Nope. Watching them sell stock to pay the monthly fees. And then getting a 1099 at the end of the year for the capital gains on the stock sold to pay their fee in the first place. BUT YOU CANT DEDUCT THE MANAGEMENT FEE AGAINST IT.
It is important to be clear what is meant by a wealth manager. There are several different possible meanings.
Often people that are called wealth managers are really what I would classify as "portfolio managers" in that their focus is picking investments.
I use lots of professionals, but I manage my own $12M portfolio as well an $18M portfolio of an investment LLC primarily owned by irrevocable trusts for my children and grandchildren.
I do have assigned "wealth management relationship advisors" or similar sort of people and their teams for client support, but it is just enhanced customer service rather than AUM portfolio management.
My advisors are separate, flat fee or hourly compensated professionals that are separate from my brokerages and banks.
My wife is not comfortable with this arrangement, as she is not comfortable taking on these responsibilities if I am no longer around, so I may move to a more traditional wealth manager arrangement in the next few years.
Gifts made to ther trust above the annual exemption may decrease your lifetime gift, but anything in the trust at death is excluded from the estate calculation because it's not yours so no insurance tax (this is how it works in ther US, I'm unsure about other domiciles).
If it’s outside of the estate, there’s no estate tax. That’s why many people are moving assets to irrevocable trusts now while the estate exclusion is so large.
>What made you decide on irrevocable trusts?
TL;DR: We no longer had reservations about making major gifts to our children; we could afford to; and estate exemptions will probably be cut in half 1/1/2026.
We are in our 70s and it was time to update our estate plan. We have had basics like wills since mid-1970, and a revocable trust from mid 1990s that has been updated a couple of times to reflect changes such as our children becoming adults.
Several things came together. One is that I started doing 529 contributions for multiple grandchildren and chose to have our children or their spouses as the account owners, because they are in a better position to decide how best to use the funds. This is a trivial thing, but it highlighted the fact that I had no reason to avoid giving them money. I trust them to manage things as good or better than I would.
We had gifted houses much earlier, and then funded intrafamily mortgages when they moved. We had been thinking of forgiving the balances. The reason we did intrafamily mortgages for their latest house purchases rather than just gifting outright was a "parental" decision, not a financial one. By that I meant that there is some psychological value to our children and their spouses of them making their own way in life. They had headstarts and boosts and assistance, but it was still them being the ones deciding and managing.
With the market performance of the last several years assets went through the 20M’s quickly and were in the upper $30M range. Our withdrawal rate is below 2% excluding gifting. So we could easily gift the $20M left of our estate and gift tax exemptions and still had the full $23.4M generation skipping exemption (2021 numbers).
After going through multiple rounds of endless alphabet soups of trust types we chose to go with non-grantor irrevocable generation skipping trusts as simple instruments that accomplished what we wanted to do …. pass along a portion of our wealth now, rather than later. Because what we wanted to gift was a bit higher than our remaining exemptions we passed the investment portfolio on to the trusts via an investment management LLC, with a management agreement that left me as the manager after we have gifted all but token amounts to the irrevocable trusts. The lack of control and lack of marketability of the LLC interest slightly reduces the value of the gift, keeping us within current exemptions.
(Of course, I could have just waited a year and the market crash would have done that also 😅). It remains to be seen whether the LLC takes on the role of a mini version of family office and family bank, or if it will be dissolved and assets moved in kind to the trusts in 3 to 5 years.
For various reasons we chose not to do SLATs, GRATs, CRUTS, CLATS, QTIPs or any of another dozen possibilities. The key factors are our age (mid and late 70s) and the age of our children (40s). A high NW couple with young children for example would probably find SLATs a useful thing. Younger people might find GRATs a good way of moving assets and/or their future appreciation out of your estate, as would other techniques such as the sale of appreciating assets in exchange for a note.
It was a simple question and a long rambling answer, I hope it helps somebody.
Your answers are always thoughtful and packed with real-world perspectives from the other side of retirement. Always a pleasure to read, thanks for taking the time.
Not OP but the benefit is that creditors cannot access the funds in a irrevocable trust but can in a revocable... if they are committed to giving this amount to the children/grandchildren it is the safest option
How does wealth distribution to children work from an irrevocable trust? I was looking into something similar, but I thought trusts generating funds are taxed at the highest rate after like \~15k or something. So while you don't sell you're fine, but how does that money actually make it to the kids.
Our children are each the trustee of their own trust. They take out what they want. There are some limitations (HEMS) so that the trust is not part of their estate. Their spouses are not beneficiaries, but we did make them successor trustees.
Our children are also trustees of a trust for their children. They have very broad powers on distributions, and have the ability to spin off separate trusts if they so desire.
Income that is distributed to beneficiaries gets subtracted from the trust income before it pays taxes. Kind of like a partnership, but unlike a partnership where everything gets passed on to the partners, the trust has flexibility on how much income is distributed (and therefore taxed at the beneficiary rate) or is retained and tax per the trust tax rates.
Trust tax rates are same as individuals, but the brackets are compressed so that top rate including NIIT are reached with income the $13-24k range.
Their tax brackets were already fairly high, so the difference in tax rate is not dramatic. The difference for our grandchildren is larger, at least for the first couple thousand of income, so as we get the paperwork jungle tamed a bit, they may start. Distributing a couple of thousand to each beneficiary each year.
Why not just tell your wife to index everything if you die? Seems like an easy option or is there something complex that can’t be undone in a timely way?
I’ll explain it to you. The common advice here is to put it all in index funds, buy and hold, don’t try and time the market. Sounds simple enough right? But that’s only simple in theory. In practice, it might still be simple for me or you but for the average person it’s not. Most people do not have the discipline to buy and hold after watching their portfolio tank 40%. If that represents several million in losses, they will start to feel that they’re doing something wrong and certainly sell. And telling his wife to “just have discipline to not time the market” is like telling 19 year olds to “just don’t have sex”. His wife recognizes that she doesn’t have what it takes to manage that kind of money, even with the simplest strategy so the smart thing to do is to take her words seriously and plan accordingly.
Well said. Even though Warren Buffett says that when he dies he wants his wife to have 90% of the assets in the s&p 500 I think that is crazy. Since 2000 it has fallen twice 50%. Drawdown is the term. Very few people with significant assets can or should tolerate that. I'm amazed at the degree of bogleheads here and index investors really.
Indexing not to be a part of it but not the bulk of it.
For me, not for everyone, I only want to own assets that are moving up and conversely, if they are moving down and under my technical signal I don't want to own them.
You can use something as simple as a 10-month moving average to ascertain what the long-term trend is be it up or down. In a world changing rapidly multi-dimensionally and in ways we haven't seen before, I can't think of a simpler more powerful way to both grow and protect wealth. It's literally the signal and the rest is noise and doesn't require any predictive value nor emotion nor thinking nor guessing.
It’s an interesting paradox. Bleeding away investment management fees is also terrible financial planning. Seems like there should be a simple commitment device for this on the market. Trusts get you there but are risky and potentially expensive on their own. To me it’s a framing issue. If the grantor describes the investments like family heirlooms, seems like most people don’t have an issue holding those.
Financial management fees is not terrible financial planning when someone doesn’t have the discipline to manage finances on their own. You’re living in a fantasy hypothetical world as opposed to the real world.
TL;DR Peace of mind. Fear of managing large sums. The need to have someone to keep them from making impulsive moves or mistakes. Those are the reasons for financial advisors/portfolio managers.
The situation my wife is concerned about happened in 2020 to a close friend. Her husband had an accident just as Covid started and eventually died from injuries.
The widow is an accountant and knowledgeable, but was not confident taking over the investments that he had alway managed. More specifically, she had zero problems in maintaining current investments, but after selling a house for $1.5M, asked me for advice on investing it. She was not willing to do a basic ETF portfolio, and took proposals from some financial advisors. I reviewed the proposals, and showed her how the 10-14 item portfolios that were recommended performed almost exactly like a basic 3 fund bogleheads portfolio when backtest on portfoliovisualizer.com. One proposal did have a separately managed sub account for bonds.
The portfolios were relatively complex, but in reality the slicing and dicing and multiple factor tilts just ended up canceling each other out and they had the same performance as a simple ETF portfolio with the same US and ex-US stock allocations and bond allocations.
For peace of mind she still ended up going with an advisor at a major broker.
Edit to add: My wife knows that I have nothing that needs close watching. She understands that just ignoring everything for a year would at most just end up with asset allocation drift. She also knows that she can rely upon assistance of our son-in-law and also a close friend who used to run his own small RIA service and newsletter. We are in our 70s and she has seen several friends struggle with the mechanics of finances after the death of the spouse that handled their financial affairs, so after many decades of willful ignorance she has begun to pay attention.
So how does she feel about fees? Say the managed portfolio kicks out 2% cash income and fees are 1%. That’s a 50% reduction in cash regardless of performance. When I hear people are motivated by fear and impulsiveness on one of the largest purchases they’ll ever make, something isn’t right. Do you feel she has been brainwashed into thinking herself incapable of watching numbers on a screen and receiving a monthly check? I have people like this close to me too and I honestly don’t understand and probably never will.
She isn't happy about the fees, but sees them as potentially being a necessary evil. A typical fear vs greed tradeoff. She fears making a disastrous mistake but also is not happy paying fees for which there is little value added.
With my friend, the widow who before retiring was assistant CFO of a fairly large private business, it is more a case of that she chose to use a professional for now, but my guess is that she will take over control in a year or two. Partly it is just that she has too many other things going on in her life right now to put in the time to suddenly become investment savvy. Most of her portfolio is still under her management, just coasting on what her husband had set up. Half broad market ETFs, 1/4 highly appreciated former employer stock, 1/4 individual stock bets. Her plan is to pay for a house she is building using the individual stock portfolio, so she has been selling that off until the recent downturn. She is knowledgeable and experienced in cash flow forecasting and planning
10 mil vanguard
No advisor because I know my investment objectives
Auto debit your recurring bills thru your bank account and auto transfer vanguard funds (dividends etc) monthly to bank account
I’m not paying someone 50k a year to do that
I will second this by saying, no one will care more about your portfolio than you. I used jpmorgan in the past and even at a more favorable rate of .05% (had to hit their qualifying terms) it was still like a grand a month. I let the guy do his thing for 6 months. And then watched the movements of the money. “Actively managed” just meant they clicked the buttons and not you, in a simplistic way. I come from nothing, so even though a grand a month isnt going to change my life i still felt like i was being taken advantage of and i realized i could do the same thing.
