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...