Performance Registered Advisor

George Rebane

In the 21may22 Union’s inserted adverts there was a slick one from local investment advisor and financial columnist Marc Cuniberti.  He is now “accepting new clients for the markets of 2022”, who no doubt have formed a line outside his office door.  Jo Ann and I are lifelong investors who, from time to time, have allowed various investment advisors and wealth managers to manage a part of our portfolio.  All of these people have been of good reputation, trustworthy, ethical, professional, and careful, quick, and kind.  But none of them have been able to match our own acumen in the markets, and all of them have required payment of perverse money management fees.  So, we have switched them out, and finally decided that, while we can do well in portfolio management, we’re not worth a hill of beans in picking investment advisors.

In recent years I have been given to quite a bit of puzzling in the financial engineering field, and quite successfully, I might add.  My claimed forte is in the areas of monetary utility and risk tolerance. (see figure)  In those endeavors I have had a jaundiced attitude toward the wealth management industry that charges you a fee regardless of the performance they deliver on your portfolio – they play a ‘heads I win, tails you lose’ game.  As an entrepreneur and algorist I offered our last advisor an opportunity to retain our account by modifying his fee structure so he would have more skin in our game.

In the new ‘skin in game’ (SIG) fee structure, we would split our portfolio’s annual gain, say, 80/20, with him during profitable years, and we would pay no fee for years with no gain.  Instead, we would then get a dollar amount credit for the year’s end market value loss in our portfolio.  The credit would be applied toward gains in profitable years.  There were a few more obvious details involved, but you get the idea.  If he made us a bunch of money, he would also get a heap more than the percent or so of the total year end value of our portfolio.  In other words, he, like us, would be betting on his performance with a SIG fee structure.  Sadly, he wouldn’t touch that deal with a ten-footer, and since then I have talked with a number of money managers in our circle of friends, and they were of the same mind – ‘No way Jose!’

So circling back, how do we choose a money manager in today’s investment world?  Then looking at Mr Cuniberti’s ad this morning, the idea of a Performance Registered Advisor (PRA) came to me.  To become a PRA, an investment advisor would first qualify for some existing certifications that put letters after his name before applying to Portfolio Registration Services (PRS), the auditing and clearinghouse that vets and maintains the nation’s PRAs in good standing.  PRS would charge a nominal fee for its services from its members.

To become a PRA, an investment advisor will have to have at least one half of his gross assets in a registered and audited portfolio of investments of the type that he offers to his clients for two years – in short, at all times his clients would be able to invest in the same securities that make up the advisor’s R&A portfolio.  Each PRA’s R&A portfolio would be audited monthly for its market value and yielded dividends.  With modern brokerage houses, this would be a completely automated process.  The PRA would then publish monthly the financial performance metrics of each PRA, and allow the PRAs to include these nationally-reputable metrics in their advertisements and other promotional materials.  For obvious reasons the R&A portfolios’ specific securities and asset allocations would remain confidential.  The published metrics would include such items as percent gains/losses YTD, 1-year, 2-years, …, 5-year, etc.  The PRS may also publish (for a fee?) the PRA’s performance by investment sector – say, real estate, energy, high tech, commodities, etc.

With this data available, the retail investor now has reliable information on the investment performance of the candidate advisors he is considering in his short list.  And, of course, if a wealth advisor chooses not to become a PRA, then the client would want to know why, before giving the candidate further consideration.  But the bottom line is that such a new and transparent view of the investment advisor industry would immediately cut through the BS in which today’s investors find themselves inundated by all the slick ads that address none of their concerns about the management of their portfolios.

Comments

[The Estonian Fox]

Ken Fisher has run his own money (and 60,000+ others at 1-1.5%) for years. Since his net worth is now over $4.5B, he does pretty well for himself. He's got over $180B assets under management. But I have never seen any investment managers provide their annual return percentages. So I avoid them too.

I read Fisher's Market Outlook every quarter, to see his gross analysis of what's happening in the U.S. & the world. To access his Outlook generally rates a call from them of course.

I have to end here George, call coming in from Lizzie Warren about why am I commenting on something that the government has yet to control - an individuals own mind. It may be coming sooner than you think though.

[scenes]

As the world's shittiest investor, it's always interesting to see people's thoughts on the matter.

It seems to me that if a person wanted a "Performance Registered Advisor", they'd simply buy BRK.A

[Bill Tozer]

Dr. Rebane. Try presenting your Performance idea to a bookie. A winner every time. :)
-----------
Scenes. I watched some of this and thought of you.

Peter Navarro

https://fb.watch/dbaGAVkh2T/

[Bill Tozer]

Dr. Rebane

Kindly check spam folder. Thank you.

[Bill Tozer]

To the the world's shittiest investor, you are not alone. I would not even touch real estate right now. Overvalued, not enough buyer suddenly cannot qualify due to mortgage rates and real estate inflation….price has to drop to get sellers in line with buyers…and it will in time. Not at this time. Not since inflation reared it’s ugly head. That ugly head looks like Biden.

