Competing w/Fidelity

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badmove?'s picture
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Need some help, trying to pull in a Fidelity PAS account (little over a mill, all qualified). The client is happy w/Fido and I must admit the allocation and fund selection was impressive. My angle will be that it is a cookie cutter program, the fee's are a little high (1.25) and the client will always be dealing w/a new rep (the turnover there is ridiculous). Anyone have any luck pulling those PAS accounts or are there any former Fido guys out there that can point out some of the deficiencies in that program.TIA

troll's picture
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badmove? wrote:Need some help, trying to pull in a Fidelity PAS account (little over a mill, all qualified). The client is happy w/Fido and I must admit the allocation and fund selection was impressive. My angle will be that it is a cookie cutter program, the fee's are a little high (1.25) and the client will always be dealing w/a new rep (the turnover there is ridiculous). Anyone have any luck pulling those PAS accounts or are there any former Fido guys out there that can point out some of the deficiencies in that program.TIA
Read The Wedge and How to Get Your Competition Fired (without saying anything bad about them).
And yes, we pull these kinds of accounts from Fidelity and Schwab all day long.
Do NOT compete on PRICE!!!  In fact, you should find reasons to CHARGE MORE so that the client will VALUE YOU.
If you're competing on price, you're just like every other whore out there.  Find your value and get that account!

ManagedMoney's picture
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skippy wrote:
Read The Wedge and How to Get Your Competition Fired (without saying anything bad about them).
And yes, we pull these kinds of accounts from Fidelity and Schwab all day long.
Do NOT compete on PRICE!!!  In fact, you should find reasons to CHARGE MORE so that the client will VALUE YOU.
If you're competing on price, you're just like every other whore out there.  Find your value and get that account!Good advice, however, I do have to comment about your statement that you "pull these kinds of accounts from Fidelity and Schwab all day long."  If that statement was true, then it wouldn't take very many days before you had ALL of the Fidelity and Schwab accounts.Do you really want us to believe that it's just a matter of time before you have put them out of business?

troll's picture
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badmove? wrote:Need some help, trying to pull in a Fidelity PAS account (little over a mill, all qualified). The client is happy w/Fido and I must admit the allocation and fund selection was impressive. My angle will be that it is a cookie cutter program, the fee's are a little high (1.25) and the client will always be dealing w/a new rep (the turnover there is ridiculous). Anyone have any luck pulling those PAS accounts or are there any former Fido guys out there that can point out some of the deficiencies in that program.TIA
Leave the guy alone.  You're wasting your time. He's happy and they're taking good care of him. You screwed up by not uncovering any pain and logic doesn't bring business in the door.

The Judge's picture
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BH is correct that it is important to find the pain.  Sometimes prospective clients will mention that they are relatively happy with their current arrangements.  After further discussion, I directly ask them "why are we talking?" That usually gets a good look from them and they begin to open up a bit more about what is bothering them. 
My eyes light up when I see an account from Fido or Schwab.  Reason being is that the vast majority of all my new assets are from these firms.  Through various questions, I uncover the lack of experience, relatively no ongoing/proactive advice, and the unwillingness to look at the big picture.  Works wonders.  I don't even discuss fees.  I close almost every one of these, and could make a living simply on what I bring over from Fido on 401k rollovers.  And I feel no remorse whatsoever as I am not taking this from an indy/wirehouse rep that is counting on this client to provide revenue for them personally.  BTW the toughest firm (for me) to bring over is out of Valley Forge, PA. I find that all these customers focus on is fees, fees, and fees.  Regardless of performance, service, etc.  It's always been the most difficult and at my stage I ask them once and move on. 

AllREIT's picture
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The Judge wrote: BTW the toughest firm (for me) to bring over is
out of Valley Forge, PA. I find that all these customers focus on is
fees, fees, and fees.  Regardless of performance, service,
etc.  It's always been the most difficult and at my stage I ask
them once and move on. 

Funny you mention that, The Valley Forge organization is pulling down assets left and right from the rest of the industry.

The key thing when dealing with Fido/Discount brokerages is as you
said, find the pain/concern. Dealing with money is stressful and people
want affirmation that they are doing the right thing. On the internet
no one can hear you scream.

There are also some niches that VG does not do, and if you understand the gaps, you can add value there.

