Financial advisor performance - benchmarking my time wieghted RoR since May 2019

[loveisintheairkathryn]

4.5 years ago my wife and I (39 at the time) decided we needed to have a money manager. We're not gazillionaires but we have good salaries, save a lot and got tired of thinking about money. That's not our passion and we hired an FA to outsource that aspect of our lives.

There's lots of things I like about "our guy" but I'm not sure how to feel about the returns we've earned since then. $ weighted they're atrocious, time weighted they're anemic. Our main brokerage account's time weighted return since May 2019 is 4.64%.

How bad is that? I'm not looking for anecdotes about great returns earned by people who proactively invest for themselves, I'm wondering if anyone in a similar position to us and with a similar hands-off attitude would be willing to disclose what their FA has achieved for them over a similar period. I'll also note that from 2020-2022 it would never have occurred to me to post this, we were doing great. But 5 year chunks of out to-retirement-timeline are significant enough to leave me very concerned when a soft market is till all it takes to wipe out almost all of our progress :/

 

[finian]

@loveisintheairkathryn Remember double digit losses in 2022 effected the performance.

 

[1glowingember]

@loveisintheairkathryn You’re looking for a black and white answer and there isn’t one, at least not without a lot more info. You say in a comment you are currently 80% allocated to stocks, which is probably close to appropriate for someone in their 40s. Was there a conversation about risk tolerance? If you ever told your advisor you were feeling uneasy about the markets, they could have dialed risk back for a period of time, especially around the chaos of the first half of 2020. Or the advisor might have done so even without your input when it looked like the world was ending.

Professional money managers have a tough job. It’s easy to have hindsight bias and look at the ~20% market return in 2020 and say you should have stayed invested in stocks the whole year, but do you remember the way that year felt? Getting out of the market turned out to be the wrong decision, but someone who is responsible for the livelihoods of many clients might very well have taken a cautious approach after the market fell 30%+ in a month. That wasn’t the wrong decision in the moment, only in retrospect. If 2020 had ended up looking more like 2008 (it very well could have), making a cautious shift that year might have looked brilliant. Again, managing money for other people is a hard job.

This is just one stab at adding context to why your question isn’t an easy one to answer. But it’s worth a conversation with your advisor to ask him this question. And if you aren’t getting value from the relationship outside of investment management (e.g. planning, taxes, insurance) then there might be different questions you need to be asking about whether he is doing his job well.

 

[loveisintheairkathryn]

@1glowingember This is a great answer thank you, they’ve all been helpful but I really appreciate the thoughtful input here.

 

[1glowingember]

@loveisintheairkathryn Also, I just looked up some numbers for you to try and give you an actual answer to your question. My 5 year annualized performance in an 85% stock allocation retirement account managed by a financial advisor is 6.4%

 

[guani360]

@loveisintheairkathryn Hard to know when you didn’t post your allocation.

 

[loveisintheairkathryn]

@guani360 I could, which would be laborious, but isn’t that just a question of math? I don’t think they’re stealing from me(!), I’m just not sure how effectively they’ve been investing on my behalf.

I’m now 43, want to retire at 55-60 and have over $1m with this institution. They have complete discretion as to what my brokerage account invests in in service of that goal. Is that return decent for that very specific period or have other folks in a similar situation seen their FAs navigate that period more effectively?

 

[saludmultimedia]

@loveisintheairkathryn If your allocation is 50/50 in terms of equities (stocks) and fixed income (bonds) then that sort of return is fairly expected.
If you're 100% equities and have a high risk tolerance, that's an entirely different ballpark.

A lot of people see lower returns, then compare it to something like the S&P 500 and say "why didn't my advisor get higher returns", when in reality they wanted a lower risk asset allocation and wouldn't be able to stomach a prolonged drawdown

 

[guani360]

@loveisintheairkathryn It’s literally impossible to say without knowing your allocation.

 

[loveisintheairkathryn]

@guani360 The allocation is determined by my FA, that’s my point. I don’t want to assess how well he did assuming the allocation he chose, I want to assess how well he did period, given my horizon. The allocation he chose is obviously a big part of that. For the record it’s currently 80.03% eq, 18.24% fi, 1.73% cash but if no idea if that’s been consistent through the period at issue.

 

[rosepetel]

@loveisintheairkathryn That’s a cop out. The allocation is not “determined” by your FA. You choose what type of investor you want to be. If you choose low risk you make 4.64%. More aggressive investing may make you more money in the long run but no guarantee. Obviously you wanna stay diversified like all good bogle heads but if you don’t ask for higher risk higher reward strategy your FA is gonna play it safe for you.

 

[loveisintheairkathryn]

@rosepetel Not a cop out and let’s keep it nice. My FA knows everything about me and has been told how much I want to have per month in 2019 dollars at 55 or 60. His only job is to get me there. We have never discussed risk tolerance because I have never used that as an input. My concern stems from the fact that over the first five years of our relationship our returns have been below what we initially calculated as necessary to achieve our goals (which he was very confident he’d achieve over the ~20 years we then had.

 

[bbless]

@loveisintheairkathryn So using your timeline, you're 43/44 and want to retire in 11-17 years. A financial advisor will give you a moderately aggressive allocation. You said that together you decided on a goal. Without knowing that goal number, nobody can decide if your advisor has a reasonable allocation of funds.

 

[shagsnacks]

@loveisintheairkathryn This sounds more like a planning issue then a returns issue. Have your advisor run through the Monte Carlo analysis with you which will factor in your spending, saving, goals, etc. This will show you if you are on track or if a change needs to be made. You'll go crazy chasing returns if you're not careful. As long as they are not underperforming the benchmark every year then returns are not a reason to leave. If you aren't t getting planning advice you may as well just sign up with a robo advisor for less than half the price.

 

[amcminn84]

@loveisintheairkathryn I'm in the same boat with you. I've been using a financial advisor since March of 2021. They told me they could do better than the S&P 500 but they haven't out performed it yet. I plan on leaving them soon, hard lesson learned. Time in the market will always beat timing the market.

 

[lalaland777]

@loveisintheairkathryn Ballpark should be higher than that but it depends on how you were invested. I’d ask your advisor for an analysis of your performance (or lack thereof). More like a qualitative exercise. If you’re not happy with the answers, shop around.

 

[resjudicata]

@loveisintheairkathryn It is impossible to answer this question without a ton more info. That being said, a globally diversified portfolio 75% ACWI 25% Tbill has done 4.55% last 3 years and 6.66% last 5 years.

 

[mrjeff]

@loveisintheairkathryn What fees are you paying? Depending on the risk level you adopted this return ranges from meh to good. Low risk a.k.a. bond heavy would have hurt. Monday morning quarterbacking isn't helpful. You need to reflect on the risks you agreed to take not just the rewards side of the equation.

If you did your due diligence and picked a fiduciary advisor and kept a lid on the AUM fees then you've probably done OK.

What else is the FA helping you address? e.g. life insurance, power of attorney, trusts etc. If all they are doing is investing the dollars you'd be better served outsourcing to a low cost index TDF if your affairs are simple; or a robo-advisor if you have to deal with a little complexity (e.g. inheritance, RSUs, Tax Loss Harvesting) and only use a fiduciary advisor when things are complex e.g. non-traditional investments, overseas accounts etc where you need access to niche specialists (FA won't have all the answers), or where you want someone to help handle your entire financial lives.