I’d like to push back a little.
Please don’t read this as a defense of the private banker looking after the portfolio or as an endorsement of active management.
It just seems some of the judgements passed would need further data to corroborate the case. Maybe further data would indeed confirm your conclusions, it’s just not clear to me from what I have read.
The “wealth advice” fees don’t seem excessive to me for active investing. And it sounds like this what the original investor chose as an investment category?
Perhaps, as you allude to below when describing the portfolio, the original investor asked for a hand-picked high return portfolio instead of running with a bunch of run-off-the-mill ETFs and was averse of finance titles because of the Great Financial Crisis, in which case hand picking those securities actually costs money if you don’t want to do it yourself.
Not saying active investing is a good idea, just saying that if you decide that’s what your private banker should actively do for you, it’s going to cost money (or time, if you decide to do it yourself).
Disclaimer: I actively manage a substantial portion of my portfolio myself. My main appeal is being able to grow yearly cash flow from distributions for covering our expenses (versus having to sell a portion of the portfolio every year). While I’m currently beating my benchmark, this is not my main goal at my stage of life.
Hm, I’m not sure I agree without understanding the investment schedule.
You’d have to know when the investments were done to be able to make comparisons.
If it was lump-sum all-in at portfolio inception, then using the commulative net performance seems mostly appropriate (and comparing it to the total return of the SMI or some comparable index would be right). And your points would be mostly correct.
I say mostly because we don’t know what the original investor asked for (e.g. steady high distributions versus total return over x years).
If the portfolio was accumulated over time, i.e. it had a bunch of inflows that were invested over the past 10 years (leading up to the final sum inherited), you would need to use the TWR (time weighted return) of the portfolio to make any comparisons to the total return of any index over the same time span.
In essence, it boils down to measuring how well the portfolio manager was able to actively allocate capital at any given time – whether it’s investing 50k in October/November 2021 or investing the same amount in, say, March 2020, or sometime in the 2008/2009 crisis – versus passively investing the same amount into e.g. their benchmark index.
Unless your friend is financially savvy (which it sounds like he isn’t) I would tell your friend to go see an independent financial advisor (i.e. not associated with a bank or any other entity interested in selling you their products) to get professional advice tailored to his needs, investment horizon, risk tolerance, etc.