Since I use VG funds in my practice, I tell people the main area we add
value is in helping people stay the course, adding/managing
opportunities and ideas that VG doesn't offer and reducing the
day-to-day worries of investing.

troll's picture
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AllREIT wrote: Since I use VG funds in my practice, I tell people the main area we add value is in helping people stay the course, adding/managing opportunities and ideas that VG doesn't offer and reducing the day-to-day worries of investing.
 
Sounds very exciting.

bankrep1's picture
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AllREIT wrote:
The Judge wrote: BTW the toughest firm (for me) to bring over is
out of Valley Forge, PA. I find that all these customers focus on is
fees, fees, and fees.  Regardless of performance, service,
etc.  It's always been the most difficult and at my stage I ask
them once and move on. 

Funny you mention that, The Valley Forge organization is pulling down assets left and right from the rest of the industry.

The key thing when dealing with Fido/Discount brokerages is as you
said, find the pain/concern. Dealing with money is stressful and people
want affirmation that they are doing the right thing. On the internet
no one can hear you scream.

There are also some niches that VG does not do, and if you understand the gaps, you can add value there.

Since I use VG funds in my practice, I tell people the main area we add
value is in helping people stay the course, adding/managing
opportunities and ideas that VG doesn't offer and reducing the
day-to-day worries of investing.

Most VG funds do not pop up on my radar of good funds.

ManagedMoney's picture
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AllREIT wrote:

Since I use VG funds in my practice, I tell people the main area we add
value is in helping people stay the course, adding/managing
opportunities and ideas that VG doesn't offer and reducing the
day-to-day worries of investing.
I highlighted the word 'practice.'  I know that doctors and lawyers refer to their business/profession as a practice, but I have never heard of a Financial Advisor who referred to his/her business/profession as a practice.Did I sleep through that part of training?

AllREIT's picture
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ManagedMoney wrote:
AllREIT wrote:

Since I use VG funds in my practice, I tell people the main area we add
value is in helping people stay the course, adding/managing
opportunities and ideas that VG doesn't offer and reducing the
day-to-day worries of investing.
I
highlighted the word 'practice.'  I know that doctors and lawyers
refer to their business/profession as a practice, but I have never
heard of a Financial Advisor who referred to his/her
business/profession as a practice.Did I sleep through that part of training?

http://www.google.com/search?hl=en&q=financial+advisory+ practice&btnG=Search

I like to think of myself as being a tad more professional. I guess I'm happy to know that some folks follow my every word. I'll rephrase my self so you can understand it.

"
Since I use VG funds in my business, "

I've heard of alot of stockbrokers who call themselves financial advisors when in reality they are  mere representatives who's advice is "solely incidental" to the sale of securities.

gad12's picture
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Why wouldn't you use the phrase practice?

troll's picture
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gad12 wrote:Why wouldn't you use the phrase practice?It's a word, not a phrase.

Big Taco's picture
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bankrep1 wrote: AllREIT wrote: The Judge wrote:
BTW the toughest firm (for me) to bring over is out of Valley Forge, PA. I find that all these customers focus on is fees, fees, and fees.  Regardless of performance, service, etc.  It's always been the most difficult and at my stage I ask them once and move on. 
Funny you mention that, The Valley Forge organization is pulling down assets left and right from the rest of the industry. The key thing when dealing with Fido/Discount brokerages is as you said, find the pain/concern. Dealing with money is stressful and people want affirmation that they are doing the right thing. On the internet no one can hear you scream. There are also some niches that VG does not do, and if you understand the gaps, you can add value there. Since I use VG funds in my practice, I tell people the main area we add value is in helping people stay the course, adding/managing opportunities and ideas that VG doesn't offer and reducing the day-to-day worries of investing. Most VG funds do not pop up on my radar of good funds.
Yes, our filters don't pop up any VG funds.  some folks are cheap, some are spendthrifts, and then there's those who I want to work with: folks who can discern "value". 
It's easy to sell something because it's "cheap" or inexpensive.  but is the cheapest product usually the best product?  not in my experience (neither is the most expensive product, of course).  Why would someone sell a VG index fund when they can buy an etf with typically lower internal expense? (I'm not saying that any of you are doing this).
When someone can't get past fee this, fee that, I suddenly realize that I don't have to work with this person, and I'll probably be happier that I didn't, long term.  Because it shows a myopia, and it peeves me when people can't shift their paradigms... or else I just put them in an etf wrap (low expense) and show them how they've underperformed my non-etf portfolios' real returns in follow-up meetings. 

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joedabrkr wrote: gad12 wrote:
Why wouldn't you use the phrase practice?
It's a word, not a phrase.
Ouch,  better think for more than 1 second before I post. Got me.

