Professional Financial Adviser Fees

[Julia]

My aim is to rid myself of an ongoing advice fee based service. Mind you, my current adviser is really, really good but he takes a firm stand in charging ongoing advice although my portfolio is reviewed twice a year. I just can not see the value anymore for having ongoing advice.

Sorry if I seem to be continuing to be a bit confused by your posts.
Here you are saying that your current adviser is "really, really good", by which term we could assume he is getting you very good results.

How will you calculate whether you can either replicate or improve on these excellent results if you move to another adviser? Have you been shown results which have demonstrated superior performance with Adviser No. 2? What is your gut feeling about who is the more competent?
Has your potential No. 2 adviser given you a quote for what his hourly fees will run out to in order to provide you with the necessary advice to at least equate the results you are presently achieving?
How will you know how much to believe him?

It's fairly unusual to hear about someone wanting to fire an adviser whom they describe as 'really, really good', in order to move elsewhere.

 

[Kayman]

Sorry if I seem to be continuing to be a bit confused by your posts.
Here you are saying that your current adviser is "really, really good", by which term we could assume he is getting you very good results.

How will you calculate whether you can either replicate or improve on these excellent results if you move to another adviser? Have you been shown results which have demonstrated superior performance with Adviser No. 2? What is your gut feeling about who is the more competent?
Has your potential No. 2 adviser given you a quote for what his hourly fees will run out to in order to provide you with the necessary advice to at least equate the results you are presently achieving?
How will you know how much to believe him?

It's fairly unusual to hear about someone wanting to fire an adviser whom they describe as 'really, really good', in order to move elsewhere.

Nothing can be calculated in advance, nobody has a crystal ball! Results, either excellent or inferior, are driven by the market. I do recognise that my financial adviser was instrumental in selected the right funds for my specific needs according to my specified goals.

I've paid for it, DONE!!!

Now, the selected funds in my portfolio have never changed since inception and I am fairly confident that apart from 'tweaking' my portfolio on a regular basis (annually or semiannually) ensuring the asset allocation is adhered to, the funds structure will remain as is.
There is, in my opinion, no need for ongoing financial advice i.e. paying a monthly fee for a six-monthly review. The ride on this particular 'gravy train' will have to terminate! If my current adviser refuses to see this from my perspective I will take my chances! The separation will be amicable; After all, it's business - I eat humble pie if my escapade doesn't work out and always can rejoin his firm. Based on my current fees and future charges I am sure my 'business' is welcome.

I hope this explains my position to you.

 

[Julia]

Nothing can be calculated in advance, nobody has a crystal ball! Results, either excellent or inferior, are driven by the market.

I would dispute this for a start. Different people with different skill levels will produce profits or losses from the same market.

I do recognise that my financial adviser was instrumental in selected the right funds for my specific needs according to my specified goals.

I've paid for it, DONE!!!

Now, the selected funds in my portfolio have never changed since inception and I am fairly confident that apart from 'tweaking' my portfolio on a regular basis (annually or semiannually) ensuring the asset allocation is adhered to, the funds structure will remain as is.

OK, I get this.

There is, in my opinion, no need for ongoing financial advice

Yet, in your initial post you suggested:

I am now contemplating switching to another professional financial adviser who charges me a professional fee (hourly rate) for finacial advice.

It was this statement that my last post addressed, and to which you have made no response.

I don't need to know. Neither does anyone else on this forum.
I have simply been trying to put up the questions so you can clarify in your own mind your reasons for assuming a different financial adviser will bring you net overall improved results.

Presumably, since an hourly rate is not tied to the value of my investments, or generated by the purchase of any specific investment, couldn't I be confident to expect & receive objective advice for a more moderate fee?

What basis do you have for this assumption if you haven't asked for some proof of No. 2 adviser's skills?
(Remembering all the time that you have described your current adviser as 'really, really good'.)

Though I'd expect to pay a higher hourly rate for an experienced adviser.
i.e. paying a monthly fee for a six-monthly review. The ride on this particular 'gravy train' will have to terminate! If my current adviser refuses to see this from my perspective I will take my chances! The separation will be amicable; After all, it's business - I eat humble pie if my escapade doesn't work out and always can rejoin his firm. Based on my current fees and future charges I am sure my 'business' is welcome.

I hope this explains my position to you.

As above, I don't need any explanation, and don't either need the dismissive tone. I frankly don't care what you do. I've simply attempted to raise in your own mind the questions you should be asking and answering before you strut off in high dudgeon and outrage about your present fees (probably quite justifiably), on the unproven assumption that paying someone by the hour will ipso facto deliver a better result.

Your logic for this escapes me. But hey, good luck.

 

[Kayman]

Originally Posted by Kayman
Nothing can be calculated in advance, nobody has a crystal ball! Results, either excellent or inferior, are driven by the market.

I would dispute this for a start. Different people with different skill levels will produce profits or losses from the same market.

