Financial Advisor Math Help Please

[y4m]

I am doing this wrong or not thinking or something…right?  Because otherwise   and 

In April, we moved some of my retirement accounts from a basic target date fund at Fidelity (FFFGX) to an active advisor at Morgan Stanley.

On 4/8/13 I transferred $108,223 to his care.  The value of that account on 12/31 was $111,620, so that's a gain of $3397 or 3.14%

According to this data on FFFGX, if I had invested 10K in that fund on 4/8, I would have had $11,490.45 on 12/31, a gain of 14.9%.

So basically if I had left my $108,223 in FFFGX, I'd have $124,348 in there on 12/31, meaning FFFGX outperformed the advisor by almost $13K.

Please tell me I am wrong.  Horribly wrong.  Or that the advisor probably has some awesome explanation for this that I am not considering.

[Deleted]

What are the fees for the same time period?

[Deleted]

I have to know the fees (is it front-load; end-load, etc?) before i can get too angry for you.

[y4m]

Jan 2, 2014 14:34:52 GMT -5 @mrsspunky said:

What are the fees for the same time period?

It is not at all obvious from their website.

But should I care?  If an advisor's fees make it such that he can't compete with a basic low fee fund, shouldn't I just pick the fund?

[barefootcontessa]

this is why I am switching to an index fund for the bulk of my DH's retirement accounts.

[greencrayon]

Jan 2, 2014 14:35:39 GMT -5 @lauriergirl28 said:

I have to know the fees (is it front-load; end-load, etc?) before i can get too angry for you.

Newbie question- can you explain this? 

[Deleted]

Jan 2, 2014 14:36:58 GMT -5 y4m said:

Jan 2, 2014 14:34:52 GMT -5 @mrsspunky said:

What are the fees for the same time period?

It is not at all obvious from their website.

But should I care?  If an advisor's fees make it such that he can't compete with a basic low fee fund, shouldn't I just pick the fund?

If your accounts are being actively managed/traded and it is commission-based (as opposed to fee-based) it could make a whole lot of difference.

[SJ]

Do you know what he has invested your money in? Has he explained the reasoning behind his strategy? Have you seen his historical performance during all kinds of markets? Talked to other clients as referrals? Has he been active with your money?

These are some of the places I would start. I am generally wary about freaking out over short-term performance if it is a proven advisor with good strategies and track record.

[barefootcontessa]

Jan 2, 2014 14:36:58 GMT -5 y4m said:

Jan 2, 2014 14:34:52 GMT -5 @mrsspunky said:

What are the fees for the same time period?

It is not at all obvious from their website.

But should I care?  If an advisor's fees make it such that he can't compete with a basic low fee fund, shouldn't I just pick the fund?

last fall I was talking to a friend who has worked on Wall Street for 20+ years and he told me lots of fund managers actually invest their own money in index funds.  when I went and looked at the fees my DH was paying I learned that the actively managed funds have fees of 1.5% while the index fund has .25% fee.  In just one year this is a difference of about $7500 based on his balance.  so I am working on moving everything to an index fund.  I am looking into whether I can move to cash when the market tops.  ideally I would have money an the index index during an uptrend and move to cash in the downturn.  

[SJ]

Also even though we are not buy-and-hold investors nor are we ever 100% invested in equities, it is absolutely our goal to beat the indices over various periods of time, most importantly the long-term. Otherwise of course our clients would and should buy the indices. We have 35+ years of doing so though.

Your advisor should be showing your performance after all fees and expenses. We would never take credit for numbers before accounting for our fees.

[SJ]

barefootcontessa even though we don't use index funds, the ability and flexibility to quickly shift between equities and cash is a large reason why our strategy so vastly outperforms. We are able to protect and outperform widely during bear markets which more than makes up for slight underperformance during roaring bull markets (because we are never 100% invested). Over time, these two effects compound to the great benefit of our clients.

I am oversimplifying greatly of course.

[LoveTrains]

I know you are really only looking at an 8 month period of April - year end, and I'm sure I am missing something, too - but I am annoyed for you that your gain was under 4% for a time that the market performed so well overall.

[cjeanette]

I would be looking for an explanation from him/her. I would also compare what you are currently invested in with the allocation of your old fund. That may give you your answer.

[barefootcontessa]

Jan 2, 2014 14:46:49 GMT -5 SJ said:

barefootcontessa even though we don't use index funds, the ability and flexibility to quickly shift between equities and cash is a large reason why our strategy so vastly outperforms. We are able to protect and outperform widely during bear markets which more than makes up for slight underperformance during roaring bull markets (because we are never 100% invested). Over time, these two effects compound to the great benefit of our clients.

I am oversimplifying greatly of course.

I actively trade in our non-retirement accounts and also one individual IRA we have from an old job.  going to cash is definitely a key element of my strategy.  the problem I am finding is that the employer-sponsored retirement plans limit what you as the investor can do, e.g.  only allow switching funds every so often.  

