Assessing the Value of Advice

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
WhyNotUs
Posts: 1593
Joined: Sun Apr 14, 2013 11:38 am

Assessing the Value of Advice

Post by WhyNotUs » Sun Oct 20, 2019 10:23 am

VG has an article on their website that describes their reason for promoting PAS (three part value proposition) and what happens to typical investor portfolios if they play along.
https://personal.vanguard.com/pdf/asses ... advice.pdf

My overview of changes in portfolio
• About 28% have Invest cash that gets invested
• About 90% increase international investment
• About 2/3 of member adjust equity position by >10%

Misc
• Only 1.3% assigned the highest value on the need to understand exactly how much they paid their advisor
I own the next hot stock- VTSAX

aristotelian
Posts: 6470
Joined: Wed Jan 11, 2017 8:05 pm

Re: Assessing the Value of Advice

Post by aristotelian » Sun Oct 20, 2019 10:32 am

Does Vanguard PAS personalize enough to provide withdrawal and tax guidance? That is what I would really want for my spouse, more so than asset allocation advice.

Lol, arguably the advice to increase international has had negative value, at least over the last 10+ years.

HEDGEFUNDIE
Posts: 3651
Joined: Sun Oct 22, 2017 2:06 pm

Re: Assessing the Value of Advice

Post by HEDGEFUNDIE » Sun Oct 20, 2019 10:36 am

aristotelian wrote:
Sun Oct 20, 2019 10:32 am
Lol, arguably the advice to increase international has had negative value, at least over the last 10+ years.
Make that the last 23 years; you would have been better off investing in Total Bond:

https://www.portfoliovisualizer.com/fun ... mark=VBMFX

dbr
Posts: 30798
Joined: Sun Mar 04, 2007 9:50 am

Re: Assessing the Value of Advice

Post by dbr » Sun Oct 20, 2019 11:31 am

WhyNotUs wrote:
Sun Oct 20, 2019 10:23 am
VG has an article on their website that describes their reason for promoting PAS (three part value proposition) and what happens to typical investor portfolios if they play along.
https://personal.vanguard.com/pdf/asses ... advice.pdf

My overview of changes in portfolio
• About 28% have Invest cash that gets invested
• About 90% increase international investment
• About 2/3 of member adjust equity position by >10%

Misc
• Only 1.3% assigned the highest value on the need to understand exactly how much they paid their advisor
The unspoken factor is that all of those things including knowing the cost of advising can be managed without paying for advice.

However, their point is not necessarily unreasonable if put in an appropriate context. Part of that context is knowing that the fee is 0.3%. If the context is that the fee is more than 2% for AUMs, fees, expensive funds, and tax costs it is harder to promote the service.

pyld76
Posts: 272
Joined: Thu Feb 09, 2012 4:15 pm

Re: Assessing the Value of Advice

Post by pyld76 » Sun Oct 20, 2019 11:58 am

Any paper on “advisor alpha” is gonna be lost on the vast majority here.

Most people don’t try to optimize their “live so far under your means that you can no longer see your means when looking straight up.” Most people aren’t steely eyed boglehead missilemen/missilewomen who are gonna hold their asset allocation and thru a 2000 or 2008 decline. Most people make execution mistakes. Etc. VG isn’t framing them some arguments on measuring advisor alpha at this forum. At all.

RadAudit
Posts: 3613
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Assessing the Value of Advice

Post by RadAudit » Sun Oct 20, 2019 3:10 pm

If the advice results in you changing your portfolio AA in such a way as to increase the chances of you meeting your goals and to increase the chances you will stay the course, it may be worth 0.3% of AUM to some folks - at least until you can go it alone.

At least the rationalization sounds reasonable.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

dbr
Posts: 30798
Joined: Sun Mar 04, 2007 9:50 am

Re: Assessing the Value of Advice

Post by dbr » Sun Oct 20, 2019 3:19 pm

RadAudit wrote:
Sun Oct 20, 2019 3:10 pm
If the advice results in you changing your portfolio AA in such a way as to increase the chances of you meeting your goals and to increase the chances you will stay the course, it may be worth 0.3% of AUM to some folks - at least until you can go it alone.

At least the rationalization sounds reasonable.
I agree. But it is very difficult to assess the value of paying someone to help you avoid mistakes or suboptimum investing when it is also possible to make those improvements without paying anyone. Perhaps a different point of view is that by the time a person arrives at VPAS and implements that plan, they are so close to doing it without VPAS that the value proposition is definitely on weak legs. At that point your possibility of using VPAS until one can do it alone makes sense. I do appreciate the concern people often have of where to send financially inept survivors after their own demise. In some cases the confidence that the plan is sound may be worth the cost.