Everything can be challenged - we could talk about this for a long and indefinite time.
Diversification (different funds and different managers) in a good financial portfolio is critically important.
See comment in one of my previous post:
"...and I am not suggesting that his investment recommendations are substandard; I am satisfied that my financial portfolio has performed well during the global financial crisis."

OK, I get this.

Wonderful.

Yet, in your initial post you suggested:
"I am now contemplating switching to another professional financial adviser who charges me a professional fee (hourly rate) for finacial advice."

It was this statement that my last post addressed, and to which you have made no response.

I don't need to know. Neither does anyone else on this forum.
I have simply been trying to put up the questions so you can clarify in your own mind your reasons for assuming a different financial adviser will bring you net overall improved results.

See comment in my original post:
"I do realize that for quality professional services appropriate fees apply and need to be paid. I am not opposed to these payments. However, I begin to question the necessity of monthly fees for ongoing advice as my f/portfolio only gets reviewed twice a year and feel that the ongoing advice fee rather undermines the cost effectiveness of the wrap account."

What basis do you have for this assumption if you haven't asked for some proof of No. 2 adviser's skills?

Did you notice the question mark at the end of my sentence?

(Remembering all the time that you have described your current adviser as 'really, really good'.)

Yes, the Bentley I used to drive was really good as well. I switched to a Toyota which gets me to the same places quite comfortably.

As above, I don't need any explanation, and don't either need the dismissive tone.

I can't control how you perceive my response(s). To me they are concise and straight to the point. I don't read 'between the lines' either.

I frankly don't care what you do. I've simply attempted to raise in your own mind the questions you should be asking and answering before you...

See comment in my original post:
"I hope receiving some good comments, recommendations and/or guidance from participants of this forum who have more savvy in this matter that I have."

...strut off in high dudgeon and outrage about your present fees (probably quite justifiably),

Huh, "high dudgeon and outrage - probably quite justifiably"
Read again...rather conflicting.

on the unproven assumption that paying someone by the hour will ipso facto deliver a better result.

I am talking about advice and not performances of investments.
See comment in my original post:
"Presumably, since an hourly rate is not tied to the value of my investments, or generated by the purchase of any specific investment,..."

Isn't that a fair question?
"...couldn't I be confident to expect & receive objective advice for a more moderate fee?"

Your logic for this escapes me.

"There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know."
Donald Rumsfeld

But hey, good luck.

Thanks.

 

[awg]

IMO, if you want to self-manage

get out your Wrap docs and they will have the rationale that dictates your investment strategy spelled out

Risk tolerance and asset diversification/proportion being the obvious

Also what rate-of-return needed + life expectancy table to help focus the mind:

If you have a sharp enough brain to have succeeded in business, it wont be rocket science.

(Your post is indicative you are satisfied with the makeup and performance of your funds but resent the fee structure)

Some Internet reseach will enable you to see that most porfolios can be easily replicated WITHOUT managed investment funds, or even a personal stockbroker.

Dont expect your FP to agree with this, and I doubt they will be much help to you in the transition stage either, despite years of fee paying

btw, an accountant will provide tax advice about investments, but not investment advice, If getting a new FP, make sure the new one is an accountant as well, if possible

Disclaimer, I am not neccesarily advocating following yr advisors portfolio, no idea of yr circs, just that it might be a "less difficult" way to start

 

[dragon8]

I recently sacked my so called professional advisers (MLC) who returned me whopping -3.5%
They also had the audasity to charge me fees for "managing" my portfolio.
Wow lucky me. Perhaps I'll send them a bill for lost fees. Anyone up for a class action suit? My 10 year old could have invested the monies for me and gotten better than negative return at the bank.

I'm now taking control and opening my own super fund and investing directly.
No more fees for dubious "profesional" advisers. Taking control myself has empowered me.

(Sorry may be a bit off topic but angry re these adviser fees.)

 

[poverty]

I recently sacked my so called professional advisers (MLC) who returned me whopping -3.5%
They also had the audasity to charge me fees for "managing" my portfolio.
Wow lucky me. Perhaps I'll send them a bill for lost fees. Anyone up for a class action suit? My 10 year old could have invested the monies for me and gotten better than negative return at the bank.

Just wondering what was the time period of the -3.5% and how did the ASX200 do over that time?

 

[Julia]

Kayman, I apologise for being a bit terse in my last post. Should have been more restrained in my comments.

I am talking about advice and not performances of investments.

This is the sort of comment that confuses me. Doesn't the 'advice' relate to your investments? Or are you not looking for an adviser who gives you advice about actual investments, but rather about estate planning, tax matters, other stuff?
Could you perhaps describe what constitutes 'advice' in your mind?

See comment in my original post:
"Presumably, since an hourly rate is not tied to the value of my investments, or generated by the purchase of any specific investment,..."

Isn't that a fair question?
"...couldn't I be confident to expect & receive objective advice for a more moderate fee?"

Honestly? No. You cannot be confident to receive competent advice simply because someone is not tied to commission based investments.
Sad, but true. Read through the responses on this thread, and you'll see that no one disputes this. That is not to say competent advisers don't exist.
Most of them, however, even if they claim to be 'independent' will be tied somehow to big commission paying organisations.

