"Honesty like that is rare!"

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Taylor Larimore
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"Honesty like that is rare!"

Post by Taylor Larimore » Fri Aug 11, 2017 12:43 pm

Bogleheads:

Among my good friends are several financial advisors. One of these, Allan Roth, sent me a personal e-mail with a very important message. I asked Allan if I could share his e-mail on the forum. He replied: "Sure."

Here it is:
Taylor:

Last week, I as talking to a founder of a very low cost advisory platform that was even lower cost than robo-advisors. He showed me some model portfolios that used several funds to develop each domestic and international equity holdings. He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me. He said something like “when we use only two or three funds, clients don’t think we are sophisticated.”

Honesty like that is rare!

Allan

(bold is mine).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Honesty like that is rare!"

Post by Silk McCue » Fri Aug 11, 2017 12:58 pm

Thanks for sharing. It is true that for many "Perception is reality". Without the proper education, and being bombarded with "how hard it is invest on your own", there are many that when sitting down with a professional would think "that's too simple" and this person's advice can be worth it. We certainly are peculiar creatures.

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Re: "Honesty like that is rare!"

Post by VictoriaF » Fri Aug 11, 2017 12:59 pm

Thank you Taylor and Allan,

I have noticed a similar attitude among some TSP investors. TSP stands for the Thrift Savings Plan, a Federal government equivalent of 401(k) plans. Unlike many 401(k) plans, the TSP offers very few funds at very low rates. Investors ignore low fees and excellent fund selection and complain about the lack of sophistication.

Victoria
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Re: "Honesty like that is rare!"

Post by bengal22 » Fri Aug 11, 2017 1:12 pm

People might realize that all they really need to do is invest in a Vanguard Target XXXX fund and they could save the advisory fee(no matter how small it is),

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Re: "Honesty like that is rare!"

Post by S&L1940 » Fri Aug 11, 2017 1:18 pm

no complexity, no demonstration of professionalism, no high management fees

someone on this site said it best, "keep it simple"

Taylor, nice hearing from you, unless I missed something it has been awhile since you have been here
Rich
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Re: "Honesty like that is rare!"

Post by BogleAlltheWay » Fri Aug 11, 2017 1:23 pm

I am surprised that they did not tilt. That gives the look of sophistication and there are many supporters of tilting.

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Re: "Honesty like that is rare!"

Post by CABob » Fri Aug 11, 2017 1:30 pm

Taylor:

Last week, I as talking to a founder of a very low cost advisory platform that was even lower cost than robo-advisors. He showed me some model portfolios that used several funds to develop each domestic and international equity holdings. He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me. He said something like “when we use only two or three funds, clients don’t think we are sophisticated.”

Honesty like that is rare!

Allan
Interesting that the advisor was willing to share the comment with Alan who was willing to share it with you, and you were willing to share it with the forum. But did the advisor share it with his client?
Bob

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Re: "Honesty like that is rare!"

Post by prudent » Fri Aug 11, 2017 1:36 pm

I can understand the advisor's dilemma. People who don't understand investing generally have the preconceived notion that it's difficult and complicated. An advisor who proposes a 2-fund portfolio would therefore appear to be a rank amateur.

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Re: "Honesty like that is rare!"

Post by bligh » Fri Aug 11, 2017 1:56 pm

I actually had this realization when looking at my betterment portfolio.

They had me allocated 1% in a corporate bonds fund. At first I didn't think much about it either way.. a few months later I started to wonder.. what difference does this 1% really make? With a 200K portfolio as an example, how much of a difference is having 2K in a corporate bond fund going to make over just being in the total bond fund?

It was purely there to make the portfolio look more professionally designed.

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Re: "Honesty like that is rare!"

Post by selftalk » Fri Aug 11, 2017 6:00 pm

The client has to feel that he / she is getting a lot for their money. If it`s a simple allocation, whether it works or not, and not intricate the client probably feels taken advantage of by paying the advisory fee.

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Re: "Honesty like that is rare!"

Post by livesoft » Fri Aug 11, 2017 6:04 pm

Honesty like that is not rare, but maybe it is in the retail financial industry. Sad.
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Re: "Honesty like that is rare!"

