Indexing With a Financial Advisor

Many investors understand that the highest odds of investment success come from owning a diversified account of indexes, rather than a slew of actively managed mutual funds.

But we also know that most advisors shun indexes for their clients’ portfolios because they (the advisors) make far more money selling actively managed funds instead.

As simple as building a diversified portfolio of indexes is, there are those who don’t want to do it themselves.  And there’s some merit to hiring someone to help.  Beyond serving as a cheerleader for your savings and offering advice on taxes, an advisor could be your objective, disciplined guardian.  Do you have what it takes to re-balance your portfolio when it tanks?  I’m not going to say “if it tanks” because it surely will.  That’s what markets do from time to time.  And when every media outlet is screaming, “It won’t recover this time!” will you be able to ignore the smartly dressed, generally attractive television authorities who call for the financial version of a global Tsunami.

We all know that it’s easy to create portfolios that beat the pros.  But can we emotionally stick to a logical plan?

I’m guessing that when markets drop and losses mount on losses, most “do it yourself investors” will lose their heads.

So what’s the alternative?

Dan Bortolotti, at The Canadian Couch Potato  is putting together a collection of Canadian advisors who fill their clients’ portfolios with indexes, instead of actively managed funds.  So you can invest in the most efficient market products (index funds) while a professional takes the reins. 

But if this is what you’re looking for, don’t accept each name/institution that Dan lists here as a recommendation.  That’s not why Dan compiled it.

Treat each option as something worth investigating.  And set a standard or a maximum price to pay.

One American advisor who I’ve grown to respect a great deal is Robert Wasilewski.  He purchases exchange traded index funds for his clients, and he charges 0.4% as an annual fee.  If the exchange traded index funds (which he buys for his clients) cost 0.15% per year as an average, then the total cost comes to 0.55% for Robert to manage his investors’ portfolios: 0.4% for Robert and 0.15% for the hidden fund fees.  Let that 0.55% be a benchmark.  It’s a small overall price to pay for someone to dispassionately manage your money.

Slightly more expensive, but probably worth the cost, is an American company called Assetbuilder.

Their fees, for different respective account sizes, are as follows:

Amount of Assets Invested Annual Fee
$5,000.00 – $ 49,999.99 .50 of one percent (50 basis points)
$50,000.00 – $ 249,999.99 .45 of one percent (45 basis points)
$250,000.00 – $ 599,999.99 .43 of one percent (43 basis points)
$600,000.00 – $ 999,999.99 .40 of one percent (40 basis points)
$1,000,000.00 – $3,999,999.99 .30 of one percent (30 basis points)
$4,000,000.00 – $19,999,999.99 .25 of one percent (25 basis points)
$20,000,000.00 and above .20 of one percent (20 basis points)

So if your account size is $100,000, you’d pay 0.45% of your account’s value in assets every year, not including the fees for the indexes they buy for you.  Assetbuilder uses indexes built by a company called Dimensional Fund Advisors which will cost investors roughly another 0.3%.  So you could use Assetbuilder as an American for roughly 0.75% per year on a $100,000 account. 

Watch out Canadians!

Taking your lead from the two examples above is probably a wise idea.  If you find a Canadian firm that will manage an account of indexes for 1% or more, you should probably say, “Thanks, but no thanks.”

When adding that 1% with the cost of the indexes, you’d be paying 1.2% or more in annual fees.

That’s a lot of money.  If the markets make 5% per year over the next 5 years, you’d be giving away 24% of your annual profits each year to the financial service industry.

It’s no wonder that the most represented professional source of wealth for America’s richest people is derived from the financial service industry.  See the List.  And the list could be similar for Canadians.

It’s a lucrative gig.

If you can’t invest yourself, be a discerning “shopper” and find someone who can help you…for a fair price!






Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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18 Responses

  1. Think Dividends says:

    The reason more of theses advisors don't exist is the compensation model. You could get paid once to build someone a sound investment plan or collect trailer fees by putting your clients in mutual funds. Which route would you pick if you were in the advisors shoes?

    But with so many good blogs like Andrew Hallman and Canadian Couch Potato, who needs an advisor anyways?

    CHEERS

  2. I'd say if you really need an advisor to help you manage your index funds, you shouldn't hire anyone who charges more than half a percent.

  3. The Dividend Ninja says:

    @Think Dividends, Exactly!

    Why pay Assetbuilder? They show you what they invest in LOL.

