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How much is too much??

Following on from last week’s blog on the Storm Financial debacle I thought this week we could take a look at an issue that irks me and fellow independent traders and investors – the issue of the fee’s charged by fund managers and financial planners. As many of you are well aware these fee based industries make their money by earning a fee off the back of your investment.

So you walk in the door to talk to “Let me take care of you Financial Advice group” believing that they are professionals and must know more about managing money than you do, because that is their business and yours is medicine or engineering or plumbing, whatever the case may be. Unfortunately this may not always be the case. Despite the supposed need to be licensed and have done an appropriate course or courses in product and client knowledge, the majority of these advisers are driven to generate fees to earn an income. And who can blame them for that. They are spending time handling compliance paperwork and have to become familiar with heaps of different investment products to promote. This is time consuming work so they deserve to earn a crust. However, here comes the problem. It is only natural that, despite all the claims that they are working in the best interests of the client, they have a vested interest in encouraging you to invest your money in the products that generate the highest possible or most consistent fees for them. In the majority of cases they will receive an introducing fee and a trailing fee or even an ongoing portion of the management fees.

The upshot is, that at the end of the day these guys get paid regardless of whether your investment goes up or down. Their supposed ‘duty of care’ last’s about as long as it takes for them to get the first commission cheque, then you are just another number in a pool of commissions and fees that they receive from their stable of fund providers. In a roaring bull market when everyone is making money, times are good, and everyone’s happy, these fees and charges can be easily glossed over as the glassy eyed investor is shown fantastic returns (even though the returns underperform the market in 90% of cases) and a myriad of tables and charts ‘proving’ to them how markets always go up and investments in the share market always increase in value over the long term, despite the occasional glitch.

The problem bubbles to the surface though when markets tank, investments depreciate in value, dividend streams are reduced, and investment growth is negated. Despite this though, the fund managers and investment advisers are still clawing money out of your account in the form of management fees, performance bonuses and other charges. Through their mismanagement of your money, you have lost a considerable portion of your investment, retirement fund, nest egg, or whatever else you like to call it. Yet these guys still dip into your funds on a regular basis to extract their management fees which could also be based on “FuM” (Funds under Management) for money invested via the financial planner even if the FuM are in cash.

As GES noted in his comment on last week’s Blog: “93% of financial advisers are purely and simply salesmen armed with an instruction manual on how to close a sale.” In other words they learn how to close sales not how to manage risk, time the market or spread their clients’ capital across the market appropriately. This is supposedly the fund managers’ job or the investment manager’s job.

Well if that’s the case why is there even a need for financial planners if their role is to look after the performance of their clients investments but they don’t because the fund managers do that? The answer is that there is NO need for them if that is their role. The issue is that this is their perceived role by investors whereas their actual role within the industry is really as a distribution network for investment products, i.e. sales people.

This is a major problem with the whole financial advice industry and only adds further voice to my ongoing belief that everyone can, and perhaps must, learn to manage their own financial situations. It is a skill that everyone can learn with the correct tools and education– provided they are guided along the path and have the desire and commitment to take control of their finances.

A story doing the rounds on the internet at the moment is quoting some startling numbers regarding bonuses paid to the staff of a major US fund manager and investment bank. This organisation lost more than $27 billion last year, and was ‘bailed out’ by the US government. Despite this massive loss and the use of tax payer money to rescue this organisation of thieves and crooks, staff received bonuses totalling in excess of $4 Billion!

Whilst no such massive events have occurred in Australia, there are still those who have been awarded bonus payments and performance fees whilst their funds performance has been negative. This has got to stop. The regulators have to take the lead and eradicate this nonsense from the industry. The financial planning industry blossomed in the 1990’s as the regulators saw the industry as the answer to client compliance issues. Storm Financial and many other cases show that it is not. It is simply a “middleman” industry that massively increases cost and doesn’t achieve what it was intended to do while lining the pockets of commission based financial planners with easy money.

Making the industry fee-based ONLY based on time spent with clients and actual time spent on managing their investments would go a long way to solving the problem. This would require a major change to the status quo and a complete reset of the industry. If this was possible I have no doubt that itwould see a massive outflux of financial planners from the industry leaving the real McCoy’s behind that do know risk management, money management and how to time the market. They would be expensive but when market conditions come along like we have had over the last 18 months their clients would appreciate their skills.