[Deleted]

Jan 2, 2014 14:38:44 GMT -5 greencrayon said:

Jan 2, 2014 14:35:39 GMT -5 @lauriergirl28 said:

I have to know the fees (is it front-load; end-load, etc?) before i can get too angry for you.

Newbie question- can you explain this? 

This might be a Canadian thing I'm not sure. But basically, front-load you pay a % up front when you transfer and end-load you pay if you leave.
Sometimes you might pay a holding fee instead, it really depends on the firm and the advisor.
My DH is a financial planner, not me so I could totally be getting this wrong too. I'd listen to the posters who are actually FPs

[Deleted]

Jan 2, 2014 15:24:29 GMT -5 RockNVoll said:

Jan 2, 2014 14:58:54 GMT -5 @lauriergirl28 said:

This might be a Canadian thing I'm not sure. But basically, front-load you pay a % up front when you transfer and end-load you pay if you leave.
Sometimes you might pay a holding fee instead, it really depends on the firm and the advisor.
My DH is a financial planner, not me so I could totally be getting this wrong too. I'd listen to the posters who are actually FPs

Front loads and back-end loads are things that exist in some U.S. mutual funds too, but not sure why it matters in this case since it would only make the performance of her MS assets look even worse.  Target date funds don't typically have a load.

Good point. I'm curious to see what her advisor says

[y4m]

Jan 2, 2014 14:40:57 GMT -5 @mrsspunky said:

Jan 2, 2014 14:36:58 GMT -5 y4m said:

It is not at all obvious from their website.

But should I care?  If an advisor's fees make it such that he can't compete with a basic low fee fund, shouldn't I just pick the fund?

If your accounts are being actively managed/traded and it is commission-based (as opposed to fee-based) it could make a whole lot of difference.

But am I correct in assuming that it can only go down from here?  As in maybe he counted all the fees already or maybe he didn't (in which case the numbers are even worse), but either way, he's performing way under my basic target date fund in this 8-month period and that seems pretty questionable?  We are setting up an appointment with him to discuss strategy, but I want to make sure I'm on slightly solid footing as to my math here.  

[cjeanette]

Jan 2, 2014 15:34:16 GMT -5 y4m said:

Jan 2, 2014 14:40:57 GMT -5 @mrsspunky said:

If your accounts are being actively managed/traded and it is commission-based (as opposed to fee-based) it could make a whole lot of difference.

But am I correct in assuming that it can only go down from here?  As in maybe he counted all the fees already or maybe he didn't (in which case the numbers are even worse), but either way, he's performing way under my basic target date fund in this 8-month period and that seems pretty questionable?  We are setting up an appointment with him to discuss strategy, but I want to make sure I'm on slightly solid footing as to my math here.  

Any return you are seeing should be after fees if I am remembering MS statements correctly.  I can't think of a firm that doesn't show return net of fees but I could be wrong.

You are right it is questionable.  There could be an explanation but is a very valid reason to have a review.

[kadams767]

y4m, did you receive monthly or quarterly statements at all? That might help pinpoint what has happened more specifically.

[aurora]

Jan 2, 2014 15:56:29 GMT -5 cjeanette said:

Jan 2, 2014 15:34:16 GMT -5 y4m said:

But am I correct in assuming that it can only go down from here?  As in maybe he counted all the fees already or maybe he didn't (in which case the numbers are even worse), but either way, he's performing way under my basic target date fund in this 8-month period and that seems pretty questionable?  We are setting up an appointment with him to discuss strategy, but I want to make sure I'm on slightly solid footing as to my math here.  

Any return you are seeing should be after fees if I am remembering MS statements correctly.  I can't think of a firm that doesn't show return net of fees but I could be wrong.

You are right it is questionable.  There could be an explanation but is a very valid reason to have a review.

I'm not an expert at all, but one of DH's accounts is with an active FP who took the bulk of his fee (there are some minor maintenance items) when DH transferred the fund to his care.  So, in that first year the performance didn't look as good, but after that it got better.  The value we saw at the end of the year was after the fees had already been subtracted.

[cjeanette]

Jan 2, 2014 18:50:19 GMT -5 aurora said:

Jan 2, 2014 15:56:29 GMT -5 cjeanette said:

Any return you are seeing should be after fees if I am remembering MS statements correctly.  I can't think of a firm that doesn't show return net of fees but I could be wrong.

You are right it is questionable.  There could be an explanation but is a very valid reason to have a review.

I'm not an expert at all, but one of DH's accounts is with an active FP who took the bulk of his fee (there are some minor maintenance items) when DH transferred the fund to his care.  So, in that first year the performance didn't look as good, but after that it got better.  The value we saw at the end of the year was after the fees had already been subtracted.

Yes, so your end of year return was shown net of fees.  After the fee. Billing annually up front would be a large hit.  Most firms I have dealt with do it quarterly so as not to freak clients out...lol.