  4. DIY Investor says:

    Thanks for the mention. I have to admit that I feel that my value is upfront in getting clients into an appropriate asset allocation, educating them on the fact that we're headed for choppy waters and that the key is to stick with the boat. Then it is a matter of going over the mechanics etc. of buying and reallocating. There is a bit of financial planning thrown in with getting them to understand the investments that are appropriate for taxable accounts versus 401ks etc., the best way to save for the kids' education etc. But frankly, once it is up and running it is, as you and your readers know, pretty easy.

    Under compensated at 40 basis points for the first 6 months and over compensated thereafter? Probably.

  5. Jean says:

    @The Dividend Ninja

    Hi Dividend Ninja, just in case you were unaware:

    One would pay Assetbuilder because, while they show you what they invest in, DFA funds cannot be purchased directly by individual investors. You can read the following on their website – and more – and then understand better why some of us choose Assetbuilder:

    "Dimensional Fund Advisors manages mutual funds for long-term investors. One of the cornerstones of our approach is a client base committed to their investments through all market cycles, both good and bad. Buy-and-hold investors enable us to keep turnover and transaction costs low, which adds to their bottom line. We believe financial advisors play a vital role in educating investors about the financial science that drives this approach and in instilling the discipline required to benefit from it.

    As a result, Dimensional does not offer funds directly to individual investors. Instead, we choose to make our funds available through a select group of fee-only advisors." http://www.dfaus.com/service/individuals.html

    BTW, I am an Assetbuilder client, upon Andrew's encouragement and since I was unable to get in with Vanguard while living overseas.

  6. @Think Dividends

    Hey Think Dividends,

    People are getting a great eduacation out of your blog as well. I'm enjoying the fact that we can all learn from (and be inspired by!) each other.

    And you're so right about the luring compensation biases that are only natural.

    It's inspiring to see advisors like Robert (DIY Investor) doing the right thing.

  7. @The Biz of Life

    Hey Biz,

    It would be great if somebody actually put a list together of advisors who would charge less than half a percent and then invest their clients' money in indexes. Better yet, imagine if they had really deep pockets, and they (this philanthropic educator) could advertise this coveted list while demonstrating what it would mean for investors to hire one of these advisors, rather than expensive alternatives. Ahhh, we can all dream!

  8. @The Dividend Ninja

    Hey Ninja,

    You're 100% right. But at the same time, perhaps Assetbuiler would supply a well-needed level of discipline to investors who might not "stay the course" when the markets go haywire.

  9. @DIY Investor

    Robert,

    I'm going to keep putting you out there as a role model for other financial advisors. Ethics are essential in any business. And you have ethics. Sadly, far too many people in this business don't—at all.

  10. @Think Dividends – very well said.

    I too, respect Robert Wasilewski. Here is a guy that "gets it" big time, and I'm not talking about his investment knowledge, though he is much smarter than I am. Rather, his objectives are the client's objectives. He is working for the customer. Robert and others who are practicing this, should be the gold-standard in the financial industry.

    The compensation model will eventually change if ever the balance is tipped and enough for the "average investor" to bolt from paying for active management, but I don't see that happening anytime soon.

    Cheers,

    Mark

  11. The Dividend Ninja says:

    @Jean, thanx for clarifying that point 🙂

  12. @The Dividend Ninja
    I can see the Ninja's point on this one. Many investors might opt for Vanguard instead, where they can also receive guidance at a lower cost.

    But Vanguard, for some reason, has been sticky with overseas Americans, as Jean has found out. If you're a current American client of Vanguard's, living overseas, then you can keep your Vanguard account. But if you're trying to open an account, and you live overseas, they won't let you open the account—even if you also have a home address in the U.S. This roadblock has come up during the past 3 years or so.
    This leaves many overseas Americans with little choice but to use an expensive broker who will stuff their accounts with actively managed funds….often charging heavy sales loads or wrap fees, and/or huge surrender penalties for ridiculously expensive investment accounts (through companies like Zurich International and Friends Provident) which are more like one-sided insurance policies than investment accounts.
    Thankfully, Americans overseas can use Assetbuilder. Jean really broke the ice on this one, and she's Assetbuilder first (as far as we know!) client in South East Asia.
    Next year, I'll be taking the year off to promote my book and educate expatriate investors in this region. And I will strongly be recommending Assetbuilder for Americans.

  13. Jean says:

    Here is further clarification on two points:

    1. It's not only Vanguard that has been more "sticky" with those of us living overseas. I had tried others – T. Rowe Price, TIAA CREF, and Fidelity. Basically, going directly to those considered low-cost brokerage firms, I got the same response as with Vanguard, "Sorry, but we cannot work with you." . . . and, it actually specifies all of this on most of these companies' websites now.

