I got cold-called this last week while I was away on business. ?I googled the phone number, and found that it came from Melitello Capital. ?I went through their site, and read most of their articles.

It’s an interesting firm, though I have no interest in working with them. ?The article I would like to comment on tonight is “HOW DOES AN RIA JUSTIFY ITS 1% FEE?”

I will explain why a 1% fee?can be justified. ?Now, I am an old school RIA [Registered Investment Adviser]. ?I only manage assets. ?I don’t allocate across asset classes. ?I don’t manage taxes in entire (though I help). ?I don’t structure the means to escape estate taxes. I don’t set up insurance schemes to minimize taxes; I could do it, but it would be boring. ?I could make a lot more money than I do, but I make enough, and I really like the challenge of outperforming the market.

RIAs offer value to clients in a large number of ways:

1. Reducing income taxes
2. Holding the hands of clients during the manic and panic periods of the market. ?Discourage them from taking more risk when the market is hot, and encourage them to take more risk, or at least, don’t leave when the market is panicking.
3. Hedging risks, whether it is a collar on a large single stock position, or a macro hedge.
4. Aiding in covering insurance needs.
5. Setting up financial plans.
6. Structuring estates, such that everything goes where the client wants, and estate taxes are minimized.
7. Asset allocation, including regular rebalancing.
8. And more… free advice on other issues, entertainment, bragging rights, etc.
9. Putting everything together in one neat package.
10. Oh, and in a few cases, alpha. ?(that’s my game)

Now, is that worth 1% on assets? ?Point 2 alone is worth more than 1%, so yes. ?Those who have read me for years know that people get greedy and panic. ?If you can avoid that, you are doing well, very well.

Look, it’s easy to trash talk your competition. ?Some registered investment advisers are worth their ~1% fee, and some not. ?It depends on the package of services that they deliver — alpha, taxes, insurance, legal help, asset allocation (tsst… be wary of the efficient frontier. ?It does not exist.).

In general, if the investment advisers themselves do not give in to panic and greed, they are worth a 1%/year fee. ?So seek out advisers that do not give in to market pressure.

Note: this is unpopular, because that means hanging onto advisers that underperform during hot markets. ?In the long run you will do better following advice like this– after all, they dissed Buffett in 1999, and my Mom told me I was a fuddy-duddy. ?(Note: when a parent tells you that you are behind the times, it stings. ?It does not mean that you are wrong.)

I am not telling you to invest with me; that is not what my blog is about. ?I am saying that there is value in separate accounts with RIAs. ?And, be choosy. ?Lower fees are better, subject to the same levels of competence.