In the mean time, I encourage you to become an active and responsible investor and do what it takes to educate yourself, or in other words, do what it takes to become your own financial planner and fund manager. Who knows, one day you might even be able to pay yourself a performance bonus – one that actually relates to performance rather than simply the generation of sales revenue and commissions.


  • Linda O'Sullivan says:

    This seems to be the problem not only with financial planners but with anyone who sells anything. In my own personal experience SPA was touted to be this wonderful mechanism to invest in shares and manage my money but my experience has shown that not to be so. As usual money can always be made when the market goes up and without any supposed great tool but when the market goes down there is no such great tool. I have not been happy with SPA and all I can say is “Thank god I paper traded in the past two months”. My paper portfolio is showing a great loss and of all the trades I made there has only one that ended positively and rather miserably at that. I am of the thinking that I shoulod write off SPA as a loss and stop paying for downloads so that I am not putting good money after bad.

  • vic says:

    The problem here is that financial planners are ‘planners’ and not ‘financial managers’. Effective management is required where excess risks are involved such as todays equity climate. Suggest a good full service broker equipped with knowledge of stops, options and other risk management tools at their disposal. Try optionetics,Books; Art of Trading(Tait), Trading Secrets(Bedford), Trading in the zone(Douglas) and also other materials such as Demistifying Financial Statements(Cunningham) and other classics.
    OUCH for SPA!
    And yes fee base on performance for planneres which should reflect their sound financial advice and not a sales pitch!

  • Leon says:

    I am afraid that I have to agree with Linda O’Sullivan. I have been paper trading with an initial capital of $80,000 since August 2008. So far I have had 27 loss trades and 1 profitable trade. That profitable trade was for $4.27. What is going on? Am I doing everything wrong? Maybe SPA only works when you constantly tweak it and if you don’t then you get nowhere.
    On the issue of financial planners, I can’t stomach the thought of paying someone for advice who operates under the “OOPS” rule i.e. Oops I lost all your money but you’ve got to pay me anyway; no responsibility and no care!

  • Daniel O'Connell says:

    Even though I respect Gary as one of the better Technical analysts around, it is in his best interest to bag financial planners so that you transfer your super and invest in SPA. I do however agree that it is extremely important to educate yourself and not just rely on your financial planner.Garry hasn’t mentioned that the major role of financial planners is based around strategy advice.Examples of this are Stategies such as transition to retirement, minimising tax tru family trusts structures, maximising opportunities thru self managed super funds.etc. Financial Planners are also there to hold your hand thru tough times and ensure you remain on track to achieve your retirement goals. Having this kind of relationship with your financial planner is invaluable.

  • Cliff Parfitt (New Zealand) says:

    If a company or person makes a claim then they should only receive reward when they show postive results. We can apply this to so many activities. e.g. if our Govt’s applied this to drink/drug driving, health costs would be reduced as those drinking or using drugs would need to pay for their own repair.
    Try the Diploma of Finance. It has been rewarding for me thus far.

  • Hugh Dudgeon says:

    You make some timely observations. The industry does indeed need a radical overhaul if financial planners are gouging their clients as I suspect. That is the work of the (toothless and bovine) regulator to monitor. On the other hand there is a role to play for good advisers who are entitled to the rewards IF they are doing their job properly ie making money for their clients.

    As mentioned above you are being disingenuous if you believe that everybody should take control of their affairs. Many if not most should not do so since they will do more damage then good out of relative ignorance.Moreover, most people are quite prepared to pay others (a reasonable amount) to disengage themselves from the daily gyrations of the market. Ultimately, it is horses for courses.

  • derek millar says:

    I’m impressed that Gary didn’t hide comments from Linda & Leon but chose instead to address their concerns. Commendable comittment to transparency. There is a time to be in the equity market and a time to stand aside; this is a time to stand aside and not be sucked into bear market rallies like the one we are in now.

  • John T says:

    Wholeheartedly agree the institutions even protect these financial planners as I tried to move my diminished funds into a self managed super fund and was told it is not transferable and I would need to sell my portfolio which at this time would incurr a $600K loss – so caught by the short & curly awaiting a return to some normality.

  • Gary Stone says:

    Reply to Comment by Derek:

    “Commendable commitment to transparency.”