    2. It wasn't exactly Assetbuilder that allowed me in, but rather their custodial bank. The guys at AB were great, but let me know up front that they couldn't do business with me unless I was approved after going through a vetting process with their custodial bank. I believe, my personal and professional (contractual) circumstances were factors in allowing me to open up the new account. So, we don't know yet if just 'any' American overseas can open up an account through AB, but there's certainly hope that it's an option. (NB: you must have at least $50,000 to start an investment account with AB.)

  14. @Jean

    Jean,

    The roadblocks are great for those hawking complicated, expensive investment products overseas. I won't say that they'll be increasing their market share because so few overseas investors are aware of far superior alternatives, so these brokers have already virtually cornered the market. But it certainly makes things difficult for those wanting to say good-bye to expensive products sold by salespeople who are wrapped up in conflicts of interest.

    Incidentally, for non Americans, the road is an easier one to travel. If you can open a discount brokerage account (you can do this in virtually any country you reside in) then you can easily invest in the manner that I describe in this blog (with diversified, low cost indexes). In Singapore, it doesn't matter whether you're Canadian, British, Australian, a New Zealander, a South African….the same opportunity to invest applies, using a local brokerage like DBS Vickers, while purchasing exchange traded index funds.

    The great thing about Singapore, is that (and this only applies for non Americans) we don't have to pay capital gains taxes on our investment gains. Don't let a sharpie from the Channel Islands convince you go take advantage of their tax free structure. You can do it right here, because Singapore (like Jersey, the Isle of Man etc) doesn't charge capital gains taxes on profits.

  15. Robber Baron says:

    Expat Americans could also consider Sharebuilder if you aren't looking for advice but only a cheap way to invest. Sharebuilder also has IRA accounts, if you are interested in that.

    Selections are somewhat limited, but pricing is cheap and you can register while overseas (it's a pain, but can be done). Their offerings include a good number of Exchange Traded Funds (ETFs), including more than 55 of Vanguard's funds, a big bunch of stocks, as well as no-load mutual funds. With the no-loads you don't pay a transaction fee to buy or sell. Scheduled purchases of stocks and ETFs are only $4, live trades are $9.95 (including limit and stop-loss sells, but long-term investors would probably avoid these). They have some (limited) research offerings, but are upgrading these services soon.

    I don't get anything from this, I'm a pleased user. http://www.sharebuilder.com

    Rob in S. Korea

  16. Hey Rob,

    Thanks for sharing that. It sounds like a great option for expatriate Americans.

  17. Ricky V says:

    Hi all,

    Very interesting information indeed.

    I have a quick question, if you can't buy directly vanguard and similar funds while overseas, can't you just buy the corresponding ETFs using any trading platform?

    Cheers

  18. peter says:

    Agree with what you say Andrew. I have been a broker for over 20 years- I went offshore 12 years ago from the UK.

    I started using interactive brokers for myself 5 years ago and it changed the way I work.

    In truth after years of using the insurance companies I was so disillusioned with it all I felt the average investor had no real understanding of what was going on, I had to spend so much time in order to get new business not only competing with others but trying to educate/sell that a 1% ADVISOR FEE JUST WONT COVER COSTS.

    Then there is the regulators who freak out if an advisor is managing a portfolio of shares (but its ok for a client with no knowledge at all doing it).

    Regulators are stuck too- they want to protect the public but are also protecting the insurance companies- Singapore, Hk are overloaded with locals and expat advisors pumping life insurance as an investment vehicle- it is a far inferior product to many investment platforms.

    Interactive brokers accept non resident non us citizens in US accounts where capital gains are treated as tax free. Minimum for direct business is $10,000 initial but I am pretty sure you are not required to hold that minimum so you can withdraw funds down to i believe $2000 and bump it back up anytime.

    Problem for many is it is labour intensive it requires knowledge and for the average expat that is too much- most do not think. They follow the herd and do what all other friends have done and invest with the nice guy who has arranged it for others using an insurance company in isle of man/ guernsey.

    I can't compete with them for much of the business as my service offered to the average investors would require me to become fully regulated which would put my costs through the roof. I stay with the clients who have over million US invested and charge a fee.

    HSBC share service is also another relatively low cost option but again that is non advised since to advice would load regulatory costs on and make it unattractive.

    Right now the vast majority of offshore advisors are pumping life insurance – it's just an embarrassment to be in any way associated with it. It's like the whole industry is selling 1980's fax machines to people who are not aware we have email 🙂

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