Education = FutMP900341471Not On My Nickel is Do It Your Self, but only from the standpoint of selecting a Portfolio Manager

How do you achieve the best retirement returns?  First, understand performance does matter.  Poor advice will detract from your performance and how much money you will have at retirement.

At Not On My Nickel you learn how to determine what is good and what is bad advice. At Not On My Nickel, you are not doing it yourself. You are given the tools, research and education to select your portfolio manager, who will do all the retirement investment management for you.

Ideally, one does not change managers very frequently. Not On My Nickel helps learn how to research portfolio managers that have been in the business for decades and have the performance results that exceed their relevant indices. There are not many that consistently outperform their index. Not On My Nickel believes in strictly investing with the few portfolio managers that do.

Passive vs Active Management

Not On My Nickel believes in principally active management, but solely with our nation’s top portfolio managers that have proven their worth and have out-performed their index for years.  They must meet our six strict criteria, as defined on our home page here, Save Your Sanity”  and have prudent and reasonable fees, as one believes in “an honest day’s work, for an honest day’s pay.”  These are the true fiduciaries, not middleman that keep you in the dark as to performance and unnecessary fees on top of fees.  By definition, that model is NOT a fiduciary business model.  It is simply a model that developed with the advent of 401(k)’s in the early 1980′s.  It is a redundant business model.

This business model and the “financial planning” industry is now focusing on lower fee mutual funds and ETF passive investing, solely as a means to keep their high fees of 1%- 3%.  Why?  In this low interest rate environment, once you pay your “advisor” your returns may be negative.  Thus the advice industry is able to retain their fees, if the asset manager (who is actually managing your money) has lower fees, which is the case with passive investing.

There may be instances when passive management is warranted, but a blind adherence to passive investing, guarantees performance, after fees, below an index.

Not On My Nickel’s Vision

We are here to change the current business model for retirement investing. Ideally, everyone would have defined benefit pensions, but that is no longer the case and probably will not be the case. What is the next best alternative today? We believe that in today’s retirement investing marketplace “assets under management fees”, on top of mutual fund fees, are simply a scheme to defraud a retirement investor of savings that belong rightfully to them.  We provide the tools and education to help retirement investors take charge.

Screen Shot 2013-08-19 at 5.34.26 AMTake a look at this chart on the left of a 401k investor’s dreadful returns compared to a Not On My Nickel researched portfolio manager, PRWCX. How much is lost, in many of the 401(k) plans today? So much money is needlessly lost, particularly from newly-designed target date options. Yes, in most 401(K) plans, you are often losing your hard-earned savings to fees and poor returns. The returns on the left are the actual returns, filed per SEC reporting standards.

retirement savings per robert hiltonsmith

Robert HIltonsmith’s retirement reality with a focus on hidden fees

In the instance on the left, if you have a State Farm sponsored plan, managed by Black Rock, as the chart on the left depicts, and are in one of their Target Date Fund options(NLHAX), you could be giving up thousands of dollars needlessly for advice fees, 401(k) fees and poor returns. Further in this instance on the left, your employer may have allowed Charles Schwab/Guided Choice to further charge you an advice fee to select a poorly performing Target Date Fund.

Read the study to the right, prepared by Robert Hiltonsmith. You are losing hundreds of thousands of dollars to worthless fees in most 401(k) plans.  Not On My Nickel further highlights the worthless advice fees, not mentioned in this study, that are being skimmed from your nest-egg by “Advisors” and the poor returns of today’s Target Date Funds or packaged exchange traded funds, (ETF’s) that have no performance history!  It is like throwing money into the wind.

You can change this picture today!  Despite the promotion by main stream media, described in this Blog Series, Part I, by the Wall Street Journal and the New York Times, financial advice for everyone, is not the option. Employer sponsored 401(k) education is conflicted and therefore of little value. Conflicted advice and education, provided by a sales force, selling products, is not advice and education. The result is financial illiteracy. Bona fide retirement investing education that provides real transparency and the tools to make informed choice is the solution.

Education = FutMP900341471Not On My Nickel presents revolutionary change in retirement investing:  Transparency and bona-fide financial education, with regular performance reporting— the key to superior retirement performance

 

 

 

Not On My Nickel’s Number One Retirement Investing Rule to Achieve Superior Performance

How do you achieve the best retirement performance? Do not take advice or pay an assets under management fee to any  “financial advisor” that does not file regular performance results, against a widely published index, with the Securities and Exchange Commission, SEC.  Only make informed choices.