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Big Taco wrote:Yes, our filters don't pop up any VG
funds.  some folks are cheap, some are spendthrifts, and then
there's those who I want to work with: folks who can discern
"value". 
It's easy to sell something because it's "cheap" or
inexpensive.  but is the cheapest product usually the best
product?  not in my experience (neither is the most expensive
product, of course).  Why would someone sell a VG index fund when
they can buy an etf with typically lower internal expense? (I'm not
saying that any of you are doing this).
When someone can't get past fee this, fee that, I suddenly realize
that I don't have to work with this person, and I'll probably be
happier that I didn't, long term.  Because it shows a myopia, and
it peeves me when people can't shift their paradigms... or else I just
put them in an etf wrap (low expense) and show them how
they've underperformed my non-etf portfolios' real returns in
follow-up meetings. 

When it comes to investments, cheapest is almost always the best and usually close to it if it not the best.

What I tell clients is that the money they spend on an FA goes into two
buckets. Advice and Investments. Money spend on active investments is
odds on not valuable. Money spent on advice is possibly valuable.

As for VG funds vs ETFs, the main benefit is automatic
reinvestment/ease of rebalancing on the index funds, and cheap well
managed active funds.

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AllREIT wrote: Big Taco wrote:
Yes, our filters don't pop up any VG funds.  some folks are cheap, some are spendthrifts, and then there's those who I want to work with: folks who can discern "value". 
It's easy to sell something because it's "cheap" or inexpensive.  but is the cheapest product usually the best product?  not in my experience (neither is the most expensive product, of course).  Why would someone sell a VG index fund when they can buy an etf with typically lower internal expense? (I'm not saying that any of you are doing this).
When someone can't get past fee this, fee that, I suddenly realize that I don't have to work with this person, and I'll probably be happier that I didn't, long term.  Because it shows a myopia, and it peeves me when people can't shift their paradigms... or else I just put them in an etf wrap (low expense) and show them how they've underperformed my non-etf portfolios' real returns in follow-up meetings. 
When it comes to investments, cheapest is almost always the best and usually close to it if it not the best. What I tell clients is that the money they spend on an FA goes into two buckets. Advice and Investments. Money spend on active investments is odds on not valuable. Money spent on advice is possibly valuable.As for VG funds vs ETFs, the main benefit is automatic reinvestment/ease of rebalancing on the index funds, and cheap well managed active funds.
If cheapest is almost always best, and vanguard has "well managed active funds", why don't they pop in my filters, and why do my actively managed wraps always beat my etf wraps both on real returns and lower std dev?
Trust me, I wish the etf's won on both counts, because it would be that much easier to compare costs ON TOP of the better returns and lower std. dev.  but they don't.  my actively managed wraps beat the etf wraps by several percentage points (on mod, mod aggr, and aggr model portfolios) with (slightly) less standard dev.  lower risk, much higher returns (including the fees).  which one would you choose? 

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Oh, yes, I call my business a "practice".  On my business card it says:My Name, a financial advisory practice.

Big Taco's picture
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Oops, I mean it's written: My name, & Associates, a financial advisory practice.

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Big Taco wrote:If cheapest is almost always best, and vanguard has
"well managed active funds", why don't they pop in my filters, and why
do my actively managed wraps always beat my etf wraps both on real
returns and lower std dev?
Trust me, I wish the etf's won on both counts, because it would be
that much easier to compare costs ON TOP of the better returns and
lower std. dev.  but they don't.  my actively managed wraps
beat the etf wraps by several percentage points (on mod, mod aggr, and
aggr model portfolios) with (slightly) less standard dev.  lower
risk, much higher returns (including the fees).  which one would
you choose? 

1) I don't know what your filters are, so I don't know how they work. I
normally don't use any of the VG active funds, but some of them like
Wellington/Wellesley are nice, and number of the active funds (such as
Int Value) are as cheap or almost as cheap as ETFs.

2) As for myself, knowing about the non-persistance of manager alpha, I'd have to look closer. You might be one of those rare active stock/fund pickers who can beat the market, or you could be lucky.

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Big Taco wrote:Oops, I mean it's written: My name, & Associates, a financial advisory practice.Thanks.  I had never seen it before.

troll's picture
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Big Taco wrote:Oops, I mean it's written: My name, & Associates, a financial advisory practice.I give out the really cheap slippery business cards I had printed and Kinko's, and tell them that "I'm just practicing. You interested?"