    I know that many of our customers will agree with you. We do not and have never claimed SPA3 to be perfect or even the best. We have always openly stated wherever and whenever we can in demo’s and presentations to prospective customers, in training to existing clients and in all our documentation that SPA3 will suffer drawdown during bear markets and that there are more losing trades than profitable trades over multiple bull and bear markets. We even publish the SPA3 Public Portfolio trades on our website, every one of them, losers and winners alike, for prospective clients to analyse and dissect anyway they like.

    Like a prospective client this week who has done some analysis from these same trades pointed out to us that only 14 of the last 117 closed trades have been profitable. We don’t try to hide that. This, as is this Blog, is open for all and sundry to read and learn from.

    For those of you that have been following this Blog from the outset you would have read about the need to have a neutral mindset. Besides this meaning being objective it also means that you must look at both sides of the equation, i.e. in this instance, how does SPA3 perform in a raging bull market. Before doing that I should point out that the 117 trades mentioned above caused 28.8% drawdown, excluding using the SPA3 hEdge, compared to the ALL-ORDS being down 38.3%. With the SPA3 hEdge risk management rules being used over this period drawdown has been limited to 13.3%.

    This analysis uses a different period to David’s comment above and specifically uses 117 trades as I have transparently used a question asked of us in a recent email and then used analysis of the SPA3 portfolio to match the question.

    Let’s look at the other side of the equation, how SPA3 performs in a bull market. Well between June 2006 and July 2007 there was a sequence of 117 trades when 59 were winners and 58 losers. The Profit Ratio was 3.78 (winners were 3.78x larger than losers). Over this time the portfolio made a profit from closed trades of $161,955 (excluding div’s & interest). This was a 58% return on the capital in the portfolio when the sequence of 117 trades started. Over the same period the ALL-ORDS was up 24%.

    So, is your “cup half full or half empty” (question is to all readers)?

    My point is that you need an edge in the market that has risk and money management rules (SPA3 hEdge is a risk management strategy) that minimises drawdown in bear markets to far less than that of the market and maximises profits during bull markets to far greater than that of the market. Following such an edge should not take more than 10 minutes a day analysis time, on average, and no more than 10 minutes a day execution time, on average. The alternative is using financial planners, managed funds, portfolio managers etc.

    SPA3 has proven to be such a methodology that over time through multiple bull and bear markets massively outperforms the ALL-ORDS. You also need a mindset that is empathetic with the market, or, put another way, is in sync with the market. Markets go up and markets go down. Evaluating an edge based on a market period where the ALL-ORDS has dropped 38% (or even 54% since it’s peak in Nov 2007) is not an objective evaluation.

    Learning to actively invest is an ongoing journey that never ends just as so many other things in life are a journey. The alternative is ……… If we give up we never learn and never experience the good times that inevitably come when we stick to a strategy, particularly one that has proven to work over the long term. I would have given up golf years ago if deciding to continue playing or not was based only on the bad rounds! Getting through tough times puts the good times into perspective and are much needed just as many other duality things in life – warm and cold, night and day, happy and sad etc etc.


  • Peter McMaster says:

    I am a Sharefinder customer and in defence of SPA I would like to state that if your aversion to losses and drawdown is too great SPA gives you the choose to select a risk profile of 1. (page 112 of manual) This means that in high risk markets (defined by SPA) you would exit immediately and have no exposure to the market.

    I cannot imagine myself going back to using finacial managers and letting them loose my money, I’m sure they are better at that than I am.

  • Rodney Lean says:

    I’ve no aversion to paying for a service I request but I dislike paying the trailing fees to financial planners (whether in investing or insurance) who I don’t see again or if I do, I have to pay an upfront fee and then the trailing fees again. You can get 50% of the trailing commissions back by using a fee rebate service such as Their charge is they keep the other 50% but at least I get to keeping 50% of the pie instead of nothing.

