Tue Jul 16, 2019 10:09 am

I'd think very carefully about leaving your advisor. Being a DIY'er really isn't for everyone. I remember reading (with shock) in Investor's Manifesto by Bill Bernstein when he stated that most people need a financial advisor. I've come around to thinking he may have a point.

Talk with your advisor and tell him your concerns. Find out if he could we reduce that .9% fee. Do you really need to sit down with him every 6 months? Seems like a lot unless you're working through something specific.

Not everyone needs an advisor, but if you're still a somewhat unsettled investor at age 62 you may benefit a lot from having someone else steer.

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