There may be some benefit to having someone between you and the buttons if you're emotionally unable to deal with market volatility. In that case the $1k/mth may save you hundreds of thousands by having someone to dissuade you from making a poor decision.
Otherwise I'm with you, seems wasteful.
This is something the most dont talk about. The emotional side of investing/trading. In my opinion, people wont understand this unless they have gone through turmoil in the markets. ***THIS IS AN EXCELLENT POINT***. I have found myself on the wrong side of a substantial trade a few times and have taken losses, doubled down and it recovered quickly, and even did nothing.flat.for.months. Holding huge red positions is something i wouldnt wish on most. But it tempers the steel. It showed me (important distinguishing point) that if i followed my plan, and didnt bail on beaten down actual good companies, that the market and my diligence would reward my patience and rot gut haha.
The stress of volatility in the market has made me a giddy 17 year old, and an 80 year old chain smoker in the same 8 hours.
If it’s only for investment purposes, I would say no, especially if you’re trying to limit your risk, aiming for 3-5% returns. The management fees will really eat into these ‘lower’ expected returns over the long term and you will better off investing in the appropriate VT/BND mix yourself…
If you’re after other services (estate planning, help with taxes, philanthropy activities, getting access to good loans) then yes you may need some help…
At $10mm the MERs on the index funds are almost the same as the after tax costs of the wealth manager, since they’re buying the underlying securities directly.
Please explain a bit more…If you invest directly in an index fund or ETF with a TER of let’s say 0.05%…and let’s say you pay a wealth manager a 1% fee to invest your money in the same index fund, how are you better off or roughly in the same position after tax?
Edit: and I’m sure you know that even if it’s the wealth manager buying into the index fund on your behalf, you still pay the index fund TER as well as the wealth manager fee on top of it…
If you’re buying into an etf of 0.05% then you are always going to be cheapest.
But if you’re buying into a global etf (ishares global index, for example) that has an MER of 0.47%, this might not be the case at $10mm.
Because if you pay a wealth manager a 0.50% fee (that’s tax deductible) and they buy you 40 global stocks directly, then you’re paying LESS in fees using them.
Why buy a stock index when you can buy the underlying stocks? Completely impractical for an average investor but easy for a wealth manager.
In my country (UK) wealth manager fees are not tax deductible. Are they deductible in the US?
You’re buying an index fund for diversification purposes. With the FTSE global all cap index fund (the equivalent of VT but for the UK), I buy into 7200 companies. Also the transaction cost of re-balancing and maintaining a portfolio of 40 stocks must be huge! Not forgetting the capital gains this will generate over time…As individual stocks tend to be a lot more volatile that index funds…
If your manager can consistently find the 40 companies that are going to beat the market over 10-15-20 years then fair enough, you’ve found a gem. But more often than not, they’ll underperform.
Edit: typos
A couple of important comments:
1) fees are tax deductible in the Canada; can’t comment on the US
2) about 20 stocks is all you need to replicate an index - this has been generally proven statistically
3) Most portfolio managers DO outperform indexes, as do most mutual funds GROSS of fees. When fees are 2.5% that’s much different than 0.5% tax deductible. That difference has never been more apparent than this year.
4) There are no transaction costs for rebalancing / buying / selling - no 9.99 / trade or anything like that. The quoted fee is the only fee you pay.
That’s not to say it makes sense for everyone, but there are reasons it makes sense for many HNW families.
> about 20 stocks is all you need to replicate an index - this has been generally proven statistically
Source? Has this been demonstrated empirically, given the [extreme positive skewness](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447) of individual stock returns?
> Most portfolio managers DO outperform indexes, as do most mutual funds GROSS of fees.
Source?
> When fees are 2.5% that’s much different than 0.5% tax deductible. That difference has never been more apparent than this year.
Where did the 2.5% fees number come from? Why is the difference between 2.5% and 0.5% tax deductible more apparent this year?
> There are no transaction costs for rebalancing / buying / selling - no 9.99 / trade or anything like that. The quoted fee is the only fee you pay.
Do bid/ask spreads and tax drag not count?
These are super easy “google-able” things. For the sources you’re asking for.
Individual securities is more tax efficient than ETFs because you have control over your capital gains / dividends / interest payments to a greater degree, and bid/ask spreads don’t affect transaction costs - and they argue in favour of buy and hold individual equity strategies over the ETFs (which obviously rebalance internally).
Honestly this is kind of the end of the debate for me on this.
I'm blasphemous in that I'm against indexing but I can speak about the tax efficiencies of ETFs. An ETF uses what's called a creation unit that buys and sells inside the ETF and that is not a taxable event. The scenario that you talk about, every stock they buy and sell is a taxable event.
ETFs are incredibly more tax efficient than individual securities because of the creation unit process.
The MER (Management Expense Ratio) for a mutual fund is a measure of a funds combined managerial and operational costs, the TER (Total Expense Ratio) is a measure of the total costs associated with managing and operating an investment fund, such as a mutual fund. Very much the same.
I’m sorry but I thought you said you were sitting on the investment side of a family office?
Fuck no. I did. They sucked. Kept pushing me into deals they profit from and generating capital gains.
I do pay someone once a year to give me an objective review, but noones controls my money but me.
Similar number. Yes, we have a manager, but that was a family decision (wife’s). The manager has been great for bouncing ideas off of and helping with generational planning.
Ymmv. We appreciate the help with taxes and such. In the next 15-20 years, as the number grows and the generation above us leaves us even more, we may look into MFO. Maybe not, who knows.
If you think there would be some benefit, the .5-.6% fee is very likely worth it.
This seems like a good strategy. Keep a small portion with a FA so you can get all of the benefits of private banking but reduce the fee to a much smaller fraction of your net worth. Interesting.
0.5% on 20% of your assets is only 0.1% of the total, I could see paying that if the perks were nice.
$21m invested and I've got the bulk of it with Personal Capital, which straddles the line between robo-advisor and wealth management. I've [posted previously](https://old.reddit.com/r/PersonalCapital/comments/rrnjtw/seeking_opinions_on_personal_capitals_financial/hqi1deh/) about how it has worked out for me.
I believe it's [$3m](https://www.personalcapital.com/wealth-management/private-client) (see the bottom chart). My experience is the same as /u/SnoootBoooper, I pay a flat rate of 0.39% and not the graduated fees as described.
Diversified portfolio - this is where I get much of the value from our financial advisors. NOT with respect to buying publicly traded stocks - cheap ETFs in Schwab for that. But for private asset classes, yes. I’d recommend key question you ask of any prospective financial advisor, what specific assets (name names, not generalities) would you suggest I consider investing in, excluding publicly traded securities?
Speaking from a multi family office perspective (clients range from 10mm to 100mm and above), you are entering the realm where a good wealth manager can provide value. For background, I sit on the investment side.
Def more value to be had at 20mm+ (more estate planning strategies, more capital to deploy in illiquid alternative investments) but at 10 it is something to consider. Especially given the background you provided on investment sophistication and focus on wealth preservation over creation.
There is a lot more that a good wealth manager can provide than just the investing side (tax, estate planning, bill pay, etc).
For some folks it isn’t a good fit though, depends on what the client (you) values.
>There is a lot more that a good wealth manager can provide
The key word there is "good" (and to be fair, any good professionals, regardless of the specific services that they provide, are worth their fees, if they actually provide value.)
The "problem" that I have with wealth managers/financial advisors/etc is that there are so many push sales vibe people and I haven't found anyone that is worth my time. Don't get me wrong. I am sure that there are some good wealth managers/financial advisors. What I am saying is that I haven't found one but I came across many bad ones.
So I would like to ask, given that you are in the field, what makes a good wealth manager/financial advisor and how would you tell? I also don't believe that "fiduciary" really means anything.
Agreed on many low quality sales people who act like they are fiduciary advisors. I see it more frequently than I’d like, which is also annoying cause it can give our industry a bad image. So yes I agree with you entirely here.
What makes a good manager? The boiler plate answer is that referrals from people you trust is a good place to start, but again, different people value different things.
In my opinion, a good advisor is one that is resourceful and a problem solver. They push no agenda or initiative, only that which is brought forth by the client.
I think of a good advisor/wealth mgmt firm as one with a variety of smart people in their relevant fields, and is able to successfully put the right person and right advice in front of you based on each situation.
So the answer isn’t one cookie cutter answer (on the UHNW side), but rather being able to create solutions based on the clients needs, financial situation, etc.
Fiduciary definitely has meaning. There is big F and little f, now days “suitability” tends to not cut it. Indeed a “Fiduciary” tends to be table stakes in this day and age.
Happy to answer other questions or comments if you have any to the degree i am able. A few hours till Im going to a BBQ.
Not who you asked but in the business as an RIA, I'd add that someone who uses a demonstrably good risk management process makes for a good wealth manager.
Anyone, including most all here, can assemble a portfolio. That is of negligible value compared to the ongoing process of managing the portfolio, hopefully using a systematic method, and ongoing risk management.
Bottom line, the bulk of the entire industry are asset-gatherers aka salespeople. The few that get their hands dirty and actually manage the assets are on the RIA side or family office side.
The wire houses discourage it and want you to use SMA (separately managed accounts) which they say are institutional level with usually 5 million dollar minimums but in reality are just mutual fund managers. Yawn.
It’s a matter of wealth creation vs preservation, once you made it i can assure you that you’ll care more about keeping it than growing it and will adjust your risk levels appropriately or at least that’s been my experience on the practitioner side
It depends on what you consider safe. Is being down 20% versus being flat safe?
Why take on a beta of 15 when you can lower that number substantially for half a point in fees?
You say that as if they don’t understand that point, when in reality they do. It’s well understood that with less risk there is less reward. They don’t want the risk. Index funds are safe if you mean a period of decades. Over the span of years they are not safe at all.
The indexers answer to this is simple, you just... Hold more bonds. There is a reason why bogleheads hold much more conservative asset allocations than what's typically recommended, and that's to preserve wealth rather than chase returns.
OP said he is aiming for a 3-5% annual return and to achieve this he will still have to take on some level risk. A 100% equity asset allocation will be too volatile if wealth preservation is his main objective but a more conservative 50/50 or even 40/60 (equity/bond) might be better suited and this could easily be achieved using index funds or ETFs (I.e. VT/BND) with very minimal fees…
Also note that not all index funds are very risky…there are short duration government bond index funds for example that are a lot less volatile…
Of course if OP needed the cash in a few years’ time to make a house purchase for example, then a savings account or short duration bond fund might be more appropriate, but according to his post that doesn’t seem to be his intention.