Take the time to get the proper education and the tools to make informed decisions.  It is simply a one-time, up-front investment in time to learn what you need to do to make an informed choice on how to invest your retirement savings.

The Media and the Financial Advice Industry

The media is a master of convincing the public they need financial advice. Why?  It generates advertising revenue for them from financial services firms.  The latest media blitz focuses on the need for the public to have access to “financial advice.”  Financial advice does one thing—it detracts from your investment returns.  There is yet to be a published study that can show it will increase your returns.  Ignore the media hype in articles such as these two:

“A Start-up Aims to Bring Financial Planning to the Masses”  New York Times, July 26, 2013.

“401(k) Plans Add More Personalized Advice” Wall Street Journal, September 5, 2013

Not On My Nickel can state unequivocally your retirement savings returns will increase if you take the time to understand just a few key concepts.  Your returns will increase in two ways:

(1)  You will have ready access to the top performing portfolio mutual fund managers through information and education and (2) you will save the costs for the advice fees that are simply a drain on your retirement savings.  They do not add extra value, by definition.  They are financial intermediary fees that can easily be avoided through transparency, use of education, proper tools and effort.

Why You Do NOT Want to Pay a “Financial Advisor” a Fee for Investment Advice:  It is Conflicted and Not Bona-fide Financial Education

Let us first distinguish between investment advice and financial planning and budgeting.  If you want help with learning how to prepare a budget or financial plan, pay a “financial planner” an hourly fee to learn how to do a budget or a financial plan.  Follow these simple rules:

  • If you need life insurance, buy term insurance from a top rated insurance company for 20 or 30 years.  Never buy “cash value” life insurance.  Learn about life insurance online.  Here is one source: Life Insurance – Wikipedia.  Do not take any retirement investment advice from a life insurance salesman, even if they say there are a “financial advisor”.  They are not trained in portfolio management.
  • If you need a will, go directly online and learn how to draft a will or go to an estate attorney.  There is no reason to pay a middleman, “financial advisor” to tell you that you need to go to an attorney to draft a will.
  • If you need tax advice, go directly to an accountant.
  • If you are in debt and need assistance, there are many free consulting services there to help, such as Debtor’s Anonymous.

Read Helaine Olen’s Book for more background information on the dangers of the advice industry, Pound Foolish. Exposing the Dark Side of the Personal Finance Industry.

If you need investment advice, hire a portfolio manager, who is a fiduciary, registered with the SEC to manage your retirement assets.  A financial advisor, a CFP,  is in 99% of the cases, not a fiduciary, even if they are registered with the SEC. They are not specialists in investments and portfolio management.  Deal only with a specialist, a portfolio manager, registered with the SEC who provides you five- year and ideally, ten- year performance returns, that have been filed with the SEC.

“Financial advisors” DO NOT file performance returns with the SEC and they do not specialize in portfolio management.  Financial advisors are generalists.  Go directly to the best, the portfolio manager for your investment advice and day-to-day investment management.  Not On My Nickel’s research service puts you directly in touch with a short list of the top performing specialists, the mutual fund portfolio managers and keeps you updated on these portfolio managers and their mutual funds, on a regular basis.

Join us tomorrow for Part II of our Blog: Best Retirement Performance Comes from Education, Transparency, Not servicesConflicted Financial Advice.  Or email us today to get started on your curriculum that will shape your retirement investing future.  Ask your employer to incorporate Not On My Nickel’s experiential curriculum in your workplace.

Here is the link to the Not On My Nickel Slide Show for Employers

 

Happy businessmen
With the advent of the Internet, retirement investors can now take control of their nest-eggs with the proper tools and research
With the advent of the Internet and easy access to information, many people are now buying airplane tickets and booking hotels online. The intermediary, the travel agent, has been eliminated in many transactions. Why? One can obtain the same thing through less money and through their own research, perhaps delivering a better vacation by exploring the alternatives that best fit their life styles.

Not On My Nickel believes with the proper tools, real education and transparency, retirement investors can get engaged and pick their own portfolio managers. Why is this so critical today?

No Transparency

(1) In most cases you have no idea what the performance will be for the selections that your financial advisor is recommending for your retirement nest egg. See Not On My Nickel’s Blog on the lack of audited performance standards for Advisors. They are using asset allocation models and placing you in so many asset classes, you really do not know if it is better or worse for your returns.

