This is definitely inside baseball talk so, if you're not in the financial services industry, it probably won't make sense to you. That said, you should probably understand what it means if you work with a financial advisor. This is my response to an article that appeared in Financial Advisor IQ entitled, Why Advisors’ Fees Are All Over the Map...
MY RESPONSE TO THE ARTICLE
In most cases, especially in the investment business, pricing anomalies like this are squeezed out of the system pretty quickly. Not sure if this article really answers the WHY question posed in the headline although Bob touches on it at the end. Lack of information on the part of advisors and clients partially explains it. But, after 30 years of working under the hood of advisor practices, I would offer some additional reasons to consider...
* To appreciate this leverage please review the Lifetime Value of a Loyal Client chart below...
FINRA Fines Merrill Lynch $2.8 Million for Overcharging Customers;
This video does an excellent job of explaining what rate of return expectations are and why they are important. It also explains how rate of return expectations are derived and how they can impact financial plans and investment portfolios.
While the concepts and process described in this interview pertain to one of the largest institutional funds in the world, they are virtually identical to the ones you and your advisor should be discussing.
In this interview, the chief investment officer and interim chief actuary for CalPERS discuss the process they use to review and adjust their pension fund's assumptions.
The Importance of Selecting the Right Benchmarks...
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Please note that mutual funds and money managers usually select their own benchmarks. That is, they select which yardsticks they think their performance should be compared to.
A cynic might say this is like the fox guarding the proverbial chicken coop so make sure you understand what's going on here. The video to the left and the white papers below address this important and often overlooked aspect of investment management.
Do NOT be surprised if your financial advisor gets stumped here. If that happens you should view this as a mutual learning experience.
Here are some resources you might find helpful...
Asset Based Fees
A To B Syndrome
Best Band Ever
Blown Away Guy
Brother David Steindl-Rast
Coffee Is For Closers
Financial Advisor Iq
Glengarry Glen Ross
Let It Shine
Monkberry Moon Delight
National Nutrition Month
Talking White Paper
Think Outside Box
Time In Vs Timing
What Is A Slog?
~ Socrates ~