Pragmatic Capitalism

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Why get a financial advisor?

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Ok, so the thing is, a substantial portion of the financial advisors out there are wolves in sheep’s clothing. High fees, conflict of interest, closet indexing, you name it.

So, isn’t picking a financial advisor or a asset manager, akin to stock picking? I.e. it is nigh impossible to tell the good from the bad at an early stage?

And, given that an individual armed with just a discount brokerage account can build a well diversified G-FAP portfolio using just four ultra low cost ETFS.

And that anyone with high school math can do their own annual rebalancing.

Why should anyone take the uncompensated risk of hiring a financial advisor or asset manager ?

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Posted by Machine Learning
Posted on 06/15/2016 1:10 PM
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That’s like asking why anyone should hire a personal trainer. We all know how to get in good shape. You stop eating like shit and start working out. It’s so easy! Anyone can do it. But you know what, most people actually can’t do it. Most people can’t build the right plan and they can’t stick with it.

The same exact thing goes for investing. We all know how to build a pretty good plan and we all know how to maintain it over time. It’s not rocket science. But you know what? Very few people can actually do it. I mean, I work almost exclusively with super smart and wealthy people. I am super disciplined about this stuff and I coach my clients continuously. And I still have about 5% turnover every year in my clientele. Why, because some of them inevitably quit the plan. No matter how much I coach them they still quit. If there’s one thing I’ve learned in this business it’s that investing is simple, but not easy. Most people just don’t have the behavioral make-up to stick with a good plan.

Sadly, most FA’s and portfolio managers are wildly overpriced. They sell the idea of turning you into Arnold Schwarzenegger when they can’t actually do that. That’s changing thankfully. I mean, with guys like me at 0.35% and lower per year, there’s no way that 1% fee structure can sustain itself…..

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Cullen Roche Posted by Cullen Roche
Answered on 06/15/2016 1:23 PM
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    I rationalize it many ways, but although Cullen gets part of it correct “If there’s one thing I’ve learned in this business it’s that investing is simple, but not easy. ” that isn’t all of it. The not easy part includes matching your portfolio to your expectations, and executing well on that plan (that’s Cullen’s not easy, and stick to it part). The other parts include the knowledge resources a good advisor has that come from experience, and there is the intangible that comes from the personal relationship and trust. I have had my savings for 31 years with a friend I’ve known since I was 3. It’s not as low priced as Cullen, but I would never forgo that lifelong relationship. From worrying about the potential finances for my children (who he knows well) should something happen to me, to making my financial life easy to execute (… I need $450,000 wired here to buy a house tomorrow. Implicit is: execute that and optimize the portfolio changes based on my current tax situation). It’s like Star Trek “Make it so”, and it gets done. I’m a Chemical Physicist, and so I enjoy that level of abstraction, and hence enjoy macro economics, and I dislike the nitty gritty of personal micro-economics. It has worked well for decades (yeah we reduced equity holdings in the late 1990’s and in 2005-2007, some too early, some we didn’t get in time, but overall much better than the market). Even if it’s more expensive than Cullen, I’m unlikely to change, even though I know the “tax” is higher than Cullen.

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    Posted by John Daschbach
    Answered on 06/17/2016 9:20 PM