Redundant Fees that Deliver No Value

(2) You are paying the financial intermediary in most cases an unnecessary fee and you are guaranteed to do worse than an index fund, if you are in an index fund, as a result of this fee.

Advisor Created Obfuscation in Employer Plans – Get A Simple Straightforward List of the BEST Portfolio Managers, with Proper Education, at Not On My Nickel

(3) If you are provided a simple list of the very, very few top portfolio managers/mutual funds that have outperformed the index for many years, after fees, you will most likely do better, since you are saving the advisor fee and your returns are not being diluted by poorly performing funds.

Advisors Subject Your Savings to Potential for Fraud - Not On My Nickel Eliminates the Risk of Advisor Fraud

(4) You eliminate the risk of Ponzi schemes! Here is a another one reported recently in Investment News: FINRA alleged that from December 2010 to January 2013, he converted customer assets in two trust accounts, using at least 50 transactions falsely characterized as loans, and transferred the money to two of his friends. One victim was a 77-year-old retired homemaker with Alzheimer’s who lived in a nursing home, FINRA said in the settlement agreement. Mr. Thornes diverted about $1.7 million from the homemaker’s $2 million trust account, FINRA said.

Why Hasn’t The Retirement Investor Taken Charge Sooner?  Workplace Financial Education Has Been Designed To Move Your Towards Hiring a Financial Advisor

Assume for a moment you go to your 401(k) menu selections, how do you know which one to pick?

• Does the financial education package provided by your employer, as mandated by the Department of Labor, show you how to select the best fund for your
needs? Not normally.

• Does the financial education package provided by your employer, as mandated by the Department of Labor highlight the additional costs and risks of going
with a Target Date Fund? (Read SEC Investor Advisory Committee’s List of Risks with Target Date funds here –  It is a long list!)

• Does your financial education package encourage you to get help in picking a mutual fund?  No, there is no employer provided education on how to measure what mutual fund is best for you!  Here is the typical response you get for any employer plan option:  “Yes, click here to hire an advisor.”

• Does your prospective financial advisor show you your monthly returns for your total portfolio after all fees, including the advisor fee, before you choose to invest with them? If not, it is time to take over.

Example – a Fidelity 403(b) Plan

One Employer’s Defined Contribution offers 353 options! Wow, where do you begin?

Now for this plan, administered by Fidelity Investments, it does provide a good screening option for the investments they offer. Say you want to select a Balanced Fund, with low fees. You run Fidelity’s screener using low expenses and here is what you get, shown in the Chart Below:

Screen Shot 2013-07-29 at 12.33.35 PM

Do not hit the button after you take a look at this graph – “I need help, I need a financial advisor!”  Through Not On My Nickel’s real financial education curriculum, that is hands-on, pragmatic and straight-forward, you will be on your way. It is the first and only retirement curriculum designed for you to take charge of your retirement savings, without an unnecessary layer of a financial advisor that operates in their interest.  Learn through Not On My Nickel straight-forward curriculum how to read this chart, what each item means and how to make the choices in your best interest.  Learn why you would never want to select the Target Date Option. Learn how much money you are losing if you are in the Target Date Option.  Learn the fees associated with each option.

Remember from NOMN’s last week’s Blog Post on audited performance standards, if your financial advisor does not post their performance standards monthly on their website, and are measured against an approved index, caution. Note that is a red flag and cause for concern.

Learn more about Not On My Nickel tools, educational services and how to research the select few top performing mutual funds for your retirement nest egg today. Invest a few hours of time and you will be on your way to taking charge of your retirement nest-egg with portfolio managers you believe in, without the high fees and associated risks of the unknown.

Brokerage Window

Remember, if you are in a 401(k) plan with options that have high fees and poor performance, you have an alternative today!  You may use your 401(k) Plan’s Brokerage Window with the research and education provided by a Not On My Nickel subscription, whose annual costs are less than the Load Charge on a typical mutual fund and provides the tools, research and education to eliminate all these fees detracting from the performance of your retirement savings.

 

 

Businessman climbing LadderMP900382636
If you are in a Charles Schwab sponsored retirement plan, chances are your paycheck may be automatically debited for worthless* “advice” fees that will go directly to Charles Schwab and its partner

Charles Schwab believes they know what is best for you. They have made arrangements with GuidedChoice to automatically charge your paycheck for their self-serving investment advice. They are so certain what you need, they moved ahead and may have your employer taking money from your paycheck to pay for questionable “advice services”, without even checking with you first.  In this Blog Post, Not On My Nickel will demonstrate this ‘low-cost’ advice is clearly not in your interest and may be a breach of ERISA fiduciary standards.

