Quote:
Originally Posted by CaptainYooh
The PH&N example was very meaningful (to me). I've invested a certain amount in in three funds and let it sit there for 15 years. As passive as you can get it. Just let the professionals do their job. And they didn't do a very good job. That was my experience.
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Quote:
Originally Posted by Slava
The PH&N example is meaningless without knowing what you were invested in and why.
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Slava is bang on. PHN is the best bond manager in Canada and consistently outperforms passive bond strategies. You're saying your annualized return was 1%....what was the market (ie. their benchmark) over this time? What if the market was down 10% over that time period? Do you consider this? What funds and asset classes were you in? Why were you invested and what was the allocation in the context of your larger portfolio? What did you overall return to this asset class look like? Yeah you're taking a way too simplified approach here by saying "oh yeah they returned 1%, they're a bad manager, therefore I can do it better". This is the issue with self-management sometimes, the investor may lack a basic framework knowledge of portfolio management and construction, risk and return, asset class profiles. I'd also add that "as passive as you can get it" is not at all accurate, PHN is an active manager and an excellent one at that (in fixed income).
Quote:
Originally Posted by CaptainYooh
When I mentioned "undeservingly compensated", I meant compensation based on the value of assets under management, which is prevalent in the industry. This means a fee is charged regardless of the portfolio performance. I consider this method of compensation undeserved (and yes, I knew that "undeservingly" is not a proper word, I just couldn't find a better one).
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Again, this is way too simplistic. You're completely overlooking behavioural finance and incentives. Would you rather your manager only get paid if he returns you 10%? That would encourage your manager to take a ton of risk if he knows he's only going to get paid in that case. If he doesn't earn the 10%, he doesn't get paid and he'll stop putting effort into your account. And as Slava points out, removing AUM fees would also result in more transaction/commission based fees which are an even bigger issue. Actually AUM fees are the most effective in terms of the classic agency issue, institutional investors are moving towards this model with traditional transaction-based brokers as well. Honestly the best model for the average retail investor, if they're going to pay for advisory services as opposed to doing it themselves, is a retainer fee or an AUM fee.
My issue is with hidden trailer fees buried in mutual funds. Retail investors are simply paying too much and advisers are incentivized to sell product that isn't necessarily in the best interest of their client.