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Anyone have any thoughts on the use of Fidelity Portfolio Management services for a 250K retirement portfolio? Cost is around 1% of annual balance. Good idea? Bad? I would love to think that I can manage it on my own w/o paying the fee but these guys do it daqy in day out. Awful big headed to think I could do a better job. Are there any stats on the "average" investors results vs. this type management?
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hdsteele asks,

Anyone have any thoughts on the use of Fidelity Portfolio Management services for a 250K retirement portfolio? Cost is around 1% of annual balance. Good idea? Bad? I would love to think that I can manage it on my own w/o paying the fee but these guys do it daqy in day out. Awful big headed to think I could do a better job. Are there any stats on the "average" investors results vs. this type management?


If the "average investor" holds a mix of low cost index funds, he'll beat professional managers about 85% of the time.

A 1.00% fee ($2,500/year) is a lot to pay for advice.

intercst
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At a 4% SWR you will be able to withdraw $10k per year. However $2.5k of this goes to the Management Service.

That is 25% of your income, and you think this is a good idea?

Intercst is right. Go it alone.
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I would love to think that I can manage it on my own w/o paying the fee but these guys do it daqy in day out.

If you're only paying them $2500 a year, they are not going to be managing your portfolio day in, day out.

And also they have a conflict of interest: if they know the best fund for you is not a fidelity fund, they'll still be inclined to keep all your money at Fidelity.

However if your investing decisions are ruled by fear and greed (you jump in and out too soon or too late) a pro might do better, even with his conflict of interest, simply by virtue of being more disciplined.

But you don't need to pay $2500 a year for it. Just find a financial advisor who charges a fee based on the time he spends ("fee-only"). Two places I've seen are www.napfa.org and www.garrettplanningnetwork.com
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I applied for a free analysis by Fidelity Advisory Services. Size of my portfolio almost identitcal to yours. They mailed me a plan and a bunch of prospectuses. It was interesting to see what they proposed.

I am a rookie investor and have more or less your same frame of mind. I have no delusions about being the next Warren Buffet. However ... after joining the Fool and learning more in two weeks than I learned in 6 months before .... I have decided it's not Rocket Science or Mystical un-attainable skills possessed only by the Wallstreet Warlocks.

I am going it on my own. I figure I just gotta be careful, logical, not get greedy and keep learning as much as I can from the Fools and the helpful people on this board.

Keep in touch. We are in similiar portfolio situations and we can compare notes.

Dull
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Anyone have any thoughts on the use of Fidelity Portfolio Management services for a 250K retirement portfolio? Cost is around 1% of annual balance...

IIRC, Vanguard will evaluate your portfolio for free with accounts of $250,000 or more under their management.

TB
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No. of Recommendations: 5
Anyone have any thoughts on the use of Fidelity Portfolio Management services for a 250K retirement portfolio? Cost is around 1% of annual balance. Good idea? Bad? I would love to think that I can manage it on my own w/o paying the fee but these guys do it daqy in day out. Awful big headed to think I could do a better job. Are there any stats on the "average" investors results vs. this type management?

I've had several different management services that wanted to manage my money for a cut. The funniest was Merril Lynch, but the others weren't much better.

I let Merril Lynch give me their pitch for why I should let them manage my money for 1-1/2%. They produced a very impressive looking padded binder that covered all aspects of our financial life.

It had my name on every page--wrong. And it claimed we were in the 15% tax bracket and should open a Roth IRA when, in reality, we are subject to AMT. The salesman oops, financial advisor, wrote down my husband's retirement date so that it looked wrong and I noticed it from across the table, upside down. I told him he'd look stupid if it showed up like that in the report, which it did.

His partner was smart enough to ignore the bogus date, but he forgot to take the last client's name off his report and had to magic-marker it out while we waited to see him.

Somehow, I doubted we were going to be getting the sort of attention I think our money deserves. Say, two hours a month.

Vickifool
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I don't know about their "wrap" account but the way we do ours at my company is we offer funds from many different fund companies so we do not have that conflict of interest. Our fee is 1.15% and we are able to do some things that an average investor cannot do on thier own (or at least in a few cases, not do without paying a fee to other services like Morningstar's Premium services).

