## a couple questions on a Morgan Stanley portolio analysis

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Topic Author
Charon
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### a couple questions on a Morgan Stanley portolio analysis

My fiancée got a free portfolio analysis from someone at Morgan Stanley whom she met through business networking. She has no interest in finance details, and has (against my advice) been paying someone to manage her money for her, so I'm the one trying to make sense of the portfolio analysis. Most of it seems very standard and makes sense, but I had a couple minor questions.

1) The Morgan Stanley guy says he's a fiduciary, but his recommended investments are through Morgan Stanley. So I take it fiduciaries are required to give the best possible advice within whatever options their company offers?

2) He pointed out the advantage in fees of Morgan Stanley (1.72%) over where she has her money now (2.08%). He calculated the dollar savings under a hypothetical scenario (X dollars, Y return, Z years). He started with the dollar difference the fees led to in the first year, Δ. When I reproduce his numbers, it appears the formula he used was each year dollar_differencei = dollar_differencei-1 * (1+return_rate) + Δ.

This makes no sense to me. First, it's assuming the invested difference isn't subject to the fee, and second it's assuming Δ is constant in nominal dollars. It arises from a difference in fees that are percentages, so I assume it scales with the assets. There's no way Morgan Stanley is committing to a constant fee in nominal dollars for a 55-year time period! But this mistake makes the comparison look worse for Morgan Stanley, showing ~25% less difference over the period than there really is. So I'm questioning myself, because why would they do a calculation that put them in a worse light than reality? So are they really wrong, or am I?

For reference, my calculation was assetsi = assetsi-1 * (1+return_rate-fee_rate). I might well be wrong - I'm a good data analyst generally, but my financial knowledge is self-taught and minimal.

3) Just to throw some redder meat in here for those who read this far, my advice to my fiancée will be to shift everything to a Vanguard Target Date fund appropriate for her risk tolerance. Keep in mind that this is someone who has no interest in ever modifying asset allocations, so a set-and-forget automatic glide path seems better to me than a three- or four-fund portfolio. This is also someone who looked at a 1.72% fee and said "that seems plenty low", so I'm not worried about 0.14% vs. 0.06%. Any disagreement?

livesoft
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### Re: a couple questions on a Morgan Stanley portolio analysis

Ha! What a train wreck!
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Taylor Larimore
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### Re: a couple questions on a Morgan Stanley portolio analysis

He pointed out the advantage in fees of Morgan Stanley (1.72%) over where she has her money now (2.08%)
Charon:

BOTH these fees are unconscionable. If you must have an advisor, consider Vanguard Personal Advisor Service (PAS) Service which charges only 0.3%. PAS certified experts are paid by salary and are without a conflict of interest.

To give you an idea of the impact of costs, consider this:

If stocks gain an average of 6% annually during the next 30 years, someone who invested \$25,000 for a 1% yearly fee will forego more than \$35,000 in gains because of the fee -- more than the original investment.

Consider a simple portfolio like this: The Three-Fund Portfolio and you will probably not need any advisor.

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

investorag83
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### Re: a couple questions on a Morgan Stanley portolio analysis

I'm curious to understand the real value in the PAS... USAA offers similar guidance for free even if you're not a full fledged member (I was one of the advisors at USAA for years). I can't imagine you speak to the same advisor when you call in so there really isn't that 1:1 relationship (unless I'm mistaken). Portfolio rebalancing would happen automatically or you could just do the 3 fund portfolio if you wanted to be as hands off as possible. Where am I failing to see the benefit of the PAS?

And I completely agree that those fees are most definitely on the high side. Better than before doesn't mean good. But I don't see much value in the 30 bps. Either get the fee close to 1% with a low cost implementation or handle it yourself. I'd also be curious as to the expense ratios of the new portfolio...I've seen hidden fees all over those accounts.

Mr.BB
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### Re: a couple questions on a Morgan Stanley portolio analysis

I make this really easy for you. Go online and find an expense ratio calculator. show her with her current savings and future contributions how much it will cost her at 1.72% over the next 30 years. Then do the same thing with the target index fund expense ratio that you want to use. That should open her eyes.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

cas
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### Re: a couple questions on a Morgan Stanley portolio analysis

Charon wrote:
Thu Mar 14, 2019 11:44 am

1) The Morgan Stanley guy says he's a fiduciary, but his recommended investments are through Morgan Stanley. So I take it fiduciaries are required to give the best possible advice within whatever options their company offers?
Is there a section of the analysis document (probably in tiny, unreadable print) somewhere way in the back (or other non-obvious place) where assorted disclaimers, including disclosure of conflicts of interest (probably buried deep in other really boring disclosures) are listed?

