Bogleheads Redux

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lovindaindy's picture
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So Bogleheads are circilng the wagons to defend RIck Ferri.  After a seemingly innocuous post, I was banned quickly.  I pointed out that in fact, Mr. Ferri's fee structure is similar to most fee-only advisors.  And that his claim of .25% is a little shady.Here is the post:"So maybe this is the place to post this:It seems all investment advisors (including ONE NOT TO BE MENTIONED) charge similar fees.Take for example, a hypothetical, LOW-COST firm that charges .25% with a minimum of $500 per quarter.  In effect, any portfolio less than $800k will be charged more than .25%.At 100k, this fee is 2%.  At 200k, this fee is 1%.  At $400k, this fee is .5%.Is this still low-cost money management?  In order to achieve this .25%, you must have 800k in portfolio.Isn't this similar to other advisors fees?"That firm is Rick Ferri's Portfolio Solutions. 

Rick Ferri's picture
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Joined: 2010-09-19

Ten years ago, when I was just getting the firm going, my minimum annual fee was only $500 and I did take $200,000 clients.  Because our clients are smart and they knew that their high fee advisor who charge 1% or more are ripping them off, we have done very well over the years. As a result of our tremendous growth in assets and clients, today our minimum account relationship is $1 million, which is clearly written on the slash page of our website for anyone who has been there to see. While we no longer take clients less than $1 million, there are new and fairly priced advisors who are just starting out. This new generation of advisors charge very low AUM fees and have low minimum sizes, and I enthusiastically support their efforts. The take-your-client to the cleaner heyday is over for high costs brokers and old school advisors. The low fee advisor revolution is here. I suggest  you join it or find a new occupation. Rick Ferri 

lovindaindy's picture
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Rick Ferri wrote:Ten years ago, when I was just getting the firm going, my minimum annual fee was only $500 and I did take $200,000 clients.  Because our clients are smart and they knew that their high fee advisor who charge 1% or more are ripping them off, we have done very well over the years. As a result of our tremendous growth in assets and clients, today our minimum account relationship is $1 million, which is clearly written on the slash page of our website for anyone who has been there to see. While we no longer take clients less than $1 million, there are new and fairly priced advisors who are just starting out. This new generation of advisors charge very low AUM fees and have low minimum sizes, and I enthusiastically support their efforts. The take-your-client to the cleaner heyday is over for high costs brokers and old school advisors. The low fee advisor revolution is here. I suggest  you join it or find a new occupation. Rick Ferri You should update your ADV then.  Your ADV 1 says your average account size is $532,001.  Your ADV II says your minimum is $800k.  Which is it?  You also state on your ADV that up to 10% of your clients are NOT high net worth.  and only 51-75% (a large range) ARE high net worth.  What is interesting is that high net worth is defined as someone with $750k or more.  Since you are well-versed in statistics, if your mean is $500k, it can be unduly influenced by higher or lower values.  However, since no advisor will likely take a zero account, and it would possibly be unethical to take a $2000 account, your distribution can be skewed with higher values.  If you have 1412 accounts (which your ADV 1 says you do), then you are looking at a large number of accounts under $500k, with fewer, larger accounts above the $1 million mark.  This is generally the case with most advisors as 20% of their book of business tends to be larger accounts. Which means you have a LOT of people paying more than 35 bps, and maybe paying even in the 1 and 2 percent ranges.In addition, if your minimum is $500 a quarter (as you state on your website) and your minimum is $1 million, then why do you even have it on there?  Don't you realize that would make your minimum fee higher than $2000 a year, or is my math wrong (I'm pretty sure it isn't)?So you tell me, is your ADV mistaken, or are you mistaken now?You are far from as low cost as you claim.By the way, great job building such a large business.  Who knew it would be so lucrative to pretend to be holier than thou and lowcost.You know what?  I also noticed that on your site you have two examples of Total Cost.  One with a person who has $500k, and one with $1 million.  You should probably take that down.  http://www.portfoliosolutions.com/f-21.html

B24's picture
B24
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Joined: 2008-07-08

And fortunately for Rick, he doesn't post historical returns, which, I am sure, are less than impressive.That's one thing I could never understand. Bogleheads will go to the end of the Earth to defend low-cost indexing, even if it means getting inferior returns and making less money on their investements.  It's as if expenses are the ONLY thing that matters.Hey Rick, why don't you publish one of your model portolios so we can see the garbage you put out.