For those that have the time, desire and expertise to do it on their own, they you can likely do as well or better but if you don't, then you might find a benefit in such a style of account. I know that specifically for our funds and each portfolio, that it must have beat the comparable index at least 62% of the time to be included in our wrap product as well as have a higher average rate of return and lower standard deviation. It may be difficult (I don't honestly know) to determine such on your own.

In our wrap product, we have funds from Royce, Fidelity, Navellier, Heritage, Gabelli, Keeley, Dodge & Cox, Morgan Stanley, Marsico, and Merrill Lynch (to name a few).

I would assume Fidelity's service is very similiar to ours. I do think that you might be better, if this is the account type you like, to be in one that has more diversification of fund families.
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...Cost is around 1% of annual balance....

For this amount of money I doubt they will just be rebalancing your portfolio between a few low cost index funds so you could expect to add on at least another 1% (and possibly much more) in trading costs, higher mutual fund fees, or hidden expenses. In addition if this is in a taxable account, every time they get you to do a trade you may have to also pay capital gains taxes.

The math gets funny with the way that compounding works, but if you paid them 1% per year for 10 years, then that ends up being something like 10% of your money.

Greg
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...I know that specifically for our funds and each portfolio, that it must have beat the comparable index at least 62% of the time to be included in our wrap product as well as have a higher average rate of return and lower standard deviation....

When you see a list of funds that has above average return, you have to watch out for survivorship bias. I would assume that several times a year you review the available funds and drop the ones that are underperforming.

If you look at the list that was actually on your list ten years ago(including the ones that are no longer on current list), what percentage of those stocks beat their index by enough to cover ten years of the 1.15% fees?

Greg
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<<When you see a list of funds that has above average return, you have to watch out for survivorship bias. I would assume that several times a year you review the available funds and drop the ones that are underperforming.

If you look at the list that was actually on your list ten years ago(including the ones that are no longer on current list), what percentage of those stocks beat their index by enough to cover ten years of the 1.15% fees?>>

I won't argue that such a bias can and will occur -- as it does with any managed fund. The only way to avoid such bias is by selecting index funds.

Each strategy has to have outperformed their representative benchmark for 1, 3, and 5 year performance, net of fees, to be recommended. It also has to have lower standard deviation. The benchmark will be a blend of indexes that matches the allocation of the recommended holdings.

I know with this particular wrap account, on average, about 3-4 of the funds, out of 100+, are replaced each year. Half are typically due to the funds being closed, half due to them being removed for no longer meeting the standards of the product. Additionally, survivorship bias is less relevant in a type of account where you are quarterly reallocated based on what the product determines is the best fund(s) for you. For example, many of the recommended allocations in the large cap sector in previous years had a heavier weighting in value. Now, the accounts have been reducing their recommended allocation of LCV and increasing their LCG. The client can take that recommendation or they can keep their existing allocation.

The funds I have seen removed recently (last year or so) due to not meeting the criteria of the account:

Torray (LCV) TORYX
MFS MIG (LCG) MIGFX
Sentinel (HYT) SEHYX

There have been a larger than normal amount of funds closed over the last year -- and they have been or are in the process of being replaced for new investors:

JPMorgan Mid Cap Value FLMVX
H&W Mid Value HWMAX
American Beacon (SCV) AVFIX
Columbia Small Cap (SCV) SMCEX
Preferred Intl Equity Index PFIFX

Existing holders of the above funds are welcome to keep them as long as they continue to fit the criteria of the program. In the case of any of the funds being A shares instead of I or R, the difference of the operating cost is refunded to the client (no one pays a sales charge to buy it). If the client ever wants out, they have the ability to roll the funds over, in-kind, as well.

As far was what was on it 10 years ago, I cannot say as I was not employed by this company at that time. I do know that very few (as I mentioned above) have been removed in the three years since I have been here. One other thing I did not expand on is that for a new fund to be added, it has to have satisfied the criteria for (IIRC) at least 10 years (it could be five though, I don't recall specifically at this moment).

------------

I would say most people that visit this site are likely fine doing their own due diligence, but they are atypical investors. Most people don't have the time, the interest, or the discipline to invest correctly and for those that have sufficient assests, this style of investing may be beneficial for them. You asked me to compare what the return would look like, net of fees, compared to an index. The problem is, the vast majority of investors will not hold that index (or any fund for that matter)long enough to get the return from it.

