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JMacDonald

Unhappy Ing Client At M*

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TR..........The information has been documented in Swedroe book, The only guide to a winning investment strategy you'll ever need, among others.

 

Sales advisors are sales people(and there is absolutely nothing wrong with sales as a profession) and have no control over the operation of the funds. They simply add cost to the operation of the fund. They earn their living by selling the product, and true, in some cases where the purchaser would not be motivate to buy on his or her own, so they provide an opportunity.

 

The salesman can advise fund choices among his clients . He may or not be highly qualified to do this.

 

But ther bottom line is that the total of all load funds perform more poorly than the total of no load funds, the investor who is invested for the same period of time cannot do as well. So where is the additional dollar value added by the salesman to the loaded fund?

 

You said, "No load investors by definition have 2 common traits.

Fact:

1) They think they are smarter than everyone else.

2) They think because they don't pay a sales charge that their investment performs better."

 

This statement is more true for sales advisors who think that they are smarter because they do not pay the sales charges like the poor shnuck who they sold a loaded fund to, or they use no load funds to invest.

 

The sales advisor thinks that they are smart enough to fool everybody, which they do not, especially at this site.

 

Ira

 

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FT

 

"The question I asked was not to debate whether the market's movement over the past five years constituted a "drift" or a "bell curve" or anything else. It was to ask a simple question: in a five-year period where the overall market direction has been negative from beginning to end, would not an advisor who had recommended the funds that Joe listed have earned his commission?

 

It's a hypothetical question, with a pretty simple answer. Market down + my funds up = advisor good. "

 

In every short term period there will be load advisors who give better advise, and do better than the market. It is also true that there will be many of the advisors who give information that does not measure up to the market and "WILL NOT "have earned his commission".

 

By your logic, since all sales advisors are renumerated by the same commission structure, those salesman who have advised portfolios that do not measure up have not earned their commission, and should return this money to the client.

 

ira

 

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Hi,

FT: I went to Paris this past Spring Break. Now I could have stayed home and saved several thousand dollars and invested that, but by reading those books my portfolio has done so well that I could afford it. However, what I needed was you along to help me with speaking French. Best Wishes.

 

Joe

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Guest TR1982

Ira,

You're like Sierra. You don't like salespeople and don't think they add any value. That's cool. But we already know this because guys like you and Sierra keep pounding this day after day. Can we move on now that your point of view has been established? Thanks.:-)

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In every short term period there will be load advisors who give better advise, and do better than the market. It is also true that there will be many of the advisors who give information that does not measure up to the market and "WILL NOT "have earned his commission".

 

By your logic, since all sales advisors are renumerated by the same commission structure, those salesman who have advised portfolios that do not measure up have not earned their commission, and should return this money to the client.

 

 

Ira,

 

From what I've seen and read, I doubt you'll find many advisors willing to offer a rebate. But just as a guy who does his job consistently well year after year deserves to be commended for it, a guy who does not measure up to the market and does not earn his commission deserves to be shown the door.

 

I'm not sure what the right time frame to judge a guy is...it's probably longer than the most recent one-year return, but you shouldn't have to wait twenty years before making the call. If I were saddled with someone who was costing me money for no good reason after five years, say, I'd be looking for options.

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Hi,

FT: I went to Paris this past Spring Break. Now I could have stayed home and saved several thousand dollars and invested that, but by reading those books my portfolio has done so well that I could afford it. However, what I needed was you along to help me with speaking French. Best Wishes.

 

 

Tres bien! La qualite de vie est vachement importante, je suis tout a fait d'accord! Bien plus important que de se mettre en place pour faire des comptes tous les jours! Felicitations!

 

[Hope you enjoyed Paris...what a gorgeous city. I'm quite envious. I lived there for a year several years ago, and would love to go back there one day soon.]

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The salesman can advise fund choices among his clients . He may or not be highly qualified to do this.

 

But ther bottom line is that the total of all load funds perform more poorly than the total of no load funds, the investor who is invested for the same period of time cannot do as well. So where is the additional dollar value added by the salesman to the loaded fund?

 

 

 

Assuming the salesman IS qualified to advise on fund choices, it would seem that the additional dollar value added by the salesman to the loaded fund lies in the fact that he isn't selling "the total of all load funds," he's selling a selection of them.

 

At this point, the investor has an option: attempt to put together a selection of funds that will beat whatever index (s)he's shooting for by a decent margin, or accept that (s)he and her/his advisor are probably not capable of that, and go with the index approach. I can see the merits in either approach, and it really winds up depending on a.) the appetite of the investor for this kind of stuff, and b.) the ability level of the advisor.

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Guest Sierra
Ira,

You're like Sierra. You don't like salespeople and don't think they add any value. That's cool. But we already know this because guys like you and Sierra keep pounding this day after day. Can we move on now that your point of view has been established? Thanks.:-)

TR: I'm flattered that I am always on your mind.

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Guest TR1982

Well, you keep reminding me day after day that you don't like salespeople. It's kind of hard to ignore.

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TR,

 

"Ira,

You're like Sierra. You don't like salespeople and don't think they add any value. That's cool. But we already know this because guys like you and Sierra keep pounding this day after day. Can we move on now that your point of view has been established? Thanks.:-)"

 

Thank you for the compliment. I am honored that you put me in the class as Sierra.