BondGuy's picture
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Joined: 2006-09-21

OMG, we're dinosaurs headed for exstinction! This guy had to dig deep into the Bogleshere to get that one. Bogle said exactly that 25 years ago. Yet, we are still here, bigger than ever. Go figure? The discount tire business exists for a reason. The dealers selling theses low quality tires sleep just fine as they count their money. You will never convince one of their customers that it worth the money to put better tires on thier vehicles. in fact, quite the opposite is true. They will give you chapter and verse on why you are out of your mind to pay more for a tire as there is no such thing as a high quality tire. Rick's numbers get published in the paper everyday. Why someone would pay a dime for his advice is beyond me.But, we all gotta eat.  

tenthtee's picture
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Joined: 2006-11-16

My favorite tire retailer charges a few hundred bucks more for a set of tires, it's usually the house brand. These tires are made in the Bridgestone/Firestone/Michelin/Goodyear factory. When you pull up to their stores, a service person will usually literally run out to your driver's window and find out what you need. Whether it's a rotation (free), fix a flat (free), or buy new tires, you can tell these uniformed (guys) are making good money and like working hard. There's TV, newspapers, popcorn and spotless bathrooms inside. They'll consult and advise on everything.  Usually located next to the mall, so you can walk over and shop while you wait. It's like buying Vanguard funds in a friendly, nifty, experienced and knowledgeable service wrapper. I've tried to model my small shop after these guys. I don't think they get to choose their working hours, but I guess my work is more stressful.

squash2's picture
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Joined: 2010-03-09

B24 wrote:And fortunately for Rick, he doesn't post historical returns, which, I am sure, are less than impressive.That's one thing I could never understand. Bogleheads will go to the end of the Earth to defend low-cost indexing, even if it means getting inferior returns and making less money on their investements.  It's as if expenses are the ONLY thing that matters.Hey Rick, why don't you publish one of your model portolios so we can see the garbage you put out. I don't know who rick is but...Expenses are the only things that can be guaranteed..I am sure there are a lot of advisor on here who have less than stellar returns(EDJ advisors)..Also not hard to BS returns on a blog site like this..Or come up with a portfolio that had decent returns going back 10 yrs.. Why is there such outrage with this guy..?

B24's picture
B24
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Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption.IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned.We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. 

squash2's picture
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B24 wrote:Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption. How is that wrong.. He believes his way is correct and he is selling something..IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned. Again he is selling something. So the point is to point out you competitors weakness while maximizing your strengths..We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. Because he is a pud who were are not jealous of? (not saying he is).. But in this industry we hate people who succeed..Especially those who do it with a way that we don't think is superior.I am not a full fan of bogle heads.. I think there is no reason to buy an Ishare when you can get a vanguard etf of the same index for 50% cheaper.I don't believe in buy and hold(i thing bogle heads do), I don't believe in rebalancing for no reason except to say we rebalance 4x a year..Do i think my returns are better than this Rick guys..probably... But i am jealous he has been able to articulate his message better than me. 

lovindaindy's picture
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No one is saying that he isn't selling something and that he isn't doing it well (he's doing it damn well).  What I am saying is he is being misleading by saying he only charges .25% and that anybody who charges more than that is a crook.That would be like me going around saying, "you shouldn't work with squash, he charges 1.25%, while I only charge .25%", yet I only charge that .25% on $1 million or more.Where is the threshold?  What I am saying is, how can you advocate that low fees are this Shangri-la, and say that other advisors are charging that, when they are chargin basically what you are?  If I set my $2 million threshold at .25%, does that make me less of a manager than Mr. Ferri?  Does it make me a crook?  What if I charge .25% on all accounts higher than $500k?  Does that make Mr. Ferri a crook?  Nope.And to be fair, I don't think it's all Rick's fault.  I think that part of it is that his boglehead compatriots will say things like, "Why would you pay anyone other Rick to manage your money, because he only charges .25%?".  As if he is the only one who charges this low fee for people with $1 million or more.He thinks his fees are fair, and because he espouses the boglehead philosophy, he gets a pass.  Whereas as squash2 may charge even less at that threshold, but he would get banned from the bogleheads site (which, btw, there are some on there who let Rick manage their money) simply because he has a different investment philosophy.  

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B24
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squash2 wrote:B24 wrote:Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption. How is that wrong.. He believes his way is correct and he is selling something..IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned. Again he is selling something. So the point is to point out you competitors weakness while maximizing your strengths..We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. Because he is a pud who were are not jealous of? (not saying he is).. But in this industry we hate people who succeed..Especially those who do it with a way that we don't think is superior.I am not a full fan of bogle heads.. I think there is no reason to buy an Ishare when you can get a vanguard etf of the same index for 50% cheaper.I don't believe in buy and hold(i thing bogle heads do), I don't believe in rebalancing for no reason except to say we rebalance 4x a year..Do i think my returns are better than this Rick guys..probably... But i am jealous he has been able to articulate his message better than me. Actually, Squash, if that guy had come on here and been reasonable, I would have no problem with it.  As I said, I have no problem with people that believe in low-cost indexing.  My problem is with the way the message comes across.  Sure, I'd love to be managing 750mm.  But I would do so in a bit more humble a manner.  Then again, maybe he wouldn't be managing 750mm if he was humble.  But I don't hate the guy for being successful, I just dislike him for being a dikc.  I honestly admire guys that can build a great business in this industry, and I think we can all learn from them.  I think Rick has actually done a lot of things very well, and we could probably learn from him.  But his supreme childeshness gets in the way of that message.

