Investment Advisers and Short-Term Bias

I have always advised against the use of management advisers for most investors because of cost. Even a charge of 1½% if assets can be enormous. That can easily work out to 15% to 25% of total returns each year on a typical investment portfolio.

That is relatively cheap as advisor fees go, if there are no percentage cuts of income earned, as is the case with most hedge fund management.

But wait, there is yet another problem in dealing with managers. They have a short-term bias that may definitely hurt clients.

Most move their accounts’ holdings around, on the assumption customers want “action” for their money. Leave an account stable for a year and the clients may feel they are paying all that money for nothing, especially if kept somewhat inactive.

So, what may be good for the client may be bad for the manager’s marketing of his business.