  • RALPH says:

    I am sad Gary has spent so much time talking about greed and unreal expectations and it seems to have fallen on deaf ears.
    Spa does exactly what it is designed to do make money in a rising market and protect profits in a falling market.
    If you have read all the manuals you will see where Gary says when starting a new portfolio it is best to wait for a rising market that way you will get some profit to protect if you start in a downtrending market you will eat into your capital as you have no profit to protect.
    I am paper trading and having lost trades but the controlled way I am loosing small amounts of money is impressive (that probily sounds silly to a nontrader but those with experiance will understand )
    Im paper trading till I see a higher high and higher low on the asx200 sure I may missout on some initial profit but never forget bottom pickers have dirty fingers!!!!!!!!!!
    Once I have some profit I will start taking all signals as per my plan knowing my profits will be protected

  • stephen says:

    Congratulations to all contributors to this thread. It is interesting and informative to read such a lively debate on two very important issues in personal investment. Gary and his team are to be be especially congratulated for displaying such transparency in marketing their product. Such transparency is refreshingly different in an otherwise world of shakers and movers.

  • Gary Burton says:

    Every wannabe trader should read the first chapters of Jessie Livermore’s book “how to trade stocks”. He laments about the number of people that would approach him and after the usual pleasantries ask, “how can I make some money”.
    For many years he gave a long and detailed explaination of his methods, but as time wore on he began to reply “I don’t know” all the while doing trades that would leave observers gasping. And he went on to explain that the common lay person asking these questions was no more akin to asking the surgeon or lawyer “how can I make a quick buck out of surgery or law”, a insulting question to someone that has spent many years in study and practice and further study again.
    And it is no different today.
    As an industry practitioner I find the sprukers nothing but snake oil salesmen.
    I was on Sky business with Gary some time ago and the barrage of questions from dazed and confused wanna be traders attests to the industry statistic that 95% of retail traders lose money.

  • Bob says:

    I also would like to congratulate Gary and the team for the transparency of the results and communications that are available under the Sharefinder banner.

    I purchased SPA in the middle of 2008 because it appeared to me to be the product that I had been trying to develop, albeit in a very haphazard manner and without much skill, since the 1980’s. I didn’t have expectations of making millions but I did want a product that provided an ‘edge’.

    I started paper trading in a downtrending market and was not very impressed with the results – plenty of drawdown but no winning trades. But at least the risk and money management was having the effect of not wiping out all my capital.

    Then along came the hEDGE. I was concerned that it had been put together hurriedly; probably in response to the worst bear market we have ever seen. But, like all things Gary puts his name to, it seemed well researched and easy to implement. So I continued to paper trade but now with the hEDGE included in the process.

    I became impatient and in early January I let my emotions take over and decided to ‘go live’. Since then I have of course seen the same experiences as others in the market but now it is more important. This is real money I am throwing at these lousy trades. So every decision is checked much more thoroughly than if I were still paper trading.

    Even last week I was wondering if this system was going to do what I wanted. So I decided to use the SPA Research tools to test it (using my profile) and only go back 2 years. This would incorporate the last part of the bull market and all of the bear market up to the present.

    Without the hEDGE the drawdown was just over 20% from a $100k start. As you know one cannot automatically incorporate the hEDGE yet so I had to manually adjust the figures. With the hEDGE the capital that was gained in the last of the bull market was, by and large, protected. In fact, following the rules of hedging I even gained.

    So, to Linda and Leon I would recommend you also do some research. It will restore your faith as it has mine and also give you some further insights into SPA and the excellent facilities with which we are provided.


  • Linda O'Sullivan says:

    Thanks to all of you people who have taken the time to reassure me of the benefits of the SPA system, I do not have the benefit of being in SPA in the good times. The fact is I know not to trade in this market but SPA is still giving buy signals on stocks where the trend is exhausted, and, an example of Fridays scan among others RHC comes up as a buy but my knowledge tells me that the present trend of this stock is finished. The resistance has been hit and there is a bearish engulfing pattern showing and my opinion is that this stock is heading for its support level. I have this knowledge to make my own analysis but what about people who don’t? I thought I was buying a system that was going to save me a whole lot of work and that I did not have to make my own analysis otherwise why would I buy it? There are other trading systems out there that are more accurate than SPA which find the stocks that are ready to buy with a reasonable chance of going into profit. I am prepared to accept a 40% win and 60% loss ratio as SPA advertises but the wins have to be much greater to profit and SPA has not provided that, and, simply put my paper portfolio is showing too great a loss for my liking and I can’t imagine why I would trust putting in any of my cash.

