Nice article as usual! This newsletter is consistently one of my favorite weekly reads. As a fiduciary RIA and financial planner myself, one of toughest parts about this conversation I've noticed amongst financial writers and publications is the lack of distinction/nuance in the discussion of total cost. Financial advisors tend to get lumped in (frequently) with actively managed funds, hedge funds, and other "Wall St" entities (whatever that means), as some sort of boogieman profit leaches. Thankfully, this newsletter does a great job of both definitional explanation and thoughtful commentary. Of course, working with a fiduciary advisor comes at a cost, a significant one indeed over a lifetime. So, the numbers and charts laid out in the article remain true and should be heavily considered. The funny part is, more than 16 years of boots-on-the-ground experience has given me one, distinct thesis: Most people who would actively consume content like this are fundamentally interested/curious about personal finance in general, and would almost never consider hiring a financing advisor - The cost-benefit ratio just doesn't make sense. IMO, good fiduciary advisors and firms focus their efforts on developing a clientele who are either not interested in personal finance or simply too busy to give a financial life plan the urgency of thought it requires. Both of these distinct groups typically understand the importance of financial planning, but lack the natural curiosity or the bandwidth of time in their life to squabble over cost. I realize to the readers of this newsletter, that's an utterly ridiculous statement to read - After all, how much time does it really take to max out your 401k plan and other tax-advantaged accounts and buy some index funds or ETFs? I agree, but I, along with the collective readers of this newsletter, I am a nerd (and consider that a badge of honor)! So, while I would encourage you and other financial writers to continue writing about this topic, I think increased nuance and context in the conversation about the different layers and types of fees we are all exposed to would be helpful. More importantly than that, for people who are naturally inclined toward personal finance, newsletters like this, and enjoy the process of evermore financial efficiency... I plead with you to not brow-beat your family, friends, and colleagues who choose to work with an advisor. Yes, it's obnoxiously expensive over a lifetime, but consider the opportunity cost. Many people will never have a chance at financial independence without the intervention, accountability, support, and coaching of a financial advisor. DIY investing and financial planning is hard, really hard. So, kudos to all the readers of newsletters like this fighting the good fight, pocketing those management/advisory fees for themselves AND to the folks who have the humility to admit the need some help and raise their hands to ask.
Wow, thanks for the detailed comment Nathan. That makes a lot of sense. I agree that a large number of folks might not have the know-how or time to allocate towards investing, and it's completely reasonable to turn to a financial advisor for help. The intention of the post was so that investors can ask better questions when they approach advisors - For example, maximizing alpha might be the only factor that's part of their mental model, but knowing that fees make a big impact in the long-term will bring fees into the conversation. They can also think about the impact of an upfront/one-time fee compared to long-term fees.
If the benefit of delegating to a financial advisor outweighs the costs, it's a no-brainer. Knowing which variables go into the cost is very important though. Thanks again for writing about the human side of the problem in detail!
i think it would also be interesting to review how cheap many etfs could be if the asset manager did not cream off a slice of the stock lending ...without this, i wonder how profitable etfs would be and much shallower the markets might be...anything to lessen the casino at work now!
Yes, one thing worth noting is that as ETFs become more popular, they might be used as a marketing tactic. (Bogle was wary of this too: https://www.ai-cio.com/news/index-fund-creator-jack-bogle-hated-etfs/). A comparison of ETFs is a possible analysis idea, will check, thanks.
Were the management fees worth it. No. I paid them to the manager until I could not excuse them any longer for subpar performance. Then I transferred all of my assets to my own custody and have never paid them since.
PS- The manager originally would say to compare their performance to the S&P.... and then they wanted to change it to compare themselves to a Bond Fund.. Really.. Really? ✌
Haha, in that case, what's the advantage over a self-managed portfolio of low-cost ETFs and bonds ? Moving goalposts are a sure red flag. (I'm curious if anyone has had a positive experience though, as I don't want to confirm my own bias...)
The sequel: everything you need to know about smart beta, all-weather portfolio, and barbell strategy in a composition notebook! But seriously the index card is good enough for people who are not college-educated, and Jim Simons are extremely rare.
