Sunday, February 03, 2013

Woe to the Trusting Active Investor

From Ron Lieber's column in The Times, we learn that golfing in the investment jungle may have been costly indeed. Not only was the broker Philip Horn defrauding his golfing buddies, he seems to have traded ETFs and otherwise churned his clients' accounts. Lieber cites a study suggesting that actively traded accounts sacrifice three or four percent of return annually. If so, a Horn client with $10 million could have lost out on $300,000 or more per year.

Also in the Sunday Times, Paul Sullivan marks the 20th anniversary of exchange traded funds. The first exchange-traded index funds were a great idea. The proliferation that has followed – not so great. Also, ETFs make it awfully easy to jump in and out of markets and market segments. The temptation is costly but hard to resist.

Postscript. Walking around town this morning, a wealth manager's sign caught my eye. I snapped a photo, though I couldn't quite put a finger on why the sign struck me as odd.

As I wrote this post it came to me. Look at the tagline (to protect the innocent, I've obscured the firm's name).

"Trusted wealth advisors."

Philip Horn was a trusted adviser. For that matter, so was Bernie Madoff. What investors need are trustworthy advisers. Significant difference, don't you think?

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