Incredible Shrinking Management Fee

Two companies mentioned in the article are
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Incredible Shrinking Management Fee by Jason Zweig
Wall Street Journal
Mar 7, 2014
Professional portfolio management has long cost too much. If a new company has its way, it could be free.
This past week, WiseBanyan, an online-only investment adviser, publicly launched a service that builds and manages diversified portfolios of exchange-traded funds for nothing. There is no minimum account size; nor is there any fee to sign up, to buy the funds or to hold them (other than the underlying expenses of the funds, averaging less than 0.14% annually).
"We're attempting to replicate what good financial advisers do for large clients in an automated, low-fee fashion for small clients," says co-founder Herbert Moore, a former institutional trader who has run an affiliated advisory firm since 2009. It's much too early to say whether WiseBanyan will succeed; so far, it has signed up hundreds of clients, says Mr. Moore. The company ultimately hopes to make money by charging fees for additional services.
But the new venture poses a fundamental question to every investor: If money can be managed this cheaply, am I getting my money's worth from my financial adviser?
Brokers and financial advisers generally ask investors a few questions about their age, income, assets, goals and attitudes toward risk. Then the advisers create an "asset allocation," or mix of stocks, bonds, cash and other investments. Finally, they recommend specific holdings--typically mutual funds or ETFs--to achieve that allocation.
That will cost you, on average, about 1% of your assets every year, even though the process is often highly mechanical and a computer can do it for nothing, as WiseBanyan shows with its "algorithmic" method of determining which portfolios to recommend.
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It's a great article - and brings up an issue which is absolutely central to my practice - the difference between paying someone just to manage a portfolio vs. paying for comprehensive financial planning work.
And, unfortunately, many people are paying comprehensive financial planning *rates* but only getting portfolio management (and mostly pretty mediocre management at that).
As someone who gets paid for planning *and* portfolio management, I'm not threatened in the slightest by these services.
I think it's such an important issue -- and the article brings it up in the context of these "robo-advisors" so well -- that I wrote a blog entry about it, and linked to the article:

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David S Meyers CFP
NYT article on the same topic:
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Financial Advice for People Who Aren't Rich APRIL 11, 2014 Your Money By RON LIEBER
For a couple of years now, a number of entrepreneurs have been racing to solve the same problem: the financial services industry's persistent inability to provide personalized advice and appropriate investments at a reasonable price to customers who are not rich.
It was easy at first for established players to dismiss companies like Betterment, Wealthfront and LearnVest as robo-advisers, niche services or certain failures. That line of thinking wrote their offerings off as training wheels for know-nothing young adults until they graduated to a grown-up, gray-haired financial adviser -- even though these start-ups gathered piles of fancy venture capital money.
But recent developments suggest that those new players may be something more than the starter homes of the personal finance world.
Betterment, which builds and manages investment portfolios of index and exchange-traded funds, realized that 20 percent of its assets were from customers over the age of 50. They were asking for advice on withdrawing their retirement money, and the company is now introducing a service to assist them.
Then there's the index fund giant Vanguard, whose investment products are often at the heart of the portfolios that these new services are building for their own customers. It is now piloting an offering of its own that nearly matches the new players on price while offering unlimited financial planning along with investment management. That's something that most of the new "we'll run your money for you" companies don't offer.
Vanguard's full-service offering, called Personal Advisor Services, costs 0.3 percent annually of the assets it's managing. For now, customers need $100,000 in accounts there to join, but the company plans to drop the minimum to $50,000 at some point soon. An existing Vanguard service that resembles the new one costs 0.7 percent annually on the first $1 million and requires at least $500,000 on balance.
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