Most people wouldn’t want a loon managing their money.
But perhaps they should reconsider. Low cost fee-based advisors—especially those building indexed portfolios—aren’t exactly normal.
To determine how strange they truly are, let’s examine what’s typical. When I first met my wife, Pele, she invested with an adviser through Raymond James Financial. He was normal to a fault.
For Pele to make money, her mutual funds would have needed to earn 6.25 percent per year, before fees. She owned a portfolio of actively managed mutual funds with expenses averaging 1.5 percent. Her advisor charged her a portfolio wrap fee, costing an additional 1.75 percent. That’s a total of 3.25 percent, really high for the U.S. but fairly typical for investors in other countries. Add the increasing cost of living (let’s assume 3%) and her fund managers would have needed to generate 6.25 percent just to keep pace with inflation.
Please read my AssetBuilder article here.