Post by triceratop » Fri Aug 11, 2017 6:11 pm

I'm confused by the message, maybe I just don't understand it. Aren't these statements in contradiction?
He showed me some model portfolios that used several funds to develop each domestic and international equity holdings.
He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me.
If you're not tilting in any way, you should only have two or three funds. Unless they were splitting by Developed / Emerging markets for international equities?
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Re: "Honesty like that is rare!"

Post by livesoft » Fri Aug 11, 2017 6:16 pm

I suspect they had a large-cap, mid-cap, small-cap fund or even 2 of each for US,then for foreign a developed, an emerging, and perhaps another one.

Also note that Allan Roth is well-known, so what is this person supposed to say to him? There would be no way to pull the wool over his eyes.

But yes, many retail investors expect their advisors to have a complicated portfolio with many moving parts.
Last edited by livesoft on Fri Aug 11, 2017 6:21 pm, edited 1 time in total.
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Re: "Honesty like that is rare!"

Post by flyingaway » Fri Aug 11, 2017 6:18 pm

LOL, In my cycle of "investment" friends, I am the only one who uses index funds. Many of them are trading stocks, gold, silver, foreign currencies, and they talk like being very much more "sophisticated".

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Re: "Honesty like that is rare!"

Post by triceratop » Fri Aug 11, 2017 6:38 pm

Well, that's dumb. I see now what Allan meant, though.
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Re: "Honesty like that is rare!"

Post by Fallible » Fri Aug 11, 2017 7:22 pm

BogleAlltheWay wrote:I am surprised that they did not tilt. That gives the look of sophistication and there are many supporters of tilting.
But only the "look." If his clients misunderstand true sophistication, i.e., simplicity, it seems they would not be good candidates to successfully tilt.

Thanks Taylor and Allan for the honest quote.
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Re: "Honesty like that is rare!"

Post by gilgamesh » Fri Aug 11, 2017 7:43 pm

Behavioral finance

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Re: "Honesty like that is rare!"

Post by jbolden1517 » Fri Aug 11, 2017 8:29 pm

VictoriaF wrote: I have noticed a similar attitude among some TSP investors. TSP stands for the Thrift Savings Plan, a Federal government equivalent of 401(k) plans. Unlike many 401(k) plans, the TSP offers very few funds at very low rates. Investors ignore low fees and excellent fund selection and complain about the lack of sophistication.
Some of the TSP funds are quite good. I've always liked the Wilshire 4500 (S fund) as a core holding (advising others I've never been federal workforce). The G fund is one of the best stable value funds around. The I fund is extremely cheap That being said they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.

I get that this may not bother you. If you just want broad aggregates TSP is excellent. But not everyone wants broad aggregates. The federal government is forcing this view and this style of investment on hundreds of thousands of people that object to it. They have every reason to be upset. There is no good reason the federal government couldn't offer a much broader matrix of solutions.

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Re: "Honesty like that is rare!"

Post by staythecourse » Fri Aug 11, 2017 8:54 pm

triceratop wrote:I'm confused by the message, maybe I just don't understand it. Aren't these statements in contradiction?
He showed me some model portfolios that used several funds to develop each domestic and international equity holdings.
He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me.
If you're not tilting in any way, you should only have two or three funds. Unless they were splitting by Developed / Emerging markets for international equities?
Honestly, I don't understand the whole exchange. Basically, we are giving credit for an adviser for being "honest" when he admits to deceiving the very individuals he has a fudiciary responsibility to by admitting he is making the whole investment process more complicated just to appease his investors. Which I am assuming is either so he generates more profit through transaction costs OR is too worried the investor will just do it on their own if they find the plan too simple.

Can someone explain why we are giving this guy a pat on the back for being honest to his clients? Shouldn't we be criticizing him by saying just do what is right and do 2-3 funds if that is what you think it best?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: "Honesty like that is rare!"

Post by oldzey » Fri Aug 11, 2017 8:59 pm

prudent wrote:I can understand the advisor's dilemma. People who don't understand investing generally have the preconceived notion that it's difficult and complicated. An advisor who proposes a 2-fund portfolio would therefore appear to be a rank amateur.
I showed my folks (avid stock pickers with a copious and cumbersome portfolio) my 2 fund portfolio.

They kind of smirked, and commented that it was good "for a beginner" like me.

I don't think I'll be very successful in persuading them to become a Boglehead. :D
Last edited by oldzey on Fri Aug 11, 2017 9:00 pm, edited 1 time in total.
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Re: "Honesty like that is rare!"