squash2's picture
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lovindaindy wrote:No one is saying that he isn't selling something and that he isn't doing it well (he's doing it damn well).  What I am saying is he is being misleading by saying he only charges .25% and that anybody who charges more than that is a crook.That would be like me going around saying, "you shouldn't work with squash, he charges 1.25%, while I only charge .25%", yet I only charge that .25% on $1 million or more. I agree it is misleading at best, but that is his sales pitch.. Have to read the fine print..just like car leases,financing, discount brokers, etc..Where is the threshold?  What I am saying is, how can you advocate that low fees are this Shangri-la, and say that other advisors are charging that, when they are chargin basically what you are?  If I set my $2 million threshold at .25%, does that make me less of a manager than Mr. Ferri?  Does it make me a crook?  What if I charge .25% on all accounts higher than $500k?  Does that make Mr. Ferri a crook?  Nope.And to be fair, I don't think it's all Rick's fault.  I think that part of it is that his boglehead compatriots will say things like, "Why would you pay anyone other Rick to manage your money, because he only charges .25%?".  As if he is the only one who charges this low fee for people with $1 million or more. So your complaint is with people who hold him up bigger than he is, not exactly him..He thinks his fees are fair, and because he espouses the boglehead philosophy, he gets a pass.  Whereas as squash2 may charge even less at that threshold, but he would get banned from the bogleheads site (which, btw, there are some on there who let Rick manage their money) simply because he has a different investment philosophy. I think part of the reason he does the boglehead philosophy: 1. Marketing already in place 2. Millions of investors who might need a little bit more help than going it alone, but you don't have to beat and index or any other sort of return.. I think he is more marketing brilliance than anything..  

squash2's picture
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B24 wrote:squash2 wrote:B24 wrote:Why?  Because of his holier than though attitude.  He acts as if indexing and low costs are the ONLY way to investment success, and that any other way of managing money is pure greed and corruption. How is that wrong.. He believes his way is correct and he is selling something..IMHO, there are literally thousands of different ways to manage money effectively.  And low-cost indexing absolutely is one of those ways.  Implemented properly, it is probably the simplest way to manage money.  Honestly, I think most DIY'ers are best served this way, as most don't have the time or wherewithal to manage their own money properly.  I laso find that many DIY'ers fukc it up doing it themselves (picking wrong indexes, overweighting wrong indexes, being too aggressive, jumping in and out of the markets,etc.).I don't think what Rick does is bad.  I think it's actually quite good for people that would otherwise blow themselves up financially.  But he goes about his work (IMHO) in the wrong manner.  Instead of presenting his strategy as one great option for managing money, his presents it is THE ONLY option for managing money properly, all others be damned. Again he is selling something. So the point is to point out you competitors weakness while maximizing your strengths..We have another poster on this site (and the other site) that is an advocate of indexes (Iceco1d).  Do we give him the same schit as Rick Ferri?  No.  There's a good reason why. Because he is a pud who were are not jealous of? (not saying he is).. But in this industry we hate people who succeed..Especially those who do it with a way that we don't think is superior.I am not a full fan of bogle heads.. I think there is no reason to buy an Ishare when you can get a vanguard etf of the same index for 50% cheaper.I don't believe in buy and hold(i thing bogle heads do), I don't believe in rebalancing for no reason except to say we rebalance 4x a year..Do i think my returns are better than this Rick guys..probably... But i am jealous he has been able to articulate his message better than me. Actually, Squash, if that guy had come on here and been reasonable, I would have no problem with it.  As I said, I have no problem with people that believe in low-cost indexing.  My problem is with the way the message comes across.  Sure, I'd love to be managing 750mm.  But I would do so in a bit more humble a manner. Never know until you get there.. Then again, maybe he wouldn't be managing 750mm if he was humble.  But I don't hate the guy for being successful, I just dislike him for being a dikc All good advisors can't be nice guys( and when I say good advisors i don't mean returns, I mean building a business.  I honestly admire guys that can build a great business in this industry, and I think we can all learn from them.  I think Rick has actually done a lot of things very well, and we could probably learn from him.  But his supreme childeshness gets in the way of that message. Not sure what you are referring to here.. Disclaimer.. No idea who this guy is...

