Covestor and CVIM Blog

Excellent Seeking Alpha ETF investment guide

We are going to post this directly from the full article because it is such a great piece about Financial advisors fees.

"Brokers, Financial Advisors, & Investing for the Wealthy

• The traditional broker-client relationship is crippled by a fundamental conflict of interest: the broker is not directly compensated for giving objective advice, and is incentivized to maximize fees (My Broker's an Honest Fox).
• Asset-based-fees go some way to reducing brokers’ conflicts of interest. But they don’t solve all conflicts of interest, they incentivize the broker to spend too much time prospecting for new accounts, and they take a sizable chunk out of clients’ investment returns (Asset-Based Fees to the Rescue).
• Asset-based-fees could cut investor returns by 25% based on current market forecasts (But What if You Saved $275k Annually?).
• Many independent financial advisors also charge-asset based-fees. If you need to consult a financial advisor, it’s generally better to negotiate an hourly fee instead (Financial Advisors).
• Commoditization of financial products - particularly of index funds and online brokerage services - has steadily driven costs down and improved product quality. Fees for less commoditized financial products, such as managed accounts and actively managed mutual funds, have actually risen. As a result, wealthy investors shMe, Use an Online Broker? But I'm Rich!).
• Separately managed accounts are the darling of the investment industry because they attract wealthy clients and charge hefty recurring fees. But the overall underperformance of investment managers versus their index benchmarks (Why You Shouldn’t Buy Mutual Funds) and the crippling impact of high fees (But What if You Saved $275k Annually?) means that separately managed accounts are generally a bad deal for investors (Separately Managed Accounts (SMAs)).
• Most wealthy investors over-estimate their need for investment advice. Management of a portfolio of eight to twelve ETFs (A Core ETF Portfolio) in an online account (Which Brokerages Come Out Best?) is easy and not time consuming, and likely provides better diversification and overall performance than most High Net (financial) Worth financial services using individual stocks and mutual funds (What Not To Do).
• For a $10 million account, a basket of ETFs managed in an online brokerage account should outperform an asset-based-fee account targeted at wealthy individuals by about $275,000 per year, by my estimate (But What if You Saved $275k Annually?).
• If you need customized advice and products, split your assets between an active manager and an online brokerage to minimize fees. Use the online brokerage to manage the majority of your assets in ETFs. Ensure that the active manager is directly compensated for objective advice, fully discloses all fees, and provides a fully documented track record (What to Do With What's Left?)."

New Feature: Manual trade entry

Another milestone was reached today on the Covestor site as the manual trade entry process was uploaded to the live site. Members can now choose whether to use the data link to their broker, to automatically populate their track record, or enter trades by hand.

The form is very easy to use. When setting up an account to use the manual process members send in an electronic copy of their last broker statement to verify their starting holdings. Covestor enters these holdings for them in their accounts before activation. From there each new trade or holding is entered manually by the member - giving them control over the management of the data, and statements are requested periodically to confirm the holdings registered. All track records using this new data entry process are stamped on the site as 'manual', as distinct from 'auto verified' accounts (those using the broker link).

Let us know if you have any feedback for us as you test and use the new form. A number of beta testers have requested this functionality, both given brokers not yet supported with an automatic link and the inability with the connection to separate out individual accounts. Although more work in uploading data, this feature should broden the spectrum of members able/willing to share their investment decisions.

Why is there so little information about Fund Managers?

We have spent a good part of the day trying to find information about Fund Managers to create accounts for them on Covestor to let members compare their own performance to. What is surprising is how little information is available relating to these individuals.

Searching through the 100 largest funds for photographs of the managers very few are publically available on the web. Even simply trying to find out who the current manager of a fund is proves to be a difficult job - with considerable difference between the manager listed on Yahoo vs Google finance. When we create portfolios for these people we plan to invite them to update their own details and lets hope they choose to take this up. It seems important to know who the people managing these huge funds are, and although 'fund of fund' managers may have good access to them shouldn't we all know a bit about the people who are managing our money

New Feature: Widgets

Covestor widgets were put live today and they just look awesome (although of course we are biased).

This is my investment record widget to let me distribute a summary of my portfolio and let others track my trades.

Today in the office

No rest for techies in the Covestor sweatshop...

 

Bookmarks for May 16

Some good reading on oversized funds and some of the stock blogs we are reading at the moment:

• Why fat funds need diets: Excellent Kiplinger article from May edition on why money piling into funds affects their performance
• Remember what Buffet said about HF fees?: Warren buffets shareholder statement about the 'grotesque' size of Hedge Fund fees
• Are your interests really aligned with your fund managers?: Fairly old MSNBC article but good warning to keep in mind
• Three bloggers we are reading
  
  • Asif Surias' great SINletter: Includes excellent model portfolio and Asifs disclosure of his true holdings (great stuff)
  • Yaser Anwars' investment ideas: Always insightful and detailed - great analysis - we want to hear more about what he is doing with his own money...
  • Roger Ehrenbergs' information arbitrage: Always insightful - well worth following

 

Features: Automatic data upload

Although we are still pre launch we have already received a large number of questions from our Alpha users about the automatic broker link. We thought it might be useful to clarify some of the detail:

• What it is: At Covestor we wanted to make it as easy as possible to upload trades and holdings and to give other users confidence that the track records created are verified and objective (uniquely on the web). As such we work with Yodlee to give users the option of having their track record automatically updated whenever they execute a new trade in their existing broker account. At launch this connection will be enabled to all of the major brokers. (Clever stuff)
• How does it work: On sign up Covestor creates a ‘view only’ data connection to the users broker account and essentially polls the account at regular intervals to check for updates. It saves you having to enter details of each trade by hand when you do them, or to send us regular statements to verify the positions you report (The other option available)
• Security: Users have to enter their broker username and password to create this data feed from their broker. We realise this is extremely sensitive data. As such here is some more detail on the connection:
  • The credentials are only used to create a ‘view only’ feed: The users broker username and password are only used to create a direct feed of data into their Covestor track record. It is similar to the connection created when one downloads trading data from a broker account into MSN Money or Quicken.
  • This data is not stored by Covestor: The data is securely stored on the Yodlee servers. Yodlee store this same data on behalf of over 100 financial institutions in the US: http://corporate.yodlee.com/customers/clients.htm. Yodlee’s security meets industry standards such as SAS 70 Type II, ISO 17799 Compliance, and Visa CISP Level One Compliance.
        
  
  • Transaction and account values are never published: A number of users told us that       they did not want to disclose their investment amounts or portfolio value to protect their privacy. As such all of the data created by the ‘view only’ connection is reported in percentage terms.

We think this is a valuable feature to save you time and effort, and to ensure the creation of a full and unbiased track record. It allows you to create an immediate and fully audited trading history. Let us know if you happy to share your experience using it to help give other users the confidence to give it a try.

Welcome

Welcome to Proven Self Investors. I am Perry Blacher, one of the founders of Covestor. The idea behind Covestor is to give investors better value and greater transparency by enabling them to invest alongside any private individual who is managing their own money, rather than just putting money into an expensive 'professionally managed' fund.

We are going to use this blog to tell you about what is happening at Covestor but more importantly to help to recognize the "unsung heroes" of investing: those doing the hard work only for themselves. I hope this highlights the depth of skill and expertise ordinary people are out there bringing to bear on their investments, and the truth about some of the 'fat funds' which are beneftting at their investors expense.