The most egregious part of this “taking” is the advice model delivers results below the index!  The more money you save, the greater rate you will provide income to Schwab and GuidedChoice.  It is the retirement scam of the 21st Century: assets under management advice fees that take a percentage of your savings, with no measurable return parameters.

Here is a link to a Reuters article that describes this arrangement, “A New 401(k) Success Formula: Low Cost Plus Advice.”

The article states: “The plan also auto-enrolls participants in an investment advisory service that adds another 45 basis points to expenses (A basis point is .01 percent.) It’s possible to opt out, but nearly 90 percent of participants use the service, Schwab says. In return for their 45 basis points, savers get fairly comprehensive planning: Regular personalized consultations on allocation and rebalancing help from advisers from the third-party service GuidedChoice.”

Not On My Nickel is in favor of any new service that can deliver top returns at low fees. However, as we pointed out in our Blog Post on July 29, if the Advisors, in this case Charles Schwab and GuidedChoice, are not providing any history of audited performance returns, after all fees, do not touch their service. It is in a four letter word: a sham.

In analyzing GuidedChoice’s website, there is absolutely no indication of the success of their advice and how it compares to that of select portfolio managers, who are professional fiduciaries and who have spent a lifetime buidling a bona-fide career and profession in fiduciary investment management.  There are not many of these true fiduciary managers today, but Not On My Nickel has identified the very few to whom you would feel comfortable entrusting your retirement savings.

*Not On My Nickel is compelled to use the term ‘worthless’ for two reasons:

(1)  Employees have no benchmark to measure the performance of the investment advice provided, it is not “audited” performance

(2)  Schwab and GuidedChoice do not provide SEC filings on the compositions of their recommended portfolios, yet as assets grow they take larger fees from the employee.

GuidedChoice Confirms They Have No Published BenchMark for Gauging The Value of Their Fees

In checking with GuidedChoice directly, by telephone, Not On My Nickel asked GuidedChoice if they had any past history of returns, based on their advice. They informed us there is no published history since it is all “individualized”. That is code word for no-transparency, since their published results will reveal you will underperform top performing portfolio managers, after GuidedChoice fees and Schwab’s index investment management costs.

Oh yes, you may “Opt Out” if you discover that Schwab is automatically charging your account for a new “financial advice” service, which was hidden in a Size 4 Font disclosure document. People are very busy and rarely can find the time to read the fine print, as we all know.  At a minimum, Charles Schwab should ask the employee if they would like their services/GuidedChoice’s advice services.  This is clearly not appropriate for any entity to deduct automatically from an employee’s paycheck without prior approval for a service that is not in the employees’ best interest.

You Did Not Select This Advice Firm, GuidedChoice. What are Its Qualifications?

As with all financial advisors, be aware of these key facts:

• There are no minimum professional standards for Advisors.

• They are not fiduciaries and they may act in their best interest, not yours, based on the fine-print disclosure documents.

• If they breach securities laws, you have no right of private action in your IRA and you are subject to mandatory arbitration, so you have no legal recourse.  Charles Schwab actually banned class action lawsuits in their brokerage account agreements and have just temporarily removed the ban until further court proceedings rule in their favor.  You may read more here.

• There are no past performance results, so one has absolutely no idea about the quality of the advice. There are no standardized performance measures to determine if the advice is any good.  They do not file performance results, semi-annually, with the SEC.  In sum, this service has no accountability and adds no measurable value to your life savings in your 401K plan or IRA.

Remember, GuidedChoice employees are NOT trained portfolio managers who specialize in portfolio management. If they have a CFP, they may have had one easy course on “Investments” which is no criteria for advising any retirement saver on where to invest their life savings.  Those decisions should be left to professionals, those that design and monitor portfolios daily, who specialize in portfolio management, who have a professional career in investment management.

What Are the Qualifications of Not On My Nickel Researched Portfolio Managers?

Remember that the most important factor in selecting any firm or entity for advising on your retirement savings:  Do they provide regular performance results, against an accepted benchmark, with the SEC?  Do they file portfolio holdings, regularly with the SEC?  If they do not, do not take ANY investment advice from them.  Do not invest in their investment offerings.

