Do we really have to do what is best for the investor?

Believe it or not, this question is at the heart of a hotly debated new rule proposed by the Department of Labor (DOL) surrounding the investment alternatives and advice provided to retirement plan sponsors and participants. Simply put, many brokers who provide this advice can offer a number of alternatives to ERISA based plans and their participants. As long as the recommendation can be deemed a “suitable” one based on the investor’s objectives, the broker is free to recommend those that make him/her the most money instead of what is in the best interest of the client. It is easy to make the connection that the more money paid to the broker for selling an investment, generally, the worse the outcome for the investor. This dynamic represents an inherent conflict of interest. The broker is faced with the choice of generating enough commission to feed his family or provide the best advice to the client. Now, let’s add another dynamic. Assume that the company employing the broker demands a certain level of commission income from its representatives in exchange for their continued employment and those with the highest levels of commission will be rewarded by the company with higher pay and other perks. Now, the broker is faced with a slightly different choice, one of generating enough commission income to feed his family and buy that new Ferrari or lose his job. Since the commissioned based approach generally used by most providers of retirement plan services is one that is driven by this conflict of interest, the DOL proposed a new rule designed to elicit better advice for the...

How much do I need to save for retirement?

Watch Massi De Desantis PHD, Senior Researcher & Vice President Dimensional Fund Advisors discuss how much you need to save for retirement. Potomac Wealth Management is a Dimensional Funds-approved financial advisor, specializing passively managed index fund investments. If you are interested in working with PWM and making the most of your retirement we invite you to contact...

How much income do you need in retirement?

Watch Marlena Lee, PHD, Vice President of Dimensional Fund Advisors discuss how much income you need in retirement. Potomac Wealth Management is a Dimensional Funds-approved financial advisor, specializing passively managed index fund investments. If you are interested in working with PWM and making the most of your retirement we invite you to contact...

The Power of Markets

At Potomac Wealth Management we’re different than many other wealth management firms. This video from Dimensional Fund Advisors spells out our market philosophy and how we can put the power of the markets to work for you. If you are interested in diving deeper on active vs passive investing I highly recommend Rex Sinquefield piece, Active vs Passive Management, penned in 1995 it still stands of the test of...

Failures of Active Management

Most traditional investment providers offer actively managed investment products as the solution to their clients’ needs. This means picking individual stocks and timing the market with the goal of beating an index or benchmark. Failures of Active Management – Kurt Laubinger from GuideVine on Vimeo. This has helped Wall Street firms earn higher fees in their sales force. There’s typically incentive to offer active strategies because of the high commissions they earn as a reward for selling them. Let’s take a look at the facts. Here’s a chart depicting the performance of active equity managers over a given time frame. You can see it doesn’t matter whether it’s large cap, small cap, or international. Most of these active managers fail to outperform their benchmark. The statistics are compelling. The idea that superior intellect or better stock-picking prowess offers better returns does not play out in real life. Even more compelling is the fixed income slide. Again, with many different asset categories covered here, most of these active managers failed to beat their benchmark. These results change from year to year, but the theme is the same. Each year, 60 to 70 percent of active managers fail to beat their benchmark. The ones that do are not the same ones from year to year, and trying to figure out who will outperform next year is even more difficult. If investors can perform in the top 30 to 40 percent of managers on a regular basis by owning the benchmark instead of trying to beat it, they will find themselves floating closer and closer to the top of performance...