See my original response with comment passed on from my accountant.

"There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know."
Donald Rumsfeld

I'm not sure that Mr Rumsfeld's musings help much here, but I'm assuming the purpose of the quote is that you need someone who will tell you what you don't know, when you don't have enough knowledge to know what questions to ask?

Again, this is an interpretation on my part and may be incorrect.
Perhaps if you just said what you mean instead of quoting obscure obfuscations from Mr Rumsfeld we could more easily be helpful.

IMO, if you want to self-manage

awg, I can't see where the OP has said he wants to self manage.
I've just re-read the thread and it seems he wants to swap from an adviser who has produced good results, but whose fees he doesn't want to go on paying, to an adviser who charges by the hour for what is purported to be unbiased advice, unconnected to any commission based products.

I am sure the OP will correct this if I have once again drawn the wrong conclusion.

If moving to self managed, then of course it's a whole different situation but I can't see where he has suggested he wants to do this.

My point previously made was simply that to assume an adviser who says he is offering a 'fee for service'/objective advice is necessarily going to deliver advice that will render the OP's account more profitable than the existing (really, really good) adviser is questionable.

But if such an adviser exists, then I'm sure lots of people would be interested in hearing about him/her.

 

[Kayman]

IMO, if you want to self-manage get out your Wrap docs and they will have the rationale that dictates your investment strategy spelled out Risk tolerance and asset diversification/proportion being the obvious
Also what rate-of-return needed + life expectancy table to help focus the mind:

I will check on this. The best to my knowledge the wrap account is just an administration structure and has no bearings in relation to my investment strategy.
The investment strategy was developed by my adviser in conjunction with yours truly to suit my life style.
The administration structure is needed to hold the assets within my pension fund and somebody needs to be the Trustee of the pension fund.
Moreover, my adviser used mostly wholesale investment funds which are inexpensively available when in a wrap account. For an individual investing in to wholesale funds would cost more more than 1/2 million dollars for each investment. So, if I were to leave the wrap account I would have to sell my various investments and start anew as I could not possibly afford paying $500,000.- for each fund. I am not saying that starting afresh couldn't be done but I am pretty comfortable in the wrap account set-up.
My risk tolerance is pretty conservative and asset diversification is firmly in its place since 2004 and am happy with the current set-up.
The rate-of-return required had been addressed though the GFC has put quiet a dent in it in terms of growth. My investments include enough liquidity to see me through. A life expectancy table his is also in place.

If you have a sharp enough brain to have succeeded in business, it wont be rocket science. (Your post is indicative you are satisfied with the makeup and performance of your funds but resent the fee structure)
Some Internet reseach will enable you to see that most porfolios can be easily replicated WITHOUT managed investment funds, or even a personal stockbroker.

My grey matter need some honing, I relied too much on others (it's time to get my hands dirty again), oh well
And yes, I do resent the fee structure and considering the circumstances (GFC) am happy with the makeup & performance of my investments.
I will dig into the Internet and check on tools available concerning self-managing financial portfolio.

Dont expect your FP to agree with this, and I doubt they will be much help to you in the transition stage either, despite years of fee paying

Yes, I realise that the transition stage would be challenging if am unable finding an adviser who charges me a professional fee (hourly rate) for finacial advice.

btw, an accountant will provide tax advice about investments, but not investment advice, If getting a new FP, make sure the new one is an accountant as well, if possible

Yes, my present accounted is pretty good but he won't give me advice on financial investments.

Disclaimer, I am not neccesarily advocating following yr advisors portfolio, no idea of yr circs, just that it might be a "less difficult" way to start

I understand and appreciate your concern. You provided some good points which I will pursue... thanks again for informative and helpful post!

 

[Kayman]

I recently sacked my so called professional advisers (MLC) who returned me whopping -3.5%
They also had the audasity to charge me fees for "managing" my portfolio.
Wow lucky me. Perhaps I'll send them a bill for lost fees. Anyone up for a class action suit? My 10 year old could have invested the monies for me and gotten better than negative return at the bank.

I'm now taking control and opening my own super fund and investing directly.
No more fees for dubious "profesional" advisers. Taking control myself has empowered me.

(Sorry may be a bit off topic but angry re these adviser fees.)

It's topical post and good luck with your endeavour!

 

[Kayman]

Kayman, I apologise for being a bit terse in my last post. Should have been more restrained in my comments.


This is the sort of comment that confuses me. Doesn't the 'advice' relate to your investments? Or are you not looking for an adviser who gives you advice about actual investments, but rather about estate planning, tax matters, other stuff?
Could you perhaps describe what constitutes 'advice' in your mind?


Honestly? No. You cannot be confident to receive competent advice simply because someone is not tied to commission based investments.
Sad, but true. Read through the responses on this thread, and you'll see that no one disputes this. That is not to say competent advisers don't exist.
Most of them, however, even if they claim to be 'independent' will be tied somehow to big commission paying organisations.