I'll guess there is a sentence in there somewhere saying something along the lines that, even though it is a conflict of interest and may not be in the best interest of the client, Morgan Stanley products will be given priority when products are selected for the portfolio.

At least, that is how the corporate trustee (trust department of a massive bank) for a (irrevocable) trust that
benefits one of my elderly relatives manages to meet the letter of the "fiduciary" law and still put their trust clients into their own firm's products (even when the product has obvious problems, e.g. is brand new with new managers with no track record or is older, but has been massively hemorraging assets for years). (Trustees have been legally required to act as fiduciaries for a very, very long time.)

The bank slipped up a few years back, and the relevant sentence disappeared from the disclosure for part of their clientele (discretionary clients) where they were required to act as fiduciaries. The SEC eventually (10 years after I noticed the behavior existing to egregious excess with the trust) investigated and fined them over \$300 million for breach of fiduciary duty. (A light slap on the wrist given the size of the bank.) (
https://www.sec.gov/news/pressrelease/2015-283.html )

The relevant sentence had NOT disappeared from the quarterly statements for trusts (again, page 14 or so of the statement, size 2 font, buried in the midst of other stuff), so the "breach of fiduciary duty" finding by the SEC did not apply to trust clients. Apparently is is perfectly ok (legally) for a fiduciary to act to their own benefit in a conflict of interest as long as it is disclosed ahead of time. (Having said that, I have noticed that the most egregious levels of such behavior vanished within the trust management after the SEC fine.)

(I Am Not A Lawyer, so lawyers may quibble about the exact phrasing I used in this post.)

ExitStageLeft
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### Re: a couple questions on a Morgan Stanley portolio analysis

If all the FA did was charge 1.72% including fund fees that would be bad enough. But the resulting choice of actively managed funds would most likely underperform the market, effectively adding more drag. The Dinkytown fee comparator is a good one to highlight the impact over 30 years: https://www.dinkytown.net/java/compare- ... -fees.html

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### Re: a couple questions on a Morgan Stanley portolio analysis

Charon wrote:
Thu Mar 14, 2019 11:44 am
my advice to my fiancée will be to shift everything to a Vanguard Target Date fund appropriate for her risk tolerance.
Set it - and forget it!
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

BL
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### Re: a couple questions on a Morgan Stanley portolio analysis

I agree that a single balanced fund, especially any at Vanguard, a 3-fund portfolio at V, Fidelity, or Schwab, or, if she wants a trusted person to talk to, then Vanguard PAS may be well worth it (especially compared to the "fiduciary" at MS or wherever.) The PAS would put her into low-ER Admiral INDEX funds, AFAIK. She/he could be trusted as a fiduciary as they don't have a conflict-of-interest in what they recommend, unlike MS, etc.

montanagirl
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### Re: a couple questions on a Morgan Stanley portolio analysis

Got a good look at a client's MS brokerage statement last year and saw a LOT of churning. Ridiculous number of transactions but the client said he hadn't withdrawn anything, hadn't needed money for an emergency or anything like that.

And he trusted his gal there to do the right thing for him.

123
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### Re: a couple questions on a Morgan Stanley portolio analysis

The Vanguard Target Retirement funds are excellent options for those that don't want to fuss with things. They're cheap too. Since target retirement funds are becoming the default funds for many automatic enrollments in 401K plans they're a pretty safe recommendation.
The closest helping hand is at the end of your own arm.

unclescrooge
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### Re: a couple questions on a Morgan Stanley portolio analysis

montanagirl wrote:
Thu Mar 14, 2019 4:41 pm
Got a good look at a client's MS brokerage statement last year and saw a LOT of churning. Ridiculous number of transactions but the client said he hadn't withdrawn anything, hadn't needed money for an emergency or anything like that.

And he trusted his gal there to do the right thing for him.
I looked at a statement for a girl I dated once after she said her money hadn't grown over a few years. A couple of funds where proprietary non-publicly traded funds. I had to go to the SEC registration page to find information on them.

One of them was for the top 100 large cap international stocks. Basically it contained stocks like BP, Unilever, Nestle, Roche, Shell, etc.
It charged 2% upfront load, 1.5% annual fee and it self-liquidated every 3 years.

We sent in an account transfer form. They "lost" it twice. It took 3 months to get the money out.

But that still better than the IRA CD she had with Wells Fargo. Both she and my first cousin were unsuccessful at getting those funds out of Wells. Eventually, they both gave up.

Topic Author
Charon
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### Re: a couple questions on a Morgan Stanley portolio analysis

I appreciate the interest in this post, even from those who didn't really read it

I think there was one answer to question 1, no answers to question 2, and a lot of advice against advisors and actively managed funds. To be clear, I fully agree. I'm 100% in index funds myself. That wasn't really my question, but I appreciate the charge of the Bogleheads! And to be fair, I threw question 3 in there.