I read an article last year that stated the average holding period for a fund is something like 15 months. o.0 *blink*
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..As far was what was on it 10 years ago, I cannot say....

I would think someone at your headquarters could, and if the numbers were good then we would see it in all their ads. Likewise if the recomended list did well over the long term then why haven't they created a "fund of funds" to get the outstanding performance?

How about something much easier. Of the 100+ funds that you currently have on your list, how many of them beat their appropriate index by your management fee of 1.15% over the last year after any other fees are also accounted for?

Greg
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For this amount of money I doubt they will just be rebalancing your portfolio between a few low cost index funds so you could expect to add on at least another 1% (and possibly much more) in trading costs, higher mutual fund fees, or hidden expenses.

I'm sure it depends on the broker, but I can say that we were paying a flat fee of 1.5% when the account was at Morgan Stanley, and we are paying 1.25% now at AG Edwards. This is a flat fee, and there are no other fees or commissions regardless of how many trades are made. In our case, we have 3 accounts, all IRA's that are being managed. There's a long story on why I actually have 2 separate IRA's there, but it does make sense in our case to just leave them like that, and it doesn't cost us any more.

In addition if this is in a taxable account, every time they get you to do a trade you may have to also pay capital gains taxes.


Agreed, and that's why we have only had our IRA's managed because those are tax-deferred accounts. I'm still handling all the taxable accounts myself.

If the OP is doing fine managing his own portfolio, then he may not need to spend the money to get a professional financial manager to do it instead. In our case, however, we have a very specific reason for doing this. We are simply hedging our bets to find someone who I would trust to manage our money if I get hit by a bus. I know all about the 'average investor' statistics, but not everyone is an average investor. In our case, my DH has no interest in managing money at all, and never has, so we're just doing a test drive to find someone that we like who could take care of things in the event that I cannot. I'm not seeing that sort of reason from the OP, so I'm not so sure it would make financial sense for him to do that.

In our case, though, it makes sense for us to have someone who can manage the money, and I am willing to pay a fee for that.
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The average performance of all portfolios is the average of the market performance less associated costs. The question you need to answer is whether Fidelity will be able to outperform your do-it-yourself plan by something greater than 1%.
http://www.stanford.edu/~wfsharpe/art/active/active.htm
This article deals with active mutual funds vs. index funds but some of the details would apply to your circumstance.

Bob
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Not only are you paying 1% you will likely be limited to Fidelity's funds. OTOH there are worse places to be.

Self-directed investors make three errors that hinder them. First they place themselves at unforeseen risks by inappropriate diversification. Next they fail to adjust their holdings regularly to reflect changes in the market. Finally they make decisions emotionally rather than using critical evaluation and discipline.

A professional can help you avoid these mistakes.

www.NAPFA.org
www.GarrettPlanningNetwork.com

buzman
Member, NAPFA
Member, GPN


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I would think someone at your headquarters could, and if the numbers were good then we would see it in all their ads. Likewise if the recomended list did well over the long term then why haven't they created a "fund of funds" to get the outstanding performance?

We don't advertise the product. Advertisements cost money that would otherwise go to the client.

Every time Fidelity runs a national ad, consider just how much money it cost you from your portfolio (assuming you have fidelity) to watch that 30 seconds -- and that from a no load company *chuckle*.

In a managed portfolio of this nature, you basically have a fund of funds. The wrap account is your fund (strategy). The difference is, you can control, rather than the agent or fund managers, just how much of each fund you wish to have. You can take their recommendation or you can change it up a bit. Such is a good thing for a client to have such options.

How about something much easier. Of the 100+ funds that you currently have on your list, how many of them beat their appropriate index by your management fee of 1.15% over the last year after any other fees are also accounted for?

That I can do (this is actually YTD as of 1/31/06):
Note: While I post this info, I think it is very misleading as someone should never invest based on one year numbers. The only fee on the account is the management fee.

