Jason Zweig: Should You Have To Pay A Fee To Fire An Adviser ? FYI: Copy & Paste 7/26/14: Jason Zweig: WSJ;
Regards,
Ted
Even a "fiduciary" investment adviser may still be able to treat clients in ways that might surprise you.
Someone who owes you a fiduciary duty must put your benefit ahead of his own; in practice, that should mean minimizing fees, eliminating all avoidable conflicts of interest and fully disclosing any other material conflicts. Unlike brokers—who need only ensure that their recommendations are "suitable," given your needs and circumstances—investment advisers are already required by law to meet that standard.
Even so, many advisers impose "termination fees" on clients who leave the firm within a set period. It is appropriate for an adviser to recoup the cost of setting up and administering your account—and perhaps even to deter you from bolting the first time the market dips a little. But securities lawyers say that termination fees should be directly related to those costs. Otherwise such fees would seem to violate the spirit, if not the letter, of fiduciary duty.
"If for any reason you don't trust your adviser anymore, or you don't like his performance, then terminating the contract is your only real way to protect your interest," says Robert Plaze, a partner at law firm Stroock & Stroock & Lavan in Washington who formerly regulated investment advisers at the Securities and Exchange Commission. "You shouldn't be penalized for doing that."
Termination fees are fairly common. In its latest annual brochure, filed with the SEC in May, Horter Investment Management, a financial-advisory firm based in Cincinnati, says that it charges clients $200 if they exit some of the firm's strategies within 90 days. That is in addition to management fees that run up to 2.75% annually.
The firm manages approximately $700 million, according to another form filed with the SEC. Drew Horter, head of the firm, was traveling this past week and no one else was authorized to comment, said an employee.
The David J. Yvars Group, an investment-advisory firm in Valhalla, N.Y., says in its SEC brochure, filed in April, that "if an account terminates within one year of opening, a 1% termination fee will apply."
A client with $1 million would thus pay $10,000 to leave Yvars Group within the first year, in addition to the firm's management fees, which run at a 2.6% annual rate for a stock-oriented account of that size.
Yvars manages approximately $100 million, according to the brochure. David J. Yvars Sr., chief executive of the firm, didn't respond to several requests for comment.
Regulators have taken the position in the past "that some termination fees may violate an investment adviser's fiduciary duty," says David Tittsworth, president of the Investment Advisers Association, a trade group in Washington. Such fees, he says, may be unfair if they "penalize a client just for terminating an adviser or keep a client from ending a bad advisory relationship."
Other experts caution that the law in this area is ambiguous. The SEC, says Mr. Plaze, "should either enforce this or change the rules." A person familiar with the SEC's thinking says that the agency views each such situation based on the facts and circumstances.
Brian Hamburger, president of MarketCounsel, a consulting firm in Englewood, N.J., that helps investment advisers comply with financial regulations, says advisers are increasingly insisting that clients give them 30 to 90 days of advance notice of a termination.
In some cases, that might enable advisers to unwind complex or illiquid securities without hastily depressing their prices. But often, says Mr. Hamburger, it simply enables advisers to keep earning fees from clients who have already said they don't even want to work with them anymore.
So bear in mind that the word "fiduciary" isn't a guarantee that an adviser will put you first.
If an adviser's brochure says you could owe a termination fee, ask why he feels, as a fiduciary, that such a charge is in your best interest.
"Clients often make the argument that a termination fee is inconsistent with how an adviser should operate," says Barry Barbash, a partner at law firm Willkie Farr & Gallagher in New York and former head of investment-management regulation at the SEC. "They say it makes them uncomfortable, so they'd like to see it struck from the contract."
Finally, bear in mind that most advisers don't charge termination fees at all, and many will even refund a portion of your fees if you decide to leave the firm. So think twice before you hire someone who will charge you to fire him.
Can Individual Investors Time Bubbles?
5 Top Mutual Funds To Own From Janus Funds FYI: Janus Funds – which just reported second-quarter earnings[1] this week — is one of the biggest mutual fund families in the U.S. with $174 billion in assets under management at the end of 2013 … and you don’t acquire that much of a following without offering some of the top mutual funds on the market.
Regards,
Ted
http://investorplace.com/2014/07/5-top-mutual-funds-janus-funds/print
Q&A With Craig Hodges, Manager, Hodges Small Cap Fund: Video Presentation
Smallcaps: How To Get The Hard Part Right And Still Screw It Up
Vanguard Faces Tax Evasion
Is CAMAX shorting a leverage ETF (SSO)?
The other thought I have regarding using ultrashorts is potentially using leverage to lessen outlay. Say someone wanted $50,000 in a 1x short S & P 500 fund. They instead use $25,000 in S & P 500 2x ultrashorts and then still have the other $25,000 they were going to use that can be invested in something else.