My main question really was 2, if I'm crazy or if the Morgan Stanley guy actually calculated cost of fees wrong. I wrote a little Python code to calculate this and make a chart for her, to show her how unimpressive the fee difference was between the two and how impressive the fee difference was moving to Vanguard or equivalent... I think she's sold.

Topic Author
Charon
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### Re: a couple questions on a Morgan Stanley portolio analysis

cas wrote:
Thu Mar 14, 2019 1:57 pm
Is there a section of the analysis document (probably in tiny, unreadable print) somewhere way in the back (or other non-obvious place) where assorted disclaimers, including disclosure of conflicts of interest (probably buried deep in other really boring disclosures) are listed?

I'll guess there is a sentence in there somewhere saying something along the lines that, even though it is a conflict of interest and may not be in the best interest of the client, Morgan Stanley products will be given priority when products are selected for the portfolio.
That sounds plausible to me. There were enough pages of numbers to keep me busy for a while, so I didn't delve into the legalese. I was going to go along with the fiancée and allow my portfolio to be reviewed too... until I found that stupid math error*. Not terribly interested in having a review anymore, free or not. It's not like I was going to change anything.

But the MS guy was a salesman. Definitely had her convinced on a few things. Fortunately I think she'll take my advice over his.

*Question 2 - I'm pretty sure it's a stupid math error.

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### Re: a couple questions on a Morgan Stanley portolio analysis

Charon wrote:
Thu Mar 14, 2019 9:58 pm
I appreciate the interest in this post, even from those who didn't really read it

I think there was one answer to question 1, no answers to question 2, and a lot of advice against advisors and actively managed funds. To be clear, I fully agree. I'm 100% in index funds myself. That wasn't really my question, but I appreciate the charge of the Bogleheads! And to be fair, I threw question 3 in there.

My main question really was 2, if I'm crazy or if the Morgan Stanley guy actually calculated cost of fees wrong. I wrote a little Python code to calculate this and make a chart for her, to show her how unimpressive the fee difference was between the two and how impressive the fee difference was moving to Vanguard or equivalent... I think she's sold.
My guess is that the adviser is wrong. But If you already wrote a script to show the fees, what was the question again?
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Topic Author
Charon
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### Re: a couple questions on a Morgan Stanley portolio analysis

ExitStageLeft wrote:
Thu Mar 14, 2019 3:35 pm
The Dinkytown fee comparator is a good one to highlight the impact over 30 years: https://www.dinkytown.net/java/compare- ... -fees.html
Thanks for sharing. That confirms my approach - my program agrees exactly with this one, but I'm able to go out to the 55-year span (!) that the Morgan Stanley guy did.

So I guess this is an answer to question 2. MS guy did basic math wrong, or - and this is even scarier - their standard portfolio analysis software is incorrect.

Topic Author
Charon
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### Re: a couple questions on a Morgan Stanley portolio analysis

Thu Mar 14, 2019 10:07 pm
But If you already wrote a script to show the fees, what was the question again?
I couldn't believe that MS portfolio analysis software was wrong, and thought I must be making a mistake. But apparently not. Wow.

K72
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### Re: a couple questions on a Morgan Stanley portolio analysis

I hate to be un-diplomatic but I don't know how else to say this. I just left MS after 13 years of an actively managed IRA with excessive trading, high fees, and miserable results. Your mileage could vary.
Last edited by K72 on Fri Mar 15, 2019 11:29 am, edited 1 time in total.

smarcus3
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### Re: a couple questions on a Morgan Stanley portolio analysis

It's difficult to convince people to do something when they're opposed to doing it even if you can show them it's bad. My fiancee's parent pay a financial planner instead of managing the funds themselves. This has been going on for 30 years. Just think of the lost compounding due to this however trying to do anything about it is like walking around land minds. I've heard of similar difficulties other friends have in similar situations. Wish you the best as it's a tricky road. You need to show some analysis but they need to come to you for a change.
This is my personal opinion. I'm an engineer not a financial advisor.

whodidntante
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### Re: a couple questions on a Morgan Stanley portolio analysis

Charon wrote:
Thu Mar 14, 2019 9:58 pm
I appreciate the interest in this post, even from those who didn't really read it
Wait, we are supposed to read posts?

Including the words Morgan Stanley in a subject line is going to elicit a reflex response around here. The boglehead's head will rotate 360 degrees, shout "costs matter" and then begin typing.

investorag83
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### Re: a couple questions on a Morgan Stanley portolio analysis

No...the calculation you posted with the delta does not make sense. But I'd have to see the MS person's real numbers to confirm that's the calculation they were using. I highly doubt that a program MS uses to do the calculation is incorrect though. Only chance would be if the advisor was doing their own math on the side.

