A couple of years ago, with my idle cash piling up, and my time dwindling down for a newborn in my family, I decided that I wanted to give up the control of some of my money to someone else, and see how well it would turn out. Since I did and still do most of my investment decisions on my own, I wanted to find someone or some firm that was hopefully at least as good as I was (or else, what is the point of getting an advisor).
The first one I spoke to was from Bank of America. She asked me about my current investment, and had me filled out a profile survey on my risk tolerance and investment goals. Sensing that I was quite competent in doing my own investing, which at that time included selling covered call options and short-sellings, she actually didn’t call me back for further in-depth appointments. Sounds a little rude, but I was glad that she didn’t waste her or my time.
The second one I spoke to was from UBS Financial. This advisor was relatively new in this business, probably less than 3 years, and was more willing to win my business. Again, she asked my current investment, and walked me through some standard talks on those large cap/small cap, US/foreign, stock/bond, income/growth portfolio diversification. And then, later she came back with some selection of funds and allocation for what she would recommend for me. She worked hard, but I was not impressed. I could have done exactly the same thing utilizing ETFs or mutual funds to achieve the same purpose, but without the 1% fee (which is usually the minimum money management fee in this industry).
The third one I spoke to was from Smith Barney. This advisor was knowledgeable, and was trying to sell various kinds of financial services such as 529 college saving account, and even mortgage financing. Again, I went through this standard talk about age to stock/bond allocation, and diversification among large cap/small cap, income/growth, US/foreign sectors. He even touted on one of his energy investment recommendation which had a return exceeding 50%. However, I gave him an ETF holding of mine which practically tracked his recommendation in chart exactly, and yet I got in even earlier than his recommendation call.
By this time, I was totally unimpressed with the standard asset allocation and diversification talk. So when I met the fourth advisor from Ameriprise (formerly American Express), I decided to quiz this poor guy, before I wasted more of his and my time. I devised a set of four simple binary choice questions, such that randomly guessing would only have 1/16 chance of getting all of them right:
- Shall I invest in a foreign utility or domestic utility company, if $US is going down, and all other factors remain the same?
- Shall I invest in a domestic producer or foreign producer of a certain commodity, if $US is going down, and all other factors remain the same?
- Shall I buy or sell more of the commodity producer stock, if interest rate is going up, and all other factors remain the same?
- Shall I buy domestic stocks or foreign stocks, if $US interest rate is going up?
Despite my persistence on having him answer my quiz before the appointment, this guy from Ameriprise refused to answer my short quiz. Instead, he told me that he couldn’t give out any investment advices when I was not his client, even though I protested that the quiz was only testing his general knowledge on economics. I guessed he knew that he couldn’t answer all of my questions correctly, and chose to refuse my trial instead of embarassing himself.
Want to try answer my questionaire yourself by posting to the comment? I will post the answer in the comment after a week. After these meetings with financial advisors from investment banks and brokerage houses, I have concluded that unless it’s an actively investing firm like a hedge fund, you are probably better off using ETF and low fee mutual funds to construct your own customized portfolio with regular rebalancing. Of course, whether active investing is better than indexing is highly debatable. But if I’m paying for 1% (or more) management fee, I would want my money manager to actively work for above average performance, rather than plain indexing for an average performance (minus his fees).