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I am coming up to my first anniversary with my Financial Advisor / Broker. I didn't give him all my money, he has a little over half of my investments.

I was wondering what would be a fair assessment of his performance. Should I compare his return to the TSX? Or, is that an unfair comparison as his strategy is longer term.

I should add I include dividend payments as part of the personal rate of return. I will also ask him what he thinks the PRR should be for 2010.

Thoughts?
 

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One year may not be a fair period of time to judge his worth.
Comparing to an index can be misleading, although most use that method.
Personally I would expect him or her to have a return of at least 5% over that period.
 

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I think it depends on why you hired him.

Was it to beat the index with your investments? - then compare to the index.

Was it to take care of paperwork and do things like rebalancing for you?

Was it to help with actual financial planning? Retirement goals, asset allocation, investment product choice etc.
 

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You could compare his performance to that of an ETF portfolio with a similar risk profile (ie, don't compare him to the TSX alone if you have 60% bond allocation).

Next, ask yourself whether you want an investment advisor (aka stock/MF picker) or a financial advisor. The latter is where I think value is added, personally. Make sure you're getting it.
 

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I am coming up to my first anniversary with my Financial Advisor / Broker. I didn't give him all my money, he has a little over half of my investments.

I was wondering what would be a fair assessment of his performance. Should I compare his return to the TSX? Or, is that an unfair comparison as his strategy is longer term.

I should add I include dividend payments as part of the personal rate of return. I will also ask him what he thinks the PRR should be for 2010.

Thoughts?
So if he got lucky and beat the index he keeps his job and if he did not get lucky and fell behind a little, he goes. Then what. Play this silly game over again until the next advisors luck runs out.

Advisors have no ability to outperform an index. They can probably help you outperform yourself, if you have little experience, and can certainly give you tax and retirement advice, but they are held hostage by the whims of the stock market and what the future throws at them, like everyone else.
 

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I was wondering what would be a fair assessment of his performance. Should I compare his return to the TSX? Or, is that an unfair comparison as his strategy is longer term.
That's a perfectly fair comparison. Not only did he not beat the TSX in the short term, but it's an almost statistical certainty that he won't beat it in the long term either.

So why aren't you just in an index fund to start with?
 

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In my opinion, the best FA is yourself.

Why?

Because nobody cares about your money like you do.

And as someone else said, everyone is subject to the future. Take some time to learn the markets, watch some stocks for a few months, and you'll figure out how to make money.
 

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Your acceptable return rate will be subjective to you, however, if you can acheive the return of the index through a low cost ETF, minues a very small MER, then shouldn't you be paying him to BEAT the index PLUS the cost (1-3%) of the mutual fund? Not likely going to happen.

Example: if the index + divideds returns 8% and the mutual fund costs 2.5%, you think he can get you more than 10.5% ? I wouldn't put my money on that.

If you don't believe in paying them to beat or match index after cost, you're essentially paying thousands for them to write a financial plan and maintain your asset allocation. Just make sure you understand and are happy to pay thousands for that.

Careful switching out, a lot of those mutual funds have a large penality fee to sell for several years.
 

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I am coming up to my first anniversary with my Financial Advisor / Broker. I didn't give him all my money, he has a little over half of my investments...
Did you always accept his stock recommendation? How have they performed? How have your own stocks performed? What asset classes does he watch for you.

This is a very personal decision and the broker can only measure up to what you are asking him to do. Objective measures are tough because of the amounts of money involved.
 

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Discussion Starter #12
I'm just trying to establish an objective criteria to evaluate an advisor/broker. It seems counterintuitive to wait 20 years and then declare "well - that guy was no good".

Yes, I have always accepted his recommendations. My portfolio is outperforming his, but I think this is probably due to a longer vision on his part.

Does time factor into it? I know most stock picks don't beat an index in any given year. Does this change over time? Will a balanced portfolio start to improve over the years and be more likely to beat an index?
 

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I'm just trying to establish an objective criteria to evaluate an advisor/broker. It seems counterintuitive to wait 20 years and then declare "well - that guy was no good".
You are using the wrong criteria. No human being, identified in advance, can continuously beat the index. If he could, why would he be helping you? He may be able to beat your personal performance, if you lack experience and interest, but he won't be able to beat all the smart people trying to beat him (unless he gets lucky).


