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I'm not the one making claims that a financial advisor would get returns 2% higher, you are.
When you can show a financial advisor would get 2% higher returns than someone who stays the course in index funds, contributing regularly throughout their career and rebalancing annually, then I'll be interested in the study.
Actually the "claim" was from vanguard that said advisors can be worth 1.5-3% net of fees annually. I never once stated 2% was a guaranteed spread.
The study you are asking for doesn't exist because the average investor is terrible and those who are not don't keep records
Vanguard the originator of low cost investing disagrees with you on advisors not being worth 1%. In fact they concluded that an advisor can be worth as much as 1.5-3% annually net of fees. Investors as a whole left to their own devices typically perform very poorly
Since you have been harping on and on about Vanguard study I googled it and read the info as well as the white paper on it. This is what I found
Quote:
VALLEY FORGE, PA (March 10, 2014)—Financial advisors can add up to about 3% in net returns for their clients using Vanguard Advisor’s AlphaTM, a wealth management framework that focuses on portfolio construction, behavioral coaching, asset location, and other relationship-oriented services, according to a paper released today by Vanguard. Putting a value on your value: Quantifying Vanguard Advisor's Alpha examines the individual best practices within the Advisor’s Alpha framework and quantifies the value advisors can add relative to others who are not employing such practices.
From the white paper on which the article is based
Quote:
Francis M. Kinniry Jr., CFA, Colleen M. Jaconetti, CPA, CFP ®, Michael A. DiJoseph, CFA, and Yan Zilbering
■ The value proposition of advice is changing. The nature of what investors expect from
advisors is changing. And fortunately, the tools available to advisors are evolving as well.
■ In creating the Vanguard Advisor’s Alphaâ„¢ concept in 2001, we outlined how advisors
could add value, or alpha, through relationship-oriented services such as providing cogent
wealth management via financial planning, discipline, and guidance, rather than by trying
to outperform the market.
The Vanguard Capital Markets Model (VCMM) is a proprietary financial simulation tool developed and maintained by Vanguard’s Investment Strategy Group.
So this is not that advisors can increase returns by 3% as you have been going on and on. This states that advisors who follow the Vanguard propitiatory financial simulation tool could increase return by up to 3 %. Not any financial advisor following his own method but using Vanguard's own method. Proprietary method = paying Vanguard to purchase and use it, and royalties. It is not free for advisors.
Wait there is more. The people who developed the tool have done the study themselves and are now blowing their horns. This is what I said earlier - Chick-fil-a cows stating eat more chickens. Why not. They own it along with Vanguard and if financial advisors can use it rather than some other formula the authors come out financially ahead. None of the authors are impartial. If you smell a rat follow the money and you will find the answer, as is found here.
So you are the one who has not read the study and seen the obvious conflict of financial interest in the Vanguard study. And you accuse others of not researching the study. What a shame.
Since you have been harping on and on about Vanguard study I googled it and read the info as well as the white paper on it. This is what I found
From the white paper on which the article is based
So this is not that advisors can increase returns by 3% as you have been going on and on. This states that advisors who follow the Vanguard propitiatory financial simulation tool could increase return by up to 3 %. Not any financial advisor following his own method but using Vanguard's own method. Proprietary method = paying Vanguard to purchase and use it, and royalties. It is not free for advisors.
Wait there is more. The people who developed the tool have done the study themselves and are now blowing their horns. This is what I said earlier - Chick-fil-a cows stating eat more chickens. Why not. They own it along with Vanguard and if financial advisors can use it rather than some other formula the authors come out financially ahead. None of the authors are impartial. If you smell a rat follow the money and you will find the answer, as is found here.
So you are the one who has not read the study and seen the obvious conflict of financial interest in the Vanguard study. And you accuse others of not researching the study. What a shame.
Actually the research has nothing to do with explicitly using the vanguard alpha tool, there's not proprietary about it and the value add. If you could read 3 pages and comprehend basic ideas you'd understand
Actually the "claim" was from vanguard that said advisors can be worth 1.5-3% net of fees annually. I never once stated 2% was a guaranteed spread.
The Vanguard study attributed fully have of their advantage to investors being unable to stay the course when market has volatility, another chunk of it is controlling expenses. That right there is why I'm not interested in "average investors" but in buy and hold index fund investors.