lovindaindy's picture
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I think it makes perfect sense to call him out if he is being misleading.Also, the reason I titled this "boglehead redux" was to show the stupidity of blindly following someone and thinking they are low cost and fair.  My argument is, if fees matter, why the pass?  I attempted to point this out, and was banned for my troubles, becuase anybody who rocks the boat over on bogleheads or presents an alternate idea, gets banned.For example, I can't imagine a single advisor that I know charging 1% on $1 million.  Yet, Mr. Ferri goes on about how advisors who charge 1% are fleecing the investor, when in fact, when it boils down to it, his cost structure is similar to other advisors.I know advisors who charge as high as 2.5% (on $50k accounts) and as low as .25% on accounts from $200k - $500k. When it boils down to it, if you do the math, the cost structure is the same whether you are Rick Ferri or Joe RIA.Once again, hat tip to Rick for growing such a robust business by basically having the same fee structure as the rest of us, but pretending to not.  When I went independent, I had a stated minimum of $500 per YEAR.  I mean, really?  25 bps on the first TEN MILLION? 

Rick Ferri's picture
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Joined: 2010-09-19

Honestly, don't you all have better things to do with your time than worry about me? Don't you think that talking with client's about fees is a better use of your time because if you don't, they're soon going to be talking to you about why you're charging so much. So, you can stick your heads in the sand about your high fees if you please, but it's not going to make any difference. The low-fee adviser  revolution is coming to your doorstep. Either get on board or get a new occupation. Rick Ferri

lovindaindy's picture
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This is what I am saying.  You charge the same as everybody else, but pretend not to.We are just as low-fee as you are.  Nobody charges 1% on a million except mutual funds.  Get off of your high horse.  My clients would pay more at your shop and receive less value.  Indexing indeed!

Rick Ferri's picture
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Joined: 2010-09-19

lovindaindy, I think you've been lying to client's for so long that you actually believe your own BS. Add high advisor fees, high active  fund fees, trading costs, and behind the curve market-timing advice together, and the drag on your $1 mm client's portfolio is probably over 2% per year. 

Gano_Rex's picture
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Rick - why do you villianize everyone but those in your congregation?I have to admit that you do have balls coming here, since any posthere with a hint of being a "non-believer" isn't automatically deleted by Mel and Taylor.BTW - I've been reading your Forbes "articles", you may want to charge your clients an extra bp to afford a lesson on the Adviser's Act.

lovindaindy's picture
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Rick Ferri wrote:lovindaindy, I think you've been lying to client's for so long that you actually believe your own BS. Add high advisor fees, high active  fund fees, trading costs, and behind the curve market-timing advice together, and the drag on your $1 mm client's portfolio is probably over 2% per year.  I wasn't going to use the word lie, but since you bring it up...Which place are you lying on?  You are either lying on your ADV or on your website, or here.  Which one?  Because you CLEARLY state on your website that you charge a minimum of $2k a quarter, but don't talk about account minimums.  On here you say you take no account less than $1 million, but your ADV states differently.I find it hard to believe you can't do the math.$100,000 at $2k a year = 2%!I can gurantee this much, my transaction charges and expense ratio is lower than yours. 

Spaceman Spiff's picture
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I think Rick is suffering from a serious case of RIAitis.  Not all RIA's have the disease, but the ones that do are obvious.  The symptoms are incessant blathering about mutual fund costs, overinflated ego, inability to see differing points of view as legitimate, and a general sense of euphoria in belittling anyone who doesn't believe the way you do.  There's a guy on the radio in my area, Bryan Binkholder, that could be Rick's doppelganger.  They both talk about how the mutual fund industry is corrupt, dragging down performance, using wirehouses, etc.  Bryan spends his couple of hours on the radio every week, or at least when I've caught parts of his show, talking about how the investing public has been duped by the brokerage firms.  It's the same drivel as Rick.  They've both got a serious case of RIAitis.  I think Rick's investing style appeals to a lot of people.  There are obviously a ton of people who believe that cost is the only thing that's important in investing.  I disagree, but Rick probably won't have an intelligent discussion about it, so why waste the time.  I do however, find it interesting that in a very unscientific study I performed myself this morning, I found that even the lowly preferred funds of EDJ (Rick probably just wet his pants on the preferred funds remark) have a large percentage of money managers who have beaten their Morningstar category averages and their respective indices over a meaningful amount of time.  Heck, if I would have put ALL of my client's money in CAIBX over the last 10 years I would have beaten all of the major indices with the exception of maybe small and mid caps.  Maybe emerging markets, but I don't have that in my research notes (the preferred funds list on Jonesnet).  That's the thing that most Bogleheads and RIAs fail to recognize:  It doesn't take an incredible money manager to beat an index.  The figure that because American Funds charges 5 times as much for CAIBX as an index fund or Vanguard does that they can't possibly make more money.  In fact, on Rick's website it he says that it is intuitive that that is the case:  "Over the long-term, it is not possible for actively managed mutual funds to charge more and earn more. Properly measured, the average actively managed dollar must underperform the average passively managed dollar because they charge five times more in fees. Empirical analyses that appear to refute this principle are guilty of improper measurement."I find it laughable, and perhaps a bit unethical to say that something can't possibly happen and if it does it was measured improperly.  That's pretty convenient Rick.  You tell your clients that you're right and if they find something that proves otherwise, that other source is lying. Other active strategies like Ivy Asset Strategy have KILLED the indices over the last 10 years.  Simply because they can employ market timing, asset allocation strategies, AND active management into their portfolios.  How does your analysis stack up against something like that, Rick?  Finally, Rick, why does the Fund Selection page on your website say DFA funds on the tab?  I was under the impression that you did all of your own research, market timing calls, and asset allocation strategy implementation.  Please tell me you aren't farming out your portfolio management to DFA.  You aren't, are you?  Cause that would be really lame. 

