In 2017 I rolled $36k from one financial advisor to another. He charges .75% of AUM. At the same time I segregated a $25k to compete and see if I could outperform him and then how we both do against S&P. Up for additional consideration is for someone (me, him, fidelity, etc.) to manage $1.75M potential mix of pre/post tax dollars. I am 45yo and require exceptionally little activity/advice along the way and have an exceptionally clean balance sheet (no businesses, complex family issues, complex RE portfolio, etc.).
Everything taught here is that a personal advisor isn't necessary for my situation and I have shouted that to every person I feel should hear it. I have made it clear to him that my primary interest is in returns with the idea that S&P investing costs me virtually $0 in fees. He doesn't actively trade but I do see movement once/twice a year. His CAGR is 17% and it's getting more and more difficult to ignore going on 9 years. He's never once tried to sell me other products or do anything but keep an eye on investing and retirement.
He took me as a client as a courtesy due to common friends, my promise to be low maintenance, future dollars if he does well, and some common beliefs between us. His office typically services professional athletes and much higher net worth individuals. I also am now aware his son works for him, likely his succession plan, and is an immediate red flag (i've seen this before).
My question for you is if I should get slapped back into "don't fall for it, fees will add up, performance will equalize over time, stick to the plan, etc." or "it's ok to give him more, he might be really good at what he does." Do any of you have a FA that has just crushed it for 10, 20+ years?
Some holdings have been extraordinary (chips, LATAM) and sometimes I see crap I can't understand like a new SOFI and UBER holdings in the last six months.
Incredible performance of my financial advisor has me questioning everything I've learned.
byu/Shouldnt_Listen_2_Me inpersonalfinance
Posted by Shouldnt_Listen_2_Me
15 Comments
I think you’d have to look at the actual decisions they made which yielded the higher returns and then decide for yourself if they just got lucky in a few places.
Past performance isn’t indicative of future returns
>His CAGR is 17%
CAGR of the S&P from Jan 1 2017-now is ~~13.5%~~ 15.4% (just the nine years 2017-2025 was 15.2%). Your guy is doing a little better, but it’s not mind-blowing, it looks explainable by statistical variance.
Would have to see the decisions he made BUT I can say in almost all LEGAL cases of finding people beating the market survivorship bias can be blamed.
Millions of people out there everyday are trying to beat the market. Many will do so by pure luck, some will do it for multiple years in a row, most will underperform in the long run.
1. He could’ve gotten lucky. This is the most likely answer.
2. If all your advisor is doing is owning the retirement account and deciding where to invest it, fire him. He should be advising you: to choose roth vs traditional, what your retirement number is, what your savings rate needs to be, how you can be minimizing your tax obligations both now and later, etc.
He could be very well the one who is actually good. You’ll never know.
How is he doing when you factor in the fee of AUM vs S&P with virtually no fees?
Without seeing the activity/holdings it’s hard to tell but maybe bench-marking against the s&p 500 isn’t the right benchmark if he’s holding a lot of tech etc.
Last 9 years has been a raging Bull market, it’s how they perform in Bear markets is the true test I would wait for that.
Some investors do best in bear markets (Buffett) others do best in Bull markets depending on their investment strategy
No financial advisor is needed for 99.9% of people. You are paying a fee for him to lose to an index over the long run
Since the only holdings that you mentioned for this financial advisor who had annualized returns of 17% seem to show that he is tilted toward growth and technology stocks I would suggest looking at what Schwab U.S. Large-Cap Growth ETF™ (SCHG) has done in the last ten years. SCHG has an annualized return of 18.8% over the last ten years and has an expense ratio of 0.04%. I am not suggesting tilting toward growth and technology stocks now (I don’t hold SCHG), they have had a great run in recent years; I am just suggesting that you take a deeper look at his holdings to see if the portfolio was more concentrated into areas that luckily have done great. These might end up leading to greater risks that are uncompensated in the future.
This sounds like a financial advisor that knows what they are doing and is executing and earning their fee.
What is their investment style, how did they do in 2022, and what was the drawdown in April 2024 and this year?
Actually curious your take on this: what’s the difference between the work of this advisor, vs you just search for top active managed funds on a brokerage and then sort by 10 year return? I did a quick search and a lot of them returns 20%
https://fundresearch.fidelity.com/fund-screener/results/table/overview/averageAnnualReturnsYear10/desc/1?assetClass=DSTK&category=MV%2CMG%2CSV%2CSG%2CSB%2CLG%2CLV%2CMB%2CLB&indexFundOnly=Active&mStarRating=3%2C4%2C5&order=assetClass%2Ccategory%2CindexFundOnly%2CmStarRating%2Creturns&returns=4%2C5
One easy way to get those kind of returns (no idea if this is what he’s doing) would be to just buy the entire market at 1.5x or 2x using leverage. That works great in a bull market and outperforms.
But a strategy like that isn’t brilliance (alpha), it’s just leverage (beta).
Id never hire an aum unless they’d charge based on performance vs VT or something similar.
Unless….they refund me for losses relative to same benchmark.