Scooter57
Posts: 1071
Joined: Thu Jan 24, 2013 9:20 am

Re: Assessing the Value of Advice

Post by Scooter57 » Mon Oct 21, 2019 10:54 am

What keeps people in VPAS when the market drops dramatically? They don't build a personal relationship the way higher priced advisors do. They seem to work off scripts. How do they build trust when performance isn't there?

The highly paid fee paid advisors my parents turned to as they aged met them for lunch, knew all about their children, arranged for movers to help them move out of their apartment when they needed assisted living, and earned the family's trust come 2009. They did not do much for their assets with those high fees but we trusted they knew what they were doing, and, most importantly, that they didn't just see us as $$$$. They were bought out by a big company that lost that personal touch, fired those advisors, and lost us as customers.

I never get that feeling of being seen as an individual or cared about from anyone I have dealt with at Vanguard including the advisors they let Flagship clients talk to for free in the past, who promoted the same portfolio that VPAS seems to push, without regard to the tax consequences or my investing goals. While the market goes up clients will be satisfied, but I wonder if these robo-driven advisors can build the trust needed to keep people on board through tough times.

afan
Posts: 4407
Joined: Sun Jul 25, 2010 4:01 pm

Re: Assessing the Value of Advice

Post by afan » Mon Oct 21, 2019 12:13 pm

You could be right about Vanguard not giving you a feeling of personal relationship. I don't need a personal relationship with an employee of my mutual fund company any more than I need a personal relationship with my mail deliverer.

That said, the Vanguard article does list this personal relationship as an important element of client value.

If you want to go to lunch with someone, have them know your family, etc then you need to pay for that. The time they spend giving you this attention could have been spent doing financial work for more clients. So prices have to be high.

You can get this level of attention by shopping for advisors or trust companies that deliver this. But realize that you are paying a greatly inflated price for the actual services you get.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

megabad
Posts: 2501
Joined: Fri Jun 01, 2018 4:00 pm

Re: Assessing the Value of Advice

Post by megabad » Mon Oct 21, 2019 3:14 pm

WhyNotUs wrote:
Sun Oct 20, 2019 10:23 am
VG has an article on their website that describes their reason for promoting PAS (three part value proposition) and what happens to typical investor portfolios if they play along.
https://personal.vanguard.com/pdf/asses ... advice.pdf

My overview of changes in portfolio
• About 28% have Invest cash that gets invested
• About 90% increase international investment
• About 2/3 of member adjust equity position by >10%

Misc
• Only 1.3% assigned the highest value on the need to understand exactly how much they paid their advisor
Seems to me that a Target Date Fund would provide most of these benefits at 80% less cost.

Topic Author
WhyNotUs
Posts: 1593
Joined: Sun Apr 14, 2013 11:38 am

Re: Assessing the Value of Advice

Post by WhyNotUs » Sat Oct 26, 2019 8:59 am

afan wrote:
Mon Oct 21, 2019 12:13 pm
You could be right about Vanguard not giving you a feeling of personal relationship. I don't need a personal relationship with an employee of my mutual fund company any more than I need a personal relationship with my mail deliverer.
Funny that you used this example. My long time rural delivery person, with whom we had a great relationship, recently left the PS. We have had two different carriers since she left and I have had nothing but problems.
I own the next hot stock- VTSAX

afan
Posts: 4407
Joined: Sun Jul 25, 2010 4:01 pm

Re: Assessing the Value of Advice

Post by afan » Sun Oct 27, 2019 9:18 am

Not to disparage the delivery people. Some do a great job, others less so. But I don't believe that the quality of work depends on a personal relationship.

How about this? I don't have a personal relationship with the people who deliver gasoline to gas stations I use. It is highly important to me that the delivery be safe and reliable. It is not at all important that I ever meet the people who do it.

Same for many other things. I have never met anyone who works for the various companies that sell insurance to me, directly or through my work. I have never met anyone who works in our payroll processing, or my mortgage company, or my local tax office, or the IRS, or the streets department, or the electricity company... There are many people who do important work but what I get has nothing to do with a personal relationship with them.