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I think he just uses DFA funds, and then rebalances, but I don't really know what he does.  When you say "passive investing", it implies you don't do anything.Nice post, Spiff.  I believe I have a slight case of RIAitis, but recognize that everybody has their place.  Something that Mr. Ferri does not believe.

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Mr. Ferri likes to throw around "Fiduciary Duty" this or "Fiduciary Duty" that.  He should examine his own "Fiduciary Duty" to get a cheaper Custodian for his clients, and pay a dedicated person for Compliance oversight of his firm.  IMHO, $750MM in AUM = the need to have 1 Compliance Person on staff. Of course, he would probably have to raise his fee to afford one.

tenthtee's picture
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Compare a fellow like Ferri with the local generalist planner (you). Ferri  can focus on the profitable or efficient aspects of personal planning (money management), build systems on scale, tell moralistic stories about fees and asset allocation, and carve out profits by providing standardized services. You can know your client, understand complicated goals and human behavior, ask the hard questions and hold clients accountable ( yes, you really need to buy the disability insurance instead of the index fund) - provide face to face, personal advice and service. Be here as life happens. When does taking talents and developing and implementing a process to squeeze profits out of accumulated wealth make an "advisor" holier than thou?

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Rick Ferri wrote:Honestly, don't you all have better things to do with your time than worry about me? Don't you think that talking with client's about fees is a better use of your time because if you don't, they're soon going to be talking to you about why you're charging so much. So, you can stick your heads in the sand about your high fees if you please, but it's not going to make any difference. The low-fee adviser  revolution is coming to your doorstep. Either get on board or get a new occupation. Rick FerriMan you are insane... the idea is to provide value. I understand your marketing niche, and why you would post such comments, but in all seriousness your fees aren't that different, you just market them differently.

tenthtee's picture
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This guy Ferri is like the lumber barons who went out and cut all of the profitable old-growth trees and sent them to the lumber mills and built his mansions and invested his fortune. That lumber was easy and profitable, you could turn a profit at low cost. Now the next generation of that baron family are the liberal children of easy wealth. They're that ones that are going around and moralizing to others about environmental costs and saving the earth and preservation. Growing trees is hard work, it takes time and it costs money which is invested in many vendors and laborers. It can be rewarding and sometimes dangerous work, but you can make a living if you don't go broke.While the baron kids are pointing the finger, Ferri is busy off cutting down the easy old growth forests of Indonesia, and exporting the wood to flood and depress world market prices, while trumpeting his horn about his accomplishments, the  next generation of planners falters in front of a confused public, which increasingly needs their help.

