My financial advisor tells me that his higher fees and investment expenses are justified by his ability to identify managers who will outperform the market. If he can accomplish this, why would I not be willing to pay higher fees and/or expenses?

Thanks to Morningstar^®, all of us can find managers who have shown recent outperformance (it isn’t rocket science, folks). In fact, when we review the account statements provided by former clients of these high-cost advisors who claim to excel at finding great managers, we see that they are indeed populated by funds that have had outperformance, the operative word being “had”. The unfortunate thing about outperformance is that it has no persistence other than what we would expect from chance, according to the Standard & Poors Persistence Scorecard.

​The fact of the matter is that some of the best minds in finance have tried to solve the problem of how to identify outperforming managers in advance and have not succeeded. The chances that your advisor will accomplish this are slim-to-none.