One big issue with using leverage to lessen outlay is that the majority of the leveraged short funds are exchange traded funds. These short etfs, or leveraged short etfs, are specifically designed for one day holding periods. If you hold them longer than one day, the math does not work out......they "reset" each day.
So let's say you make a brilliant call and decide to go 2x short the S&P
500 using a leveraged etf. Let's say that over the next 6 months, the S&P
500 drops 2
5%. You are expecting a
50% gain from your 2x leveraged etf, but it very well may have a performance that is far out of line from that. The math may not work out at all for holding periods longer than one day on these products.
It may be a very different story with traditional mutual funds that short or use leverage, but the etfs are designed mathematically for one day holds.
Can Individual Investors Time Bubbles? From Guggenheim's Macro View
In his famous speech, Martin preceded his punch bowl comment by saying, on behalf of the Fed, “…precautionary action to prevent inflationary excesses is bound to have some onerous effects…” The flipside -- a lack of precautionary action by the Fed -- will have its own set of consequences in time. It is very difficult to say when exactly these will happen, but near-term indicators suggest the hangover won’t hit while you’re relaxing at the beach this summer.
Equity Markets: The Bigger they Come the Harder they Fall
The S&P
500 has now gone nearly 800 days since a correction of more than 10 percent – the “meaningful” level for many analysts. The more extended the market becomes, the larger the eventual decline may be. Over the last
50 years, the longer the time between market corrections, the steeper the drop once the correction does occur.(chart)
http://guggenheimpartners.com/perspectives/macroview/the-hangover
Is CAMAX shorting a leverage ETF (SSO)?
I have never shorted a position, but my understanding is that you have to "own" the shares you wish to short. So the positive 100,000 shares makes sense. The negative portfolio wt (in this case -5.38%) is the clue that the position is being shorted.
Maybe others can explain this more clearly.
I've also never shorted a position. My understanding is that you borrow the shares from your broker and then sell the borrowed shares. Your hope is to buy them back at a lower price in the future.
No doubt that the negative number, -5.38% is the clue that the position is being shorted. I have no opinion regarding whether the shares should show up as 100,000 or -100,000
I second the motion that perhaps others can shed light on this
The bolded portion is correct. I've never shorted in terms of going through the process of shorting shares, but I've used various short products. Options seem to be becoming an increasingly popular alternative - if you short a stock, your potential loss is theoretically infinite. If you lose on an option, you're out the option premium.
The other thought I have regarding using ultrashorts is potentially using leverage to lessen outlay. Say someone wanted $
50,000 in a 1x short S & P
500 fund. They instead use $2
5,000 in S & P
500 2x ultrashorts and then still have the other $2
5,000 they were going to use that can be invested in something else.
Is CAMAX shorting a leverage ETF (SSO)?
I have never shorted a position, but my understanding is that you have to "own" the shares you wish to short. So the positive 100,000 shares makes sense. The negative portfolio wt (in this case -5.38%) is the clue that the position is being shorted.
Maybe others can explain this more clearly.
I've also never shorted a position. My understanding is that you borrow the shares from your broker and then sell the borrowed shares. Your hope is to buy them back at a lower price in the future.
No doubt that the negative number, -
5.38% is the clue that the position is being shorted. I have no opinion regarding whether the shares should show up as 100,000 or -100,000
I second the motion that perhaps others can shed light on this
Is CAMAX shorting a leverage ETF (SSO)? Trying to humor myself with M* presentations - which can be confusing, I would think that if CAMAX was short 100,000 shares of ProShares it would be designated as -100,000 shares. and change would be -100,000 shares. Unless their original position was 200,000 shares and now their position is now a 100,000 shares. In that case they were never short the ProShares etf.
But this is just me.
Gary
I have never shorted a position, but my understanding is that you have to "own" the shares you wish to short. So the positive 100,000 shares makes sense. The negative portfolio wt (in this case -
5.38%) is the clue that the position is being shorted.
Maybe others can explain this more clearly.
Paul Merriman: Top Fund's Shareholders Missed The Party: CGM Focus Fund You made a great move in moving it all to CGMFX in 1997.
Yeah, he is famously nerdy and studious. Probably one of the most studious managers out there. Fully committed to investing. He has few other interests in life, and rarely takes a vacation. Probably works very long hours. IIRC, I think his wife may also be a mutual fund manager, at least that's what I read several years ago.
I remember the days when his CGMRX trounced everything in sight. No other real estate fund could even come close. I notice from his calendar year performances there too, that he is very often either in the top 10% or bottom 10%. Amazing. Somebody should undertake a serious study of his investing methodology. Unfortunately, he doesn't say enough in his annual and semiannual reports to really divulge.
Even now, he has a huge short position in Treasuries in CGMFX. Quite an investor.