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B24
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Spiff, well thought out, but let me put a twist on it.Part of the problem (that often gets overlooked), is that apples-to-apples, the indexing camp is generally right.  When you compare PURE category funds to their respective indexes, it is virtually impossible to beat that particular index.  So, for example, a PURE large cap domestic growth fund will be hard-pressed to beat the S&P 500.  But that is IF the fund sticks purely to it's category.HOWEVER, the comparisons get a bit murky when you start using blended funds or funds that deviate from a pure category classification.  Amreican Funds is a perfect example.  Almost all of their large cap value funds contain some level of international exposure.  SO even if they beat the "index", it's not a real valid comparison, so the "indexers" choose to ignore that funds, since it is not a "pure style" fund.  How do you categorize First Eagle Global?  Blackgrock Global?  Capital Income Builder? IVY Asset Strategy?  Bruce Fund? FPA Crescent? Permanent Portfolio? Fairholme Fund? PIMCO All Asset?You could easily put together portfolios with these funds that would absolutely CRUSH a typical MPT index portfolio, EVEN with "high" fund expenses and a 1.25% advisory fee.The next problem is that of "passive" versus "active".  I have seen actively managed potrfolios of index funds (or ETF's) that CRUSH passive buy-and-hold portfolios using the same funds.  Now, if this was the 90's, the buy-and-hold portfolio probably would have kept pace or outperformed something actively managed (although there are some great timing models I have seen out there that crush it).  I have actually done my own analysis to see how good an index portfolio I could come up with.  I tried all sorts of combinations, back testing, etc.  I really needed to know.  What I found was that I could actually use a COMBINATION of indexes and active managed funds to achieve the best results.  IMHO, indexes are best employed for asset classes that are highly efficient and do not have large return swings (i.e. short term fixed income).  This is where low expenses are important.  I also think in many cases large cap domestic value (PURE) is a good candidate.  I have witnessed th pros and cons of the "American Funds model", where international exposure has goosed returns at some times, but hurt them badly in others.  If you want pure exposure to the domestic large cap market, indexes can work well (I like the SPDR High Dividend ETF).  However, many classes are less efficient, and more adaptable to active management (i.e. international, emerging markets, small caps, real estate, high yield bond, etc.).Bottom line - I believe saying that "actively managed mutual funds OR active management" CANNOT beat passive indexes, or that expenses are all that matters is only telling half the story.

squash2's picture
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Spaceman Spiff wrote:I think Rick is suffering from a serious case of RIAitis.  Not all RIA's have the disease, but the ones that do are obvious.  The symptoms are incessant blathering about mutual fund costs, overinflated ego, inability to see differing points of view as legitimate, and a general sense of euphoria in belittling anyone who doesn't believe the way you do.  There's a guy on the radio in my area, Bryan Binkholder, that could be Rick's doppelganger.  They both talk about how the mutual fund industry is corrupt, dragging down performance, using wirehouses, etc.  Bryan spends his couple of hours on the radio every week, or at least when I've caught parts of his show, talking about how the investing public has been duped by the brokerage firms.  It's the same drivel as Rick.  They've both got a serious case of RIAitis.  I think Rick's investing style appeals to a lot of people.  There are obviously a ton of people who believe that cost is the only thing that's important in investing.  I disagree, but Rick probably won't have an intelligent discussion about it, so why waste the time.  I do however, find it interesting that in a very unscientific study I performed myself this morning, I found that even the lowly preferred funds of EDJ (Rick probably just wet his pants on the preferred funds remark) have a large percentage of money managers who have beaten their Morningstar category averages and their respective indices over a meaningful amount of time.  Heck, if I would have put ALL of my client's money in CAIBX over the last 10 years I would have beaten all of the major indices with the exception of maybe small and mid caps.  Maybe emerging markets, but I don't have that in my research notes (the preferred funds list on Jonesnet).  The problem with this and part of Rick's point is that anyone can go back and find a fund or combination of funds that worked, but going forward there is no guarantee..That's the thing that most Bogleheads and RIAs fail to recognize:  It doesn't take an incredible money manager to beat an index. You may be right(though i disagree) but at what risk...10-15 years ago, people would have said the same thing about Putnam or Janus.. The figure that because American Funds charges 5 times as much for CAIBX as an index fund or Vanguard does that they can't possibly make more money.  In fact, on Rick's website it he says that it is intuitive that that is the case:  "Over the long-term, it is not possible for actively managed mutual funds to charge more and earn more. Properly measured, the average actively managed dollar must underperform the average passively managed dollar because they charge five times more in fees. Empirical analyses that appear to refute this principle are guilty of improper measurement."I find it laughable, and perhaps a bit unethical to say that something can't possibly happen and if it does it was measured improperly.  That's pretty convenient Rick.  You tell your clients that you're right and if they find something that proves otherwise, that other source is lying. Other active strategies like Ivy Asset Strategy have KILLED the indices over the last 10 years Again.. trailing.. pick a fund that will do better than an index today for the next 10 years...  Simply because they can employ market timing, asset allocation strategies, AND active management into their portfolios.  How does your analysis stack up against something like that, Rick?  Finally, Rick, why does the Fund Selection page on your website say DFA funds on the tab?  I was under the impression that you did all of your own research, market timing calls, and asset allocation strategy implementation.  Please tell me you aren't farming out your portfolio management to DFA.  You aren't, are you?  Cause that would be really lame.  Agree with you here DFA is the biggest scam in the world..