Post by pkcrafter » Fri Aug 11, 2017 9:00 pm

Fallible wrote: If his clients misunderstand true sophistication, i.e., simplicity...
Right, simplicity is the ultimate sophistication. 8-)

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Re: "Honesty like that is rare!"

Post by triceratop » Fri Aug 11, 2017 10:01 pm

staythecourse wrote:
triceratop wrote:I'm confused by the message, maybe I just don't understand it. Aren't these statements in contradiction?
He showed me some model portfolios that used several funds to develop each domestic and international equity holdings.
He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me.
If you're not tilting in any way, you should only have two or three funds. Unless they were splitting by Developed / Emerging markets for international equities?
Honestly, I don't understand the whole exchange. Basically, we are giving credit for an adviser for being "honest" when he admits to deceiving the very individuals he has a fudiciary responsibility to by admitting he is making the whole investment process more complicated just to appease his investors. Which I am assuming is either so he generates more profit through transaction costs OR is too worried the investor will just do it on their own if they find the plan too simple.

Can someone explain why we are giving this guy a pat on the back for being honest to his clients? Shouldn't we be criticizing him by saying just do what is right and do 2-3 funds if that is what you think it best?

Good luck.
My read is the advisor is making the portfolio unnecessarily complex to save the ignorant clients' from themselves, going instead to a vulture who promises the requisite complexity. It's still a more scrupulous advisor, if they have the client in low-cost index funds and limit turnover between funds. I can imagine myself making this calculation if I were an advisor, perennially disappointed in my clients.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Government TSP retirement plan

Post by Taylor Larimore » Fri Aug 11, 2017 10:25 pm

they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.
Bogleheads:

This is why Mr. Bogle said (paraphrased) that "The Government Thrift Safety Plan(TSP) is the best 401k type plan. It is also the reason why the financial industry hates it.

(The TSP does hold value stocks.)

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Government TSP retirement plan

Post by Darwin » Fri Aug 11, 2017 11:49 pm

Taylor Larimore wrote:
they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.
Bogleheads:

This is why Mr. Bogle said (paraphrased) that "The Government Thrift Safety Plan(TSP) is the best 401k type plan. It is also the reason why the financial industry hates it.

(The TSP does hold value stocks.)

Best wishes.
Taylor
Yup. Should be available to all. Same as single-payer health insurance. If the idea is competition, why not let the non-profit government system take a shot at a quote? If it keeps it cheaper for the same price, I'll take it.

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Re: "Honesty like that is rare!"

Post by Lieutenant.Columbo » Sat Aug 12, 2017 5:54 am

staythecourse wrote:Honestly, I don't understand the whole exchange. Basically, we are giving credit for an adviser for being "honest" when he admits to deceiving the very individuals he has a fudiciary responsibility to by admitting he is making the whole investment process more complicated just to appease his investors. Which I am assuming is either so he generates more profit through transaction costs OR is too worried the investor will just do it on their own if they find the plan too simple.

Can someone explain why we are giving this guy a pat on the back for being honest to his clients? Shouldn't we be criticizing him by saying just do what is right and do 2-3 funds if that is what you think it best?
that was also my first reaction: how's this REAL honesty if he doesn't think the portfolio he's recommending is the one the client should have AND if he doesn't say so to the client (as I assume he doesn't)?
bligh wrote:They had me allocated 1% in a corporate bonds fund. At first I didn't think much about it either way.. a few months later I started to wonder.. what difference does this 1% really make? With a 200K portfolio as an example, how much of a difference is having 2K in a corporate bond fund going to make over just being in the total bond fund?

It was purely there to make the portfolio look more professionally designed.
Maybe not
Random Walker wrote:...after a person has seen the passive light and basically gotten the stock - bond split right for him, improvements to the portfolio are incremental: small shifts toward some efficient frontier in the northwest corner. Every portfolio addition either improves or worsens efficiency. Why not move the portfolio in the right direction, even if it's a small move?
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Re: Government TSP retirement plan

Post by staythecourse » Sat Aug 12, 2017 7:08 am

Taylor Larimore wrote:
they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.
Bogleheads:

This is why Mr. Bogle said (paraphrased) that "The Government Thrift Safety Plan(TSP) is the best 401k type plan. It is also the reason why the financial industry hates it.

(The TSP does hold value stocks.)

