I had a conversation with a prospective client the other day who called me inquiring as to what we do. I gave him the typical run down that we are a fee-only investment advisor specializing in ETF portfolios. In other words, we provide discretionary management of client accounts using low-cost investment tools.

His response {paraphrasing}: “Mr. Fabian, I know a CFO of a big publicly traded company. He told me they did a big study about the use of investment advisors and that they aren’t worth the 1% fee. That all you need to do is buy ETFs to reduce the drag of expenses on your portfolio. What do you have to say to that?”

I immediately agreed with him that many investors are quite successful managing their own portfolios using ETFs. However, some can benefit from expertise in security selection, positioning, and behavioral choices that an experienced advisor can provide.

I then went on to ask him what ETFs he would buy if he was building his own portfolio right now. He didn’t know a single ticker symbol.

I then asked hypothetically, if he were to buy today, would he have the fortitude to hold those funds through every market cycle. He admitted that he would probably end up selling if the market fell to a certain point.

So, let’s recap:

  • You know you should own ETFs, but you don’t know which ones.
  • You want to go from 100% cash to 100% invested very near a market high.
  • You are likely going to sell those positions much lower than where you bought them.
  • And you don’t need an investment advisor….

    • The flaws in this strategy seem obvious. However, it’s not all that uncommon for me to have this kind of conversation with investors. They grasp at morsels like “ETFs are good” and “fees are bad”, which automatically equates investment advisors as an unneeded expense. They may even be under the misguided notion that just buying any ETF is a coherent strategy all to itself.

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