Ron 14's picture
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Joined: 2008-07-10

Dick Ferry - Are you saying you charge every client .25bps ?

lovindaindy's picture
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Joined: 2009-05-07

squash2 wrote:Spaceman Spiff wrote:I think Rick is suffering from a serious case of RIAitis.  Not all RIA's have the disease, but the ones that do are obvious.  The symptoms are incessant blathering about mutual fund costs, overinflated ego, inability to see differing points of view as legitimate, and a general sense of euphoria in belittling anyone who doesn't believe the way you do.  There's a guy on the radio in my area, Bryan Binkholder, that could be Rick's doppelganger.  They both talk about how the mutual fund industry is corrupt, dragging down performance, using wirehouses, etc.  Bryan spends his couple of hours on the radio every week, or at least when I've caught parts of his show, talking about how the investing public has been duped by the brokerage firms.  It's the same drivel as Rick.  They've both got a serious case of RIAitis.  I think Rick's investing style appeals to a lot of people.  There are obviously a ton of people who believe that cost is the only thing that's important in investing.  I disagree, but Rick probably won't have an intelligent discussion about it, so why waste the time.  I do however, find it interesting that in a very unscientific study I performed myself this morning, I found that even the lowly preferred funds of EDJ (Rick probably just wet his pants on the preferred funds remark) have a large percentage of money managers who have beaten their Morningstar category averages and their respective indices over a meaningful amount of time.  Heck, if I would have put ALL of my client's money in CAIBX over the last 10 years I would have beaten all of the major indices with the exception of maybe small and mid caps.  Maybe emerging markets, but I don't have that in my research notes (the preferred funds list on Jonesnet).  The problem with this and part of Rick's point is that anyone can go back and find a fund or combination of funds that worked, but going forward there is no guarantee..  YES, BUT RICK IS SAYING THAT IF YOU LOOK AT THE LAST TEN YEARS, INDEXES HAVE PERFORMED GREAT.  SO HE IS USING THAT LOOK BACK AS WELL.  That's the thing that most Bogleheads and RIAs fail to recognize:  It doesn't take an incredible money manager to beat an index. You may be right(though i disagree) but at what risk...10-15 years ago, people would have said the same thing about Putnam or Janus.. The figure that because American Funds charges 5 times as much for CAIBX as an index fund or Vanguard does that they can't possibly make more money.  In fact, on Rick's website it he says that it is intuitive that that is the case:  "Over the long-term, it is not possible for actively managed mutual funds to charge more and earn more. Properly measured, the average actively managed dollar must underperform the average passively managed dollar because they charge five times more in fees. Empirical analyses that appear to refute this principle are guilty of improper measurement."I find it laughable, and perhaps a bit unethical to say that something can't possibly happen and if it does it was measured improperly.  That's pretty convenient Rick.  You tell your clients that you're right and if they find something that proves otherwise, that other source is lying. Other active strategies like Ivy Asset Strategy have KILLED the indices over the last 10 years Again.. trailing.. pick a fund that will do better than an index today for the next 10 years...  Simply because they can employ market timing, asset allocation strategies, AND active management into their portfolios.  How does your analysis stack up against something like that, Rick?  Finally, Rick, why does the Fund Selection page on your website say DFA funds on the tab?  I was under the impression that you did all of your own research, market timing calls, and asset allocation strategy implementation.  Please tell me you aren't farming out your portfolio management to DFA.  You aren't, are you?  Cause that would be really lame.  Agree with you here DFA is the biggest scam in the world..

JumpMan's picture
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Joined: 2010-06-08

Rick ... you are the man!  I don't agree with your BS but damn brother ... the scale of your business is impressive.

BondGuy's picture
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Joined: 2006-09-21

God went to the the Arabs and said " I have some commandments to give you. They will make your lives better."The Arabs replied " Commandments? Could you give us an example? ""Sure" God said " Here's one, Thou shall not kill."The Arabs retorted " What do you mean no killing? These aren't for us, not interested!"With that, God went to the French and said " I have some commandments to give you that will make your lives better."The French asked " Commandments? What do you mean ? Could you give us an example? "God replied " Thou shall not commit adultry."The French retorted " No adultry, no way! We are not interested in your commandments."Finally, God went to the Bogleheads. He said I have some commandments I want to give to you that will make your lives better.The Bogleheads asked "How much do they cost?"God said "They're free!""We'll take ten!", came the reply.

tenthtee's picture
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Joined: 2006-11-16

So, is being a Boglehead any fun?