Best wishes.
Taylor
Umm... No. That is not accurate. I believe he advocates the TSP as a role model due to index funds and low cost. That makes sense as the data supports BOTH as superior to the alternatives, i.e. active funds and higher costs.

I think we already know his view on value as it pertains to his talks about the "tell tail chart". That, however, has NOTHING to do with why he likes TSP. If i am incorrect please correct me.

Good luck.
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Re: "Honesty like that is rare!"

Post by S&L1940 » Sat Aug 12, 2017 7:44 am

staythecourse wrote: Honestly, I don't understand the whole exchange. Basically, we are giving credit for an adviser for being "honest" when he admits to deceiving the very individuals he has a fudiciary responsibility to by admitting he is making the whole investment process more complicated just to appease his investors. Which I am assuming is either so he generates more profit through transaction costs OR is too worried the investor will just do it on their own if they find the plan too simple.
Can someone explain why we are giving this guy a pat on the back for being honest to his clients? Shouldn't we be criticizing him by saying just do what is right and do 2-3 funds if that is what you think it best? Good luck.
I was getting ready to say the same thing. What is the big deal about an advisor to advisor admission that complexity was intentional overkill to gain the higher fees and make them seem worthwhile. The "honesty" was not public nor was the advisor saying they were going to go the simplicity route.
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Re: "Honesty like that is rare!"

Post by VictoriaF » Sat Aug 12, 2017 9:40 am

jbolden1517 wrote:
Fri Aug 11, 2017 8:29 pm
VictoriaF wrote: I have noticed a similar attitude among some TSP investors. TSP stands for the Thrift Savings Plan, a Federal government equivalent of 401(k) plans. Unlike many 401(k) plans, the TSP offers very few funds at very low rates. Investors ignore low fees and excellent fund selection and complain about the lack of sophistication.
Some of the TSP funds are quite good. I've always liked the Wilshire 4500 (S fund) as a core holding (advising others I've never been federal workforce). The G fund is one of the best stable value funds around. The I fund is extremely cheap That being said they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.

I get that this may not bother you. If you just want broad aggregates TSP is excellent. But not everyone wants broad aggregates. The federal government is forcing this view and this style of investment on hundreds of thousands of people that object to it. They have every reason to be upset. There is no good reason the federal government couldn't offer a much broader matrix of solutions.
The Federal government is providing the TSP participants with the best combination of funds and prices, by far the best. Participants wishing to invest in value, EM, junk, etc., can do it outside the TSP.

Victoria
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Re: "Honesty like that is rare!"

Post by staythecourse » Sat Aug 12, 2017 9:53 am

VictoriaF wrote:
Sat Aug 12, 2017 9:40 am
jbolden1517 wrote:
Fri Aug 11, 2017 8:29 pm
VictoriaF wrote: I have noticed a similar attitude among some TSP investors. TSP stands for the Thrift Savings Plan, a Federal government equivalent of 401(k) plans. Unlike many 401(k) plans, the TSP offers very few funds at very low rates. Investors ignore low fees and excellent fund selection and complain about the lack of sophistication.
Some of the TSP funds are quite good. I've always liked the Wilshire 4500 (S fund) as a core holding (advising others I've never been federal workforce). The G fund is one of the best stable value funds around. The I fund is extremely cheap That being said they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.

I get that this may not bother you. If you just want broad aggregates TSP is excellent. But not everyone wants broad aggregates. The federal government is forcing this view and this style of investment on hundreds of thousands of people that object to it. They have every reason to be upset. There is no good reason the federal government couldn't offer a much broader matrix of solutions.
The Federal government is providing the TSP participants with the best combination of funds and prices, by far the best. Participants wishing to invest in value, EM, junk, etc., can do it outside the TSP.

Victoria
I'm pretty sure they could offer any number of value, small, EM, etc... at a INSANELY low price point. They just choose not to. Right or wrong it certainly is not due to "price".

That, however, like any objection to a 401k plan/ pension needs to be generated by its constituents to the 401k or pension boards to see what can be done about it.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: "Honesty like that is rare!"

