competent Financial Planners typically add around 3% a year

You should meet with a Financial Planner and set out what you are trying to achieve. www.sfpi.ie

For full disclosure I am a board member of the SFPI.

The current portfolio is not appropriate for your needs because it wasn't built with your needs in mind. There is no capital gains tax on death so you have an opportunity to restructure now without exposure to capital gains taxes. That may not be the case in the future.

In a recent study, the Vanguard Group showed that competent Financial Planners typically add around 3% a year to their clients' investment returns compared to the returns an average investor might achieve on their own.

They identified seven key areas that each contribute to this figure. The seven key components of the value of advice are:

1. Asset allocation Often the most important driver of long-term performance.
2. Rebalancing Keeping the portfolio balanced over time adds real value.
3. Cost-effective implementation Each Euro paid in charges is a Euro off of your potential returns.
4. Behavioural coaching Helping you to avoid common behavioural pitfalls can substantially increase your chances of investment success.
5. Asset location strategies Tax-efficient vehicles are a key tool in adding value.
6. Spending strategy Helping you to devise a spending strategy that maintains maximum tax efficiency.
7. Total return versus income Add value by advising you how to attain income in a low-yield market.

Marc Westlake Chartered and Certified Financial Planner


“Putting a value on your value: Quantifying Vanguard Adviser’s Alpha in the UK”
Decided to read [broken link removed]. First it should be noted that it is written from an American perspective especially with respect to tax aspects. It was also addressed to financial advisors as a sort of morale booster from Vanguard.

The report makes it quite clear that financial advisors cannot advise on which funds will outperform, in fact it rightly points out that even large scale dedicated investment management firms can't do that. Meeting a benchmark like a Global Index is as good as you can hope for.

So where does the 3% extra performance come from?

The biggest contribution is (4) above which Vanguard reckons adds 1.5% p.a. What is their evidence? During the 5 tumultuous years from 2008 to 2012 they compared the performance of those self invested folk who adjusted their portfolios (presumably in panic at the crisis) with those who stuck it out, the former underperformed by 1.5% p.a. The argument is that with a financial advisor holding their hand they wouldn't have panicked. Sorry, but I find that a very selective sample and a very dubious inference.

(5) and (6) refer to managing the US tax system to best advantage and, depending on circumstances, can add up to 1.85% p.a. I admit that tax is an important consideration in pension and indeed non-pension planning but I would find this claim dubious in an Irish context. You can get pretty informed advices on this front from AAM.

(2) above was frankly a bit of a nonsense. It added 0.35% p.a. according to Vanguard. How did the argument go? They took an example of someone who chose a 60/40 Equity/Bond asset allocation at the start. As equities outperformed this drifted out to a 80/20 portfolio but would have underperformed a portfolio which had the same average risk throughout the period. Again very selective sampling and totally unsound statistical arguments. Anyway I think OP is capable of rebalancing his or her self without the input of a financial advisor.

As to (3) above, AAM is perfectly appropriate for pointing towards low cost funds.

The others were not given any quantitative value even by Vanguard.

I am not saying financial advisors provide no value but I would like to nip the 3% p.a. added value claim in the bud.
 
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The 3% can be seen to come essentially from two fronts - persuading punters to stick out falling markets and management of the tax rules. Even if the former has value a punter can simply tell herself to stick it out. If she wants someone to keep saying this to her, fair enough. The latter does need some professional advice.

But a throw away comment that financial advisors add c.3% p.a. might be good for the morale of the troops but should not be taken seriously at all by potential clients.
 
One of my favourite client meetings was with someone who had a bunch of stock in his employers company. We advised him to sell and diversify.
He came back two years later and said to me; “ I don’t need to pay someone to tell me I should diversify”. To which I said;”we’ll have you?”
“Err, no”

This anecdote seems to me to disprove your point entirely.

You gave good advice, but that advice is freely available anywhere, you did not convince him to act on the advice. What value did you add ?
 
I couldn't find any that were fee only - all wanted a % of assets as a charge. This is not fee only in my opinion. I know you have a different view which I disagree with. One of the advisers I met was CFP qualified - the other was not. I was particularly unimpressed with the CFP guy.
 
It is fine for Vanguard to try and endear itself to financial advisors by telling them that they add 3% p.a. value to their clients' portfolios. I hope this does not lead to said advisors making this claim to their clients. By responding to this claim on AAM I am trying to give balance to those who seek DIY advice in this forum.

The main club is "behavioural coaching" which between convincing folk to stay with falling markets and getting them to rebalance amounts to nearly 2% of that 3%. The samples chosen to "prove" this assertion were highly selective but even so bear some scrutiny.

Obviously someone who sat out the financial crisis did better with hindsight than those who panicked and got out. But does that mean they were wrong to panic? As your portfolio shrinks it is natural to become more risk averse. The financial advisor is portrayed as a sort of father confessor type urging "keep the faith, my daughter". But let us remind ourselves that there was a fairly substantial advisor sect who would tell their retiring clients to go for nice safe bank shares, but of course with a bit of diversification between Anglo, AIB and BoI. Anyone who was persuaded to keep this faith from 2008 to 2012 has got a taste of purgatory on this planet.
 
Dalbar produce some very interesting material on this very topic; what I’ve seen supports Marc’s assertions.

http://realinvestmentadvice.com/dalbar-2017-investors-suck-at-investing-tips-for-advisors/

From memory, the average US investor left to his/her own devices has achieved a nominal return of circa 2.4% per annum on average. That’s based on actual fund flows. Conversely, a 60/40 portfolio has done circa 7% and the market has done circa 8.5%.

Based on what I’ve seen over the years, 3% sounds entirely reasonable. Keeping clients from buying high and selling plus being optimised tax-wise are worth a hell of a lot.