I would not pay extra for electricity to have someone from the company invite me to lunch.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

User avatar
dwickenh
Posts: 1763
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: Assessing the Value of Advice

Post by dwickenh » Sun Oct 27, 2019 9:29 am

HEDGEFUNDIE wrote:
Sun Oct 20, 2019 10:36 am
aristotelian wrote:
Sun Oct 20, 2019 10:32 am
Lol, arguably the advice to increase international has had negative value, at least over the last 10+ years.
Make that the last 23 years; you would have been better off investing in Total Bond:

https://www.portfoliovisualizer.com/fun ... mark=VBMFX
It's going to turn around any year now(I hope)..... I have stayed at 25% through all the under performance.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

HEDGEFUNDIE
Posts: 3651
Joined: Sun Oct 22, 2017 2:06 pm

Re: Assessing the Value of Advice

Post by HEDGEFUNDIE » Sun Oct 27, 2019 9:39 am

dwickenh wrote:
Sun Oct 27, 2019 9:29 am
HEDGEFUNDIE wrote:
Sun Oct 20, 2019 10:36 am
aristotelian wrote:
Sun Oct 20, 2019 10:32 am
Lol, arguably the advice to increase international has had negative value, at least over the last 10+ years.
Make that the last 23 years; you would have been better off investing in Total Bond:

https://www.portfoliovisualizer.com/fun ... mark=VBMFX
It's going to turn around any year now(I hope)..... I have stayed at 25% through all the under performance.
Good for you. I am gradually adding to my international position

retired@50
Posts: 657
Joined: Tue Oct 01, 2019 2:36 pm

Re: Assessing the Value of Advice

Post by retired@50 » Sun Oct 27, 2019 10:09 am

afan wrote:
Mon Oct 21, 2019 12:13 pm
You could be right about Vanguard not giving you a feeling of personal relationship. I don't need a personal relationship with an employee of my mutual fund company any more than I need a personal relationship with my mail deliverer.

That said, the Vanguard article does list this personal relationship as an important element of client value.

If you want to go to lunch with someone, have them know your family, etc then you need to pay for that. The time they spend giving you this attention could have been spent doing financial work for more clients. So prices have to be high.

You can get this level of attention by shopping for advisors or trust companies that deliver this. But realize that you are paying a greatly inflated price for the actual services you get.
It's sorta like using a personal shopper (high-end solution) or reading Consumer Reports magazine (less expensive solution). If you wind up owning the right products (financial or otherwise), then you're better off. With regard to VPAS, if they can prevent even one mistake for a client, then it's probably worth it. I have friends who have done things like "go to cash" in 2009, or take a full early distribution from a 401k plan instead of rolling it to the next employer. Those kind of moves can have consequences for years... Regards,

dbr
Posts: 30798
Joined: Sun Mar 04, 2007 9:50 am

Re: Assessing the Value of Advice

Post by dbr » Sun Oct 27, 2019 10:19 am

retired@50 wrote:
Sun Oct 27, 2019 10:09 am


It's sorta like using a personal shopper (high-end solution) or reading Consumer Reports magazine (less expensive solution). If you wind up owning the right products (financial or otherwise), then you're better off. With regard to VPAS, if they can prevent even one mistake for a client, then it's probably worth it. I have friends who have done things like "go to cash" in 2009, or take a full early distribution from a 401k plan instead of rolling it to the next employer. Those kind of moves can have consequences for years... Regards,
The problem with valuing advice for preventing a big mistake is that all sorts of outrageously high costs for advice are worth it if they prevent a big mistake. The issue comes with how likely a big mistake is and also with whether or not the advisor would actually prevent the mistake. Some advisors get investors to do things that are big mistakes and charge for it on top. The argument for VPAS is more persuasive as the cost is not outrageous and VPAS does not put investors in bad investments or other bad products. I am not sure for sure if VPAS actually does prevent bad decisions such as 401k mistakes or going to cash, but they might.