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AllREIT wrote: Big Taco wrote:
If cheapest is almost always best, and vanguard has "well managed active funds", why don't they pop in my filters, and why do my actively managed wraps always beat my etf wraps both on real returns and lower std dev?
Trust me, I wish the etf's won on both counts, because it would be that much easier to compare costs ON TOP of the better returns and lower std. dev.  but they don't.  my actively managed wraps beat the etf wraps by several percentage points (on mod, mod aggr, and aggr model portfolios) with (slightly) less standard dev.  lower risk, much higher returns (including the fees).  which one would you choose? 
1) I don't know what your filters are, so I don't know how they work. I normally don't use any of the VG active funds, but some of them like Wellington/Wellesley are nice, and number of the active funds (such as Int Value) are as cheap or almost as cheap as ETFs. 2) As for myself, knowing about the non-persistance of manager alpha, I'd have to look closer. You might be one of those rare active stock/fund pickers who can beat the market, or you could be lucky.
first of all, when i look at 5+yrs of my actively managed wraps' performance, I don't think that I'm just "lucky".  I don't think "luck" adds several points to the mean return of a 5 yr number, with lower standard deviation (as compared to the etf version of a model portfolio).  I have a system, and a discipline to stick with it. 
The whole Bogleheaded idea that cheapest is best, indexed is best (although VG offers actively managed funds), is a load of crap.  It's marketing flim-flam, and it's completely untrue in my experience.  I've (with necessary help from my colleagues) developed a few systems to find managers who understand their niches and asset classes to provide alpha consistently to my clients.  Other than just laziness/disinterest, why should anyone pay me 1% to invest them in index funds/etfs?!?  I know, it's for the hand holding and "incidental" investment advice, and execution...  But most of my clients aren't invested in indexed investments, but their portfolios are beating their relative benchmarks.  I make a point to compare real returns and std dev. to hypothetical etf returns, with fees as a part of review meetings.

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joedabrkr wrote: Big Taco wrote:
Oops, I mean it's written: My name, & Associates, a financial advisory practice.
I give out the really cheap slippery business cards I had printed and Kinko's, and tell them that "I'm just practicing. You interested?"
I'm sure that's what all the doctors and lawyers in your neck of the woods do, too.

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Big Taco wrote:first of all, when i look at 5+yrs of my actively
managed wraps' performance, I don't think that I'm just
"lucky".  I don't think "luck" adds several points to
the mean return of a 5 yr number, with lower standard deviation (as
compared to the etf version of a model portfolio).  I have a
system, and a discipline to stick with it. 
There is still no way to know if you haven't just been on hot streak
for a few years running. I'd also note that the general market
2002-2007, has been on a upstreak, and so it take extra effort/bad luck
to do badly.

If you passively owned high beta assets you would seemingly beat
your benchmarks. Same thing with having value/small cap skews when
comparing yourself to a general market benchmark.

Quote:The whole Bogleheaded idea that cheapest is best, indexed is best (although VG offers actively managed funds),
is a load of crap.  It's marketing flim-flam, and it's completely
untrue in my experience.  I've (with necessary help from my
colleagues) developed a few systems to find managers who understand
their niches and asset classes to provide alpha consistently to my
clients.

I'd say the whole boglehead idea is that you can't hope to do better
than the general market except via luck. Thus the goal of investing is
to get your fair share of market returns. It's about humility
IMHO. 
IMHO if you are very good at picking winning managers, you should
quit retail brokerage and go into managing Hedge FoF's while making 1
and 10, with an expense pass through. That's what I would do.

Quote:Other than just laziness/disinterest, why should anyone pay
me 1% to invest them in index funds/etfs?!?  I know, it's for the
hand holding and "incidental" investment advice, and execution... 
But most of my clients aren't invested in indexed investments, but their portfolios are beating
their relative benchmarks.  I make a point to compare real returns
and std dev. to hypothetical etf returns, with fees as a part of review
meetings.

Because you explain that you can't add value (only add expenses) via
fund selection. So you focus on the area's where you have control
(investor behavior and asset allocation) vs the area in which you do
not (asset class returns).