Here is a benchmark for a professional investment manager, that Not On My Nickel uses for selection of fiduciary portfolio managers.  Not On My Nickel analyzes the SEC filings of every SEC registered investment adviser and investment adviser firm that is considered worthy of strict ERISA standards.  Every Not On My Nickel researched portfolio manager must file regular reports with the SEC on their investment experience and history, their fees, their portfolio objectives, their holdings and their performance, against an accepted index.  Here is one such portfolio manager and Fund:

SEC Filings on Primecap Management

Yahoo Finance description of Primecap Odyssey and Tools to Compare their Performance Against Industry Benchmarks

Theo A. Kolokotrones, Portfolio Manager, PRIMECAP INVESTMENTS Odyssey Fund (POAGX)

B.A. University of Chicago,
M.B.A. Harvard University

According to Morningstar, “The five listed managers on the Primecap Odyssey funds are an experienced bunch, averaging more than 30 years in the investment field. They’ve aligned their own interests strongly with those of investors: Each of the five managers has more than $1 million of his own money invested in each of the three Primecap Odyssey funds.”

In the chart below, Not On My Nickel has included the returns of Mr. Kolokotrones’ fund, PrimeCap Odyssey, as a comparison to the index funds and advice fees that Charles Schwab and GuidedChoice are taking .45% to advise you, in addition to a .15% investment management fee.  You be the judge. You are paying Charles Schwab and GuidedChoice .60% for unknown performance, that is guaranteed to underperform the index.  Alternatively, for example, you could pay Mr. Kolokotrone’s .70% for his years of experience in monitoring global capital markets and selecting investments, based on market and security selection fundamental analysis. Would you prefer a professional fiduciary that places your interests over theirs, or an unproven computer model, combined with a salesforce, who provides you unknown, unmeasurable, indeterminable “advice”, with no proven results?  Would you prefer a portfolio manager that files its returns, regularly with the SEC, against an agreed upon benchmark, or placing your life savings in the hands of a computer model and salesforce with no proven history or professional experience in managing money?

What does GuidedChoice base its advice to you on? A backward-looking computer model.

GuidedChoice and Schwab can service thousands of employees, with no time invested, other than running it through a computer model, that may take less than 3 minutes.

According to its SEC Filings, GuidedChoice has 500,000 clients and only FIVE employees who perform advisory functions, including research.

Reuters reported, last May, and SEC filings reveal that the average 401(k) balance is now $80,900 in Schwab’s Index Advantage. Schwab and GuidedChoice, based on the Reuters article, linked to earlier, and Guided Choice’s ADV filed with the SEC, charge .45% per participant for “advice.”  GuidedChoice’s 500,000 clients, with an average 401(k) balance of $80,900, would generate income to Schwab and GuidedChoice of $364 per client.  This equates to annual revenues of $182,000,000, with no measuring stick to evaluate their worth to you or any retirement saver. $182,000,000 in revenues to Schwab and GuidedChoice, derived from deductions to employee paychecks without their prior approval, is quite a smart business model.

Neither Schwab nor GuidedChoice have furnished the Department of Labor or the SEC any past performance figures or benchmark to evaluate the worth of their business model to the retirement saver.  It is all “hearsay.”  Are Schwab and GuidedChoice true fiduciaries under ERISA?  Not On My Nickel believes they are not fiduciaries, simply because there exist more cost-effective solutions for employees, that generate better performance results for employees. Conflicted financial education provided by untrained GuidedChoice advisors may be doing more harm than good and creating a false dependency for retirement investors on a conflicted salesforce providing ‘advice’ of an unknown value.

If Schwab and GuidedChoice cannot show the performance, after all fees, for their asset management charges, the employee cannot evaluate the worth of the service. It is time to eliminate these add-on “advice services” based on assets under management. If employees want advice, let them pay an hourly fee, at an established market rate for the “advice.”

How Do I Know if The Schwab/GuidedChoice Computer Model is Any Good?

You do not know. GuidedChoice does not provide any audited, measurable returns.  GuidedChoice bases its advice on Modern Portfolio Theory. Harry Markowitz who developed this model is on the Board of GuidedChoice. Here is the link from their website.

Here is the type of portfolio they will more than likely design for you, shown in the chart below, based on the Reuters article linked to above.  They use a computer model to select passive Exchange Traded Funds or ETF’s. However, what the experts are now saying is all this diversification may be detracting from your returns. Many professionals are now recommending excluding the asset class of commodities from your portfolio.

