Perspectives of a Financial Adviser (Part 4)
Posted by Mark on December 15, 2016 at 07:22 | Last modified: September 14, 2016 05:13I feel I sometimes give financial advisers short shrift so I decided to do a blog series focusing on the words of one adviser who I respect. It hasn’t been going well.
> My previous points about compliance and legal
> concerns are intended to highlight the idea
> that even if he wanted to include a statement
> about [statistical] significance, he couldn’t
> because it would be an overstatement of
> confidence/create more misunderstanding
> among relatively uneducated readers than is
> acceptable by industry standards.
As stated previously, I believe statistical significance is necessary to evaluate the possibility of fluke occurrence. I also think this allows for apples-to-apples comparison with other statistically significant data. Since the author is the only one capable of doing the analysis, why not include a disclaimer(s) that clears the way for statistical reporting?
> I know it’s frustrating not to be able to apply
> experimental methods directly in this field, and
I disagree. I think it is possible to undertake the laborious task of trading system development but most advisers/traders are not educated about the methodology and/or capability of the process.
> to some degree it is that frustration and lack of
> predictability that compels people to work with an
> advisor. Sometimes this is because they feel that
> someone with more experience and education would
> be able to take better bets than they would, but
> sometimes it is because they want to outsource the
> stress of the unpredictable returns. They want
> someone to take the blame (other than themselves)
> if their portfolio doesn’t do what they want it/expect
> it to, which is inevitable at some point. Both of
She makes really good points here.
> these reasons to work with an advisor are
> legitimate, and on top of those, concerns about
> continuity and consolidation of household wealth
> mean that individuals rarely manage their own
> portfolios/trusts for their entire lives. At some
> point, they decide that someone else should be
> the fiduciary keeper of that burden/process/role.
My dispute is with what people don’t know they don’t know. The cost to offload said burden amounts to much more than the 1% (or less) management fee because most advisers employ relatively inconsistent investment vehicles.
I will conclude with the next post.
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