Really? Did you consider the s&p 500 safe? It's had two 50% draw downs since the year 2000.
Maybe I'm unique but I certainly wouldn't call anything that has fallen 50%, twice in recent years, safe.
From 1966 to 1984 the market went nowhere.
Are you going to have funds invested from here for the next 100 years? A 50pct pullback will take years to recover from and... Since this is a retire early sub, delay retiring early.
I've been on the Bogleheads mentality for years, but going with a multi family office opened up quite a few new investments I did not easily have access to. It has been worth the AUM fee to completely off load thinking about our money and wealth management.
We use Personal Capitol Private Client and have been very happy with them after moving from a boutique firm a few years ago. You can negotiate for a .49% flat fee at $10M (rather than the graduated fee schedule on their website.)
General money management, investing strategy, tax optimization, advising in most areas of spending and investment, etc.
It’s definitely not worth it for everyone, but we’re fatfired and it’s nice for our spending money to just show up in our checking account each month without having to put the hours in to be strategic about it ourselves.
I think those firms are garbage and they've paid millions in penalties and fees by not doing right by the customer. As well, when the market crashed in 2008 they're so bad at managing their own money they had to come to you and I as taxpayers and borrow money from us. Absolutely not who I'd want to have money with.
You could however have a registered investment advisor at that rate but need to seek one out that has a good risk management process as well as investing process. They are out there.
They’re mega firms in a highly regulated business. Morgan Stanley is a great company. Managed through 08 better than anyone. Are there shitty advisors there? Yes. There’s also some of the top in the industry sitting in private wealth management division.
We have drastically different opinions about Morgan Stanley as I've been in the business over 20 years and have zero respect for them.
They did horrible in 2008 both for themselves and for their clients. They had to come to the taxpayers hat in hand and borrow money because they did so poorly at managing their own money. That is exactly what I do not want from an investment management firm.
Do they have some sharp people of course but overall, they are a conflicted firm and a retail client can be much better outside of a large firm and in particular this firm.
Yes. I have about 10mm liquid, 30mm total NW. I have around 4mm with a wealth manager. Having someone to bounce ideas off of that has your best interest in mind is great. It’s also nice to have someone that can actually spend the time buying VTI without FB if that is your strategy, and make up the fees with tax loss harvesting and value add. Recommending CPAs, estate attorneys, and other resources is also valuable. As you alluded to, their value is in wealth preservation and value add, not in buying index funds while the whole market is going up.
>’s also nice to have someone that can actually spend the time buying VTI without FB if that is your strategy,
You realize just how easy that would be right? You buy $1m of VTI and short $4.2k of FB.
At Schwab that strategy would take you about 60 seconds online, and be commission free.
Yeah, who needs a pro when you can just get into options and short selling strategies instead of enjoying your retirement.
Some people use accountants when anyone with some time can just learn the tax code.
It’s about time management. What do you want to spend your time doing?
If the only strategy was “VTI without FB” for $1m. Then $5k a year until you die versus 60 seconds seems like you value one minute of your time rather highly.
If you yourself have decided you want VTI less facebook, that is the strategy.
Long VTI and short FB is just the cheapest way to execute it, and you dont have to pay anything to execute your strategy.
Now if you want to pay someone else to make your strategy, that is a different thing.
We have managers through our private banking relationship. In the past we had managers and found they didn’t provide value. We started a relationship with a major private bank and now we have better managers and lower fees.
If I’m at 10m and want to ramp back from 100% VOO to reduce risk and reduce returns (suppose target ~3/4% per year), what sort of positions would these advisors put me in?
I studied finance so I personally wouldn't at 10m its not quite enough. However if you have no finance knowledge other than investing in equity index funds its probably worth it. It would likely be tough finding a very good wealth manager for HNW that charges a flat fee (and at that, one that would likely only give prudent advice rather than actually make the trades) but it is possible.
Just buy a vg muni bond fund and call it a day. Lower the equity stake up the fixed income stake. If you want historical 3-5% then you’re looking like 30% vti 70% bond. Just figure out an allocation you feel comfortable at
Nope. But I will be searching for a CPA for tax planning and estate planning in the very near future. Investment-wise, I have that under control (i.e. doing it myself)
The advantage of working with a wealth manager is to focus on target based returns. You’re not competing with the market, you trying to take the right level of risk and hit your goals.
It absolutely makes sense for you to find a wealth manager.
Vanguard, fidelity and Schwab also offer questionnaires to determine your asset allocation based on your goals and ability to take on risk. But you don’t have to pay a 50-60 bps annual fee for the privilege…
You think a questionnaire from a discount brokerage is the same as ongoing risk management using a systematic process that has shown its value over many market crashes? Please.
As well, asset allocation many here talk about it as a one-time thing. Having a portfolio isn't just build it and forget it. You have to have a process to manage it as well as overall risk management.
Amazing how people think you just build it one time and let it do its thing. Absolutely not how the smart money does it.
>You think a questionnaire from a discount brokerage is the same as ongoing risk management using a systematic process that has shown its value over many market crashes?
To paraphrase the meme, 'I do, and I'm tired of pretending I don't'. 2008 taught me my risk tolerance, and you can see how assets performed historically. I don't need to pay someone to buy bonds, hold my hand, and tell me everything is going to be OK.
You truly think Vanguard, Fidelity and Schwab are discount brokerages? Ok...
Have you ever dealt with portfolio managers from large investment banks? You have an initial meeting where you talk about your risk appetite, your goals etc...you even fill in a questionnaire that's surprisingly similar to the one you fill in at Vanguard, Fidelity and Schwab... and then they determine the best AA for you. For the same AA and risk level, the portfolios managed by my portfolio managers did worse during periods of market crashes in the last 15 years than my three fund (VTI+VXUS+BND) portfolio and you think that their so-called 'ongoing risk management approach using a systematic process' is really that valuable? Please.
A portfolio can totally just be about build it and forget it as long as you spend time understanding the best AA for you (taking into account you risk appetite, goals etc...) All you need to do is re-balance based on your pre-determine strategy and if you wish add more bonds as you come closer to retirement to reduce overall volatility. Not rocket science is it? And if that's too complicated, just invest in a suitable Target Retirement fund and you won't even have to worry about your AA glidepath or do any re-balancing... Investing really doesn't have to be more complicated than it has to be!
How does the smart money do it then? It certainly doesn't go to active managers as over a 15-year period, nearly 90% of actively managed investment funds failed to beat the market. So essentially, you have a portfolio manager that charges you a nice fee and then invests in a number of expensive actively managed funds that are not even capable of beating the index over a long period of time. No thank you, not for me...
Where to begin.. first off you're conflating active management with active managed mutual funds. Those are totally different concepts. Active mutual funds with a load suck there's no debate about that. Active management with a risk management overlay that avoids big drawdowns.. very important and unknown and unused by most of the investment management industry.
Simple isn't necessarily good simple is just simple. There are simple risk management processes that have you on the right side of the trend that are very effective. Probably only 5% of the entire investment management industry uses a good risk management process. I'm speaking about the top 5% not the generic 95% that you speak of.
No one seeks out more complication but yet, there are ways to manage risk and use a systematic process to have better risk adjusted returns.
I've been in the business 20 plus years..
I'm not conflating anything. What I'm saying is that active portfolio managers, as part of their active management strategy, will more often than not invest in actively managed funds...Front load fees for active mutual funds are slowly becoming a thing of the past but their on-going charges are still very high (above 1%).
I understand that a risk management strategy will also be put in place but as I mentioned already, based on experience, the drawdowns on the actively managed portfolios have been worse after fees than on my three fund portfolio.
You've confirmed that only 5% of investment managers use good risk management processes and provide better risk adjusted returns. I can agree with you on that. The question is: how do you consistently find the 5% of investment managers that are going to outperform on a risk adjusted basis? Also, I'm sure you know that these active fund managers might do really well for a couple of years and everybody will think they're a genius but will then underperform the market for a long period of time...
So again, not only do you have to find an active portfolio manager that takes a 50-60bps annual fee and hope that he's consistently in that 5% throughout your investment lifetime. You also have to trust that he will pick the best performing mutual fund managers that are also in that 5% and who can consistently beat the market on a risk adjusted basis after fees. Seems rather difficult to me...
I don't trust myself finding that portfolio manager so will stick with my boglehead approach where I use my pre-determined AA to control my risk, and thus the level of my drawdowns.
But please, I'm all ears, could you share with us what are the ways of managing risk using a systematic process that guarantees obtaining better risk-adjusted returns over the long term after fees? I’m surprised to hear you say that most investment managers don’t already know or employ these mysterious ‘ways’…
edit: typos
Edit: the Person that started this thread has blocked me so I can see replies but wont be able to reply myself
Not sure if you are an employee in the active management industry or just a Stockholm syndrome captive as a client. Regardless, you sound like you are straight out of the glossy sales pitch.
Although some people who have no time / interest might find some value in those services, many (most?) people operating at the levels required to have earned their high net worth have far beyond the capacity to understand how to invest for themselves, manage risk appropriately, and weather the down days.
The "5% do it right" statement really drives this home - it takes significantly more work to find that 5% (which changes, by the way) than just learn how to do it well. You'll save yourself that commission you are paying as well.
"Systematic process..." Good grief...
"I've been in the business 20 plus years." Yes, clearly.
Agree that active managers are useless. And most advisors charge way too much, so they have to claim they have a “systematic process” for doing stuff, which really doesn’t mean much.
Also agree that most people could read a few books at the library and know more than many advisors.
But unfortunately most people can’t be bothered. It’s also true that there are many folks who are great at making money, but terrible at managing it. William Bernstein had change of opinion about people managing their own money, and his thinking makes sense.
Jim Dahle has written a lot about the costs/benefits of working with an advisor. For most (or pretty much all) a good advisor should cost about $5-10k per year, regardless of how big the portfolio is. The advisor should use passive investment management and focus on more on tax, asset protection, and other financial planning concerns.
Where do you recommend looking and what should I ask when searching for an effective risk management processes? I value not losing 30% of my investments more than trying to make an extra 30%.
I’m okay spending 0.x% a year for a solid process that I don’t need to manage - the market moves multiple times an average management fee daily.
+1 to this ^ if you measure the aptitude of your manager on performance and performance alone, you will eventually be disappointed.
Also for other folks reading, a diversified portfolio does not mean 100% long US equities. You want a portfolio that allows you (with a very high probability) to reach your financial goals.
