Tag Archives: Dan Ariely

Beware Rising Investment Advisor Fees

A few weeks ago, Wealthfront’s VP of Research, Jeff Rosenberger, PhD, clipped a story from an industry trade magazine, titled Five Ways for Financial Advisors To Raise Fees, and hung it up in Wealthfront’s Palo Alto office. We have to admit, it was subject to grafitti. Our team found the article funny. We were in the midst of an effort to lower fees on investment management – and here was an article offering financial advisors strategies for milking their customers. Not only are the traditional financial advisors looking to increase their fees, they are trying to charge more for what is too often bad service. According to an industry report last spring, financial advisors charge an average of 1.32% annually on the assets […]

Dumbed-Down Diversification From The NY Times

Carl Richards, who writes the Bucks blog for The New York Times, wrote a piece illustrating the power of diversification in a portfolio. Unfortunately, he didn’t go far enough with his definition of diversity. We agree that diversification reduces risk, as he writes here: “The magic of diversification is that you can take two individual investments, which when viewed in isolation are individually risky, and blend them in a portfolio. Doing so creates an investment that’s actually less risky than the individual components and often comes with a greater return. In finance, this is as close as we get to a free lunch.” But Mr. Richards used as his example of diversification only two asset classes, stocks and bonds. A […]

Friday Reads: Famed Behavioral Economist Dan Ariely Takes A Swipe At Advisors

Author and behavioral economist Dan Ariely says investment advisors ask the wrong questions and generally aren’t worth the high fees that they charge. The two questions that advisors ask, he says, are: How much of your current salary will you need in retirement? and What is your risk attitude on a seven-point scale? “From my perspective, these are remarkably useless questions,” he writes. “An advisor will optimize your portfolio based on the answers to these two questions. For this service, the advisor typically will take one percent of assets under management – and he will get this every year!” Ariely continues. “Not to be offensive, but I think that a simple algorithm can do this, and probably with fewer errors. Moving money […]