Funds compared to their equiv Index (typically Russell)
Large Cap Growth 6/6
Large Cap Core 4/7 (note, I don't use core funds unless there is no other option -- due to low allocation to that asset class)
Large Cap Value 7/9
Mid Cap Growth 5/6
Mid Cap Core 2/4
Mid Cap Value 2/6
Small Cap Growth 3/5
Small Cap Core 3/6
Small Cap Value 3/6
REIT 2/5
International Eq 6/10
Emerging Mkt 3/4
High Yield 1/4 (and Ironically enough, it is a Fidelity fund)
Taxable Fixed 0/7 (not surprising on that one -- if all you do are bond funds, this account is not for you).
Muni 1/13 (same as above)
Market Neutral 0/2
There are a few more money market accounts as well that are used for a small percentage of cash (no more than 2% from every allocation I have seen).

To reinterate, this style of account is not for everyone. Most people that visit sites such as this and that have the time and the desire to do their own research, can likely do as well or better on their own. That being said, I just met with clients this morning that had money in a 401K from a previous job that had been sitting in a stable value fund for years (they got scared with 9/11 and such). They did not need or want income from the account but they were afraid of volatility. They wanted growth from the account but were not getting it at 3.68%. They are in their late 60's and early 70's and want to spend more time with their grandkids than they do worrying about their money. This type of account was right up their alley. No upfront cost, no backend cost, and someone to watch over their money so they don't have to.
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The only fee on the account is the management fee.

________________________________________________________________________

Most actively managed funds have signifigantly higher annual expense ratios than passively managed.

The cost would be 1.15% + the additional expense ratio from the fund.



buzman

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Say, would you please expain to this simple, tired, and not to smart too one; what you mean by the neumeric fraction after each class?
I.e. the 6/6 in Large Cap Growth 6/6.

Thanks,

TB
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Ignoring the bond funds, it looks to me like 46 funds out of 74 (46/74) of the stock fund stock performed their indexes, pretty impressive even though it was just over one year.

It sounds like you are one of the well-meaning people that is trying to do a decent job for the people that need the help, I'll bet that you have heard some stores for your clients about other financial advisors that they have dealt with.

For the other people reading this thread though I have to point out that being able to pick outperforming stock funds is rare, especially over the long term. In addition most people should have a certain percentage of their funds in bonds, and it is even more difficult to overcome the management fees in the bond returns and as you indicated many people are capable of doing better if they can do the work themselves.

Greg
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it looks to me like 46 funds out of 74 (46/74) of the stock fund stock performed their indexes, pretty impressive even though it was just over one year.

______________________________________________________________________

Respectfully I disagree.

That is only 62% outperformed their respective index. You would have to buy all 74.

For the most part passively managed funds or ETFs are a better option.

If you to gamble with a few activly traded funds be my guest, but the bulk of your portfolio should be passively managed.

buzman

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Most actively managed funds have signifigantly higher annual expense ratios than passively managed.

Most? Do you have some proof to back that up? Not a single fund in the wrap account has a higher op expense than their associated passively managed A share fund. It would be nonsensical to charge more for such.

I don't know where you get that idea. I and R shares are always cheaper than their comparable A share. That is why they often require 1 million plus to buy an I, R, or select share class.

Here is a good example:

Thornburg Value I class:
Min investment 2.5 million, op expense .98

Thornburg Value A class:
Min investment 5k, op expense 1.40

What funds do you work with where the wrap op expense is more?
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<Say, would you please expain to this simple, tired, and not to smart too one; what you mean by the neumeric fraction after each class?
I.e. the 6/6 in Large Cap Growth 6/6


That means 6 out of 6 were higher.
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I don't know where you get that idea. I and R shares are always cheaper than their comparable A share. That is why they often require 1 million plus to buy an I, R, or select share class.

Ah! So one benefit of going with your plan is that the clients get charged the Institutional rate on their shares (resulting in a lower expense ratio and less of a load). That's a good point in favor of your plan.

However, when they said
Most actively managed funds have signifigantly higher annual expense ratios than passively managed.

they were trying to compare your funds to index funds (which typically have expense ratios in the 0.1% to 0.5% range). Not exactly an apples-to-apples comparison.
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Ahhhh, thanks for the clarification. I did misread that and had though passively "managed" refered to a managed fund instead of an index fund.
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