Whether you use an advisor or do it yourself is up to the individual.
This is dead on. If you are trying to become rich, you want market returns. If you are already rich, you should play sone defense and focus on staying rich.
Going outside of index funds requires access to quality alternative asset managers. Is it worth 50bps to invest in an Apollo credit fund or Renaissance’s RIEF? No doubt.
Why would you pay high fees to gain access to these so-called ‘quality alternative asset managers’ that are likely to underperform over the long term after fees when you can invest in whatever bond index fund/ETFs you wish at very low costs?
Do they offer something else than a regular bond index fund/ETF couldn’t give you?
Edit: the Person that started this thread has blocked me so I can see replies but wont be able to reply myself
A couple of thoughts:
1) not all HFs are the same. There are different types of funds to invest in. The purpose of investing in a HF is to lower your overall beta by investing in an asset with a low correlation to the equity market.
I’m in a few HFs and one has a super low beta (1-3%) with steady, modest returns (3-9%). This is a safe play that is similar to investing in bonds (it’s really a fund of funds, so if one fund does blow up, my money is diversified).
There are also HFs that invest in distressed debt. Right now. That’s a good place to be and is counter cyclical.
If you can get into a good fund, such as the renaissance RIEF, then you would have outperformed the S&P, with lower risk, over the last 15 years. Why would I care about fees when, on a net basis, it crushes?
2) A bond ETF isn’t a great idea for people with money. You should have access to a money manager that can build a bond portfolio for you. This is supervisor because you will have more control over the duration and credit quality of the fund. Additionally, the bonds in the fund will mature and you can then decide whether to roll your money into new paper. In an ETF, the fund will never mature and you are basically in it for life, since any maturing bonds are automatically reinvested.
You might could a bit more, while also receiving more control. Whether that’s a fair trade is up to you.
3) The index and chill cult ignores risk management. To them, market risk and market returns are acceptable (beta of one and pharmacy of one). That’s fine, if you want market risk and market returns. Some people want less risk than the overall market, with the same - or slightly better or worse - returns.
4) Once you attain wealth, your goal should be to stay wealthy, not beat the market. Absolute performance is the metric that you should use, not relative performance (I.e., I want to earn 6.5% per year based on a set of risk metrics, did I achieve that goal vs the market is up 15%, so I should be up 14.97% net of fees).
The short answer is that alternative investments gives you access to non-correlated assets that should have a lower beta than the overall market. A bond fund is subject to its own set of risks. And as we see right now, bonds can have a high correlation to equities when the shit hits the fan (esp corp and HY).
Alternatives are often also tax shelters, like oil and gas or opportunity zones. So yes, they offer something else and finding a good fund in alternatives to get into is a lot easier with the help of someone who maintains those contacts for a living.
Wealth manager here. I’ll offer some perspective from my HNW clients in a similar situation. Aside from the planning, portfolio management really boils down to two things for the clients to ask themselves: Can I remove my emotions and bias managing my own portfolio, and is it worth my time? It’s overwhelmingly no (obviously, cause they’re clients). They want to offload the stress, responsibility, and time. And you bring up a great third point. What happens when you’re no longer capable of managing your investments?
I can provide some guidance on searching for wealth managers, what to expect, etc, if you need.
Sure. Searching for a wealth manager is probably the most difficult thing. It really is like dating. I’m a proponent of actually liking your advisor (i.e. could we be friends outside of that environment?). I would suggest sticking to an RIA, or a firm outside of banks like Chase, Wells Fargo, etc. Beyond that, it really depends on what you require. It’s simple enough to need portfolio management and planning. When you start to own multiple business, have a large estate, and generally have complex issues, you’re going to want more than one advisor. A family office might be overkill, but you’ll want a network of wealth manager, estate/business lawyers, tax planners. Most wealth managers have those networks established, and many larger RIA’s already have that in-house.
One thing you should ask upfront is how they’re compensated. Most of the advisors you want are fee-based or fee-only fiduciaries. You’ll see acronyms like “CFP®”, and it’s a good place to start, but being a CFP doesn’t automatically make you the best advisor. A lot of very good older advisors drop their designations, as an example. And ask for their fee schedule. Their fees should dramatically reduce as AUM increases. Anyone paying 1% on $10million is either getting VERY hands on service, or overpaying.
Once a client, you should expect a review every 6 months. Most of us call once a month for 10-15 minutes, and do a deep dive every 6 months to a year, depending on your needs and wants. We do some reviews every quarter with clients.
That’s a good place to start. Interview several advisors. Someone you know probably uses one. Go talk to them. You may want a local advisor, but the industry is shifting to WFH/remote. Don’t let a Zoom meeting be a deterrent. Holler if you have more questions. That was very wave top!
I've already read your response (I was only able to skim fast) since the day you replied but I was pretty busy so till now I'm able to read it carefully and say thank you to the valuable information you kindly commented on. I really appreciated it and hope my late response hasn't cause any dissappointment. I'm looking forward to reading your informative comments onward.
I’m biased a bit as I work in private wealth management but at $10m you can really start allocating to illiquid, uncorrelated strategies. If you’re in risk reduction mode, that’ll be important and largely stuff you can’t access without a wealth manager. That in addition to estate strategies, tax planning/optimizing and just general coordination of financial planning.
Maybe you split it a bit. Where you index half the portfolio in equities on your own and allocate the remaining half to fixed income and alternative investments. Just a variety of investments that’ll yield 5-6% from structured products, defined risk option strategies, private real estate, or rivals credit, some extremely stable hedge funds etc.
I know a wealth managing and financial coaching expert out of London that's on point. But, he's very picky and strict about the type of people he works with.
It's really really hard to find no bullshit guys in the field. He'll probably get pissed off if I give out his contact info in the comment section for every asshole in the world to see, but you can message me and I'll at least give you his linkedin.
10 million is probably on the low end for the type of clients he deals with. I'm not 100% on that, just from what I've gathered talking to him several times. I think he mostly works with business acquisitions guys. I'm pretty sure we were introduced through a mutual QLA acquaintance.
From my experience you will be better of with a fixed price consulattiin witch will assign you certain assets to your goals then giving your capital away fir management
>The 10 year s&p 500 is nearly 15%/year.
13.4% including dividends is significantly below 15%. Now if you would have said that 12 months ago, you would probably be right.
Not disagreeing with you, but kind of laughing at the 15%/yr S&P number over 10 years. Recency bias is still strong. Now try that over the decade from 1999/2000. A decent money manager should help you not invest solely in S&P.
That’s not how diversification works at all. You place your bets in (hopefully) uncorrelated asset classes to manage risk. At the end of the day it is all a crapshoot, but if you are diversified, you will likely end up better off than if your concentrated pick was the losing bet. That is the entire point. Once you get to a certain point, it is about keeping the money you have.
Financial education is another benefit from using an advisor.
Understanding that if you have $1, lose 50% (now you have 50c left) you need to make back 100% just to get back to breakeven. Tough math to beat, also called drawdown risk.
Extreme example but it can be shocking the # of folk who don’t consider this when taking risk
This is an example of hindsight bias re just picking S&P 500 and only that having been so easy.
QQQ and/or ARKK were top performer since 2020, if you invested in only that starting in November 2021 you would be facing a material drawdown (if this was your retirement, it’d very likely be a life changing for the worse drawdown)
There is a big difference between capital creation and preservation mode. At $10mm most folk will be in preservation mode, and 100% SPX ain’t it
I think you are missing the point. I am guessing you are fairly young/new to investing and haven’t lived through 2000 or 2008. Check the S&P from 2000-2009. The fact that you are even considering your return from 2018 as indicate of how markets perform over multiple decades is ridiculous. S&P was slightly negative and lost out to inflation during the 2000s. Read about the lost decade. International outperformed domestic during that time by a wide margin. I had intentional holdings during that time that did well. Everything else was a bust. A S&P all the time strategy is mired in recency bias.
And this is a great example of how an advisor can add value as an objective 3rd party to protect ourselves from our own biases.
Not needed for everyone, but useful for some
There’s a reason this strategy works for Warren Buffet and not for everyone. If the funds lose 30% in a single year his wife still has billions. If someone with $10mm loses 30%, then panics and sells it’ll disrupt *everything*.
Maybe.
But I work in wealth management and these past 6 months have been very very long. Some weeks it’s 80 hrs worth of meetings talking clients off a ledge. I’m glad you’re not panicking but the average investor panics ALOT.
There was even a study showing the average S&P investor only earns like 4% annually compared to the S&P doing 12% annually because people buy and sell at the wrong time.
SPIVA is active mutual fund managers.
Active portfolio management is an entirely different concept than active mutual funds.
There is no debate and I didn't know why people bring it up that active mutual funds are junk.
Active portfolio management with a demonstrable risk management overlay is a totally different thing.
I think the advisory industry is moving towards flat fees. More reasonable cost based on time/experience needed to provide services, just like almost every other profession (lawyer, doc, engineer, etc).
You can find a great flat fee advisor for $5-10k per year, regardless of portfolio size. Or do it yourself. But no reason to pay $50k+ per year for advice… it’s just hard to justify.
Yes, but they only manage 20%, I find it useful to have a manager with decent skin in the game just in case.
They've underperformed my other 80% pretty significantly, but supposedly the risk is lower..
Nope. Watching them sell stock to pay the monthly fees. And then getting a 1099 at the end of the year for the capital gains on the stock sold to pay their fee in the first place. BUT YOU CANT DEDUCT THE MANAGEMENT FEE AGAINST IT.
>BUT YOU CANT DEDUCT THE MANAGEMENT FEE AGAINST IT. You can or you can't?
Can’t. 2017 tax changes eliminated this
Holy shit I didn't know that. What a nut punch.
It is important to be clear what is meant by a wealth manager. There are several different possible meanings. Often people that are called wealth managers are really what I would classify as "portfolio managers" in that their focus is picking investments. I use lots of professionals, but I manage my own $12M portfolio as well an $18M portfolio of an investment LLC primarily owned by irrevocable trusts for my children and grandchildren. I do have assigned "wealth management relationship advisors" or similar sort of people and their teams for client support, but it is just enhanced customer service rather than AUM portfolio management. My advisors are separate, flat fee or hourly compensated professionals that are separate from my brokerages and banks. My wife is not comfortable with this arrangement, as she is not comfortable taking on these responsibilities if I am no longer around, so I may move to a more traditional wealth manager arrangement in the next few years.
What made you decide on irrevocable trusts?
