Fidelity's site on Separately Managed Accounts says: "Fidelity® U.S. Large Cap Strategy: This separately managed account (SMA) leverages the power of Fidelity's active management and stock selection in an effort to seek capital appreciation and to outperform the S&P 500® Index over a full market cycle."Tried to sell me on a US Large Cap Index SMA, which seems like would be a headache to unwind down the line… thoughts?
Paying for an actively managed fund almost always has a higher expense ratio to pay for the fund managers (>0.5% is likely). Paying your advisor an Assets Under Management (AUM) fee of even 0.5% is on top of the higher fund ERs (and Fido's page on SMA says the fee could be as much as 0.7%). Anyone promising to outperform under those cost handicaps that directly reduce total return, is either Warren Buffet (not at Fido) or Theo Koltrones (not at Fido) or a team of Fido guys that think they can be a Buffet or Koltrones, which is incredibly unlikely since 80% of Active Managers Fail to Beat the Market in a single market cycle, and there's only 2 I can name that have done it for decades consistently and are still doing it (honorable mention to Peter Lynch (Fido Magellan) and Bill Gross (PIMCO Total Return) as they also did it, but when they retired those funds fell to the average or below).
Fidelity has made great strides in providing low-cost index funds to its clients, but that's all spurred by competition with Vanguard who was the original to offer such and Bogle was scoffed at by his industry peers for his "great experiment." Yet decades later, people caught on to Bogle's mantra that "costs matter," and assets at Vanguard ballooned so large that congress may review Van's influence on the industry because of cries of "can't compete" from other industry players to their congressional reps. Naturally other brokerages are playing catch-up, but they still hold to their old remnants in dark corners that "active management can beat the market" and "you'll make more money with an advisor than without," but it's mathematically unlikely to achieve such implied promises (which are never in writing for any management contracts you sign).
My thoughts? Active management is only useful if you can pick the next Warren Buffet in advance. Everyone that doesn't have a working crystal ball, should just invest in simple, low-cost index funds with a 3-Fund Portfolio as the core set of holdings (and that is probably all that's required for the vast majority).
Statistics: Posted by bonesly — Tue Dec 24, 2024 1:49 pm — Replies 77 — Views 4293