See my original response with comment passed on from my accountant.


I'm not sure that Mr Rumsfeld's musings help much here, but I'm assuming the purpose of the quote is that you need someone who will tell you what you don't know, when you don't have enough knowledge to know what questions to ask?

Again, this is an interpretation on my part and may be incorrect.
Perhaps if you just said what you mean instead of quoting obscure obfuscations from Mr Rumsfeld we could more easily be helpful.




awg, I can't see where the OP has said he wants to self manage.
I've just re-read the thread and it seems he wants to swap from an adviser who has produced good results, but whose fees he doesn't want to go on paying, to an adviser who charges by the hour for what is purported to be unbiased advice, unconnected to any commission based products.

I am sure the OP will correct this if I have once again drawn the wrong conclusion.

If moving to self managed, then of course it's a whole different situation but I can't see where he has suggested he wants to do this.

My point previously made was simply that to assume an adviser who says he is offering a 'fee for service'/objective advice is necessarily going to deliver advice that will render the OP's account more profitable than the existing (really, really good) adviser is questionable.

But if such an adviser exists, then I'm sure lots of people would be interested in hearing about him/her.

No apology needed as I really wasn't offended. I accept that different people have dissimilar mindset - communication through a forum such as this can gainsaying to say the least

In relation to advice, look, there would be no issue if my current adviser would charge me for reviewing my financial portfolio once or twice a year on an hourly basis. Based on my particular investments, I firmly believe that an annual review is adequate. But I pay a monthly fee based on the worth of my total investments. I find this fee structure immoderate hence my quest for an alternative that meets my requirement.

If my future adviser does not work out the way I envisage then I just have to look for another one. If am unlucky for not finding the right adviser and/or am unsuccessful for self-managing my pension fund, I always can re-join my existing adviser as I intend to conduct the split in an amicable way, besides he knows it is business and not personal.

IMO, an adviser recommends investments and the fund manager (based on fund and market conditions) makes the money. It is highly unlikely that a fund like Vaguard or Platinum will bust however severe the market conditions.
Highly sophisticated investments require highly sophisticated people, my financial portfolio is not in this league by far!

And forget about the quote, it was just a silly attempt to be funny

Also, See my response to awg dated 19th-November-2010, 07:54 PM.
"Considering your (fee) cost savings you achieved I probably will bite the bullet and eventually start managing my portfolio myself sacrificing some time on the golf course."

Peace!

 

[Snagglepuss]

Hi Kayman,

I remember Whittle & Skok winning some awards in SmartInvestor magazine some years back - they have operated on a fee-for-service model for years. Their website explains more about them.

I have no connection with them and I am not a client of theirs. I just remember them because of the positive publicity they received in SmartInvestor, and because I pass their premises almost every day (they're in Kew, Melbourne).

 

[Kayman]

Hi Kayman,

I remember Whittle & Skok winning some awards in SmartInvestor magazine some years back - they have operated on a fee-for-service model for years. Their website explains more about them.

I have no connection with them and I am not a client of theirs. I just remember them because of the positive publicity they received in SmartInvestor, and because I pass their premises almost every day (they're in Kew, Melbourne).

Thank you kindly for the informative link, Snagglepuss. I'll contact them to find out if they are willing to consider my "predicament".

 

[Sir Osisofliver]

Hi Kayman,

On here I am anonymous...I like it that way - that way I don't have to preface every comment I make on here with... Do not take this as advice whilst I am RG146 compliant I do not know your persoanl circumstances and will not be held accountable if you do something based on general commentary that is not specific to your circumstances blah blah blah. I thought I would respond now that all the adviser bashing seems to be out of everyone's system and give you the inside scoop.

I will tell you that the company I am involved with incorporates a fee for service Financial Planning division (and has always been a fee for service business). We do exist! BUT running this kind of operation as opposed to a commission based structure however means that over 90% of our clients are sophisticated investors under the Corps Act definition. Net assets of 2.5M or an income greater than $250K per year. If you have this status the chances of being taken up by a fee for service FP are much improved.

Our plans usually cost between $2,500 for a simple plan to the most expensive one I've seen coming in at $12,000. (Multi-company, Multi-trust and complex ownership structure over $20M). We have multiple other revenue sources which means that FP division is run at break-even level, so that may well be below industry par. Of course we usually spend upwards of 30 man hours on a single plan - so its more comprehensive than most other plans out there.

Unfortunately for you I will not be marketing on this website...ever. I will not respond to a private message either. You will have to find us the way that all our other clients find us....word of mouth.

P.S. Managed funds are yucky. (None of our clients have them - for very good reasons) looks for my comments on these boards in relation to Managed Funds.
P.S.S. Education is easy.

Cheers

Sir O

 

[Kayman]

Hi Kayman,

On here I am anonymous...I like it that way - that way I don't have to preface every comment I make on here with... Do not take this as advice whilst I am RG146 compliant I do not know your persoanl circumstances and will not be held accountable if you do something based on general commentary that is not specific to your circumstances blah blah blah. I thought I would respond now that all the adviser bashing seems to be out of everyone's system and give you the inside scoop.