Post by Allan Roth » Sat Aug 12, 2017 11:07 am

VictoriaF wrote:
Sat Aug 12, 2017 9:40 am
jbolden1517 wrote:
Fri Aug 11, 2017 8:29 pm
VictoriaF wrote: I have noticed a similar attitude among some TSP investors. TSP stands for the Thrift Savings Plan, a Federal government equivalent of 401(k) plans. Unlike many 401(k) plans, the TSP offers very few funds at very low rates. Investors ignore low fees and excellent fund selection and complain about the lack of sophistication.
Some of the TSP funds are quite good. I've always liked the Wilshire 4500 (S fund) as a core holding (advising others I've never been federal workforce). The G fund is one of the best stable value funds around. The I fund is extremely cheap That being said they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.

I get that this may not bother you. If you just want broad aggregates TSP is excellent. But not everyone wants broad aggregates. The federal government is forcing this view and this style of investment on hundreds of thousands of people that object to it. They have every reason to be upset. There is no good reason the federal government couldn't offer a much broader matrix of solutions.
The Federal government is providing the TSP participants with the best combination of funds and prices, by far the best. Participants wishing to invest in value, EM, junk, etc., can do it outside the TSP.

Victoria
The TSP is great but they do something similar by having the C and S fund when they could just have a total US stock fund. And the I could also include EM to be broader.

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Re: "Honesty like that is rare!"

Post by Allan Roth » Sat Aug 12, 2017 11:10 am

S&L1940 wrote:
Sat Aug 12, 2017 7:44 am
staythecourse wrote: Honestly, I don't understand the whole exchange. Basically, we are giving credit for an adviser for being "honest" when he admits to deceiving the very individuals he has a fudiciary responsibility to by admitting he is making the whole investment process more complicated just to appease his investors. Which I am assuming is either so he generates more profit through transaction costs OR is too worried the investor will just do it on their own if they find the plan too simple.
Can someone explain why we are giving this guy a pat on the back for being honest to his clients? Shouldn't we be criticizing him by saying just do what is right and do 2-3 funds if that is what you think it best? Good luck.
I was getting ready to say the same thing. What is the big deal about an advisor to advisor admission that complexity was intentional overkill to gain the higher fees and make them seem worthwhile. The "honesty" was not public nor was the advisor saying they were going to go the simplicity route.
I think this adviser is better than 99% of advisers. He is offering ultra low fee indexing and is just facing the reality of most people not realizing the brilliance of simplicity. Even the Vanguard Target Date Funds have built in additional complexity over the three fund portfolio.

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Re: "Honesty like that is rare!"

Post by FrugalInvestor » Sat Aug 12, 2017 11:16 am

CABob wrote:
Fri Aug 11, 2017 1:30 pm
Taylor:

Last week, I as talking to a founder of a very low cost advisory platform that was even lower cost than robo-advisors. He showed me some model portfolios that used several funds to develop each domestic and international equity holdings. He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me. He said something like “when we use only two or three funds, clients don’t think we are sophisticated.”

Honesty like that is rare!

Allan
Interesting that the advisor was willing to share the comment with Alan who was willing to share it with you, and you were willing to share it with the forum. But did the advisor share it with his client?
Probably not, unless the client asked. But if the advisor is right (and he proabbly is) then he's just trying to 'fool' the client into doing what's right.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: "Honesty like that is rare!"

Post by gilgamesh » Sat Aug 12, 2017 11:26 am

FrugalInvestor wrote:
Sat Aug 12, 2017 11:16 am
....if the advisor is right (and he proabbly is) then he's just trying to 'fool' the client into doing what's right.
Well put!

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Re: "Honesty like that is rare!"

Post by jbolden1517 » Sat Aug 12, 2017 4:09 pm

Allan Roth wrote:
Sat Aug 12, 2017 11:07 am

The TSP is great but they do something similar by having the C and S fund when they could just have a total US stock fund. And the I could also include EM to be broader.
I know a lot of people who hold more S than C. Certainly not 70% C, 30% S. They don't want to hold the market at market weights. Certainly the TSP could further restrict choice. Which was my point above to Victoria, the reason people are unhappy with TSP is that it is forcing a very specific investing theory on them and not offering choice to design a plan that meets their goals. The fact that you may happen to agree with that investing theory doesn't change the coercive nature of only offering it.

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Re: "Honesty like that is rare!"

Post by nedsaid » Sat Aug 12, 2017 4:45 pm

Not sure how I would feel if I spent a bunch of time with a financial advisor only to be told to invest in a three fund portfolio and to spend less than I earn. People want to feel like they got their money's worth.
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Re: "Honesty like that is rare!"