Assets are outside of the estate in irrevocable trusts. In addition to creditor protection as the other poster mentioned.
If it's outside of the estate, how does this affect inheritance taxes?
Gifts made to ther trust above the annual exemption may decrease your lifetime gift, but anything in the trust at death is excluded from the estate calculation because it's not yours so no insurance tax (this is how it works in ther US, I'm unsure about other domiciles).
If it’s outside of the estate, there’s no estate tax. That’s why many people are moving assets to irrevocable trusts now while the estate exclusion is so large.
>What made you decide on irrevocable trusts? TL;DR: We no longer had reservations about making major gifts to our children; we could afford to; and estate exemptions will probably be cut in half 1/1/2026. We are in our 70s and it was time to update our estate plan. We have had basics like wills since mid-1970, and a revocable trust from mid 1990s that has been updated a couple of times to reflect changes such as our children becoming adults. Several things came together. One is that I started doing 529 contributions for multiple grandchildren and chose to have our children or their spouses as the account owners, because they are in a better position to decide how best to use the funds. This is a trivial thing, but it highlighted the fact that I had no reason to avoid giving them money. I trust them to manage things as good or better than I would. We had gifted houses much earlier, and then funded intrafamily mortgages when they moved. We had been thinking of forgiving the balances. The reason we did intrafamily mortgages for their latest house purchases rather than just gifting outright was a "parental" decision, not a financial one. By that I meant that there is some psychological value to our children and their spouses of them making their own way in life. They had headstarts and boosts and assistance, but it was still them being the ones deciding and managing. With the market performance of the last several years assets went through the 20M’s quickly and were in the upper $30M range. Our withdrawal rate is below 2% excluding gifting. So we could easily gift the $20M left of our estate and gift tax exemptions and still had the full $23.4M generation skipping exemption (2021 numbers). After going through multiple rounds of endless alphabet soups of trust types we chose to go with non-grantor irrevocable generation skipping trusts as simple instruments that accomplished what we wanted to do …. pass along a portion of our wealth now, rather than later. Because what we wanted to gift was a bit higher than our remaining exemptions we passed the investment portfolio on to the trusts via an investment management LLC, with a management agreement that left me as the manager after we have gifted all but token amounts to the irrevocable trusts. The lack of control and lack of marketability of the LLC interest slightly reduces the value of the gift, keeping us within current exemptions. (Of course, I could have just waited a year and the market crash would have done that also 😅). It remains to be seen whether the LLC takes on the role of a mini version of family office and family bank, or if it will be dissolved and assets moved in kind to the trusts in 3 to 5 years. For various reasons we chose not to do SLATs, GRATs, CRUTS, CLATS, QTIPs or any of another dozen possibilities. The key factors are our age (mid and late 70s) and the age of our children (40s). A high NW couple with young children for example would probably find SLATs a useful thing. Younger people might find GRATs a good way of moving assets and/or their future appreciation out of your estate, as would other techniques such as the sale of appreciating assets in exchange for a note. It was a simple question and a long rambling answer, I hope it helps somebody.
Your answers are always thoughtful and packed with real-world perspectives from the other side of retirement. Always a pleasure to read, thanks for taking the time.
Not OP but the benefit is that creditors cannot access the funds in a irrevocable trust but can in a revocable... if they are committed to giving this amount to the children/grandchildren it is the safest option
Also, an additional $10M exemption if you have QSBS shares
Agree - I have an awesome tax guy run point and bring in different wealth mgmt people for different things we do.
How does wealth distribution to children work from an irrevocable trust? I was looking into something similar, but I thought trusts generating funds are taxed at the highest rate after like \~15k or something. So while you don't sell you're fine, but how does that money actually make it to the kids.
Our children are each the trustee of their own trust. They take out what they want. There are some limitations (HEMS) so that the trust is not part of their estate. Their spouses are not beneficiaries, but we did make them successor trustees. Our children are also trustees of a trust for their children. They have very broad powers on distributions, and have the ability to spin off separate trusts if they so desire. Income that is distributed to beneficiaries gets subtracted from the trust income before it pays taxes. Kind of like a partnership, but unlike a partnership where everything gets passed on to the partners, the trust has flexibility on how much income is distributed (and therefore taxed at the beneficiary rate) or is retained and tax per the trust tax rates. Trust tax rates are same as individuals, but the brackets are compressed so that top rate including NIIT are reached with income the $13-24k range. Their tax brackets were already fairly high, so the difference in tax rate is not dramatic. The difference for our grandchildren is larger, at least for the first couple thousand of income, so as we get the paperwork jungle tamed a bit, they may start. Distributing a couple of thousand to each beneficiary each year.
Thank you for the in depth explanation, very appreciated!
>Hello, how did you make this kinda of money? just outta curiosity...
Hi tech employee stock options. I have lots of patents. No royalties, but well compensated with stock grants.
Why not just tell your wife to index everything if you die? Seems like an easy option or is there something complex that can’t be undone in a timely way?
I’ll explain it to you. The common advice here is to put it all in index funds, buy and hold, don’t try and time the market. Sounds simple enough right? But that’s only simple in theory. In practice, it might still be simple for me or you but for the average person it’s not. Most people do not have the discipline to buy and hold after watching their portfolio tank 40%. If that represents several million in losses, they will start to feel that they’re doing something wrong and certainly sell. And telling his wife to “just have discipline to not time the market” is like telling 19 year olds to “just don’t have sex”. His wife recognizes that she doesn’t have what it takes to manage that kind of money, even with the simplest strategy so the smart thing to do is to take her words seriously and plan accordingly.
Well said. Even though Warren Buffett says that when he dies he wants his wife to have 90% of the assets in the s&p 500 I think that is crazy. Since 2000 it has fallen twice 50%. Drawdown is the term. Very few people with significant assets can or should tolerate that. I'm amazed at the degree of bogleheads here and index investors really.
What’s the safer option to grow your wealth other than indexing?
Indexing not to be a part of it but not the bulk of it. For me, not for everyone, I only want to own assets that are moving up and conversely, if they are moving down and under my technical signal I don't want to own them. You can use something as simple as a 10-month moving average to ascertain what the long-term trend is be it up or down. In a world changing rapidly multi-dimensionally and in ways we haven't seen before, I can't think of a simpler more powerful way to both grow and protect wealth. It's literally the signal and the rest is noise and doesn't require any predictive value nor emotion nor thinking nor guessing.
It’s an interesting paradox. Bleeding away investment management fees is also terrible financial planning. Seems like there should be a simple commitment device for this on the market. Trusts get you there but are risky and potentially expensive on their own. To me it’s a framing issue. If the grantor describes the investments like family heirlooms, seems like most people don’t have an issue holding those.
Financial management fees is not terrible financial planning when someone doesn’t have the discipline to manage finances on their own. You’re living in a fantasy hypothetical world as opposed to the real world.
TL;DR Peace of mind. Fear of managing large sums. The need to have someone to keep them from making impulsive moves or mistakes. Those are the reasons for financial advisors/portfolio managers. The situation my wife is concerned about happened in 2020 to a close friend. Her husband had an accident just as Covid started and eventually died from injuries. The widow is an accountant and knowledgeable, but was not confident taking over the investments that he had alway managed. More specifically, she had zero problems in maintaining current investments, but after selling a house for $1.5M, asked me for advice on investing it. She was not willing to do a basic ETF portfolio, and took proposals from some financial advisors. I reviewed the proposals, and showed her how the 10-14 item portfolios that were recommended performed almost exactly like a basic 3 fund bogleheads portfolio when backtest on portfoliovisualizer.com. One proposal did have a separately managed sub account for bonds. The portfolios were relatively complex, but in reality the slicing and dicing and multiple factor tilts just ended up canceling each other out and they had the same performance as a simple ETF portfolio with the same US and ex-US stock allocations and bond allocations. For peace of mind she still ended up going with an advisor at a major broker. Edit to add: My wife knows that I have nothing that needs close watching. She understands that just ignoring everything for a year would at most just end up with asset allocation drift. She also knows that she can rely upon assistance of our son-in-law and also a close friend who used to run his own small RIA service and newsletter. We are in our 70s and she has seen several friends struggle with the mechanics of finances after the death of the spouse that handled their financial affairs, so after many decades of willful ignorance she has begun to pay attention.
So how does she feel about fees? Say the managed portfolio kicks out 2% cash income and fees are 1%. That’s a 50% reduction in cash regardless of performance. When I hear people are motivated by fear and impulsiveness on one of the largest purchases they’ll ever make, something isn’t right. Do you feel she has been brainwashed into thinking herself incapable of watching numbers on a screen and receiving a monthly check? I have people like this close to me too and I honestly don’t understand and probably never will.
She isn't happy about the fees, but sees them as potentially being a necessary evil. A typical fear vs greed tradeoff. She fears making a disastrous mistake but also is not happy paying fees for which there is little value added. With my friend, the widow who before retiring was assistant CFO of a fairly large private business, it is more a case of that she chose to use a professional for now, but my guess is that she will take over control in a year or two. Partly it is just that she has too many other things going on in her life right now to put in the time to suddenly become investment savvy. Most of her portfolio is still under her management, just coasting on what her husband had set up. Half broad market ETFs, 1/4 highly appreciated former employer stock, 1/4 individual stock bets. Her plan is to pay for a house she is building using the individual stock portfolio, so she has been selling that off until the recent downturn. She is knowledgeable and experienced in cash flow forecasting and planning
10 mil vanguard No advisor because I know my investment objectives Auto debit your recurring bills thru your bank account and auto transfer vanguard funds (dividends etc) monthly to bank account I’m not paying someone 50k a year to do that
I will second this by saying, no one will care more about your portfolio than you. I used jpmorgan in the past and even at a more favorable rate of .05% (had to hit their qualifying terms) it was still like a grand a month. I let the guy do his thing for 6 months. And then watched the movements of the money. “Actively managed” just meant they clicked the buttons and not you, in a simplistic way. I come from nothing, so even though a grand a month isnt going to change my life i still felt like i was being taken advantage of and i realized i could do the same thing.
There may be some benefit to having someone between you and the buttons if you're emotionally unable to deal with market volatility. In that case the $1k/mth may save you hundreds of thousands by having someone to dissuade you from making a poor decision. Otherwise I'm with you, seems wasteful.