I will tell you that the company I am involved with incorporates a fee for service Financial Planning division (and has always been a fee for service business). We do exist! BUT running this kind of operation as opposed to a commission based structure however means that over 90% of our clients are sophisticated investors under the Corps Act definition. Net assets of 2.5M or an income greater than $250K per year. If you have this status the chances of being taken up by a fee for service FP are much improved.

Our plans usually cost between $2,500 for a simple plan to the most expensive one I've seen coming in at $12,000. (Multi-company, Multi-trust and complex ownership structure over $20M). We have multiple other revenue sources which means that FP division is run at break-even level, so that may well be below industry par. Of course we usually spend upwards of 30 man hours on a single plan - so its more comprehensive than most other plans out there.

Unfortunately for you I will not be marketing on this website...ever. I will not respond to a private message either. You will have to find us the way that all our other clients find us....word of mouth.

P.S. Managed funds are yucky. (None of our clients have them - for very good reasons) looks for my comments on these boards in relation to Managed Funds.
P.S.S. Education is easy.

Cheers

Sir O

Hey Sir Osisofliver,

Thanks for your informative post alas your inside scoop doesn't help me much in my particular circumstance other than that "education is easy" which more or less had been brought up here in this forum before.
Well, I paid in 2004 about $7,000.- for my plan involving about $1.7million and my income was about $90K less than your criteria is suggesting. Let me be clear, I never 'bashed' my adviser, on the contrary, he is damn good, I just don't agree with the monthly ongoing advice fee he is charging which is based on my net worth under his management.
I made my nest-egg with hard work and my risk profile is reasonably conservative. Therefore my investments in managed funds suit me personally. I realise that there are more sophisticated and 'lucrative' investments available but since I am retired since '98 I prefer the less hectic approach and am happy with my lifestyle and income created in the allocated pension fund. I am not interested anymore making a 'bundle' and am satisfied as long my income is supporting my free living and my capital (eventually) doesn't erode and keeps up with inflation.
Thanks again for your contribution, I shall keep my ears open and hope coming across a fee based adviser.

Kind regards...

 

[Sir Osisofliver]

Hey Sir Osisofliver,

Thanks for your informative post alas your inside scoop doesn't help me much in my particular circumstance other than that "education is easy" which more or less had been brought up here in this forum before.
Well, I paid in 2004 about $7,000.- for my plan involving about $1.7million and my income was about $90K less than your criteria is suggesting. Let me be clear, I never 'bashed' my adviser, on the contrary, he is damn good, I just don't agree with the monthly ongoing advice fee he is charging which is based on my net worth under his management.

Hey I don't mind you adviser bashing. I do it myself...a lot. Most FP's I encounter are parasites and glorified salespeople. "Would sir like his choice of managed funds." like picking items off a damn menu. I'm therefore looking askance at your comment that he is "damn good" when he's advised you into nothing but managed funds. What about other asset classes? Oh Let me guess he's used a variety of anaged funds to give you exposure to many different asset classes, right? Hmmmm can you see the problem with that?

I'd like to find out how good "damn good" is. Here are some questions to tease out some details about your current adviser. If he is a damn good Adviser he will either have told you this already or will know the answers.

1). In the 2003 Senate Inquiry into superannuation in Australia, Price Waterhouse Coopers did some financial analysis in relation to Superannuation funds. After tax, administration fees and adviser fees it was found that the real rate of return as an average across the industry since the introduction of mandatory super is..

a. 7.5%
b. 3%
c. 2%
d. 1%

The answer BTW is D. A study by PWC revealed that the level of return in superannuation over the longer term is consistent with the level of contribution indexed to inflation. IE Your superannuation fund is not making money, it is merely the amount you deposited keeping pace with inflation because of compounding effects. Guess where the moeny making income stream from your assets goes. *looks at comment about monthly management fees*

2) If you lined up all the thousands of managed fund products available to be purchased, how many of them outperform the All Accumulation index?

a. 100%
b. 80%
c. 50%
d. 20%

The answer is D. WTF? only 20% of funds can outperform the index?

3) Why?

a. Because funds have expenses like rent, salaries, advertising, research costs, schmoozie lunches and expense accounts, staff bonuses etc etc etc.
b. Because funds are managed by committee and the committee process means that slippage can occur.
c. Because there are two main forms of risk in the market, systematic Risk and non-systematic (or diversifiable) risk. The only way to eliminate diversifiable risk is to HEDGE the portfolio, and since this can be a considerable expense managed funds do not have the ability to manage this risk. Therefore when the market has a correction, so does the vast majority of managed funds.
d. all of the above.

The answer is d (and there are a bunch of other factors I haven't mentioned as well). If anyone wants to defend managed funds to me I will happily debate the issue. There is a LOT of reasons why I don't like managed funds and our current superannuation environment.I.E. Managed Funds are yucky.