Quote:
Originally Posted by Lowexpectations
The study you are asking for doesn't exist because the average investor is terrible and those who are not don't keep records
So then we're back to having no data to support any advantage to advisors over DIY index funds with appropriate asset allocation and staying the course.
the only data we know as fact is small investors as a group suck at investing . my feeling is odds are an adviser can likely do better .
those of us in to this stuff get blinded to the fact most folks have neither the knowledge , pucker factor or temperament to do things on their own .
humans are prewired to hate losing money more then making it when it is their own money at risk . having someone else call the shots can eliminate one of our biggest human flaws .
there is a tendency to make much more rational decisions when it is not your own money under fire
Would you believe an advisor can do at least 1% better than a simple portfolio of low cost index funds in an appropriate asset allocation? Many actively managed funds don't beat index funds of same asset class, and they are certainly trying to beat the market.
i believe just because of our human factors , yes , an adviser calling the shots would likely add at least 1% . i doubt even i would have done as well had i been left to my own devices . i would always be second guessing my last move and plotting the next move thinking i can do better . i learned early on , i can't .
who knows if i would have even left our life savings fully invested in 2008 like i did when there was a fire and everyone else was running for the exits .
i let the newsletter call the shots and did not listen to my brain which said run .
once you understand we use different parts of our brains to rationalize when things are hypothetical vs when we have our own money at risk you begin to see the deck is stacked against us . the brain will always say this time is different -run once the battle starts , we are not coming back so fast or at all this time .
Last edited by mathjak107; 05-26-2016 at 04:57 AM..
Which human factors? I'm talking about an investor that sticks to their planned asset allocation, not someone making behavioral errors based on impulse.
Quote:
Originally Posted by mathjak107
who knows if i would have even left our life savings fully invested in 2008 like i did when there was a fire and everyone else was running for the exits .
I know you read the same retire early forums, clearly there are quite a few small investors (myself included) that didn't run for the exits in 2008.
i believe just because of our human factors , yes , an adviser calling the shots would likely add at least 1% . i doubt even i would have done as well had i been left to my own devices . i would always be second guessing my last move and plotting the next move thinking i can do better . i learned early on , i can't..... .
Most people who you state might be better off with a financial advisor will either not invest or will meddle with the actions of one. The ones who allocate and buy low cost index funds and hold will do better without them and their 1 % managing the assets.
Really what is wrong with getting annual advise and paying for it. Say one has $50K. One decides to get Vanguard funds because of low cost and diversification and no-load. You choose 3 or four large sector funds proportionately dividing up based on age of the investor and his time frame and covering all bases. Buy it and leave it for a year. Come back a year later, pay $250-500 for 1 hour to go through the performance over the past year and see if any change is needed. In the meantime, in the preceding 12 months put in regular amounts into each fund for dollar cost averaging.
That is it. This does not require paying someone 1 % of the asset as fees. If a person cannot follow this simple strategy he should not be in investing nor be paying the 1 % since he is unlikely to be in there for the long term.
The reason FA want the 1 % is that they feel that they won't make enough with just fee based advise. It also ties the investor to them, since they are now in control and it is not easy to wrest it away from them and go to different FA whereas if you just pay hourly rate for advise and manage it yourself, you might decide to get a different FA nest year if your are not happy with the 1st one or want second opinion. Or decide, "heck this is so simple I can do it on my own". And the FA does not want that to happen. Just pure vested interests.
Most people who you state might be better off with a financial advisor will either not invest or will meddle with the actions of one. The ones who allocate and buy low cost index funds and hold will do better without them and their 1 % managing the assets.
Really what is wrong with getting annual advise and paying for it. Say one has $50K. One decides to get Vanguard funds because of low cost and diversification and no-load. You choose 3 or four large sector funds proportionately dividing up based on age of the investor and his time frame and covering all bases. Buy it and leave it for a year. Come back a year later, pay $250-500 for 1 hour to go through the performance over the past year and see if any change is needed. In the meantime, in the preceding 12 months put in regular amounts into each fund for dollar cost averaging.
That is it. This does not require paying someone 1 % of the asset as fees. If a person cannot follow this simple strategy he should not be in investing nor be paying the 1 % since he is unlikely to be in there for the long term.
The reason FA want the 1 % is that they feel that they won't make enough with just fee based advise. It also ties the investor to them, since they are now in control and it is not easy to wrest it away from them and go to different FA whereas if you just pay hourly rate for advise and manage it yourself, you might decide to get a different FA nest year if your are not happy with the 1st one or want second opinion. Or decide, "heck this is so simple I can do it on my own". And the FA does not want that to happen. Just pure vested interests.
Do you know what 1% of 50k is? Also the once a year appointment doesn't really help with temperament, coach or any of the behavioral issues. Let's hope the 08 selloff didn't occur in the middle of your year
It no more difficult to move an advisory account paying 1% than it is a transactional account. It's clear you lack an I depth knowledge of how the business works and simply are among things up
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