Perspectives of a Financial Adviser (Part 4)

I 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.