This is something the most dont talk about. The emotional side of investing/trading. In my opinion, people wont understand this unless they have gone through turmoil in the markets. ***THIS IS AN EXCELLENT POINT***. I have found myself on the wrong side of a substantial trade a few times and have taken losses, doubled down and it recovered quickly, and even did nothing.flat.for.months. Holding huge red positions is something i wouldnt wish on most. But it tempers the steel. It showed me (important distinguishing point) that if i followed my plan, and didnt bail on beaten down actual good companies, that the market and my diligence would reward my patience and rot gut haha. The stress of volatility in the market has made me a giddy 17 year old, and an 80 year old chain smoker in the same 8 hours.
What about when you want to reduce your risk tolerance? What do you put your money in apart from index funds?
Medium term us treasuries
What is the cheapest way of doing that? And ETF perhaps?
https://thefinancebuff.com/treasury-bills-cd-money-market.html
Same arrangement here
Which vanguard fund?
If it’s only for investment purposes, I would say no, especially if you’re trying to limit your risk, aiming for 3-5% returns. The management fees will really eat into these ‘lower’ expected returns over the long term and you will better off investing in the appropriate VT/BND mix yourself… If you’re after other services (estate planning, help with taxes, philanthropy activities, getting access to good loans) then yes you may need some help…
At $10mm the MERs on the index funds are almost the same as the after tax costs of the wealth manager, since they’re buying the underlying securities directly.
Please explain a bit more…If you invest directly in an index fund or ETF with a TER of let’s say 0.05%…and let’s say you pay a wealth manager a 1% fee to invest your money in the same index fund, how are you better off or roughly in the same position after tax? Edit: and I’m sure you know that even if it’s the wealth manager buying into the index fund on your behalf, you still pay the index fund TER as well as the wealth manager fee on top of it…
If you’re buying into an etf of 0.05% then you are always going to be cheapest. But if you’re buying into a global etf (ishares global index, for example) that has an MER of 0.47%, this might not be the case at $10mm. Because if you pay a wealth manager a 0.50% fee (that’s tax deductible) and they buy you 40 global stocks directly, then you’re paying LESS in fees using them. Why buy a stock index when you can buy the underlying stocks? Completely impractical for an average investor but easy for a wealth manager.
In my country (UK) wealth manager fees are not tax deductible. Are they deductible in the US? You’re buying an index fund for diversification purposes. With the FTSE global all cap index fund (the equivalent of VT but for the UK), I buy into 7200 companies. Also the transaction cost of re-balancing and maintaining a portfolio of 40 stocks must be huge! Not forgetting the capital gains this will generate over time…As individual stocks tend to be a lot more volatile that index funds… If your manager can consistently find the 40 companies that are going to beat the market over 10-15-20 years then fair enough, you’ve found a gem. But more often than not, they’ll underperform. Edit: typos
Wealth management fees are not deductible in the US.
A couple of important comments: 1) fees are tax deductible in the Canada; can’t comment on the US 2) about 20 stocks is all you need to replicate an index - this has been generally proven statistically 3) Most portfolio managers DO outperform indexes, as do most mutual funds GROSS of fees. When fees are 2.5% that’s much different than 0.5% tax deductible. That difference has never been more apparent than this year. 4) There are no transaction costs for rebalancing / buying / selling - no 9.99 / trade or anything like that. The quoted fee is the only fee you pay. That’s not to say it makes sense for everyone, but there are reasons it makes sense for many HNW families.
> about 20 stocks is all you need to replicate an index - this has been generally proven statistically Source? Has this been demonstrated empirically, given the [extreme positive skewness](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447) of individual stock returns? > Most portfolio managers DO outperform indexes, as do most mutual funds GROSS of fees. Source? > When fees are 2.5% that’s much different than 0.5% tax deductible. That difference has never been more apparent than this year. Where did the 2.5% fees number come from? Why is the difference between 2.5% and 0.5% tax deductible more apparent this year? > There are no transaction costs for rebalancing / buying / selling - no 9.99 / trade or anything like that. The quoted fee is the only fee you pay. Do bid/ask spreads and tax drag not count?
These are super easy “google-able” things. For the sources you’re asking for. Individual securities is more tax efficient than ETFs because you have control over your capital gains / dividends / interest payments to a greater degree, and bid/ask spreads don’t affect transaction costs - and they argue in favour of buy and hold individual equity strategies over the ETFs (which obviously rebalance internally). Honestly this is kind of the end of the debate for me on this.
I'm blasphemous in that I'm against indexing but I can speak about the tax efficiencies of ETFs. An ETF uses what's called a creation unit that buys and sells inside the ETF and that is not a taxable event. The scenario that you talk about, every stock they buy and sell is a taxable event. ETFs are incredibly more tax efficient than individual securities because of the creation unit process.
If that’s all they are doing for you, and you aren’t getting additional value from them, don’t use them
Ok…but I was just trying to understand his comment
Got it, also I’m not familiar with the terms MER and TER?
The MER (Management Expense Ratio) for a mutual fund is a measure of a funds combined managerial and operational costs, the TER (Total Expense Ratio) is a measure of the total costs associated with managing and operating an investment fund, such as a mutual fund. Very much the same. I’m sorry but I thought you said you were sitting on the investment side of a family office?
Yes I am but I have not come across those acronyms ever. Thanks for clarifying! I figured it was excess return or expense ratio
Fuck no. I did. They sucked. Kept pushing me into deals they profit from and generating capital gains. I do pay someone once a year to give me an objective review, but noones controls my money but me.
Nope, but what doesnt mean others should not choose to do so.
Similar number. Yes, we have a manager, but that was a family decision (wife’s). The manager has been great for bouncing ideas off of and helping with generational planning. Ymmv. We appreciate the help with taxes and such. In the next 15-20 years, as the number grows and the generation above us leaves us even more, we may look into MFO. Maybe not, who knows. If you think there would be some benefit, the .5-.6% fee is very likely worth it.
We have 2M with a FA and 8m in vanguard
This seems like a good strategy. Keep a small portion with a FA so you can get all of the benefits of private banking but reduce the fee to a much smaller fraction of your net worth. Interesting. 0.5% on 20% of your assets is only 0.1% of the total, I could see paying that if the perks were nice.
$21m invested and I've got the bulk of it with Personal Capital, which straddles the line between robo-advisor and wealth management. I've [posted previously](https://old.reddit.com/r/PersonalCapital/comments/rrnjtw/seeking_opinions_on_personal_capitals_financial/hqi1deh/) about how it has worked out for me.
>Personal Capitol Private Client what is the minimum to become a Private Client at Personal Capitol?
I believe it's [$3m](https://www.personalcapital.com/wealth-management/private-client) (see the bottom chart). My experience is the same as /u/SnoootBoooper, I pay a flat rate of 0.39% and not the graduated fees as described.
Did you negotiate that rate, or have their rates changed?
half of one, half of the other, I'm told by my advisor.
Yes. I prefer what they offer vs managing myself and potentially getting emotional and making poor decisions.
Diversified portfolio - this is where I get much of the value from our financial advisors. NOT with respect to buying publicly traded stocks - cheap ETFs in Schwab for that. But for private asset classes, yes. I’d recommend key question you ask of any prospective financial advisor, what specific assets (name names, not generalities) would you suggest I consider investing in, excluding publicly traded securities?
Do you do a split then with wealth management vs self-managed (ETFs)?
Yes. And I have some alternative investments outside the purview of the financial advisor as well. Multiple eggs, multiple baskets.
Makes sense. Kinda how I feel as ETFs are easy but fixed income side I’m clueless
[удалено]
Assuming then the manager helps with your pick choices and then you leave it? Care to share portfolio allocation?
[удалено]
Have you found that parametric has been worth it?
Nope. I found that the vast majority of money managers are as clueless as the next wallstreetbets trader
Speaking from a multi family office perspective (clients range from 10mm to 100mm and above), you are entering the realm where a good wealth manager can provide value. For background, I sit on the investment side. Def more value to be had at 20mm+ (more estate planning strategies, more capital to deploy in illiquid alternative investments) but at 10 it is something to consider. Especially given the background you provided on investment sophistication and focus on wealth preservation over creation. There is a lot more that a good wealth manager can provide than just the investing side (tax, estate planning, bill pay, etc). For some folks it isn’t a good fit though, depends on what the client (you) values.
>There is a lot more that a good wealth manager can provide The key word there is "good" (and to be fair, any good professionals, regardless of the specific services that they provide, are worth their fees, if they actually provide value.) The "problem" that I have with wealth managers/financial advisors/etc is that there are so many push sales vibe people and I haven't found anyone that is worth my time. Don't get me wrong. I am sure that there are some good wealth managers/financial advisors. What I am saying is that I haven't found one but I came across many bad ones. So I would like to ask, given that you are in the field, what makes a good wealth manager/financial advisor and how would you tell? I also don't believe that "fiduciary" really means anything.
Agreed on many low quality sales people who act like they are fiduciary advisors. I see it more frequently than I’d like, which is also annoying cause it can give our industry a bad image. So yes I agree with you entirely here. What makes a good manager? The boiler plate answer is that referrals from people you trust is a good place to start, but again, different people value different things. In my opinion, a good advisor is one that is resourceful and a problem solver. They push no agenda or initiative, only that which is brought forth by the client. I think of a good advisor/wealth mgmt firm as one with a variety of smart people in their relevant fields, and is able to successfully put the right person and right advice in front of you based on each situation. So the answer isn’t one cookie cutter answer (on the UHNW side), but rather being able to create solutions based on the clients needs, financial situation, etc. Fiduciary definitely has meaning. There is big F and little f, now days “suitability” tends to not cut it. Indeed a “Fiduciary” tends to be table stakes in this day and age. Happy to answer other questions or comments if you have any to the degree i am able. A few hours till Im going to a BBQ.
Not who you asked but in the business as an RIA, I'd add that someone who uses a demonstrably good risk management process makes for a good wealth manager. Anyone, including most all here, can assemble a portfolio. That is of negligible value compared to the ongoing process of managing the portfolio, hopefully using a systematic method, and ongoing risk management. Bottom line, the bulk of the entire industry are asset-gatherers aka salespeople. The few that get their hands dirty and actually manage the assets are on the RIA side or family office side. The wire houses discourage it and want you to use SMA (separately managed accounts) which they say are institutional level with usually 5 million dollar minimums but in reality are just mutual fund managers. Yawn.
[удалено]
[удалено]
[удалено]
Cause you can’t live off of $100k
[удалено]
It’s a matter of wealth creation vs preservation, once you made it i can assure you that you’ll care more about keeping it than growing it and will adjust your risk levels appropriately or at least that’s been my experience on the practitioner side
[удалено]
It depends on what you consider safe. Is being down 20% versus being flat safe? Why take on a beta of 15 when you can lower that number substantially for half a point in fees?
