I have 2 accounts managed by a broker but both did badly in 2023. What’s my move
Getty Images
Question: I have two retirement accounts managed by a large broker, but they performed below the S&P 500 and other indices in 2023. I also have accounts I manage myself, and these performed above major indices. I’m paying a fair amount of fees to have my accounts managed, but after two years I don’t think it’s worth it. Based on the latest review, I feel I can manage and grow my accounts much better on my own. Am I looking at things the right way?
Answer: You might very well be better off doing it yourself, but let’s take a deeper dive into how you can determine that. Firstly, comparing performance of accounts is a good way to benchmark, but you have to make sure you have an apples to apples comparison when doing so. “If your managed account agreement is for a moderate 60/40 allocation, and you’re comparing to an account that is 100% stock, the performance won’t be close, but it’s not necessarily the broker’s fault,” says certified financial planner James Daniel at The Advisory Firm. (Looking for a new financial adviser too? This free tool can match you to an adviser who may meet your needs.)
Have an issue with your financial adviser or looking for a new one? Email questions or concerns to picks@marketwatch.com.
Furthermore, consider your holdings — and look at them over a longer term than the one year you looked at. “You’ll see that 2023 was an up year in global stock markets and a remarkable percentage of that upwards move was concentrated in the magnificent seven mega-cap U.S. tech stocks. If you owned a S&P 500 Index fund in the accounts you managed, and your broker was running your two retirement accounts as balanced accounts, they would certainly have performed worse than the two accounts you’re managing in 2023,” says certified financial planner Jim Hemphill at TGS Financial.
On the other hand, in 2022, when the markets went down and tech stocks went down the most, balanced accounts significantly outperformed the S&P 500. In short: “A one-year trend simply doesn’t provide nearly enough stable data to evaluate the performance of any investment strategy,” says Hemphill.
Another thing to think about is that your financial adviser doesn’t manage all the investment accounts you have, and might have taken this into consideration when picking your investments. “The adviser may have built a total portfolio allocation taking into consideration the non-managed accounts even though they do not manage them. If the adviser saw the non-managed accounts were invested in higher-risk growth stocks, the adviser may have invested the managed account more conservatively, hence the lower return,” says certified financial planner Dan Serra at SageVest Wealth Management.
Another possibility is that you didn’t rebalance and therefore the portfolio’s winners kept growing. “This could make your portfolio now at greater risk to a market pullback if it holds overvalued stocks. Clients are less likely to sell winners than a portfolio manager does as part of rebalancing,” says Serra.
That said, certified financial planner David Maurice at Worthwhile Wealth Council points out that: “The firm is not managing expectations which is a primary function for fiduciary advisers. By the same token, the fees may rightly not seem fair to you which is also the adviser’s problem.” (Looking for a new financial adviser too? This free tool can match you to an adviser who may meet your needs.)
Indeed, you may find it helpful to consider a straightforward value proposition of having an adviser, he says. “Consumers do well to ask themselves who is getting paid, by whom and for what. Does the approach measure risk/return performance? How much risk is being taken to achieve an expected rate of return? Even then, each investor will have different ranges of preference around both these key factors and the tradeoffs between them,” says Maurice.
It’s also key that clients need to make sure their advisers know their objectives to coordinate a targeted allocation for all accounts and to manage risk, says Serra.
While there’s nothing wrong with taking the DIY route — and it can be a less expensive and good way to go — make sure you have a solid asset allocation [the rough rule of thumb is generally a percentage of stocks that equals 100 or 110 minus your age with the remainder in fixed-income securities]. Also make sure the amount of risk you’re taking to achieve those above average returns is in alignment with your comfort level, pros say.
“While trying to beat the market rarely works, it’s perfectly fine to want to manage your own accounts. To help with this, one book that should be on your list is ‘The Little Book of Common Sense Investing’ by John C. Bogle, the late founder of Vanguard. When managing your own accounts, be sure you’re paying attention to how this impacts your taxes, the contribution limits of certain accounts and income limits for accounts such as Roth IRAs,” says Bri Conn, investment adviser representative and specialist at Childfree Wealth.
Should you decide you need assistance at any point, reach out to a fee-only, advice-only certified financial planner for some professional guidance without having to give up control of your account. “Interview several advisers, ask them to give you information on how they would invest your overall portfolio and choose the one whose advice best models sensible long-term strategy, is broadly diversified, has low turnover and low expenses,” says Hemphill. (Looking for a new financial adviser too? This free tool can match you to an adviser who may meet your needs.)
Have an issue with your financial adviser or looking for a new one? Email questions or concerns to picks@marketwatch.com.