I made my nest-egg with hard work and my risk profile is reasonably conservative. Therefore my investments in managed funds suit me personally.

There are known knowns...... or the way that I like to put it. You have no way of knowing what it is that you don't know...Like what is the risk of holding the assets directly at certain points of the economic cycle. If you can't answer that question...how can say it is outside your risk tolerance?

I realise that there are more sophisticated and 'lucrative' investments available but since I am retired since '98 I prefer the less hectic approach and am happy with my lifestyle and income created in the allocated pension fund. I am not interested anymore making a 'bundle' and am satisfied as long my income is supporting my free living and my capital (eventually) doesn't erode and keeps up with inflation.
Thanks again for your contribution, I shall keep my ears open and hope coming across a fee based adviser.

Kind regards...

If you are happy.....then you have no impetus to change what you are doing. You're obviously unhappy about the amount you are paying in management fees for little perceived value done by your current adviser. I'm not talking about you making a bundle with my above comments or previous response to you. I get that you want to have a stress free retirement and work on your handicap, and that it is appealing to have someone "look after" your investments for you but finally let me ask you this question. If the market were to do another GFC and you were to lose everything, what pain does your adviser feel? or the fund manager feel?

You have given control of your finances to someone else....take control back.

Cheers

Sir O

 

[Kayman]

Hey I don't mind you adviser bashing. I do it myself...a lot. Most FP's I encounter are parasites and glorified salespeople. "Would sir like his choice of managed funds." like picking items off a damn menu.

This is my second adviser. The first one I had did fit your description spot-on. After a lot of search on the Internet, in 2003 I found an institution called Adviser Ratings which was run by a Mr. David Childs. For a very reasonable fee he provided all sorts of (no-nonsense) advice - because of his straightforwardness I really came to like this guy. He's view of some advisers and the industry was not dissimilar to yours. Unfortunately, he must have either retired or moved to another business venture as I can't locate him anymore. Anyway, he provided me with a list advisers he thought to be ethical and weren't commission driven. That's how I selected my current adviser. I guess salesmanship is one of the essential attributes of any business enterprises including financial services. I don't have a problem with this as long as the dealings are transparent from my point of view. And yes, I realise herein lies the problem - how on earth would I know what crucial question to ask in the first place? (No need to respond ) I mean if I were such a wizard then why would I handing my nest-egg to an adviser in the first place. I guess in hindsight I could've invested everyting in bonds or term deposit accounts and probably would be better of...

I'm therefore looking askance at your comment that he is "damn good" when he's advised you into nothing but managed funds. What about other asset classes? Oh Let me guess he's used a variety of anaged funds to give you exposure to many different asset classes, right? Hmmmm can you see the problem with that?

Yes, your are correct. With the exeption of a term deposit and cash holding account my financial portfolio is entirely made up of a number of managed funds. The asset allocation consists of about 4.5% cash, 26.4% fixed interest, 8.7% property, 37.3% Australian shares, 23% International shares. This is, according to my adviser, in conformance to my long-term goals.
And no, I honestly can't see anything wrong with that, my finacial acumen is obviously inferior to yours as I am trained in a different field. Seriously, if I knew I'd talk to my adviser promptly.

I'd like to find out how good "damn good" is. Here are some questions to tease out some details about your current adviser. If he is a damn good Adviser he will either have told you this already or will know the answers.

1). In the 2003 Senate Inquiry into superannuation in Australia, Price Waterhouse Coopers did some financial analysis in relation to Superannuation funds. After tax, administration fees and adviser fees it was found that the real rate of return as an average across the industry since the introduction of mandatory super is..

a. 7.5%
b. 3%
c. 2%
d. 1%

The answer BTW is D. A study by PWC revealed that the level of return in superannuation over the longer term is consistent with the level of contribution indexed to inflation. IE Your superannuation fund is not making money, it is merely the amount you deposited keeping pace with inflation because of compounding effects.

I don't recall my adviser ever mentioning anything about the PWC study but I am not saying he hasn't. If he has then it went straight over my head. The total return of my financial portfolio (performance of asstets) from October 2004 to August 2010 is 5.80%. Not too bad IMO considering the GFC. However due to the amounts taken out (monthly pension payments, ongoing advice fees and wrap administration fees) my portfolio valuation is down 7.70%.

Guess where the moeny making income stream from your assets goes. *looks at comment about monthly management fees*.

Totally agree!!! The ongoing advice has to go. Unfortunately I can't do anything about the wrap account and associated fees and my present investments. If I only knew how to re-allign my managed funds assets on a regular basis I would not hesitate giving my adviser a notice to withdraw from his services today. I am trying to join the Australian Investors Association, the contributers in their forum in relation to Managed Investments may be of additional assistance to my plight.

2) If you lined up all the thousands of managed fund products available to be purchased, how many of them outperform the All Accumulation index?

a. 100%
b. 80%
c. 50%
d. 20%

The answer is D. WTF? only 20% of funds can outperform the index?