Also I think have a fairly unique niche, in that I don't manage vs
benchmarks but instead against inflation and clients expected
liabilities. My clients like the logic of my approach, people who think
its dumb probably don't work with me.

rightway's picture
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badmove? wrote:Need some help, trying to pull in a Fidelity PAS
account (little over a mill, all qualified). The client is happy w/Fido
and I must admit the allocation and fund selection was impressive. My
angle will be that it is a cookie cutter program, the fee's are a
little high (1.25) and the client will always be dealing w/a new rep
(the turnover there is ridiculous). Anyone have any luck pulling those
PAS accounts or are there any former Fido guys out there that can point
out some of the deficiencies in that program.TIA

Someone that has over a milion dollars should be presented with a more
customized approach, should own the stocks and bonds directly as
apposed to mutual funds, and should have a plan that integrates their
assets with their life, goals, and other advisors. 

1. I would begin with a comprehensive risk profile and measure the
Fidelity portfolio to the profile.  You may find the portfolio is
excellent, but too risky for their taste (remember we have not had a
bad run here in a while).  This allows you to compliment them on
the portfolio and the decisions they have made thus far, but perhaps
things should just be re-visited.

2. I would do the probalistic planing tying their assets, life goals,
cash flow needs, all back to their risk profile.  You may find
here that their risk profile is telling you to be more conservative
than your portfolio is today (item 1) and your planning supports this
in that you do not NEED to take the risk in order to achieve your
goals.   This just supports changing the portfolio.

3. I would present a quarterly "Cash Flow Review" that ties their
assets, planning, and budget ("You said your would be spending $5,000
per month and youu have only been spending $4,000...there is extra
there so take a more expensive vacation or contribute to grandchilds
college fund....")

4. I would outline the costs (Personal Fund.com) of the portfolio they
hold now, and do an ovelap and correllation analysis of their mutual
funds.

5. I would ask many, many questions about their personality, family,
and such and figure out how that should be imprinted on their
portfolio.  Maybe they lost a parent to lung cancer (do not own
any tobacco companies), and had a grand-dad who was a farmer and they
have fond childhood memories of tractor rides on his green tractor (own
John Deere).  Partner with them to make sure their personality
reflects the portfolio...something a mutual fund kit cannot do.

This may be a starting point to get them off the Fidelity bandwagon.

drewski803's picture
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AllREIT wrote: I've heard of alot of stockbrokers who call themselves financial advisors when in reality they are  mere representatives who's advice is "solely incidental" to the sale of securities.
 
And your fees grind their average annual returns down to crap over the long-term.
Dear Mr. Highhorse,
Some people on this forum realize what exactly it is we get compensated so well to do:
Bring home the kill.
If my managed strategy underperforms your passive strategy by .25% every year, I couldn't really give a damn.  You spend the time explaining passive vs. active strategy (and why you deserve a wrap fee) to your clients one by one and I'll bring in the bacon letting "those Ivy-Leaguers in New York" do the managing (C Shares).
You made a mention on here about least expensive, blah blah blah, also.  Try doing the absolutely best thing for the client and cutting your annual fee to 0% and see how long you've got a job.

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Drew, it's starting to wear a bit thin for me also.  Believe it or not, my actively managed portfolios consistently beat the indexes and have for the past seven years.  I believe that's more than luck, and I also don't believe an advisor deserves a fee for guaranteeing underperformance.

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AllREIT wrote:
Big Taco wrote:Yes, our filters don't pop up any VG
funds.  some folks are cheap, some are spendthrifts, and then
there's those who I want to work with: folks who can discern
"value". 
It's easy to sell something because it's "cheap" or
inexpensive.  but is the cheapest product usually the best
product?  not in my experience (neither is the most expensive
product, of course).  Why would someone sell a VG index fund when
they can buy an etf with typically lower internal expense? (I'm not
saying that any of you are doing this).
When someone can't get past fee this, fee that, I suddenly realize
that I don't have to work with this person, and I'll probably be
happier that I didn't, long term.  Because it shows a myopia, and
it peeves me when people can't shift their paradigms... or else I just
put them in an etf wrap (low expense) and show them how
they've underperformed my non-etf portfolios' real returns in
follow-up meetings. 

When it comes to investments, cheapest is almost always the best and usually close to it if it not the best.

What I tell clients is that the money they spend on an FA goes into two
buckets. Advice and Investments. Money spend on active investments is
odds on not valuable. Money spent on advice is possibly valuable.

As for VG funds vs ETFs, the main benefit is automatic
reinvestment/ease of rebalancing on the index funds, and cheap well
managed active funds.

