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.

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.

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?

[quote=Rick Ferri]

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

[/quote]

Man 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.

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.

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.

[quote=Spaceman Spiff]

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..

[/quote]

Dick Ferry -

Are you saying you charge every client .25bps ?

[quote=squash2]

[quote=Spaceman Spiff]

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..

[/quote]

[/quote]

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

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.

So, is being a Boglehead any fun?

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?

[quote=Rick Ferri]

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

[/quote]

Well, 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.

[quote=Spaceman Spiff]

 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.  [/quote]

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."

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.   

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.

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.

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