 

Ira

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FR,

 

You wrote,

"Ira,

 

From what I've seen and read, I doubt you'll find many advisors willing to offer a rebate. But just as a guy who does his job consistently well year after year deserves to be commended for it, a guy who does not measure up to the market and does not earn his commission deserves to be shown the door.

 

I'm not sure what the right time frame to judge a guy is...it's probably longer than the most recent one-year return, but you shouldn't have to wait twenty years before making the call. If I were saddled with someone who was costing me money for no good reason after five years, say, I'd be looking for options. "

 

You also wrote,

 

 

"QUOTE (JMacDonald @ Jul 8 2005, 11:16 AM)

 

 

However, there have been some funds that have done well over the past five years: Mid-Cap Index-- +9.02%; Small-Cap Value Index-- +14.29%; and the REIT Index-- +19.62%. I have these funds in my tax-deferred accounts. Maybe James' agent didn't have him in a diversified portfolio.

 

Also I would say that my portfolio would have suffered from those high fees that go with VAs. I feel fortunate that I learned to do it myself and didn't have to suffer the advice of an agent. Best Wishes.

 

 

 

 

Joe, how would you feel if it had been an agent that led you to the funds you listed here? In a market which has drifted downward over five years, would you not think the agent had done his/her job successfully if (s)he had shown you funds that returned 8.02%, 13.29% and 18.62% to you, after a 1% fee that (s)he had earned? "

 

FR, In responnse to Joe's selection of index funds over the past 5 years, you were pretty gung ho about this being the right time frame when thinking of advisors who would recommend these funds to their clients talking about how they earned the extra 1 percent charges.

 

Apparently, that time frame was adequate in the context of successful advisors. Now, when you were reminded about a very large representation of advisors making recommendations that are not successful, and do not measure up to the index, you are not sure of what the time frame should be. Please stop changing your story.

 

If you feel that part of a sales advisors job is to recommend funds that beat the index, and they do not, they are not doing their job. Instead of the client simply terminating the relationship without receiving money back, don't you think that the client who lost a lot of money on the market because of these sales reps should be compensated. If these sales reps do not pay a penallty, theywill simple go on to others.

 

I know that the above will not happen, but, I wish you would please stop talking about successful advisors earning the extra charges.

 

Ira

 

 

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Guest TR1982

We will stop talking about that when you stop talking about lower cost funds always outperforming higher cost funds.

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TR.........The information that I talk about is based academic research. If you can do the same, I am open to agreeing with you, however when I feel that you are shooting from the hip, I cannot agree .............perhaps you can substabtiate some of your statements..........I hope that I can learn from your comments.

 

Respectfully,

 

Ira

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FR, In responnse to Joe's selection of index funds over the past 5 years, you were pretty gung ho about this being the right time frame when thinking of advisors who would recommend these funds to their clients talking about how they earned the extra 1 percent charges.

 

Apparently, that time frame was adequate in the context of successful advisors. Now, when you were reminded about a very large representation of advisors making recommendations that are not successful, and do not measure up to the index, you are not sure of what the time frame should be. Please stop changing your story.

 

If you feel that part of a sales advisors job is to recommend funds that beat the index, and they do not, they are not doing their job. Instead of the client simply terminating the relationship without receiving money back, don't you think that the client who lost a lot of money on the market because of these sales reps should be compensated. If these sales reps do not pay a penallty, theywill simple go on to others.

 

I know that the above will not happen, but, I wish you would please stop talking about successful advisors earning the extra charges.

 

 

 

Ira, either get back on your meds or start reading my stuff in its context. The reason I used five years in my first example is that I was alluding to Joe's post, which said that in the last five years, his funds had performed in such and such a way. He brought up the five-year time frame; I didn't. I merely asked him if five years of outperformance would be enough in his eyes to warrant the paying of a commission. And in the second post, I postulated five years as the time frame in which I'd dump an unsuccessful advisor.

 

These two statements are not even contradictory, much less do they constitute my "changing my story." And if you're reduced to grasping at straws in this embarrassing manner, perhaps it's best just not to post.

 

I don't know why you're offended at the notion that "successful advisors earn the extra charges," especially when that observation comes virtually back-to-back with a statement that an UNsuccessful advisor should be dumped after five years.

 

Hey, if you want to propose a series of fines for advisors who recommend underperforming funds, be my guest. Chase your tail all day with that one. From what I read here and elsewhere about the insurance and financial services lobby, you have a better chance of walking on water than getting such legislation passed. But it's your time and effort...knock yourself out.

 

 

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Guest TR1982
TR.........The information that I talk about is based academic research. If you can do the same, I am open to agreeing with you, however when I feel that you are shooting from the hip, I cannot agree .............perhaps you can substabtiate some of your statements..........I hope that I can learn from your comments.

 

Respectfully,

 

Ira

Ira,

I have research that clearly shows that cost is a factor in performance but not the most important. Furthermore, firms like Morningstar have clearly written on this issue. They have been able to make broad generalizations about higher cost being a drag on performance, but you can't say that because Fund A is more expensive than Fund B that Fund A's performance will be better. There is no evidence to support this at all, with one exception: index funds. Since they all have the same objective, and invest in the same securities, the only factor that matters is cost.

 

If you look beyond just raw performance and look at risk adjusted performance (aka alpha), indexing as a methodology has some advantages in some asset classes and cost is a factor as well. But there is no clear consensus that "lower cost = higher performance". People like Swedroe and Bernstein want to believe there is, but they keep forgetting to leave their axes at the door.

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