cut out the middleman

With the rise of exchange-traded funds (ETFs), advisors like us can now provide you with the portfolio you need while avoiding expensive actively managed mutual funds. We play the role of the portfolio manager as part of our service. The cost savings from avoiding actively managed funds are yours to keep. Besides generally having lower expenses, ETFs have the added advantages of more flexible trading and greater tax efficiency.

Does your advisor charge you a percentage of your assets to manage your assets? As part of this service, do they recommend actively managed funds that also charge a management fee as a percentage of the assets in the fund? Have those actively managed funds performed better than their relevant benchmark? In other words, have you received value for the price you are paying?

According to SPIVA U.S. Scorecard* as of December 31, 2017, the answer is NO. Over the last one, three, five, and 10 years, the percentage of actively managed US large cap funds to beat the S&P 500 was 37%, 21%, 16%, and 11%, respectively.

Downside Protection?

A common assertion will be actively managed funds are used to protect the portfolio from losses. Never mind that historically the S&P 500 is positive most years. Case in point, the total return for the S&P has not been negative since 2008. Even in 2008 when the S&P was down 37%, only 44% of the actively managed funds beat the benchmark.

Cut Out the Middleman

Whether your advisor is really a salesperson for the fund company or doesn’t have the skill or imagination to build a portfolio from ETFs, you are paying for them to be an expensive middleman. It is in your interest to work with the advisor that adds the most value possible.



Categories: Fees, Investments


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