The “Value” Question Is Pushing Advisors Into Dark Places

dan solinAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

I had a recent experience with an ultra-high net-worth investor that was disturbing.

He was interviewing advisory firms because his current advisor retired.

His experience may not be typical, but the responses he received led me to believe some advisors go to a dark place in their quest for more AUM.

His goals

Because he had significant assets, his goals seemed achievable. He wanted to earn an average annualized return of 6%. I’m not sure he understands sequence-of-returns risk or the impact of inflation over time, but let’s assume his stated goal was reasonable.

He asked each firm to recommend a portfolio likely to achieve this goal.

Simple solutions

There are some simple portfolios that would meet his requirements.

Vanguard’s LifeStrategy Moderate Growth Fund (VSMGX) has annualized returns of 6.94% since its inception on September 30, 1994.

Dimensional’s Global Allocation 60/40 Portfolio (I)(DGSIX) has annualized returns of 6.00% since its inception on December 24, 2003.

A single-fund strategy has pros and cons, but since none of the firms recommended it, he didn’t have the option to evaluate it.