There was a recent study done that shows manager tenure is far more relevant to long term performance than a low expense ratio, this is common sense to me, but you don't see anyone talking about it.don't see

AllREIT's picture
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drewski803 wrote:

AllREIT wrote: I've heard of alot of stockbrokers who call themselves financial advisors when in reality they are  mere representatives who's advice is "solely incidental" to the sale of securities. And your fees grind their average annual returns down to crap over the long-term.
Dear Mr. Highhorse,
Some people on this forum realize what exactly it is we get compensated so well to do:
Bring home the kill.

I don't think thats what I get compensated for at all. I'm paid for advice, good taste, and keeping my cool under pressure.

As I tell clients, let the bulls, bears and hogs slaughter each other, so long as we own the killfloor.

Quote:If my managed strategy underperforms your passive
strategy by .25% every year, I couldn't really give a damn.  You
spend the time explaining passive vs. active strategy (and why you
deserve a wrap fee) to your clients one by one and I'll bring in
the bacon letting "those Ivy-Leaguers in New York" do the managing (C
Shares).

You seem very insecure. 
And BTW how much do those C-shares cost all in?
Why do you deserve a 12b-1 fee?

Quote:You made a mention on here about least expensive, blah blah
blah, also.  Try doing the absolutely best thing for the client
and cutting your annual fee to 0% and see how long you've got a
job.

You should ask my hourly fee clients about that.

AllREIT's picture
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bankrep1 wrote:There was a recent study done that shows manager
tenure is far more relevant to long term performance than a low expense
ratio, this is common sense to me, but you don't see anyone talking
about it.don't see

That could also be explained by surviorship effects. E.g people stick with a manager who's been lucky in the past.

bankrep1's picture
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Whatever the reason, if your using a single quantitative determinant (such as expense ratio), the single determinant with the highest backtested confidence is management tenure. Why then would you make a statement like "cheapest is best", when in fact the most important single determinant is the number of years the manager has been managing that specific asset class?

The reason I believe no one discusses this is because fund companies have very few long term managers, they don't want the ones with long track records demanding higher fees etc. whereas expense rations are almost irrelevant, the fees genertaed in mutual funds can be buried in the SAI.

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AllREIT wrote:Big Taco wrote:first of all, when i look at 5+yrs of my actively managed wraps' performance, I don't think that I'm just "lucky".  I don't think "luck" adds several points to the mean return of a 5 yr number, with lower standard deviation (as compared to the etf version of a model portfolio).  I have a system, and a discipline to stick with it. 
There is still no way to know if you haven't just been on hot streak for a few years running. I'd also note that the general market 2002-2007, has been on a upstreak, and so it take extra effort/bad luck to do badly.
If you passively owned high beta assets you would seemingly beat your benchmarks. Same thing with having value/small cap skews when comparing yourself to a general market benchmark.
Quote:The whole Bogleheaded idea that cheapest is best, indexed is best (although VG offers actively managed funds), is a load of crap.  It's marketing flim-flam, and it's completely untrue in my experience.  I've (with necessary help from my colleagues) developed a few systems to find managers who understand their niches and asset classes to provide alpha consistently to my clients.
I'd say the whole boglehead idea is that you can't hope to do better than the general market except via luck. Thus the goal of investing is to get your fair share of market returns. It's about humility IMHO. 
IMHO if you are very good at picking winning managers, you should quit retail brokerage and go into managing Hedge FoF's while making 1 and 10, with an expense pass through. That's what I would do.
Quote:Other than just laziness/disinterest, why should anyone pay me 1% to invest them in index funds/etfs?!?  I know, it's for the hand holding and "incidental" investment advice, and execution...  But most of my clients aren't invested in indexed investments, but their portfolios are beating their relative benchmarks.  I make a point to compare real returns and std dev. to hypothetical etf returns, with fees as a part of review meetings.
Because you explain that you can't add value (only add expenses) via fund selection. So you focus on the area's where you have control (investor behavior and asset allocation) vs the area in which you do not (asset class returns).
Also I think have a fairly unique niche, in that I don't manage vs benchmarks but instead against inflation and clients expected liabilities. My clients like the logic of my approach, people who think its dumb probably don't work with me.

 
I think you're exhibiting an arrogant penchant for reading only what you want to read, and believing everyone on this board is an idiot.  and then you speak of humility?As I've written before: my actively managed wraps, based on a model asset allocation, beat my indexed wraps (etfs) based on the same. exact. model. asset. allocation...... consistently for over 5 years (as long as I've used wraps in my practice)..... by hundreds of basis points (even in my "mod. cons." portfolios), and with slightly less standard deviation. 
talk about "high beta" this and that, but I'll talk about higher returns, and LOWER std dev. than the indexed version, which makes your argument moot.
Also, if you're really not comparing your portfolios to the indexed version (apples to apples based on the asset allocation), then it may be because your wrap fee is the single factor for which you're underperforming?  Which would then beg the question in your clients' minds:  "What are we paying you for?, Why don't I just get a target retirement fund from fidelity?"