401(k) Mutual Fund Investors Pay Less in Fees
Paul Merriman: Top Fund's Shareholders Missed The Party: CGM Focus Fund More errors on my part: but what happened was in spring of 1992 I put 5k in CGM Mutual Fund, averted my eyes, and just after Labor Day 1997 moved it all (it had more than doubled) to CGMFX, averting my eyes further until early spring 2011, when fearing downsizing and earlier-than-desired retirement, I rolled half of it over into something more prudent (of course anything would be more prudent) but left half w Heebner, except moved into CGMRX, which, having still averted my eyes, I finally bailed out of spring of last year. So the total rollover came to >65k, not 165k, my bad. From 5k, with no additions. My point naturally was that the only way to have even been able to have exposure to some lucky timing with the guy in all of those ~21y, achieving >3.5 doublings, was almost never to watch. He's a one-man shop, famously nerdy and studious. Amazingly (to me), he lives like a block or three from Tillinghast. And now yet again he is pronounced fallen.
High Yield Spreads Widen: Should You Be Worried ? This is a good link to monitor the spread of high yield bonds. Currently the spread is 375 basis points, up from 330 basis points just a few months ago.
I didn't know about that specific spread calculation you linked, Mozart, but here's another one from FRED, based on the
'BAML US HY Master II'.
I've followed the Master II calculation of the spread for a while, and 3.80, which as of Monday was the widest spread during this recent uptick in rates, has been a significant level all year: first as a floor, then as a ceiling, and now once again a ceiling, for a couple of days at least. Setting the time period on the chart to 1y is the best way to see the relationship.
Paul Merriman: Top Fund's Shareholders Missed The Party: CGM Focus Fund davidmoran, M* lists the 1
5-year return of CGMFX as 14.
52%. The fund inception date was Sept. 3, 1997. You "bailed a couple years ago", so if you got in at inception, you were in very roughly 1
5 years. An initial investment of $
5,000 compounds to $38,211 over 1
5 years at a 14.
52% return, with all distributions reinvested.
Anyone who got into this fund in time for the 2000 and 2001 performance hit a grand slam, and I'm sure you were one of them.
I think his 2000 and 2001 performance will go down in investing history as truly without equal. Same goes for his 2007 performance.
Perhaps just as surprising is how poorly he did in 2008, 2009 and 2011.
In 2011, he underperformed the market by over 28 percentage points!
In 2009 he underperformed the market by over 16 percentage points.
What a party in 2007, but then the hangover in 2008 and 2009.
High Yield Spreads Widen: Should You Be Worried ? This is a good link to monitor the spread of high yield bonds. Currently the spread is 37
5 basis points, up from 330 basis points just a few months ago. But the Treasury yields have dropped, so the high yield prices have barely dropped in that time period.
http://research.stlouisfed.org/fred2/series/BAMLH0A2HYB
High Yield Spreads Widen: Should You Be Worried ? In the past year-plus, Fidelity has waived loads on lots of A shares. Other brokerages apparently do this also - it's a matter of negotiation between the supermarket and fund management. Load-waived shares are designated with the suffix .lw added onto the end of the ticker. They still cost more than typical I shares, but don't require a big minimum buy.
That Eaton Vance fund looks interesting ... kind of HY light, with ~ 70% investment grade, 15% non-investment grade, and 15% unrated, with pretty low turnover at 30%. Its A shares are also lw & ntf at Fidelity.
Thoughts on "Raising Cash" ... and, also "Trimming the Dead Wood?" "Timing in and out, trying to own that "perfect" fund and collecting hot funds just doesn't make sense to me anymore. It can be fun as a hobby, but it can be detrimental on returns. Play on the fringe, invest the bulk with a longer term vision. "
Well said and that's really it. Again, I'm not one of those people who says that their way is the only way - farthest thing from it. People who use technical indicators and all of the other factors - all that stuff fascinates me. 5+ years ago, I moved in and out of things constantly and I really feel that it was detrimental on returns. Gradually I did that less and less.
The thing is, less micromanaging doesn't mean I'm not enjoying investing. If anything, having a "best ideas"/themes portfolio and having all but a couple of things pay a dividend has actually made the entire effort less stressful and decisions less emotional and less focused on the day-to-day. I can just own a (to use examples) Canadian National Railway or Conocophillips and that's it. Collect the dividend. Love researching ideas, have ideas in mind if I want to put more money in the market. Otherwise, best ideas that pay a dividend and just sit on them.
I think you have a portion that can be still for "play", but I dunno, I don't even find myself that interested in that anymore. I was going to invest in a little Canadian pot stock the other day and instead went with Marine Harvest (MHG), which has a variable dividend but a very generous dividend policy and is one of the world's largest seafood companies.
GAINX is really appealing and probably what I'll continue to move the rest of the money from PQIDX to.
As for TOLLX mentioned above, that's a great infrastructure mutual fund. I own INF, which I think is a good CEF play on it and I just keep reinvesting that monthly div. There's also Brookfield Infrastructure (BIP), which is a pure play on infrastructure but results in a K-1 at tax time.