Post by dharrythomas » Sat Aug 12, 2017 9:00 pm

jbolden1517 wrote:
Sat Aug 12, 2017 4:09 pm
Allan Roth wrote:
Sat Aug 12, 2017 11:07 am

The TSP is great but they do something similar by having the C and S fund when they could just have a total US stock fund. And the I could also include EM to be broader.
I know a lot of people who hold more S than C. Certainly not 70% C, 30% S. They don't want to hold the market at market weights. Certainly the TSP could further restrict choice. Which was my point above to Victoria, the reason people are unhappy with TSP is that it is forcing a very specific investing theory on them and not offering choice to design a plan that meets their goals. The fact that you may happen to agree with that investing theory doesn't change the coercive nature of only offering it.
The TSP is by far the best 401(k) type program that I've ever been involved with (2x employers, 4 plan providers, 5 sets of fund choices over time).

I love the TSP. They are able to deliver quality funds cheap because of volume, restricted fund choices, and restricted transactions. I would like to see the two fund changes that Allan discussed, but no others. Any changes other than combining C & S funds, would cause higher expenses. We have about 25% of our investable assets (and growing because of contributions) in the TSP. The frequent transaction restriction, the limited fund choices, and withdrawal restrictions in retirement not only lower costs but also address specific behaviorial finance issues. The idea is not to cater to a few sophisticated investors but to provide the best plan for the bulk of employees.

My only real complaint, other than the lack of EM in the I Fund, is that the LifeCycle Funds are too conservative for my taste, but that is easily addressed by investing roundin up to the next decade fund and adding decades until you get the glide path close to what you want.

Since we're guessing about future returns, distribution of return among asset classes, and sequence of returns, while a few point difference in the asset allocation will make a difference, none of us can be sure whether it will help or hurt. :annoyed

Good luck.

staythecourse
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Re: "Honesty like that is rare!"

Post by staythecourse » Sun Aug 13, 2017 12:01 am

FrugalInvestor wrote:
Sat Aug 12, 2017 11:16 am
CABob wrote:
Fri Aug 11, 2017 1:30 pm
Taylor:

Last week, I as talking to a founder of a very low cost advisory platform that was even lower cost than robo-advisors. He showed me some model portfolios that used several funds to develop each domestic and international equity holdings. He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me. He said something like “when we use only two or three funds, clients don’t think we are sophisticated.”

Honesty like that is rare!

Allan
Interesting that the advisor was willing to share the comment with Alan who was willing to share it with you, and you were willing to share it with the forum. But did the advisor share it with his client?
Probably not, unless the client asked. But if the advisor is right (and he proabbly is) then he's just trying to 'fool' the client into doing what's right.
Man I must be cynical. If person X has a financial incentive to keep the rouse up then I am assuming he is continuing the rouse for his financial benefit and NOT a backward way to do "what's right". "What's right" would be to tell the person honestly what they should do with their money irregardless if you get to manage it or not.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Engineer250
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Re: "Honesty like that is rare!"

Post by Engineer250 » Sun Aug 13, 2017 12:22 am

staythecourse wrote:
Sat Aug 12, 2017 9:53 am
VictoriaF wrote:
Sat Aug 12, 2017 9:40 am
jbolden1517 wrote:
Fri Aug 11, 2017 8:29 pm
VictoriaF wrote: I have noticed a similar attitude among some TSP investors. TSP stands for the Thrift Savings Plan, a Federal government equivalent of 401(k) plans. Unlike many 401(k) plans, the TSP offers very few funds at very low rates. Investors ignore low fees and excellent fund selection and complain about the lack of sophistication.
Some of the TSP funds are quite good. I've always liked the Wilshire 4500 (S fund) as a core holding (advising others I've never been federal workforce). The G fund is one of the best stable value funds around. The I fund is extremely cheap That being said they are right to complain about lack of sophistication. No value funds. No EM and no EM bond. No junk debt. No leveraged funds. No quant funds.

I get that this may not bother you. If you just want broad aggregates TSP is excellent. But not everyone wants broad aggregates. The federal government is forcing this view and this style of investment on hundreds of thousands of people that object to it. They have every reason to be upset. There is no good reason the federal government couldn't offer a much broader matrix of solutions.
The Federal government is providing the TSP participants with the best combination of funds and prices, by far the best. Participants wishing to invest in value, EM, junk, etc., can do it outside the TSP.