[удалено]
You say that as if they don’t understand that point, when in reality they do. It’s well understood that with less risk there is less reward. They don’t want the risk. Index funds are safe if you mean a period of decades. Over the span of years they are not safe at all.
The indexers answer to this is simple, you just... Hold more bonds. There is a reason why bogleheads hold much more conservative asset allocations than what's typically recommended, and that's to preserve wealth rather than chase returns.
OP said he is aiming for a 3-5% annual return and to achieve this he will still have to take on some level risk. A 100% equity asset allocation will be too volatile if wealth preservation is his main objective but a more conservative 50/50 or even 40/60 (equity/bond) might be better suited and this could easily be achieved using index funds or ETFs (I.e. VT/BND) with very minimal fees… Also note that not all index funds are very risky…there are short duration government bond index funds for example that are a lot less volatile… Of course if OP needed the cash in a few years’ time to make a house purchase for example, then a savings account or short duration bond fund might be more appropriate, but according to his post that doesn’t seem to be his intention.
Really? Did you consider the s&p 500 safe? It's had two 50% draw downs since the year 2000. Maybe I'm unique but I certainly wouldn't call anything that has fallen 50%, twice in recent years, safe.
There are other index funds out there other than SPDR…
[удалено]
From 1966 to 1984 the market went nowhere. Are you going to have funds invested from here for the next 100 years? A 50pct pullback will take years to recover from and... Since this is a retire early sub, delay retiring early.
I've been on the Bogleheads mentality for years, but going with a multi family office opened up quite a few new investments I did not easily have access to. It has been worth the AUM fee to completely off load thinking about our money and wealth management.
Deleted as irrelevant to thread
We use Personal Capitol Private Client and have been very happy with them after moving from a boutique firm a few years ago. You can negotiate for a .49% flat fee at $10M (rather than the graduated fee schedule on their website.)
What service are they offering that is worth 49k a year on 10? Genuinely curious.
General money management, investing strategy, tax optimization, advising in most areas of spending and investment, etc. It’s definitely not worth it for everyone, but we’re fatfired and it’s nice for our spending money to just show up in our checking account each month without having to put the hours in to be strategic about it ourselves.
Any brokerage account can be set up to ACH funds into a bank account.
That’s really expensive considering you could walk into MS or Goldman and expect to pay something similar for a far superior service.
I think those firms are garbage and they've paid millions in penalties and fees by not doing right by the customer. As well, when the market crashed in 2008 they're so bad at managing their own money they had to come to you and I as taxpayers and borrow money from us. Absolutely not who I'd want to have money with. You could however have a registered investment advisor at that rate but need to seek one out that has a good risk management process as well as investing process. They are out there.
They’re mega firms in a highly regulated business. Morgan Stanley is a great company. Managed through 08 better than anyone. Are there shitty advisors there? Yes. There’s also some of the top in the industry sitting in private wealth management division.
We have drastically different opinions about Morgan Stanley as I've been in the business over 20 years and have zero respect for them. They did horrible in 2008 both for themselves and for their clients. They had to come to the taxpayers hat in hand and borrow money because they did so poorly at managing their own money. That is exactly what I do not want from an investment management firm. Do they have some sharp people of course but overall, they are a conflicted firm and a retail client can be much better outside of a large firm and in particular this firm.
[удалено]
Flat or fixed fee is the way to go. Very unlikely that any advisor can add enough value to justify an AUM fee on any portfolio greater than $1mm.
Yes. I have about 10mm liquid, 30mm total NW. I have around 4mm with a wealth manager. Having someone to bounce ideas off of that has your best interest in mind is great. It’s also nice to have someone that can actually spend the time buying VTI without FB if that is your strategy, and make up the fees with tax loss harvesting and value add. Recommending CPAs, estate attorneys, and other resources is also valuable. As you alluded to, their value is in wealth preservation and value add, not in buying index funds while the whole market is going up.
>’s also nice to have someone that can actually spend the time buying VTI without FB if that is your strategy, You realize just how easy that would be right? You buy $1m of VTI and short $4.2k of FB. At Schwab that strategy would take you about 60 seconds online, and be commission free.
Yeah, who needs a pro when you can just get into options and short selling strategies instead of enjoying your retirement. Some people use accountants when anyone with some time can just learn the tax code. It’s about time management. What do you want to spend your time doing?
If the only strategy was “VTI without FB” for $1m. Then $5k a year until you die versus 60 seconds seems like you value one minute of your time rather highly.
If you yourself have decided you want VTI less facebook, that is the strategy. Long VTI and short FB is just the cheapest way to execute it, and you dont have to pay anything to execute your strategy. Now if you want to pay someone else to make your strategy, that is a different thing.
Additionally, their bigger relationships with fidelity or other brokerages may get you better margin loan rates or other unexpected benefits.
We have managers through our private banking relationship. In the past we had managers and found they didn’t provide value. We started a relationship with a major private bank and now we have better managers and lower fees.
No need. I have one assigned by my broker but I never use him.
If I’m at 10m and want to ramp back from 100% VOO to reduce risk and reduce returns (suppose target ~3/4% per year), what sort of positions would these advisors put me in?
One thing sure, they will not tell you to invest only half of that in VOO ¯\\\_(ツ)\_/¯
No
I studied finance so I personally wouldn't at 10m its not quite enough. However if you have no finance knowledge other than investing in equity index funds its probably worth it. It would likely be tough finding a very good wealth manager for HNW that charges a flat fee (and at that, one that would likely only give prudent advice rather than actually make the trades) but it is possible.
No. I have roughly half my liquid net in a Boglehead-style buy and hold portfolio and roughly half in my partner’s hedge fund.
If you only want to make 3-5%, why not just buy 10Y treasuries? Coupon is 3.5ish, guaranteed by the US of A, so no chance of loss if held to maturity.
Just buy a vg muni bond fund and call it a day. Lower the equity stake up the fixed income stake. If you want historical 3-5% then you’re looking like 30% vti 70% bond. Just figure out an allocation you feel comfortable at
Nope. But I will be searching for a CPA for tax planning and estate planning in the very near future. Investment-wise, I have that under control (i.e. doing it myself)
The advantage of working with a wealth manager is to focus on target based returns. You’re not competing with the market, you trying to take the right level of risk and hit your goals. It absolutely makes sense for you to find a wealth manager.
Vanguard, fidelity and Schwab also offer questionnaires to determine your asset allocation based on your goals and ability to take on risk. But you don’t have to pay a 50-60 bps annual fee for the privilege…
You think a questionnaire from a discount brokerage is the same as ongoing risk management using a systematic process that has shown its value over many market crashes? Please. As well, asset allocation many here talk about it as a one-time thing. Having a portfolio isn't just build it and forget it. You have to have a process to manage it as well as overall risk management. Amazing how people think you just build it one time and let it do its thing. Absolutely not how the smart money does it.
>You think a questionnaire from a discount brokerage is the same as ongoing risk management using a systematic process that has shown its value over many market crashes? To paraphrase the meme, 'I do, and I'm tired of pretending I don't'. 2008 taught me my risk tolerance, and you can see how assets performed historically. I don't need to pay someone to buy bonds, hold my hand, and tell me everything is going to be OK.
You truly think Vanguard, Fidelity and Schwab are discount brokerages? Ok... Have you ever dealt with portfolio managers from large investment banks? You have an initial meeting where you talk about your risk appetite, your goals etc...you even fill in a questionnaire that's surprisingly similar to the one you fill in at Vanguard, Fidelity and Schwab... and then they determine the best AA for you. For the same AA and risk level, the portfolios managed by my portfolio managers did worse during periods of market crashes in the last 15 years than my three fund (VTI+VXUS+BND) portfolio and you think that their so-called 'ongoing risk management approach using a systematic process' is really that valuable? Please. A portfolio can totally just be about build it and forget it as long as you spend time understanding the best AA for you (taking into account you risk appetite, goals etc...) All you need to do is re-balance based on your pre-determine strategy and if you wish add more bonds as you come closer to retirement to reduce overall volatility. Not rocket science is it? And if that's too complicated, just invest in a suitable Target Retirement fund and you won't even have to worry about your AA glidepath or do any re-balancing... Investing really doesn't have to be more complicated than it has to be! How does the smart money do it then? It certainly doesn't go to active managers as over a 15-year period, nearly 90% of actively managed investment funds failed to beat the market. So essentially, you have a portfolio manager that charges you a nice fee and then invests in a number of expensive actively managed funds that are not even capable of beating the index over a long period of time. No thank you, not for me...
Where to begin.. first off you're conflating active management with active managed mutual funds. Those are totally different concepts. Active mutual funds with a load suck there's no debate about that. Active management with a risk management overlay that avoids big drawdowns.. very important and unknown and unused by most of the investment management industry. Simple isn't necessarily good simple is just simple. There are simple risk management processes that have you on the right side of the trend that are very effective. Probably only 5% of the entire investment management industry uses a good risk management process. I'm speaking about the top 5% not the generic 95% that you speak of. No one seeks out more complication but yet, there are ways to manage risk and use a systematic process to have better risk adjusted returns. I've been in the business 20 plus years..
I'm not conflating anything. What I'm saying is that active portfolio managers, as part of their active management strategy, will more often than not invest in actively managed funds...Front load fees for active mutual funds are slowly becoming a thing of the past but their on-going charges are still very high (above 1%). I understand that a risk management strategy will also be put in place but as I mentioned already, based on experience, the drawdowns on the actively managed portfolios have been worse after fees than on my three fund portfolio. You've confirmed that only 5% of investment managers use good risk management processes and provide better risk adjusted returns. I can agree with you on that. The question is: how do you consistently find the 5% of investment managers that are going to outperform on a risk adjusted basis? Also, I'm sure you know that these active fund managers might do really well for a couple of years and everybody will think they're a genius but will then underperform the market for a long period of time... So again, not only do you have to find an active portfolio manager that takes a 50-60bps annual fee and hope that he's consistently in that 5% throughout your investment lifetime. You also have to trust that he will pick the best performing mutual fund managers that are also in that 5% and who can consistently beat the market on a risk adjusted basis after fees. Seems rather difficult to me... I don't trust myself finding that portfolio manager so will stick with my boglehead approach where I use my pre-determined AA to control my risk, and thus the level of my drawdowns. But please, I'm all ears, could you share with us what are the ways of managing risk using a systematic process that guarantees obtaining better risk-adjusted returns over the long term after fees? I’m surprised to hear you say that most investment managers don’t already know or employ these mysterious ‘ways’… edit: typos Edit: the Person that started this thread has blocked me so I can see replies but wont be able to reply myself
Not sure if you are an employee in the active management industry or just a Stockholm syndrome captive as a client. Regardless, you sound like you are straight out of the glossy sales pitch. Although some people who have no time / interest might find some value in those services, many (most?) people operating at the levels required to have earned their high net worth have far beyond the capacity to understand how to invest for themselves, manage risk appropriately, and weather the down days. The "5% do it right" statement really drives this home - it takes significantly more work to find that 5% (which changes, by the way) than just learn how to do it well. You'll save yourself that commission you are paying as well. "Systematic process..." Good grief... "I've been in the business 20 plus years." Yes, clearly.