You be the judge.  Here are the returns for a Target Date ETF portfolio, designed by BlackRock for State Farm’s 401(k)’s. It is comparable to what Schwab and GuidedChoice’s computer would design for you.  We compare the returns of this Modern Porfolio Theory designed 401(k) to simply holding a NOMN researched Balanced Fund, where the portfolio manager, who specializes in portfolio design, makes all the decisions for you, not a computer model.

This NOMN researched portfolio manager is actively taking into account aberrations in global capital markets, such as the unprecedented relationship between the stock market and interest rates, due to the quantitative easing by the Federal Reserve Bank, since the financial crisis in 2008.  A backward looking model, such as Modern Portfolio Theory does not account for these abberrations, that could be significantly detracting from your returns based on a current very, very low interest rate environment.  We also included returns for a professional investment adviser, Theo A. Kolokotrones, Portfolio Manager of Primecap Odyssey to show you the results that a trained, experienced professional investment adviser can deliver against agreed upon benchmarks. (The red line is for the Fund that Mr. Kolokotrones manages, Prime Cap Odyssey.)  We exclude Primecap Odyssey results from the comparison of returns, between a Not On My Nickel researched balanced fund and the passively managed alternative presented by GuidedChoice and Schwab.

Please note, the larger your balances grow, the more that Schwab and GuidedChoice take from your retirement savings for their advice. that cannot be measured against a benchmark to determine the value.  The formula is .45% times your outstanding retirement savings balance.  If you save $150,000, they may then take $675 each year, without providing any increased service or value.

With the Not On My Nickel  education model, you eliminate the conflicted advice and you will have access to the tools to learn how to select the top fiduciary portfolio managers on your own.  Soon you will be confident in selecting true professional fiduciaries to manage your retirement savings, thus eliminating the conflicted financial intermediary that skims off ever- increasing fees from your returns.

The Chart Below Compares the Hypothetical Performance of a Schwab/GuidedChoice Account to a Not On My Nickel Researched Balanced Fund

The green line, on the graph below, is a NOMN researched Balanced Fund and the blue line is a passively managed Target Date Fund, designed based on Modern Portfolio Theory, comparable to the “Managed Account” provided to you by GuidedChoice and Schwab’s Managed Account. The red line is an actively managed aggressive growth fund, a choice available through Not On My Nickel researched portfolio managers, that could be added for those willing to take on more risk.

We are forced to use this ETF portfolio in the example below since Schwab and GuidedChoice refuse to provide investors any past returns.  Why?  Their model is bait and switch.  You pay a lower fee for computerized investment management, but Schwab makes it up in the advice component, charging the 401(k) participant for “advice” delivered by sales personnel and based on a  computer model.  The objective of the Schwab/GuidedChoice model is to simply gather more assets and thus income, from you, without regard to outcome.  You can see with the Schwab/Guided Choice option, your investment performance is guaranteed to underperform the index, after fees!

Screen Shot 2013-08-19 at 8.38.16 AM

 

 

 

 

In the Green Comparison Chart below left, is the Analysis of How Much a 401(k) Participant Stands to Lose Through Schwab/GuidedChoice’s New “Advice” 401(k) Model

Screen Shot 2013-08-19 at 5.34.26 AM

As you can see in the Chart below, through selection of a professional investment manager, in lieu of a computerized model and GuidedChoice/Schwab sales force, you stand to more than double your money with the NOMN researched option.  In addition you have significant risks with the Schwab/Guided Choice option:

 Many ETFs risk not tracking their index.  What is the past performance of the Schwab selected indices?  How close is their performance to the relevant index?

 Many ETF’s cannot withstand unusual market volatility, causing trade settlement issues as described in this article in Institutional Investor.

 Modern Portfolio Theory is under attack for numerous reasons, including the failure of certain diversification strategies in time of crisis and the dilution of returns.

What should I do for Advice?

Given the lack of action on the part of the Department of Labor and the SEC, the regulatory bodies that are there to protect retirement investors, you have absolutely no choice but to take one or two hours of your time to take action to protect your life savings. Not On My Nickel provides you with the tools, education and research to select top portfolio managers, such as Mr. Kolokothrones (yes, the red line on the chart above!) at PrimeCap Odyssey, on your own.  You save the financial intermediary fees and you earn better performance from trained and experience portfolio managers that are true ERISA fiduciaries.