Victoria
I'm pretty sure they could offer any number of value, small, EM, etc... at a INSANELY low price point. They just choose not to. Right or wrong it certainly is not due to "price".

That, however, like any objection to a 401k plan/ pension needs to be generated by its constituents to the 401k or pension boards to see what can be done about it.

Good luck.
I have to agree with Victoria (and others here) who have defended the TSP. I'm not sure why everyone assumes the TSP could add a lot more features and complexity and somehow keep the same low cost? Honestly minus emerging markets (which I think I read somewhere they are working on adding in to the I Fund) I am 100% pleased with my TSP fund choices.

I recently left fed service and am at a MegaCorp with a Vanguard 401k. The fund choices are absolutely terrible (their provider used to be Schwab and they are the same terrible fund choices for the most part since back then, so my employer is the problem not Vanguard). Two bond funds, the US Govt one has an expense ratio of .5%. A managed international fund and managed emerging markets fund both at 1%, two US growth funds (.7%), a midcap fund (.5%), and a Russel 1000 and Russel 2000 (.08% both thankfully) to round it out. Oh and they have all the excellent target Vanguard funds. Luckily they also have a brokerage option which I'll be using. I think if you've been living in an IRA bubble you forget how crappy most 401ks are. The TSP is excellent. People don't need more choices. It lets you overweight US, overweight international, overweight large vs mid/small cap US if you so desire, or just pick a decent target fund. I've been balancing out emerging markets in my Roth. But really, if emerging is ~20% market weight of international and most people on here don't seem to own more than 20-40% international, let's not pretend TSP needs a bunch of weird skews.
Where the tides of fortune take us, no man can know.

basspond
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Re: Government TSP retirement plan

Post by basspond » Sun Aug 13, 2017 5:06 am

Darwin wrote:
Fri Aug 11, 2017 11:49 pm
Yup. Should be available to all. Same as single-payer health insurance. If the idea is competition, why not let the non-profit government system take a shot at a quote? If it keeps it cheaper for the same price, I'll take it.
Run your numbers on what was paid into your SS and you will see why the government should not be involved. The better involvement of government would be to require financial responsibility classes be taught in all levels of education.

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FrugalInvestor
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Re: "Honesty like that is rare!"

Post by FrugalInvestor » Sun Aug 13, 2017 11:53 am

staythecourse wrote:
Sun Aug 13, 2017 12:01 am
FrugalInvestor wrote:
Sat Aug 12, 2017 11:16 am
CABob wrote:
Fri Aug 11, 2017 1:30 pm
Taylor:

Last week, I as talking to a founder of a very low cost advisory platform that was even lower cost than robo-advisors. He showed me some model portfolios that used several funds to develop each domestic and international equity holdings. He didn’t seem to tilting toward value or growth and I told him I liked that. But I asked him why he didn’t just use a total US and total Int’l stock index fund and his reply shocked me. He said something like “when we use only two or three funds, clients don’t think we are sophisticated.”

Honesty like that is rare!

Allan
Interesting that the advisor was willing to share the comment with Alan who was willing to share it with you, and you were willing to share it with the forum. But did the advisor share it with his client?
Probably not, unless the client asked. But if the advisor is right (and he proabbly is) then he's just trying to 'fool' the client into doing what's right.
Man I must be cynical. If person X has a financial incentive to keep the rouse up then I am assuming he is continuing the rouse for his financial benefit and NOT a backward way to do "what's right". "What's right" would be to tell the person honestly what they should do with their money irregardless if you get to manage it or not.

Good luck.
I don't disagree with you but I can see from a marketing/cost/customer aquisition standpoint deciding to take the path of least resistance. If it's easiest/quickest/cheapest wasy to get the consumer to what will work best for you and for them then why spend a lot more effort and money trying to convince them otherwise and risk losing customers? Some battles aren't worth fighting. Now I don't have any way of knowing that this was the thought process but I can certainly imagine it being the case.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

rgs92
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Re: "Honesty like that is rare!"

Post by rgs92 » Sun Aug 13, 2017 12:05 pm

The man has to make a living. No shame in that.
And he's doing it in a far better way than other financial advisors.
And if his customers didn't use him, they would fall prey to other far worse advisors.
So good for him.

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White Coat Investor
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Re: "Honesty like that is rare!"

