February 25, 2006
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February 25, 2006 |
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DOW JONES REPRINTS
  This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit:www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Finding an Index-Fund Genius How Specialist Investment Advisers Can Improve Your Portfolio
February 25, 2006; Page B1 Even people who want to be average need help sometimes. A chorus of research suggests that it's hard for any investor to consistently beat most market indexes over several years. Over decades, it's nearly impossible. As a result, a number of investors simply seek to mimic, say, the Standard & Poor's 500-stock index by investing in funds like Vanguard Group's that track them. All of the sudden, however, the choices are much greater in number. Take exchange-traded funds, which also track indexes but trade all day like stocks and may have lower costs. There were 201 of them at the beginning of the month, according to the Investment Company Institute, up from 152 a year earlier. There is also a rapidly increasing number of financial planners and money managers who put their clients' funds mostly in these so-called passive investments. They are so named because they are simply based on market indexes, unlike more actively managed investments run by a money manager whose job it is to sniff out smart market moves. ![[Green Thumb]](http://online.wsj.com/public/resources/images/MI-AG838_WGthum_20060224174013.gif)
You could pick passive investments yourself, of course. But it takes skill to filter the rising number of options while also creating a proper allocation. Finding specialized help is surprisingly difficult, however. Usually, a good way to find a planner is through the Financial Planning Association, the National Association of Personal Financial Advisors, or the Garrett Planning Network. But you can't search on their Web sites specifically for passive-investment specialists. You could pick passive investments yourself, of course. But it takes skill to filter the rising number of options while also creating a proper allocation. Finding specialized help is surprisingly difficult, however. Usually, a good way to find a planner is through the Financial Planning Association, the National Association of Personal Financial Advisors, or the Garrett Planning Network. But you can't search on their Web sites specifically for passive-investment specialists. Here's another way: Use a tool on dfaus.com1, the Web site of Dimensional Fund Advisors, a fund company that uses algorithms to build index-like baskets of securities. On the bottom of its home page, you can search for advisers that use DFA's products, all of whom tend to be advisers specializing in passive investing. Then, you have to decide what you are willing to pay for help. The standard annual fee for financial planners is generally about 1% of assets. But shouldn't the price be lower if they are choosing from this limited universe of funds that aren't chasing trendy ideas? Jerry A. Miccolis of Brinton Eaton Associates Inc. in Morristown, N.J., doesn't think so. Clients, he believes, should pay for results, not for effort, though he notes that passive investing takes plenty of time. His firm charges 1% for the first $2 million under management, less for bigger balances. Bob Frey of Professional Financial Management Inc. in Bozeman, Mont., sees things a bit differently. "This isn't rocket science," he says. He charges 1% on the first $100,000 he invests, and 0.5% for anything above that. You don't get quarterly meetings with Mr. Frey for that price, however, something others might offer. One caveat: Ask what else comes with the price. Mr. Miccolis's firm does most clients' personal tax returns free; Mr. Frey charges extra for some services, like comprehensive financial plans. Still wary? If you are trading actively managed mutual funds on your own, your annual costs could run around 1.25% in fees and commissions. J. Mark Joseph of Sentinel Wealth Management Inc. in Reston, Va., notes that his fees start at 1% and go down from there. So in a sense, he says, his clients are getting advice free, compared with the cost of the do-it-yourself strategy.
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