I called my broker and asked him where to invest some money. He said “Ammunition and non-perishables.”

Where to park money right now? Where to invest? If you asked me 18 months ago,I could have rattled off a few ideas to consider. But, since Biden screwed up the entire ball of wax, I am clueless. It only took 18 Months!
—————-
Larry Kudlow has a good interview with Dr. Art Laffer. Recommended. Man, that dude is ageless.

https://www.youtube.com/watch?v=5UsCIpGJctE

[scenes]

re: BillT@1:56PM

I guess that a lot of the wealth out there wasn't real and someone has to pay the bills.

Naturally, all the 'good' investors look like geniuses until they don't. I admit that I've always looked askance at a wealth building exercise that produces no value-added aside from lending lucre to a .gov or .corp. Why a nation's aggregate investment wealth would ever outrace an accurate (if such a thing existed) calculation of GDP is a mystery to me.

Even the most obvious local investment, a boom truck, pickups and chainsaws, and a crew of Mexican nationals probably isn't a smart move as it's likely we've hit Peak Tree Removal at this point.

Funny thing is how hard Fidelity was workin' the lines 6-12 months ago. Mr. Scenes, we notice that you don't have this chunk o' change in properly exotic instruments. Get off the stick sir!

[George Rebane]

scenes 219pm - Mr scenes, would you please rephrase your question. What is your definition of 'investment wealth'? Does it include invested wealth and then add on uncommitted free cash?

[scenes]

@3:12PM

I don't see an outright question there but am happy to think about it some. Always willing to be educated.

Put another way, why should growth in aggregate savings outstrip GDP (assuming GDP numbers are accurate)?

Using stock as a stand-in for wealth (God knows bonds have risen even faster).

https://fred.stlouisfed.org/series/DDDM01USA156NWDB

I imagine that one factor is the heavy push for the 401k at about where the inflection is (1990). I definitely remember the selling of the things in companies right about then. It was fun watching a CFO indelicately ask the fund salesman about the value of actively managed funds.

You know, maybe I could just look at all the paper rushing around as a relative to fractional reserve banking.

[George Rebane]

In many ways GDP is a total amount of money that changed hands (i.e. was spent) during a 12-month period. The spent money need not have been generated by producing or servicing something; it could just have been borrowed from savings or from another economy, and, of course, simply printed (immaculate conception).

[The Estonian Fox]

"to retain our account by modifying his fee structure so he would have more skin in our game."

George, that sounds an awful lot like your previous thoughts that universities should be guaranteeing 50% to 100% of their students' loans. Which might prevent the moral hazard of letting the unsuspecting high school graduate step into an oven of his (parents) own burning cash, without an extinguisher in hand. Why aren't they willing to do that? My guess is colleges aren't really risk-takers, but more like caretakers, or soon-to-be undertakers, of the college loan wildfire.

Of course, loans to STEM students might not have to be backed by universities, only the majors with "justice", "studies", "psycho", "gov" or "socio" in the degrees.

[scenes]

"George, that sounds an awful lot like your previous thoughts that universities should be guaranteeing 50% to 100% of their students' loans."

In a sense they do that beforehand by heavily subsidizing or outright paying for tuition beforehand in some cases.

That's the super-brilliant thing about the system. You drive the price to infinity by chumming it with cash via .gov and loans, and then pay the tab for your special friends. I believe that well over half of UC and CSU students pay no tuition.

If economics were at work, you could simply subsidize all the STEM degree tuitions. If fairness were at work, you could make all the degrees the same cost (even $0) and get rid of 'scholarships'. If Crazytown were at work, you make it super-expensive and then pass out 'scholarships' to useless degree programs by tuning the requirements.

If a person could invent a way to produce energy from Grievance Studies, they might have something. It seems to me that generating useful work from what is basically Dark Energy sounds unlikely although it might explain the universe expanding.

[George Rebane]

Efox 318am - Colleges have been out of the risk business for years. Why worry as long as govt pays for students' tuitions with loans to which you are not a party? Yes, I'm a 'skin-in-the-game' kinda guy. Selling degrees that certify worthless skillsets is IMHO outright fraud.

scenes 707am - One approach is to make a certain percent (say, 67%) of student loans be to majors that are currently sought by employers. The same could be applied to federal scholarships.

[scenes]

"majors that are currently sought by employers. "

Given the growth in the Woke HR departments and Diversity Equity Grievance divisions of large companies, it could be that you just end up with status quo.

Of course, the generation following should probably all become Chinese Language majors (or work on their post-apocalypse skills if the Biden Ministry of Peace keeps it up).

[Gregory]

I recall a comic strip where Dilbert explained how investment works to Dogbert:
"Basically, I give my money to my broker, and then he buys nice things for his family".