Spaceman Spiff's picture
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Joined: 2006-08-08

I guess that depends on if you think of trying to squeeze every penny out of your expenses while pretty much ignoring returns fun.  That doesn't sound like fun to me.  I guess their forums could be as much fun as ours...OK, maybe not.  Evidently they're a pretty closed-minded group.  Unless your name is Rick Ferri.  Then it's great.  You can get a whole website full of folks that mention your name everytime someone asks about seeking professional help.  I just did a little browsing over there and in two of three threads I looked at someone mentioned Rick's name and suggested the person contact him.  Of course one of those folks said that until you had $4 million to invest he didn't think that an advisor provided enough benefit to warrant paying a fee.  And another said that there wasn't ANY benefit in having multiple mutual fund families in your portfolio and that you should just move all of your money to Vanguard and be done with it.  Those Boglehead people are amazing.  Pretentious, self righteous, egotistical, closed-minded, and many other adjectives come to mind too.  Evidently the best advice you can get, in their opinion, is free advice.  And none of it worth more than .25% a year.  Amazing that's the exact amount Mr. Ferri says he charges people.  Hmmm...I wonder if there is a chicken/egg conversation there somewhere?

Gaddock's picture
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Joined: 2007-02-23

Rick Ferri wrote:Honestly, don't you all have better things to do with your time than worry about me? Don't you think that talking with client's about fees is a better use of your time because if you don't, they're soon going to be talking to you about why you're charging so much. So, you can stick your heads in the sand about your high fees if you please, but it's not going to make any difference. The low-fee adviser  revolution is coming to your doorstep. Either get on board or get a new occupation. Rick FerriWell, I'm thinking my net smokes yours regardless of fees. What kind of Alpha / Beta is a 'boglehead' getting? Would you rather pay .25 and be flattish with the market or pay 2 + 20% and smoke the market NET? You get what you pay for.

Gano_Rex's picture
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Joined: 2010-09-14

Spaceman Spiff wrote: Evidently they're a pretty closed-minded group.  Unless your name is Rick Ferri.  Then it's great.  You can get a whole website full of folks that mention your name everytime someone asks about seeking professional help.  I just did a little browsing over there and in two of three threads I looked at someone mentioned Rick's name and suggested the person contact him.  This is actually an issue that I think would amount to a Compliance nightmare.  Mainly because of the restriction on use of client testimonials under the Investment Adviser's Act.  Of course, the arguement can be made that it is a third party website, the testimonials are unsolicited, and Rick Ferris has no control over what is posted.  However, and I would be interested to see how the SEC would interpret this, Rick Ferris does either directly or indirectly control the content of these posts in cooperation with the two mods Mel and Taylor.  If anything is posted that is negative of Ferris, it is automatically removed.  If the same poster does it again, then they are banned.I asked a simple question concerning the use of a more expensive Custodian (if fees are such a big deal, then why do it?) - and was banned.  If Rick actually had a real compliance program in place, he would know this and would most likely end the practice (or the appearance) - additionally he would lay off the referencing of specific-past recommendations in his posts and Forbes "articles."

Spaceman Spiff's picture
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Joined: 2006-08-08

At what point does it become an extension of Rick's business?  Seems like many threads have some link to Rick's advisory business, an article he wrote, or some other mention if him.  If he does indeed have the kind of influence over the moderators you suggested, couldn't it be construed that he has stopped being just a participant on a third party website and actually a part of the third party?  At that point, I think it could become dicey.  If you have the ability to filter what gets said about you and your firm, keeping the good, deleting the bad, then your compliance officer should probably become involved.  I know that if Jones figured out that I was giving someone financial advice over the internet, I'd more than likely have the keys to my office ripped out of my hands before I can blink.  It would certainly involve many a not-so-nice conversation with some very influential compliance folks.   Maybe it's just a difference between being an RIA and being an FA.  Maybe the rules aren't as strict as an RIA.  Maybe one of you RIA guys can speak up and let us know.   

lovindaindy's picture
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Joined: 2009-05-07

It's not that the rules aren't as strict, it's that when you run an RIA, no one is FORCING you to be ethical and legal.  So if you aren't, it might not happen until the SEC comes knocking.  IMHO RIA's show who REALLY does what's best for the client with less conflicts.

TheMachine's picture
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Joined: 2011-06-30

If all you are doing is indexing then you should go to fee only financial planning. Otherwise, you have no business charging fees based on AUM. Leave it to the advisors that have a strategy to buy and sell stocks, etfs, etc...Indexing, buy, and forget is not a strategy, it only benefits the purveyors of index funds and advisors that charge fees for sitting on assets.

Mampara's picture
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Joined: 2013-02-22

Well, a 0.25% AUM fee, for a 50-50 portfolio ($1 million plus) that includes Vanguard funds and ETFs, DFA, and TIAA-CREF. By the way, the portfolio ER is 0.18%. Schwab is the custodian, and the infrequent trades are $8 each. I get a meticulous accounting of every penny of the AUM fee.
For a total of 0.43%, I think I have a very good deal.
Mampara

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