So much is written about individuals on their own buying a low-cost tracker and achieving X return; in reality, I doubt they do because behavioural failings kick in.
 
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That Dalbar link shows that the average mutual fund retail investor earned 7.26% in 2016 compared to 11.96% by the S&P. Now it is really hard to believe that over a mere 12 month period any substantial part of this 4.7% gap arises because those who bought in during 2016 did so at the market highs whilst those who sold out did so at the market lows. It surely derives almost completely from what Dalbar lists as "sales charges, fees, expenses and other costs".

After all if the retail punters are underperforming the markets through bad timing then someone else is benefiting from this bad timing. Who is that someone else? Institutional investors? i.e. Mutual Funds? Mutual Funds = retail investors. So I rest my case, the underperformance of retail investors is mainly down to "sales charges, fees, expenses and other costs". Dalbar damns benchmarking of indexes. The reason? Because indexes have such an unfair advantage over the real world. Conclusion from these two messages from Dalbar is that a tax efficient, low cost ETF is your only man.
 
Posts on AAM cannot be justified simply because they are pro-DIY investors.
I hope you would agree that the reverse is also true.

Posts cannot be discounted simply because they do not encourage investors to incur advisory fees.
 
Marc that is a bit of a change of subject. I am challenging the hubris that financial advisors can add c.2% p.a. from mere "behavioural coaching". I don't even think the evidence is there that punters lose out substantially by bad behaviour. They lose big time from "sales charges, fees, expenses and other costs" as seems fairly clear from the Dalbar link above.

Is this the typical conversation between a financial advisor and a punter?

FA: I can add up to 2% p.a. to your portfolio by behavioural coaching
P: Howz that go?
FA: Well, say markets are falling and you are feeling a bit queazy, give me a ring at this number, doesn't matter if your watching the Nikkei and it is the middle of the night. I will be there to talk you off the ledge.
P: That is a real comfort, anything else.
FA: Well take the opposite situation, markets are soaring ahead and you feel really bullish - don't do anything, ring me at that number and I'll tell you to keep cool and don't buy nuffin
P: Gosh you guys really can call the markets?
FA: Not at all, we haven't a clue, nobody has, but we are always there when you are in a crisis.
 
I think it’s crazy to dispute that a good independent investment advisor can add that level of value on an ongoing basis.

All of the evidence shows that investors make a pig’s ear of things when left to their own devices. The “buy a cheap ETF” thing doesn’t work because the investor makes all of the usual mistakes of buying high and selling low and trying to time the market.

The biggest parts of an investment advisor’s job are getting the asset allocation right at the outset and keeping the client invested through periods of weakness, whilst moron in the media are screaming that the world is ending.
 
All of the evidence shows that investors make a pig’s ear of things when left to their own devices.
Certainly not the Dalbar evidence. Even if we accept their interpretation of the figures that mutual fund investors underperform the market more by their bad behaviour than by being gouged, my guess is that the majority of those retail investors did have "professional" advice and were not saved from themselves by so doing.

If the punters behaved so badly who do you think benefited from their bad behaviour? Remember the stockmarket is a sort of zero sum game.
 
Certainly not the Dalbar evidence. Even if their interpretation of the figures is that mutual fund investors underperform the market more by their bad behaviour than by being gouged, my guess is that the majority of those retail investors did have "professional" advice and were not saved from themselves by so doing. If the punters behaved so badly who do you think benefitted from their bad behaviour? Remember the stockmarket is a sort of zero sum game.

You are misinterpreting the Dalbar research!

https://www.google.ie/amp/s/seeking...tor-returns-vs-market-returns-failure-endures

The conclusion is that investors do terribly when left to their own devices and that investors need investment advice.

To be frank, the advice that’s sometimes given here about “doing it yourself” is laughable; we procure advice in relation to most areas yet somehow investment advice is viewed with suspicion because of all the misleading data out there and the sharks who frequent the industry.

My question is “how many people get those market returns when they go DIY?”
 
All of the evidence shows that investors make a pig’s ear of things when left to their own devices.

This does not really mean anything. It is a prime example of social science research trying to produce physical science results.

If I have a loaf and you have no bread, research would show that the average punter has a half loaf. That tells nothing about your position or mine.
 
My question is “how many people get those market returns when they go DIY?”
As Dalbar points out in another article, nobody should expect to beat Mr Market. That's because Mr Market is an artificial construct with constant rebalancing at no cost. However an index tracking low cost fund comes pretty near. I will repeat my critique of Dalbar's interpretation of the gap between mutual fund investors' experience and that of Mr Market.

1) On a 12 month 2016 view it is not credible that the 4.70% gap arises in any substantial way because buying in that year was at the top of the market and selling was at the bottom. Even if that was true, over a mere 12 months it would not generate a large gap. Clearly it is nearly all costs, and in particular sales costs. The inclusion of sales costs in every year will also mean that even for longer durations the gap can be explained mainly if not entirely by costs.

2) I presume that the majority of mutual fund investors actually use professional advisers and as cremeegg pointed out there is nothing in this analysis to suggest that they too did not suffer a gap.

3) Buying and selling in the stockmarket is a zero sum game. So if mutual fund investors have lost more by this activity than the leakage of costs, who are the beneficiaries?

Look, the tax complications alone probably justify getting professional advice but I don't think I will ever be persuaded of the added value of "behavioural coaching".
 
Ireland is a nightmare for investing for tax purposes , it took me a long time reading and I got great advice here in regards tax treatment of ETF's etc. All the advice here was free , a competent financial planner is not free so they add fees that I don't have doing my investing myself.

I highly doubt a financial planner could add any value to my portfolio , I am not going to sell because the markets fall and I believe in efficient markets I don't think you can go wrong buying anything once its liquid enough you are getting fair value.
 
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