Big Taco's picture
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bankrep1 wrote: There was a recent study done that shows manager tenure is far more relevant to long term performance than a low expense ratio, this is common sense to me, but you don't see anyone talking about it.don't see
can you elaborate on this study, or link to info about it? 
It would be nice to know an iota about its methodology before allreit explains it all away as "survivorship bias"

AllREIT's picture
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bankrep1 wrote:Whatever the reason, if your using a single
quantitative determinant (such as expense ratio), the single
determinant with the highest backtested confidence is management
tenure. Why then would you make a statement like "cheapest is best",
when in fact the most important single determinant is the number of
years the manager has been managing that specific asset class?

Because manager tenure is going to be very hard to distinguish from
surviorship bias. The longest lasting managers are those who have
lasted the longest. This may be because of good fund performance caused
by manager skill or it may be due to luck.

I.e if you are on a multi year hot streak you will stick around, if you
blow up the first quarter on the job, you get fired. The main question
is if manager tenure has "information content" with respect to future
performance?

IMHO I think the answer to that it may have slight ability to predict
future performance, although it is very associated with past
performance.

What I think happens is that some managers get (lucky/skillfull?) and
latch onto a theme (Energy, REITs, Internet stocks, Homebuilders etc)
and then seemingly outperform for a while. But unless they are able to
swing from rope to rope, that outperformance doesn't last.

If the evidence for manager alpha/outperformance/persitance of that
outperformance was much stronger, then we wouldn't be having this
debate.
Quote:The reason I believe no one discusses this is because fund
companies have very few long term managers, they don't want the ones
with long track records demanding higher fees etc. whereas expense
rations are almost irrelevant, the fees genertaed in mutual funds can
be buried in the SAI.

I think that is one reason. Fund industry would be embarrased if people
know how few people lasted in this business. There is an enourmous
effort at creating smoke and mirrors to hide the unimpressive
performance of most assets under professional management.

Expense ratio's have been found to be pretty much the only thing
strongly correlated with future fund performance. Of course there are
exceptions, the typical result is that after you do a factor regression
on mutual fund returns, you find that the negative alpha is usually
pretty close to the funds underlying expense ratio.

Mangers who are really good would skip out of the mutual fund world and
charge 2/20 in a hedgefund. It's funny but the higher pay in the world
of hedge funds/private equity has really hurt buy/sell side research and portfolio management as well.

To give a funny example, Arthur Penn, former CEO of AINV, where Apollo
was earning 2/20 on assets, skipped out to start PNNT where he will
make the 2/20.

AllREIT's picture
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Joined: 2006-12-16

Big Taco wrote:I think you're exhibiting an arrogant penchant for
reading only what you want to read, and believing everyone on this
board is an idiot.  and then you speak of humility? Quote:

I dont think anyone on this board is an idiot. Even you.

With respect to thinking I can beat the market, I don't think it can be
done at the asset class level, and thus investor returns are a fuction
of asset allocation.
Quote:As I've written before: my actively managed wraps, based on a
model asset allocation, beat my indexed wraps (etfs) based on the same.
exact. model. asset. allocation...... consistently for over 5 years (as
long as I've used wraps in my practice)..... by hundreds of basis
points (even in my "mod. cons." portfolios), and with slightly less
standard deviation. 
talk about "high beta" this and that, but I'll talk about higher
returns, and LOWER std dev. than the indexed version, which makes your
argument moot.

But are you lucky or good?
Quote:Also, if you're really not comparing your portfolios to the
indexed version (apples to apples based on the asset allocation), then
it may be because your wrap fee is the single factor for which you're
underperforming?  Which would then beg the question in your
clients' minds:  "What are we paying you for?, Why don't I just
get a target retirement fund from fidelity?"

It's what I tell clients, your performance is going to be: Index -
Investment cost - Supervisiory Fees. And it won't be worse than that.

For an all-in cost of ~1.25% which compares very favorably with
active MF wraps where you have a wrap fee of 1-1.5% on top of active
fund expenses of 0.75-1.25% for all-in costs approaching 2%.