Learn how to do access these portfolio managers yourself. Not On My Nickel provides you the bona fide financial education and the tools to evaluate and understand the benchmarks, to end the dependency on the poor advice and poor financial education provided by your employer in today’s marketplace.

Not On My Nickel’s service is easy and it is empowering.  It does take a little time up front, which is time well spent.  If you have the time to do the ongoing monitoring of your selected portfolio managers, you may not even need Not On My Nickel after the first year.  The satisfaction from taking charge and watching your retirement savings grow, with the help of a true fiduciary professional manager is immense.  Ignore the hype of these armies of sales personnel, such as Charles Schwab and GuidedChoice that are simply looking for ongoing schemes to take a slice of your retirement savings, through their ever-so-lucrative percentage of assets under management business model, that is clearly a breach of ERISA fiduciary standards.  Take charge and use Not On My Nickel’s research and tools to access bona-fide fiduciary managers.

 

Don’t Be Fooled Anymore – Get The Audited Numbers on Your Performance, Based on a BenchmarkDunce Holding Paper Money

In this Blog we take you through the steps to learn how to:

  Compare a fund manager’s performance to the appropriate index.

  Learn how a mutual fund’s performance is regulated by the SEC, but your Advisor’s performance is not audited or regulated by the SEC.

In general, financial advisors are not actually managing your money. They place your money with various portfolio managers or some combination of passively managed exchange traded funds (ETF’s). In last week’s Blog we reviewed how America’s top “Advisor” is the best salesperson, according to Barron’s. Read the fine print of your contract. Once your Advisor selects an investment for you, your Advisor has no ongoing duty to monitor that investment, even if they are charging you a fee to do so!

What are the risks for having a salesman managing your nest egg?

As the SEC has warned, your advisor has no training, education or professional qualification to select these portfolio managers; it is not mandated by the SEC.  In its March 13, 2013 Report on the Regulation of Investment Advisers the SEC warned investors that:

“Unlike the laws of many other countries, the U.S. federal securities laws do not prescribe minimum experience or qualification requirements for persons providing investment advice.”

Your Advisor may pick one good ETF or Fund, but may also pick several that drag down the performance of the strong fund, due to lack of experience and training.

Your Advisor does not prepare audited returns that are filed with the SEC, so there is no benchmark to see how you are actually doing, based on the Advisor’s selections, for your retirement nest egg, after the Advisor’s fees.

Your Advisor does not continue to monitor the investments they place you in! It is your responsibility.

There are many Ponzi schemes because there are no standards for Advisors and many “crooks” thus enter this business and prey on your emotions and promise high returns. (Bernie Madoff has warned from jail – “Madoff, Other Felons Say Markets Unfair.”

Eliminate these great risks and investment directly with the Portfolio Manager in a mutual fund(s) that you select and can monitor, based on ongoing professional research and education.

The SEC has defined the benefits of a mutual fund at their website.

Professional Management. The fund managers do the research for you. They select the securities and monitor the performance.

Diversification or “Do not put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.

Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.

Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.

Audited Performance Standards by Your Mutual Fund Portfolio Manager

Mutual funds are regulated by the Investment Company Act of 1940 which
requires:

  The mutual fund company must disclose publicly its financial health on a
regular basis.

  By law, each mutual fund is required to file a prospectus and regular
shareholder reports with the SEC

  It has to register with the SEC and file quarterly reports with the SEC.

  The mutual fund manager has a fiduciary duty to act in your best interests,
not hers, while the SEC permits your financial advisor to act in
their best interest

  There are strict controls for where the securities are held and who has access
to them, which is examined by an independent accountant at least three
times each year.  Do you know where your Advisor is placing your funds and how often it is audited by an accountant?

Here is the format that the SEC requires that the Mutual Fund adhere to for reporting:

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Not On My Nickel provides you monthly audited performance figures, per SEC standards (except for taxes, since they are not relevant until distribution in 401K or IRA) on a monthly basis for the mutual funds that you choose. In future Blog Posts we will show you how to determine your overall return if you are in multiple funds and give you a simple format to plug in your own numbers to watch your savings grow.

Here is an example of a researched NOMN balanced fund (Blue Line) and NOMN aggressive growth fund (Red Line) compared to a State Farm Target Date Fund (Green Line).  Do you know how to compare your performance, based on your Advisor’s recommendations in this graph?,  If not, it is time to take charge and get access to the best returns, at the lowest cost, based on audited performance standards.