3) Why?

a. Because funds have expenses like rent, salaries, advertising, research costs, schmoozie lunches and expense accounts, staff bonuses etc etc etc.
b. Because funds are managed by committee and the committee process means that slippage can occur.
c. Because there are two main forms of risk in the market, systematic Risk and non-systematic (or diversifiable) risk. The only way to eliminate diversifiable risk is to HEDGE the portfolio, and since this can be a considerable expense managed funds do not have the ability to manage this risk. Therefore when the market has a correction, so does the vast majority of managed funds.
d. all of the above.

The answer is d (and there are a bunch of other factors I haven't mentioned as well). If anyone wants to defend managed funds to me I will happily debate the issue. There is a LOT of reasons why I don't like managed funds and our current superannuation environment.I.E. Managed Funds are yucky.

My adviser categorically states "we are in the business of ensuring our clients earn the market return (11.48% for the S & P 500), and not the average investor return (4.48%)." Quite true and achivable especially prior GFCT. Alas the mud hit the fan violently and the adviser hardly can be blamed for this.

There are known knowns...... or the way that I like to put it. You have no way of knowing what it is that you don't know...Like what is the risk of holding the assets directly at certain points of the economic cycle. If you can't answer that question...how can say it is outside your risk tolerance?]

I suppose you are talking about correctly timing the markets. If so, this would have been the only way an investor would have done significantly better than I have done. Ie. sell out before the market drop, and buy back in before the market rally and/or chasing 'hot fundmanagers'. On average, is it possible to get consistently these decisions right? I mean the consequences of getting them wrong would be just as financially disastrous as another GFC, maybe even more so. Considering my age (62), and the absence of a crystall ball, isn't my alternative of investing my nest-egg less nerve-racking? And do I really need to try and outperform the market by timing in and out (and having the risk you get it wrong) instead of simply generating the long term lifetime) market rate of return? My adviser provided me with the Dalbar Study you maybe familiar with which indicates that the risk of getting it wrong is shown by the average investor getting far less than the market rate of return. The reason the average investor gets far less is that they try to do the timing in and out and they get it wrong. Then again, there maybe an other study around (the one who didn't my adviser sent me) which indicates the opposite and some top-notch advisers (better than the damn good ones) probably are getting it right most of the time

If you are happy.....then you have no impetus to change what you are doing.

The truth is I am happy because I don't know any other way to invest reasonably safe and not to jeopardise my nest-egg. I am too old to start all over again.

You're obviously unhappy about the amount you are paying in management fees for little perceived value done by your current adviser.

Right, the fee structure is out of balance and value component is overpriced IMO.

I'm not talking about you making a bundle with my above comments or previous response to you. I get that you want to have a stress free retirement and work on your handicap, and that it is appealing to have someone "look after" your investments for you but finally let me ask you this question. If the market were to do another GFC and you were to lose everything, what pain does your adviser feel? or the fund manager feel?.

I have read somewhere that the US share market has just completed its first decade since the 1930s where the market was lower at the end of 10 years than at the start. But even the great depression “was not different this time (GFC)” and even then, as it always does, the market recovered, and as Warren Buffet says, wealth was transferred from the impatient to the patient.
I'd be devastated if I were to lose everything!
It's clear to me that both the adviser and f/manager would feel no suffering whatsover.

You have given control of your finances to someone else....take control back.

I'd like to. If for example I would stick to to my current investment strategy and fund managers in my wrap account say for another 20 years or so, I suppose all is needed is a regular (annual or semiannual) asset allignment. I think with some coaching I could eventually do the re-allignment of my managed fund myself. Maybe subscribing to publications which monitor the various fund managers would be beneficial as I wouldn't like to be last one to switch off the lights in their offices
Thanks for a wonderful, stimulating and informative exchange of posts.

Kind regards...

 

[Julia]

Kayman, it is much less difficult or complicated to DIY than you probably imagine. I have sent you a PM. Check your PM inbox.

 

[awg]

Hi Kayman,

let me say first I cast no serious aspersions on FP

just doing their job

and very much needed by many

The objections I had were:

too high fees
no sell side advice ( with most)
I should never pay a management fee on cash

From your brief description of your portfolio, I feel certain that you would be able to setup a SMSF for less than $1000 total cost all up per annum

and replicate that structure with no more than 10 ASX codes
( some may prefer 20)

Using ETF and Hybrids alone, it would track your indexs and volatility the same as present.

As Sir O mentioned, the f-f-s fellows are generally only interested in high net worth individuals

They are in business to make a profit after all!