Nice article as usual! This newsletter is consistently one of my favorite weekly reads. As a fiduciary RIA and financial planner myself, one of toughest parts about this conversation I've noticed amongst financial writers and publications is the lack of distinction/nuance in the discussion of total cost. Financial advisors tend to get lumped in (frequently) with actively managed funds, hedge funds, and other "Wall St" entities (whatever that means), as some sort of boogieman profit leaches. Thankfully, this newsletter does a great job of both definitional explanation and thoughtful commentary. Of course, working with a fiduciary advisor comes at a cost, a significant one indeed over a lifetime. So, the numbers and charts laid out in the article remain true and should be heavily considered. The funny part is, more than 16 years of boots-on-the-ground experience has given me one, distinct thesis: Most people who would actively consume content like this are fundamentally interested/curious about personal finance in general, and would almost never consider hiring a financing advisor - The cost-benefit ratio just doesn't make sense. IMO, good fiduciary advisors and firms focus their efforts on developing a clientele who are either not interested in personal finance or simply too busy to give a financial life plan the urgency of thought it requires. Both of these distinct groups typically understand the importance of financial planning, but lack the natural curiosity or the bandwidth of time in their life to squabble over cost. I realize to the readers of this newsletter, that's an utterly ridiculous statement to read - After all, how much time does it really take to max out your 401k plan and other tax-advantaged accounts and buy some index funds or ETFs? I agree, but I, along with the collective readers of this newsletter, I am a nerd (and consider that a badge of honor)! So, while I would encourage you and other financial writers to continue writing about this topic, I think increased nuance and context in the conversation about the different layers and types of fees we are all exposed to would be helpful. More importantly than that, for people who are naturally inclined toward personal finance, newsletters like this, and enjoy the process of evermore financial efficiency... I plead with you to not brow-beat your family, friends, and colleagues who choose to work with an advisor. Yes, it's obnoxiously expensive over a lifetime, but consider the opportunity cost. Many people will never have a chance at financial independence without the intervention, accountability, support, and coaching of a financial advisor. DIY investing and financial planning is hard, really hard. So, kudos to all the readers of newsletters like this fighting the good fight, pocketing those management/advisory fees for themselves AND to the folks who have the humility to admit the need some help and raise their hands to ask.
Wow, thanks for the detailed comment Nathan. That makes a lot of sense. I agree that a large number of folks might not have the know-how or time to allocate towards investing, and it's completely reasonable to turn to a financial advisor for help. The intention of the post was so that investors can ask better questions when they approach advisors - For example, maximizing alpha might be the only factor that's part of their mental model, but knowing that fees make a big impact in the long-term will bring fees into the conversation. They can also think about the impact of an upfront/one-time fee compared to long-term fees.
If the benefit of delegating to a financial advisor outweighs the costs, it's a no-brainer. Knowing which variables go into the cost is very important though. Thanks again for writing about the human side of the problem in detail!
i think it would also be interesting to review how cheap many etfs could be if the asset manager did not cream off a slice of the stock lending ...without this, i wonder how profitable etfs would be and much shallower the markets might be...anything to lessen the casino at work now!
Yes, one thing worth noting is that as ETFs become more popular, they might be used as a marketing tactic. (Bogle was wary of this too: https://www.ai-cio.com/news/index-fund-creator-jack-bogle-hated-etfs/). A comparison of ETFs is a possible analysis idea, will check, thanks.
Were the management fees worth it. No. I paid them to the manager until I could not excuse them any longer for subpar performance. Then I transferred all of my assets to my own custody and have never paid them since.
PS- The manager originally would say to compare their performance to the S&P.... and then they wanted to change it to compare themselves to a Bond Fund.. Really.. Really? ✌
Haha, in that case, what's the advantage over a self-managed portfolio of low-cost ETFs and bonds ? Moving goalposts are a sure red flag. (I'm curious if anyone has had a positive experience though, as I don't want to confirm my own bias...)
The sequel: everything you need to know about smart beta, all-weather portfolio, and barbell strategy in a composition notebook! But seriously the index card is good enough for people who are not college-educated, and Jim Simons are extremely rare.