I don't really know the nomenclature for what he does.
SSB, like other brokerages have a collection of several hundred outside money managers with whom they have relationships. They call themselves SSB Consulting Services. They say they pioneered this in 1973, and claim to have a larger market share than any of their competitors.
I don't think this is the same as a wrap account. The guy I work with is not a money manager, so it is incorrect for me to think of him as one. He is not quite a financial advisor or planner, because he does not give us advice about what percent of our incomes we should be saving to have money for kids college, etc.
This financial consultant usually shows me summaries and then more detailed analyses of what he believes to be the two or three money managers for each investment strategy (i.e. Large Cap Value, Large Cap Growth, International, etc) and we then choose what the best manager for each objective. Then we allocate assets among the various classes.
The management fees are a function of how much money is being managed. For me the total (consulting plus the actual money managers' fees) is less than 1.5% per year. I can't give you an exact number because the fees for bonds are embedded in the bond prices. It is likely that SSB gets some sort of referral fee percentage from these money managers.
It has been my choice to limit the international exposure to 5% of the portfolio. The U.S. dollar has been strong for about 4-5 years now, and the consultant thinks its likely to swing the other way. I have seen the graphs that show the historical benefit of having some overseas investments, but personally, I am skeptical about how much Europe's markets are disconnected from the U.S. markets in recent years, considering globalization.
I must confess that I did not seriously consider REITs. Maybe I should bring this up with this consultant. Are you aware of any REITs that have an average return over the last 5 years or so that is in the neighborhood of 10% per year?
My opinion is that I cannot do this cheaper myself. I still could invest in mutual funds and simply not let the financial consultant manage all of my investable money. But by the time mutual funds have a five year record, some fraction of the funds are too big. Many of them are not tax efficient. And I could not begin to do asset allocation very well.
For example, I recall that in 1998 this consultant came to a meeting of the pension committee for my company and said that they were recommending reallocation to a more aggressively bullish investment mix. He said that the SSB bond model had given a strong buy signal, and that interest rates were projected to go down to about 3%. He acknowledged that it seemed incredible because the rates already seemed low--about 5.5% at the time. But he said that their model had called 12 of the last 13 major moves in the market and that he stood by his model. It was when he made this call, and of course was proven to be right, that I began to really admire his acumen.
I also have been impressed with their ability to analyze a managers performance. If a manager did well, was it because of a high beta, or superior stock-picking, or because he deviated from his investment style, or what? They know this kind of stuff, and it is very helpful in deciding whether or not to change to a different manager who has the same objective.
Its also really helpful to meet with this guy, along with my wife, and grill him about all the things that could go wrong with the current investment strategy. We just met last week, and I asked him about a) Enron-like problems spreading b) the expected impact of adjusting projected pension fund investment returns on the income statements of public corporations (there was an article about this in Business Week) c) overvaluation of the U.S. market--its really just the 50 largest companies in the S&P 500 with overvalued P/Es but they are skewing the rest d) the reasons why 2002 is similar to and different from 1931 e) impact of U.S. invading Iraq f) tax planning for 2002.
I think if there was a mutual fund that was indexed to the Value Line Arithmetic Index, that would be an attractive investment vehicle, but it is my understanding that it does not exist.
Tom D |