Post by White Coat Investor » Sun Aug 13, 2017 6:23 pm

bligh wrote:
Fri Aug 11, 2017 1:56 pm
I actually had this realization when looking at my betterment portfolio.

They had me allocated 1% in a corporate bonds fund. At first I didn't think much about it either way.. a few months later I started to wonder.. what difference does this 1% really make? With a 200K portfolio as an example, how much of a difference is having 2K in a corporate bond fund going to make over just being in the total bond fund?

It was purely there to make the portfolio look more professionally designed.
When I see that sort of thing, I realize the advisor can't do math, which seems a rather large fault in an investment advisor.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Helo80
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Re: "Honesty like that is rare!"

Post by Helo80 » Sun Aug 13, 2017 7:17 pm

Speaking of TSP.... I am one of those who has complained that it has too few funds. Basically, I wish there was a true growth fund and/or a Total Stock market index (yes, I know there are ways to approximate the latter).

That being said, 10+ years ago, I read a quick summary on 401k psychology research that showed that provided people too many 401k plan choices (which you think would be amazing and awesome, right? Everybody loves choice!) caused worse results or confusion for employees as there was analysis paralysis. I forget what the sweet spot was, but it was something like under 12.... very similar to TSP. If anybody knows of this research or has seen an article in a more academic journal type setting as opposed to blogger, please share!

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FiveK
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Re: "Honesty like that is rare!"

Post by FiveK » Sun Aug 13, 2017 10:06 pm

Helo80 wrote:
Sun Aug 13, 2017 7:17 pm
That being said, 10+ years ago, I read a quick summary on 401k psychology research that showed that provided people too many 401k plan choices (which you think would be amazing and awesome, right? Everybody loves choice!) caused worse results or confusion for employees as there was analysis paralysis. I forget what the sweet spot was, but it was something like under 12.... very similar to TSP. If anybody knows of this research or has seen an article in a more academic journal type setting as opposed to blogger, please share!
Perhaps How Many Investment Options Should 401k Plan Sponsors Offer? | FiduciaryNews (and see links therein)?

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VictoriaF
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Re: "Honesty like that is rare!"

Post by VictoriaF » Mon Aug 14, 2017 5:40 am

Helo80 wrote:
Sun Aug 13, 2017 7:17 pm
That being said, 10+ years ago, I read a quick summary on 401k psychology research that showed that provided people too many 401k plan choices (which you think would be amazing and awesome, right? Everybody loves choice!) caused worse results or confusion for employees as there was analysis paralysis. I forget what the sweet spot was, but it was something like under 12.... very similar to TSP. If anybody knows of this research or has seen an article in a more academic journal type setting as opposed to blogger, please share!
1. An authoritative book on the perils of too many options is The Paradox of Choice by Barry Schwartz. He also has a TED talk about it.
2. Sheena Iyengar of Columbia University has done a lot of research of choices and published several widely-cited papers and a book.
3. Richard Thaler discusses optimal 401(k) design in his recent book Misbehaving.

Victoria
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tennisplyr
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Re: "Honesty like that is rare!"

Post by tennisplyr » Mon Aug 14, 2017 10:38 am

Thanks Taylor....it's kinda like sometimes less is more.
Those who move forward with a happy spirit will find that things always work out.

Helo80
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Re: "Honesty like that is rare!"

Post by Helo80 » Mon Aug 14, 2017 5:16 pm

FiveK wrote:
Sun Aug 13, 2017 10:06 pm

Perhaps How Many Investment Options Should 401k Plan Sponsors Offer? | FiduciaryNews (and see links therein)?


Thanks for sharing! I see several good links in there.

Helo80
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Re: "Honesty like that is rare!"

Post by Helo80 » Mon Aug 14, 2017 5:17 pm

VictoriaF wrote:
Mon Aug 14, 2017 5:40 am
1. An authoritative book on the perils of too many options is The Paradox of Choice by Barry Schwartz. He also has a TED talk about it.
2. Sheena Iyengar of Columbia University has done a lot of research of choices and published several widely-cited papers and a book.
3. Richard Thaler discusses optimal 401(k) design in his recent book Misbehaving.

Victoria

Thanks for sharing! I listened to the TedTalk and Schwartz was likely referring to the study that I was thinking of. Also, thanks for the reading recommendations as I enjoy this sort of stuff.

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