Lack of Performance Reporting (Part 3)

I pick up today discussing Kenneth Winans’ Forbes article about the lack of performance reporting among financial advisers.

Winans has his own theory on this matter:

     > Perhaps Wall Street hides its mediocre investment performance
     > because it’s been overcharging investors. Bloomberg News
     > writes: “The White House under President Barack Obama
     > estimated that Americans lose $17 billion a year to conflicts
     > of interest among financial advisors. Wall Street lobbying

Some overcharging may be due to conflicts of interest (e.g. steering a client toward a fund that offers a nice commission when a comparably performing ETF is available for which the advisor would not get compensated). Other overcharging is simply a result of fees being “too high,” which is a subjective assessment. If you hire someone to manage investments then it’s going to cost more money. Performance may also trail what you could otherwise do yourself. The latter requires time and effort to learn, however, which few people want to pursue. This is especially true since average returns from an investment professional are far better than what a layperson can expect from savings accounts, CDs, or bonds.*

     > groups dispute that math—and they’re right to do so. The
     > actual dollar amount is probably much higher.

This is vitriolic sarcasm because he doesn’t provide any evidence to support the latter claim.

     > Making matters worse, beyond soaking Americans with high
     > fees, 8% of advisors at the average firm have a record of
     > serious misconduct.

This is close to the 7% number I reported here.

I find it ironic that when I went to Kenneth Winans’ IA website (on November 16, 2017), the link to view his track record brings up “the page you’re looking for does not exist.” As a second data point, though, their management fee for growth investments ranges from 0.98% (for over $5M) to 1.38% (down to $250,001).

Let’s move now to Jason Zweig’s blog post from July 11, 2014 entitled “Financial Advisors: Show Us Your Numbers.” Zweig says mutual funds and ETFs publish performance and according to Charles Rotblut of AAII, you are justified in asking to see the track record of any adviser looking to sell investing services. Zweig writes:

     > While some financial advisers who cater to individual
     > investors are willing to calculate and report their own
     > average historical returns, the vast majority still
     > don’t—and probably won’t until investors smarten up
     > and start demanding it [emphasis mine].

I will continue with Mr. Zweig’s post next time.


* Full disclosure: I hope to get paid for doing this one day if I can demonstrate a clear record of outperformance.