( I did find one at least that was prepared to take on all-comers, his rate was $350 p hr as i recall)

I suspect you may feel very unsure of your ability to make a number of investment decisions and enact them. I would consider that to be normal.
That is what peronal investing is all about though

 

[Sir Osisofliver]

This is my second adviser. The first one I had did fit your description spot-on. After a lot of search on the Internet, in 2003 I found an institution called Adviser Ratings which was run by a Mr. David Childs. For a very reasonable fee he provided all sorts of (no-nonsense) advice - because of his straightforwardness I really came to like this guy. He's view of some advisers and the industry was not dissimilar to yours. Unfortunately, he must have either retired or moved to another business venture as I can't locate him anymore. Anyway, he provided me with a list advisers he thought to be ethical and weren't commission driven. That's how I selected my current adviser. I guess salesmanship is one of the essential attributes of any business enterprises including financial services. I don't have a problem with this as long as the dealings are transparent from my point of view. And yes, I realise herein lies the problem - how on earth would I know what crucial question to ask in the first place? (No need to respond ) I mean if I were such a wizard then why would I handing my nest-egg to an adviser in the first place. I guess in hindsight I could've invested everyting in bonds or term deposit accounts and probably would be better of...


Yes, your are correct. With the exeption of a term deposit and cash holding account my financial portfolio is entirely made up of a number of managed funds. The asset allocation consists of about 4.5% cash, 26.4% fixed interest, 8.7% property, 37.3% Australian shares, 23% International shares. This is, according to my adviser, in conformance to my long-term goals.
And no, I honestly can't see anything wrong with that, my finacial acumen is obviously inferior to yours as I am trained in a different field. Seriously, if I knew I'd talk to my adviser promptly.


I don't recall my adviser ever mentioning anything about the PWC study but I am not saying he hasn't. If he has then it went straight over my head. The total return of my financial portfolio (performance of asstets) from October 2004 to August 2010 is 5.80%. Not too bad IMO considering the GFC. However due to the amounts taken out (monthly pension payments, ongoing advice fees and wrap administration fees) my portfolio valuation is down 7.70%.

So for six years of perfromance you are down 7.70%??? I empathize with your situation Kayman, my actual response when I read this referred to your financial advisers as the wrong end of a mangy dog. I will say this once - you are getting screwed.

Totally agree!!! The ongoing advice has to go. Unfortunately I can't do anything about the wrap account and associated fees and my present investments. If I only knew how to re-allign my managed funds assets on a regular basis I would not hesitate giving my adviser a notice to withdraw from his services today. I am trying to join the Australian Investors Association, the contributers in their forum in relation to Managed Investments may be of additional assistance to my plight.



My adviser categorically states "we are in the business of ensuring our clients earn the market return (11.48% for the S & P 500), and not the average investor return (4.48%)." Quite true and achivable especially prior GFCT. Alas the mud hit the fan violently and the adviser hardly can be blamed for this.

WHAT?! *Choking on my own rage here* Kayman you're making me old before my time. Go back to your Adviser, tell him you just found about about Listed Index Funds which charge a tiny freaking trail and give you a perfectly correlated market level of return and tell him if he can't do better than the market than WHAT THE **** ARE YOU PAYING HIM FOR?

You bet your little cotton socks that your adviser can be blamed for your current financial situation. What he did is he played hard fast and loose with your money with no protection in place. Oh he's not alone, the whole ****ing industry did the same stupid **** - but as I said before it's no skin off their nose if you are living on tinned baked beans in ten years time coz they screwed you because of negiligence or incompetence.

Let me put it this way Kayman. When you buy a house, the bank make you insure the property. To ensure the integrity of that asset (which while there is still money owing on it is essentially their asset) in case some truck driver falls asleep at the wheel and drives through your living room.

Shares (which are a lot more volatile an asset class than residential property) can also be insured in case the Global Financial crisis comes along parks itself in your portfolio.

Your Adviser did not protect your assets correctly

But how could he have known that the GFC was coming? He's not a soothsayer!!!

Wow that's a great chestnut. We aren't fortune tellers, we can't tell the future. (It sound suspiciously like a black swan event kind of comment.) No profit without risk. Great! lets disavow all responsibility towards the people who entrust their life savings to us.... and hey it's not our money so lets not have any risk protection in place either.

So in August 2007 when BNP Paribus said it couldn't value the assets in two of it's funds because of a "complete evaporation of liquidity" in the market, or when the European Central Bank pumped 63 billion euros to try an improve liquidity and then added another 108 billion when that was enough a week later; Or when the Federal reserve cut interest rates and warned that the credit crunch "could be a risk to economic growth"..... how much of a fortune teller did you need to be to put risk protection in place?

How about September 07, when Northern Rock had to apply for Emergency financial support from the Bank of England as lender of last resort causing the biggest run on a Bank seen in a century... Did we still need to be fortune tellers to put risk protection in place?

Perhaps October 07 when UBS announced losses of 3.4 Billion dollars from sub-prime related investments...did we need to be fortune tellers then?

Mind you our market was still rising whilst this was occurring!! So shouldn't we have locked in some PROFIT!!!!

When exactly during the storm of negative overseas announcements over the next three months would it have been appropriate to protect the assets under our control?

The firm I worked for Eether liquidated portfolio's or protected them in JANUARY 2008. To give you a comparison our client are up in their portfolio's after fees by over 35% since the start of the GFC.

THAT is why you got screwed.

Cheers

Sir O