Yes, I have always accepted his recommendations. My portfolio is outperforming his, but I think this is probably due to a longer vision on his part.
No that was random luck. Next year the coin flip will probably change ... or not. We will know after next year.

Does time factor into it? I know most stock picks don't beat an index in any given year. Does this change over time? Will a balanced portfolio start to improve over the years and be more likely to beat an index?
How can all the stock picks beat an index that is the mathematical average of all those stock picks? How can all the stock pickers beat an index that is the mathematical average of all the stock picks of all the stock pickers?

I know you want to have the control of picking an advisor that can provide you with better than average performance, but so does everyone else. That doesn't make it happen or even make it possible. As I said above, everyone cannot beat the index, since the index is the average of everyone. In any given year 1/2 will beat the index and 1/2 will not, and since it is based on forward looking assessments, the ones that beat it the next year will be randomly dispursed from those two groups. Just like flipping a coin.

I hope that helps.
 

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I know most stock picks don't beat an index in any given year.
Incorrect. Some do, in any given year.

Go out to an average 3 year timeframe and you'll have a difficult time finding someone who's beat the index routinely.

Go out to a 20+ year timeframe and the stock picks (i.e. financial advisor) that beat the index over that period is something like < 3%.

So you either find those 3% of advisors that beat the index, or throw your advisor to the street and put it into an index yourself.

Ooooh, except finding those 3% of advisors? Statistically random - you can't tell them afterwards.

Or you can look at it another way. Either you believe the stats that if you simply passively invest in index funds you'll beat 97% of financial advisors just by doing that, and become an index fund believer, or you continue to hope that all the education your financial advisor has will allow him to beat the indexes (hint: your financial advisor likely has 0 education that trains him to do this).
 

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Or you can look at it another way. Either you believe the stats that if you simply passively invest in index funds you'll beat 97% of financial advisors just by doing that, and become an index fund believer, or you continue to hope that all the education your financial advisor has will allow him to beat the indexes (hint: your financial advisor likely has 0 education that trains him to do this).
We should also consider that there is a difference between financial advisor and mutual fund manager.
Most financial advisors are investing your money in mutual funds, which means there is another layer of selection on top.
First, the mutual fund manager has to pick the right stocks.
Second, your financial advisor has to pick the right mutual funds.
Thirdly, you have to pick the right advisor.
Pretty hard to get all three steps correct every year, year after year.
 

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Don't beat yourself to death over this!! Rather, go to www.canadiancouchpotato.com and pick out a model portfolio that you like.

Over the long term, you might do better but the odds are against you.

Buy index products, hold, periodically rebalance as required---and prosper.:cool:

Let other investors keep the financial services industry prospering. Keep your own money working in your own 'Easy Chair' based portfolio.:cool:
 

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First, the mutual fund manager has to pick the right stocks.
Second, your financial advisor has to pick the right mutual funds.
Thirdly, you have to pick the right advisor.
Pretty hard to get all three steps correct every year, year after year.
Right. No wonder so many people give up and invest in the index directly. It feels so good to be average!
 

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"It feels so good to be average". Yah, right!! The truth is that index investors virtually always outperform even professional money managers in the long term.

I submit as evidence that Goldman Sachs has just been named 'The Most Accurate Forecaster of Stocks on the Street Today'.

And no wonder what with all of their high paid help and resources, research staffs, and banks of computers etc. etc.

And so, how often did they get their stock predictions right?

Would you believe 38% of the time!!:(

And so, go ahead with your individual stock picking if you will. I do assume that most small investors do not have the resources to draw on of a Goldman Sachs.

My conclusion is that you will only be right much less than 38% of the time, long term.

Quite fooling yourself and invest in the indexes!!:cool:

Also, quit trying to find a financial advisor with the hope that he or she will outperform the indexes long term when the best forecaster in America can only do it 38% of the time.
 

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Do you mean to tell us that there will be more market crashes in our lifetimes?:eek::eek::eek::eek:

How long is it going to take to rebound from the next one???
 
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