retired@50
Posts: 657
Joined: Tue Oct 01, 2019 2:36 pm

Re: Assessing the Value of Advice

Post by retired@50 » Sun Oct 27, 2019 10:36 am

dbr wrote:
Sun Oct 27, 2019 10:19 am
retired@50 wrote:
Sun Oct 27, 2019 10:09 am


It's sorta like using a personal shopper (high-end solution) or reading Consumer Reports magazine (less expensive solution). If you wind up owning the right products (financial or otherwise), then you're better off. With regard to VPAS, if they can prevent even one mistake for a client, then it's probably worth it. I have friends who have done things like "go to cash" in 2009, or take a full early distribution from a 401k plan instead of rolling it to the next employer. Those kind of moves can have consequences for years... Regards,
The problem with valuing advice for preventing a big mistake is that all sorts of outrageously high costs for advice are worth it if they prevent a big mistake. The issue comes with how likely a big mistake is and also with whether or not the advisor would actually prevent the mistake. Some advisors get investors to do things that are big mistakes and charge for it on top. The argument for VPAS is more persuasive as the cost is not outrageous and VPAS does not put investors in bad investments or other bad products. I am not sure for sure if VPAS actually does prevent bad decisions such as 401k mistakes or going to cash, but they might.
I think we agree. I wouldn't use anyone other than VPAS, *IF* I was going to use an adviser, or recommend an adviser for someone else. I think the bulk of AUM advisers are slowly siphoning money from their clients without delivering anything of value. It reminds me of a graph I saw in one of the many financial books I've read. The graph basically showed two lines, a client portfolio with a starting value of $100,000, and the adviser portfolio starting at zero. Over time, the adviser invests his AUM fees in an index fund, and the client sticks with the high expense ratio fund(s) the adviser has recommended. After about 40 years, the adviser has more money than the client, even though he started with ZERO. Regards,

blinx77
Posts: 291
Joined: Sat Jan 07, 2012 11:23 am

Re: Assessing the Value of Advice

Post by blinx77 » Sun Oct 27, 2019 11:07 am

dbr wrote:
Sun Oct 27, 2019 10:19 am
retired@50 wrote:
Sun Oct 27, 2019 10:09 am


It's sorta like using a personal shopper (high-end solution) or reading Consumer Reports magazine (less expensive solution). If you wind up owning the right products (financial or otherwise), then you're better off. With regard to VPAS, if they can prevent even one mistake for a client, then it's probably worth it. I have friends who have done things like "go to cash" in 2009, or take a full early distribution from a 401k plan instead of rolling it to the next employer. Those kind of moves can have consequences for years... Regards,
The problem with valuing advice for preventing a big mistake is that all sorts of outrageously high costs for advice are worth it if they prevent a big mistake. The issue comes with how likely a big mistake is and also with whether or not the advisor would actually prevent the mistake. Some advisors get investors to do things that are big mistakes and charge for it on top. The argument for VPAS is more persuasive as the cost is not outrageous and VPAS does not put investors in bad investments or other bad products. I am not sure for sure if VPAS actually does prevent bad decisions such as 401k mistakes or going to cash, but they might.
Here's the issue. People who are knowledgeable enough to judge the value of their financial advisor are probably knowledgeable enough to sort out their own finances unless they are very wealthy (like over $10 million, and get discounts based on AUM) or have a very complex situation.

Those that do things like "go to cash" in 2009 probably can't properly evaluate the quality of advice they are getting from their advisor and whether it's worth the fee. But they may in fact be better off with most advisors than DIY.

User avatar
nedsaid
Posts: 12773
Joined: Fri Nov 23, 2012 12:33 pm

Re: Assessing the Value of Advice

Post by nedsaid » Sun Oct 27, 2019 10:25 pm

Hard to say what the value of financial and investment advice is. The value of personal relationships is important but also intangible. I am of the school of thought that says the intangible, though probably not measurable, is still important.

Most of my investments are held with three companies: LPL Financial, American Century, and Fidelity. I started at both Fidelity and American Century in 1984. I transferred money from bank accounts to a money market fund at Fidelity investments, I started my first stock investment by purchasing American Century's Select fund. So 35 years with two of these companies. I followed my independent broker to LPL Financial just as I followed him to another brokerage after being a client of his at a full-service brokerage. The brokerage account was started in 1988 and I had four brokers over the next 8-9 years, I have followed Broker #4 there to two successor firms. I have been with Broker #4 for probably 22+ years.

Fidelity held my workplace savings plan since 1999, which I rolled over to a rollover IRA there a year ago. So I have had substantial investment at Fidelity for about 20 years. Fidelity is investment heaven, the combination of good service and low costs. Zero account minimums, Zero commissions, and Zero Fee Index Funds.

Nice to have an independent broker that I have worked with for over 22 years. Nice to work with two other companies that I have been with for 35 years. Nice to get comments from American Century representatives each time I call regarding my long tenure with the company. How much is that worth? Hard to say, I can't quantify that. I have learned a lot about investment from my brokers and the good folks at American Century who long have believed in financial education.

I could have started out with T Rowe Price or Vanguard. In 1984, I had little money and a fund company with no minimum investment and a good track record seemed a good fit, so American Century (20th Century back then) it was. I certainly didn't have the minimum investment for Vanguard back then. So things happen for pretty odd reasons.
A fool and his money are good for business.

Post Reply