Denton County Living Well Magazine March/April 2020 | Page 27

Complexity is job security in the adviser industry. If a portfo-
lio strategy is complicated, people will think their adviser is
smart and savvy, and owns a secret society ring that gives
them special knowledge to outperform the markets. That’s
not true, of course. What’s going on is marketing, and it’s
time you learned that truth.
Show a potential client twenty different funds and talk in
industry jargon about optimizations, efficiency, alpha, and
factors, and people think this adviser is a whiz-bang genius
who has the market nailed. That seems worth paying an
average of 1% or more in fees, and this is before the fees
of the twenty different funds they put in portfolios.
What adviser is going to show a potential client a simple
portfolio of a couple of index funds that track the stock and
bond markets? The potential client would say, “That’s easy.
Why do I need you to do this?” It’s true. Anyone can create
a simple portfolio that is low-cost and beats the complex
portfolios of professional advisers after fees and this is why
most advisers don’t recommend simple portfolios.
Advisers make things complicated by slicing and dicing the
stock and bonds markets into many different pieces. They
will then put those pieces back together again using multi-
ple funds which essentially is a complicated and expensive
way to get back to a total market index fund. They’ll do the
same thing with international stock markets and the bond
market. Slice, dice, glue, charge high fees – it’s a scam.
Complexity sells. Every adviser knows this and that makes
complexity your enemy. If you don’t understand precisely
what your adviser is talking about, and you don’t under-
stand how much it’s costing you in total fees, then get rid
of that adviser and self-manage with a simple portfolio of
index funds.
I recommend buying three funds. For US stocks, I like the
Vanguard Total Stock Market ETF (VTI – 0.03% fee) or the
iShares Core S&P Total U.S. Stock Market ETF (ITOT –
0.03% fee). For international stocks, I like Vanguard Total
International Stock ETF (VXUS – 0.09% fee) or the iShares
Core MSCI Total International Stock ETF (IXUS – 0.10%
fee). For bonds, the Vanguard Total Bond Market ETF (BND
– 0.035% fee) or you can just
create a portfolio of FDIC in-
sured CDs. There are many
similar low-cost index funds
available from other providers.
I’m not saying all advisers are
money hungry grubs who are
making things complicated
for the sake of job security. If
you want an adviser or need
an adviser, find a reasonably
priced one who doesn’t make
your portfolio complicated and
charge you a lot of money for
it. The cost of simple invest-
ing has come down to almost
zero over the past 20 years
due to low-fee index funds
and the elimination of commis-
sion costs at Schwab, Fidelity,
Vanguard, TD Ameritrade and
other firms. The last bastion of
gluttony is adviser fees. The av-
erage 1% fee for an adviser is
far too high and that needs to come down.
If you search long and hard, you will find a growing num-
ber of hourly or fixed-fee advisers that charge reasonable
fees to create and manage a simple portfolio that you can
understand and self-manage if you want to. Their fee should
be aligned with the actual time they spend working on your
accounts and managing your money rather than charging
1% or more, regardless of how much effort they put in or
how much you make.
Best of luck in 2020.
DENTON COUNTY Living Well Magazine | MARCH/APRIL 2020
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