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So, without audited performance, that the SEC mandates for SEC registered portfolio managers, but not financial advisors, you are throwing your money into the wind. Time to take charge, eliminate the redundant fees and place your money directly with the SEC fiduciary portfolio manager.

 

stock investment

As most would agree, the most important quality in selecting the doctor to operate on your heart is, “Is she the best? Is she technically qualified? Does she have my best interests in mind? Do I also want this amazing doctor to become my partner in life to coach me to do what is in my best interest…to help me with my home purchase, prepare my will or help me with my taxes?

As one well knows, the qualities that make your heart doctor the best in saving your life and operating on your heart—his years of experience and professional training are why you selected this doctor. You want your doctor to be continually focused on advancements in heart surgery, not advising you on how to structure a business venture.

The “wealth management” or “financial planning” industry has crafted the message that they are there for everything you need, insurance, budgeting, and expert investment advisor without professional training in any of these fields.

What are the Factors That Barron’s Uses to Rank the Top Advisors?
Barron’s Top Advisors – 2013

“Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance isn’t an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking abilities”, according to this Barron’s article.

Here is the Red Flag: Investment performance –returns – is not a component in the rankings!

What does this survey tell you about the people managing your life savings?

1. The industry has decided for you the top advisor is the one who is best at sales and marketing. The top advisors are those advisors who have amassed the most assets under management and brought in the most revenue for the firm. Your results and the growth of your savings is not the most important issue.
2. There are no uniform professional standards for the “advisors” managing your money. No education requirements, no experience necessary – high school diploma, nice; but not necessary, college degree; the same. Yes, there are NO professional standards for who is managing your money. There are no government regulations on who can manage your retirement savings.
3. Is a CFP a trusted professional standard for managing your money? No. The CFP has but one basic course on “Investments”. A CFP is not a professional in managing investments or selecting the best investments for your retirement savings.
4. There are absolutely no performance standards for the investments that the financial advisor chooses which is why Barron’s provides no rankings for the MOST important criteria, audited quarterly performance.

Who Are the Professional Investment Managers?

SEC registered investment firms that manage your retirement savings, actively managed mutual funds, are the professional managers that you must place your money with directly so you can have audited professional results of your performance. Over $2 trillion dollars was lost in retirement savings during the last financial crisis. Why? Professionals were not managing retirement savings. Sales personnel were and they are paid less if they move your life savings out of the equity markets, even temporarily.

What Do I Need To Select the Top Investment Manager, Portfolio Manager?

• Audited, professional results compared against an agreed upon index
• 5, 10, 20 Year track record
• What is the professional background of the portfolio manager: Is his style consistent?
• Does the firm operate in my best interests and the interests of society overall?
• Are the investment management fees reasonable?

There are many claims today that active management is no longer viable. The problems with going with strictly passive management are several:

  • Who is going to choose the passive Exchange Traded Funds to put your retirement savings in? Are they professionals? What is their experience in doing so?
  • There are no audited statements and five and ten year histories on the selections of the multitudes of permutations and combinations of ETF’s. Most of the selections are based on computer algorithms that failed miserably in the 2008 financial crisis.
  • The new Target Date funds have high fees and are performing very poorly compared to the track records of the top active managers.

What is the Most Conservative Strategy Given the Failures of the Financial Services Industry?

Place your money directly with a professional money manager, who files regular reports with the SEC and who has multiple ratings from numerous rating services including Morningstar, Lipper, Zacks and Not On My Nickel.

Look at the audited performance returns against the relevant index before you place your money with this manager – Does this manager outperform the index over time? 5 years? 10 years?

Never trust a salesman, a “financial advisor” to select where you will place your retirement savings.

The Lesson

When selecting where to place your retirement savings, only trust the true professional:

Who provides you with quarterly audited performance statements

Whose only focus is on managing your money and watching the ever-changing global capital markets to determine how best to adjust your savings?

The myth that you need a “financial advisor” to hold your hand is not only a waste of money it is preventing you from placing your money directly with the top professional money managers.

Next Week’s Blog Post: Learn How to Compare Fund Manager’s Performance: How It is Audited and Regulated by the SEC, unlike Advisor’s Investment Selections, which are not audited or do not conform to any uniform indices for measurement.