How much is reasonable for a financial advisor?
 

I guy I have worked with on a number of things is probably going to take up my stock portfolio (i.e. retirement accounts).

I pretty much trust him. I knew his brother in med school. I've known him now for several years.

With my small retirement fund, he had recommended I mainly invest in index funds.

But now he says my little pot of money is large enough to manage.

He says that historically he beats the S&P 500 by 2-3%. He would charge 1% per year for him and his employees to manage my accounts.

Is 1% a reasonable charge for a relatively high-maintenance management?

anyone have an opinion on this?

[QUOTE=MikeWaters;249147]I guy I have worked with on a number of things is probably going to take up my stock portfolio (i.e. retirement accounts).

I pretty much trust him. I knew his brother in med school. I've known him now for several years.

With my small retirement fund, he had recommended I mainly invest in index funds.

But now he says my little pot of money is large enough to manage.

He says that historically he beats the S&P 500 by 2-3%. He would charge 1% per year for him and his employees to manage my accounts.:



If he historically beats the S&P by 2-3%, I assume per year, and that is net of his 1% charge, you are getting a very good deal. You could find some who are even better than 2-3% net of fees, but they will charge more than 1%.

One of the money managers I use for my clients has beaten the S&P the last 5 years, through June 30th, by 2% a year and and over the last 10 years by 5% a year. That is net of a 1 1/2% management fee.

of course he could have been lying about the 2-3%.

I thought you said you trusted him. He should be able to provide documents that verify his claim.

He should be able to tell you how much risk he is taking to get those returns Ask him for instance what his beta is.

For instance, Growth fund of America over the last 3 years has average 8%. That is 3.64% higher than the market. However, their beta is .94. They are beating the market that badly with 94% of market risk.

I guess there's a reason why Growth Fund of America is the biggest mutual fund in the nation, with almost 200B in assets under management. That's insane.

I actually work for CRMC's IT group as a business systems analyst, and the company seems to be doing things right. The fundamental philosophy is conservative long term investment results and we're always reminded to remember that it's shareholder's money we're managing. It's not as cheesy as remember this is Billy's college fund, or Dorothy's retirement money, but that's the culture I work in. Of course, there's no guarantee that mutual funds such as GFA or EUPAC will continue to do as well, especially with the size of the funds, but the company certainly has the right focus.

Mike, here are my thoughts.

1. I don't think a financial advisor is EVER worth 1% of your return, unless you're into the $10M+ range of assets.
2. <$10M, don't even think about it--use Vanguard index funds and modern portfolio theory and balanced asset allocation. here are a couple places to learn. http://www.moneychimp.com/articles/risk/riskintro.htm
http://www.indexfundeducator.com/allocation.htm
3. >$10M you may think about additional diversification or the use of funds like Dimensional Fund Advisors. http://www.dfaus.com/
4. Any financial advisor who is telling you he beats S&P by 2-3% is probably dishonest or incompetent and I would run away as fast as you can.

Any financial advisor who tells him that?? I think you meant to say, verify what you are told. To say any financial advisor telling you that is probably dishonest or incompetent is something an arrogant asshole or dipshit would say.

Nah, I'd say someone in finance who actually would say that to a client is the true arrogant asshole and/or dipshit.

Perhaps you ought to stick to your area of expertise, which obviously isn't investment advising.

By the way, the dimension system you suggested. What is their 5 year track record on their core value equity fund.