All that said, 1.78 all in is still too high.

dbr
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### Re: a couple questions on a Morgan Stanley portolio analysis

investorag83 wrote:
Fri Mar 15, 2019 9:22 am

No...the calculation you posted with the delta does not make sense. But I'd have to see the MS person's real numbers to confirm that's the calculation they were using. I highly doubt that a program MS uses to do the calculation is incorrect though. Only chance would be if the advisor was doing their own math on the side.

All that said, 1.78 all in is still too high.
Agreed. I don't know that his calculation is right or wrong because I don't know what the calculation actually is. Yours is right.

But the real point is that sitting down with MS to discuss whether the fee is 1.78% or 2.08% is just plain stupid (head rotating at 100 rpm). Those fees are only the top of an iceberg of money drains in dealing with MS.

A better starting point is to assume that the ideal is to manage things oneself at almost zero cost and then pay people for help when it is absolutely necessary. In that respect VPAS can be a legitimate starting point.

trustquestioner
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### Re: a couple questions on a Morgan Stanley portolio analysis

1.78% AUM meets the fiduciary standard?????

investorag83
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### Re: a couple questions on a Morgan Stanley portolio analysis

trustquestioner wrote:
Fri Mar 15, 2019 9:42 am
1.78% AUM meets the fiduciary standard?????
Yes. Just because an alternative is lower in fee doesn't mean this wouldn't pass the fiduciary standard.

dbr
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### Re: a couple questions on a Morgan Stanley portolio analysis

Fiduciary may offer some protection against certain investment abuses or offer a quicker path to redress if there is an issue, but it is very weak protection and is more useful as a sales tool for the salesman than as a filter for who to do business with.

More here: https://www.forbes.com/sites/davidmarot ... 8c22d32600

including:

Consumers don't understand the difference between different types of so-called financial advisors. As Mark Schoeff Jr. writes for InvestmentNews:

Advisers must meet a fiduciary standard that requires them to act in their clients' best interests. Brokers meet a suitability standard that requires them to sell products that meet a client's objectives and risk appetite but also allows them to recommend investments that give the broker the biggest fee or commission.

"No doubt there's a great deal of confusion in the marketplace as to what standard of conduct applies to a particular relationship," Mr. Clayton said.

pkcrafter
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### Re: a couple questions on a Morgan Stanley portolio analysis

Charon wrote:
Thu Mar 14, 2019 11:44 am
My fiancée got a free portfolio analysis from someone at Morgan Stanley whom she met through business networking
Yes, that's their M-O.
She has no interest in finance details, and has (against my advice) been paying someone to manage her money for her, so I'm the one trying to make sense of the portfolio analysis. Most of it seems very standard and makes sense, but I had a couple minor questions.
Does friend have taxable and/or tax advantaged accounts?
1) The Morgan Stanley guy says he's a fiduciary, but his recommended investments are through Morgan Stanley. So I take it fiduciaries are required to give the best possible advice within whatever options their company offers?

2) He pointed out the advantage in fees of Morgan Stanley (1.72%) over where she has her money now (2.08%).

Good grief, where does friend have her money now? This is funny-- a high-cost advisor making a comment on the fee advantage of 1.72% vs 2.08%. Ask him what the fee advantage is between 0.05% and 1.72%. Is friend currently in class C funds? Is current advisor adding a management fee on top of the fund fees?
This makes no sense to me.
Me either!
3) Just to throw some redder meat in here for those who read this far, my advice to my fiancée will be to shift everything to a Vanguard Target Date fund appropriate for her risk tolerance. Keep in mind that this is someone who has no interest in ever modifying asset allocations, so a set-and-forget automatic glide path seems better to me than a three- or four-fund portfolio. This is also someone who looked at a 1.72% fee and said "that seems plenty low", so I'm not worried about 0.14% vs. 0.06%. Any disagreement?
My opinion is people MUST take some responsibility in understanding some fundamentals of good investing. I guess friend has no idea about the impact of costs or her reaction to losing a large sum of money in a big market crash. Using a target fund only based on age can put a person into a portfolio that is more aggressive than they are comfortable with.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Mr.BB
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### Re: a couple questions on a Morgan Stanley portolio analysis

whodidntante wrote:
Fri Mar 15, 2019 7:35 am
Charon wrote:
Thu Mar 14, 2019 9:58 pm
I appreciate the interest in this post, even from those who didn't really read it
Wait, we are supposed to read posts?

Including the words Morgan Stanley in a subject line is going to elicit a reflex response around here. The boglehead's head will rotate 360 degrees, shout "costs matter" and then begin typing.