And as for the target date fund from Fidelity. I have clients who
own nothing but.Hourly clients. I tell them to give me a call when they
need an income portfolio.

IMHO traget date retirement funds will destroy this industry but thats not for a long time in the future.

bankrep1's picture
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Joined: 2004-12-02

AllREIT wrote: Big Taco wrote:I think you're exhibiting an arrogant penchant for
reading only what you want to read, and believing everyone on this
board is an idiot.  and then you speak of humility? Quote:

I dont think anyone on this board is an idiot. Even you.

With respect to thinking I can beat the market, I don't think it can be
done at the asset class level, and thus investor returns are a fuction
of asset allocation.
Quote:As I've written before: my actively managed wraps, based on a
model asset allocation, beat my indexed wraps (etfs) based on the same.
exact. model. asset. allocation...... consistently for over 5 years (as
long as I've used wraps in my practice)..... by hundreds of basis
points (even in my "mod. cons." portfolios), and with slightly less
standard deviation. 
talk about "high beta" this and that, but I'll talk about higher
returns, and LOWER std dev. than the indexed version, which makes your
argument moot.

But are you lucky or good?
Quote:Also, if you're really not comparing your portfolios to the
indexed version (apples to apples based on the asset allocation), then
it may be because your wrap fee is the single factor for which you're
underperforming?  Which would then beg the question in your
clients' minds:  "What are we paying you for?, Why don't I just
get a target retirement fund from fidelity?"

It's what I tell clients, your performance is going to be: Index -
Investment cost - Supervisiory Fees. And it won't be worse than that.

For an all-in cost of ~1.25% which compares very favorably with
active MF wraps where you have a wrap fee of 1-1.5% on top of active
fund expenses of 0.75-1.25% for all-in costs approaching 2%.

And as for the target date fund from Fidelity. I have clients who
own nothing but.Hourly clients. I tell them to give me a call when they
need an income portfolio.

IMHO traget date retirement funds will destroy this industry but thats not for a long time in the future.

I will find the study and send a link later today. If you think target date funds you are a moron. That is like saying cough syrup OTC makes going to the doctor irrelevant. Products my friend are a solution, identifying and fixing problems are what advisors do hence the underlying word "advice" from which advisor is derived.

AllREIT's picture
Offline
Joined: 2006-12-16

bankrep1 wrote:I will find the study and send a link later today.
If you think target date funds you are a moron. That is like saying
cough syrup OTC makes going to the doctor irrelevant. Products my
friend are a solution, identifying and fixing problems are what
advisors do hence the underlying word "advice" from which advisor is
derived.

So now we come full circle back to what I've been saying. Clients
should spend money on where it adds value (e.g advice) and not where it
won't/can't/is unlikely to (e.g investment products).

I'm glad we agree.

As for target date funds, I think they take care of needs of perhaps
73% of the people out there currently working with investment advisors.
(I'm including all the folks $70K accounts as EDJ as well). Most of the
folks on this board work with higher level clients.

Big Taco's picture
Offline
Joined: 2006-11-16

It appears that you still feel that all retail accessable money managers who consistently add alpha to their asset class focus are either a) lucky, or b) stupid for not managing a hedge fund. 
It also appears that you feel that all advisors who are able to find these managers to manage their clients' money are either a) lucky, or b) stupid for not managing a hedge fund.
fortunately I'm not too narrow minded to find excellent ways to get return on investment, with lowered volatility for the people I work for, regardless of how lucky or stupid I am.

bankrep1's picture
Offline
Joined: 2004-12-02

AllREIT wrote:
bankrep1 wrote:I will find the study and send a link later today.
If you think target date funds you are a moron. That is like saying
cough syrup OTC makes going to the doctor irrelevant. Products my
friend are a solution, identifying and fixing problems are what
advisors do hence the underlying word "advice" from which advisor is
derived.

So now we come full circle back to what I've been saying. Clients
should spend money on where it adds value (e.g advice) and not where it
won't/can't/is unlikely to (e.g investment products).

I'm glad we agree.

As for target date funds, I think they take care of needs of perhaps
73% of the people out there currently working with investment advisors.
(I'm including all the folks $70K accounts as EDJ as well). Most of the
folks on this board work with higher level clients.

I agree people with a 50K portfolio most likely do not need to worrry about creating alpha but rather about saving money, and most people on this board won't be here in two months so who cares.

Do you believe indexing is best used in all asset classes and that no manager in any asset class can outperform the index with his/her fees included over the long term?   

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