  • Royce Morrison says:

    Thank you for this timely article — I have just begun to examine in more detail the fees I presently am being charged by my fiancial advisor and the WRAP manager — both of which charge on a FUM basis.

    As stated in the article, this may slip through unnoticed in bull times but in bearish times, every outgoing needs to be examined.

    A fee for performance would be a better approach from my viewpoint.
    Thank you R Morrison.

  • David Sayer says:

    In reply to: Linda O’Sullivan and Leon

    I would encourage you to go back and read the previous few journal articles and comments from Gary Stone. In particular, the “Retraining the Mind….” series and the “Market Overview” reply to Malcom.

    Our lives are biased towards making decisions based on recent events. We forget about longer term history, relevant information and indeed sometimes the raw truth. As with Malcom, taking a few sample trades or indeed a short period of time and casting SPA as a write off is recency bias.

    Since November 2007 the market(All Ords) has fallen 52%, an extraordinary event in anyone’s lifetime. During that same period the SPA Public Portfolio rose to an equity peak on October 28th 2008 and has since fallen 24%. In direct comparison it only fell 11% over the same longer period. A massive 41% outperformance!

    The 24% hurts, as my personal account will attest, but let’s put this in perspective. SPA is a medium term trading system that has generated a compound annual return of 20.65% since January 2001. This period includes the 11 month bear market in 2002, prior sideways markets and losing trades. Now we have another bear market. Our SPA portfolios will survive to fight again, reach new equity peaks and eventually assign this global financial crisis to the annals. Money and risk management rules, education and a trader’s mindset will see to it.

    For the cost of a monthly download you’ve chosen to take action, educate yourself and become an active investor of which SPA is an important step. Beyond this, ShareFinder obtains no benefit from your monthly account balance. This is in vast contrast to a prospective customer we spoke to this week; he had been paying nearly $3000 per month in trailing commission to a financial planner that could be viewed as actively destroying his portfolio by wanting to average down into stocks like Babcock & Brown. This is after already losing a considerable portion of the portfolio. I’m still shaking my head.

    The manuals, website, training material and public forum all openly discuss every aspect of SPA. We encourage every customer to utilise the unlimited support and educational material on offer. Post on the forum or ring the office and ask every question possible to ensure your journey is successful.

    (Customer since 2002 and now employee since 2009)

  • David Sayer says:

    By choosing to stand on Speakers Corner above the general crowd, jump up and down, stamp our feet and talk passionately about such an emotive subject, we are guaranteed to provoke discussion. If it makes any contribution to fixing the chronic financial planners problem, we’ll all be better for it. In doing so, we also open ourselves up to public scrutiny of our own beliefs and the ShareFinder products. This is not the first time and it definitely won’t be the last. So far, every time this happens they rise above the crowd, lifted there by our longer term customers.

    Yesterday I spoke with Linda O’Sullivan at length about the journal entries, SPA, past experiences, expectations and what I could do to help. She knows I’m writing this reply. The following is a quick summary and outcome.

    A common thread among new traders and our customers is the need to fit the market and the trading system to their lifestyle. The market won’t change to fit us, this is a fact, which leaves only the trading system. The SPA manual provides default settings and guidelines that suit most customer’s lifestyles. For those wishing to mould it further, the manual, coaching notes, website and forum have a plethora of options. If none of them suit or it’s just too much information, contact us directly. You’ve paid for my time, please use it.

    My trading education like Linda’s included reading many books, having bad experiences with prevalent newsletters, listening to many opinions and then forming my own. This gets you to the here and now but it is still your history, your experience and has no influence on the market. When faced with a proven mechanical trading system that trades the market, its performance and our expectations may come to blows. By changing our perspective, thinking in terms of the market and looking over the appropriate period it opens up your mind to the opportunities and realities of investing.

    So, Linda and I have made an agreement. Linda will finish reading all the manuals, including the SPA hedge section, and then will endeavour to create a trading plan that moulds SPA around her lifestyle as best as possible. Most importantly, I’ve asked her to ring me whenever she has a question, regardless of how silly she may think it is. I promise to answer all her questions, discuss the options and help her through the whole process. Linda will also continue to paper trade her portfolio, using the new trading plan. My aim is to turn Linda into another long term happy customer.

    I would encourage all customers that want to discuss any aspect of their portfolio, to please contact us here at ShareFinder. We are here to help!

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