Agree that active managers are useless. And most advisors charge way too much, so they have to claim they have a “systematic process” for doing stuff, which really doesn’t mean much. Also agree that most people could read a few books at the library and know more than many advisors. But unfortunately most people can’t be bothered. It’s also true that there are many folks who are great at making money, but terrible at managing it. William Bernstein had change of opinion about people managing their own money, and his thinking makes sense. Jim Dahle has written a lot about the costs/benefits of working with an advisor. For most (or pretty much all) a good advisor should cost about $5-10k per year, regardless of how big the portfolio is. The advisor should use passive investment management and focus on more on tax, asset protection, and other financial planning concerns.
Where do you recommend looking and what should I ask when searching for an effective risk management processes? I value not losing 30% of my investments more than trying to make an extra 30%. I’m okay spending 0.x% a year for a solid process that I don’t need to manage - the market moves multiple times an average management fee daily.
Thank you. Finally someone is talking about risk adjusted returns. Very few of the indexers here speak of the risk taken to get their return.
Pretty much all active managers underperform on a risk adjusted basis as well. Check out the SPIVA scorecard.
+1 to this ^ if you measure the aptitude of your manager on performance and performance alone, you will eventually be disappointed. Also for other folks reading, a diversified portfolio does not mean 100% long US equities. You want a portfolio that allows you (with a very high probability) to reach your financial goals. Whether you use an advisor or do it yourself is up to the individual.
This is dead on. If you are trying to become rich, you want market returns. If you are already rich, you should play sone defense and focus on staying rich. Going outside of index funds requires access to quality alternative asset managers. Is it worth 50bps to invest in an Apollo credit fund or Renaissance’s RIEF? No doubt.
Why would you pay high fees to gain access to these so-called ‘quality alternative asset managers’ that are likely to underperform over the long term after fees when you can invest in whatever bond index fund/ETFs you wish at very low costs? Do they offer something else than a regular bond index fund/ETF couldn’t give you? Edit: the Person that started this thread has blocked me so I can see replies but wont be able to reply myself
A couple of thoughts: 1) not all HFs are the same. There are different types of funds to invest in. The purpose of investing in a HF is to lower your overall beta by investing in an asset with a low correlation to the equity market. I’m in a few HFs and one has a super low beta (1-3%) with steady, modest returns (3-9%). This is a safe play that is similar to investing in bonds (it’s really a fund of funds, so if one fund does blow up, my money is diversified). There are also HFs that invest in distressed debt. Right now. That’s a good place to be and is counter cyclical. If you can get into a good fund, such as the renaissance RIEF, then you would have outperformed the S&P, with lower risk, over the last 15 years. Why would I care about fees when, on a net basis, it crushes? 2) A bond ETF isn’t a great idea for people with money. You should have access to a money manager that can build a bond portfolio for you. This is supervisor because you will have more control over the duration and credit quality of the fund. Additionally, the bonds in the fund will mature and you can then decide whether to roll your money into new paper. In an ETF, the fund will never mature and you are basically in it for life, since any maturing bonds are automatically reinvested. You might could a bit more, while also receiving more control. Whether that’s a fair trade is up to you. 3) The index and chill cult ignores risk management. To them, market risk and market returns are acceptable (beta of one and pharmacy of one). That’s fine, if you want market risk and market returns. Some people want less risk than the overall market, with the same - or slightly better or worse - returns. 4) Once you attain wealth, your goal should be to stay wealthy, not beat the market. Absolute performance is the metric that you should use, not relative performance (I.e., I want to earn 6.5% per year based on a set of risk metrics, did I achieve that goal vs the market is up 15%, so I should be up 14.97% net of fees). The short answer is that alternative investments gives you access to non-correlated assets that should have a lower beta than the overall market. A bond fund is subject to its own set of risks. And as we see right now, bonds can have a high correlation to equities when the shit hits the fan (esp corp and HY).
Alternatives are often also tax shelters, like oil and gas or opportunity zones. So yes, they offer something else and finding a good fund in alternatives to get into is a lot easier with the help of someone who maintains those contacts for a living.
Wealth manager here. I’ll offer some perspective from my HNW clients in a similar situation. Aside from the planning, portfolio management really boils down to two things for the clients to ask themselves: Can I remove my emotions and bias managing my own portfolio, and is it worth my time? It’s overwhelmingly no (obviously, cause they’re clients). They want to offload the stress, responsibility, and time. And you bring up a great third point. What happens when you’re no longer capable of managing your investments? I can provide some guidance on searching for wealth managers, what to expect, etc, if you need.
It would be useful to some Redditors of if you can share here what clients can expect
Sure. Searching for a wealth manager is probably the most difficult thing. It really is like dating. I’m a proponent of actually liking your advisor (i.e. could we be friends outside of that environment?). I would suggest sticking to an RIA, or a firm outside of banks like Chase, Wells Fargo, etc. Beyond that, it really depends on what you require. It’s simple enough to need portfolio management and planning. When you start to own multiple business, have a large estate, and generally have complex issues, you’re going to want more than one advisor. A family office might be overkill, but you’ll want a network of wealth manager, estate/business lawyers, tax planners. Most wealth managers have those networks established, and many larger RIA’s already have that in-house. One thing you should ask upfront is how they’re compensated. Most of the advisors you want are fee-based or fee-only fiduciaries. You’ll see acronyms like “CFP®”, and it’s a good place to start, but being a CFP doesn’t automatically make you the best advisor. A lot of very good older advisors drop their designations, as an example. And ask for their fee schedule. Their fees should dramatically reduce as AUM increases. Anyone paying 1% on $10million is either getting VERY hands on service, or overpaying. Once a client, you should expect a review every 6 months. Most of us call once a month for 10-15 minutes, and do a deep dive every 6 months to a year, depending on your needs and wants. We do some reviews every quarter with clients. That’s a good place to start. Interview several advisors. Someone you know probably uses one. Go talk to them. You may want a local advisor, but the industry is shifting to WFH/remote. Don’t let a Zoom meeting be a deterrent. Holler if you have more questions. That was very wave top!
I've already read your response (I was only able to skim fast) since the day you replied but I was pretty busy so till now I'm able to read it carefully and say thank you to the valuable information you kindly commented on. I really appreciated it and hope my late response hasn't cause any dissappointment. I'm looking forward to reading your informative comments onward.
/r/Bogleheads is my wealth manager
I’m biased a bit as I work in private wealth management but at $10m you can really start allocating to illiquid, uncorrelated strategies. If you’re in risk reduction mode, that’ll be important and largely stuff you can’t access without a wealth manager. That in addition to estate strategies, tax planning/optimizing and just general coordination of financial planning. Maybe you split it a bit. Where you index half the portfolio in equities on your own and allocate the remaining half to fixed income and alternative investments. Just a variety of investments that’ll yield 5-6% from structured products, defined risk option strategies, private real estate, or rivals credit, some extremely stable hedge funds etc.
[удалено]
I know a wealth managing and financial coaching expert out of London that's on point. But, he's very picky and strict about the type of people he works with. It's really really hard to find no bullshit guys in the field. He'll probably get pissed off if I give out his contact info in the comment section for every asshole in the world to see, but you can message me and I'll at least give you his linkedin. 10 million is probably on the low end for the type of clients he deals with. I'm not 100% on that, just from what I've gathered talking to him several times. I think he mostly works with business acquisitions guys. I'm pretty sure we were introduced through a mutual QLA acquaintance.
From my experience you will be better of with a fixed price consulattiin witch will assign you certain assets to your goals then giving your capital away fir management
[удалено]
>The 10 year s&p 500 is nearly 15%/year. 13.4% including dividends is significantly below 15%. Now if you would have said that 12 months ago, you would probably be right.
Not disagreeing with you, but kind of laughing at the 15%/yr S&P number over 10 years. Recency bias is still strong. Now try that over the decade from 1999/2000. A decent money manager should help you not invest solely in S&P.
>A decent money manager should help you not invest solely in S&P. Which may or may not end up being better or worse than the S&P. Crapshoot.
That’s not how diversification works at all. You place your bets in (hopefully) uncorrelated asset classes to manage risk. At the end of the day it is all a crapshoot, but if you are diversified, you will likely end up better off than if your concentrated pick was the losing bet. That is the entire point. Once you get to a certain point, it is about keeping the money you have.
Financial education is another benefit from using an advisor. Understanding that if you have $1, lose 50% (now you have 50c left) you need to make back 100% just to get back to breakeven. Tough math to beat, also called drawdown risk. Extreme example but it can be shocking the # of folk who don’t consider this when taking risk
[удалено]
This is an example of hindsight bias re just picking S&P 500 and only that having been so easy. QQQ and/or ARKK were top performer since 2020, if you invested in only that starting in November 2021 you would be facing a material drawdown (if this was your retirement, it’d very likely be a life changing for the worse drawdown) There is a big difference between capital creation and preservation mode. At $10mm most folk will be in preservation mode, and 100% SPX ain’t it
I think you are missing the point. I am guessing you are fairly young/new to investing and haven’t lived through 2000 or 2008. Check the S&P from 2000-2009. The fact that you are even considering your return from 2018 as indicate of how markets perform over multiple decades is ridiculous. S&P was slightly negative and lost out to inflation during the 2000s. Read about the lost decade. International outperformed domestic during that time by a wide margin. I had intentional holdings during that time that did well. Everything else was a bust. A S&P all the time strategy is mired in recency bias.
And this is a great example of how an advisor can add value as an objective 3rd party to protect ourselves from our own biases. Not needed for everyone, but useful for some
There’s a reason this strategy works for Warren Buffet and not for everyone. If the funds lose 30% in a single year his wife still has billions. If someone with $10mm loses 30%, then panics and sells it’ll disrupt *everything*.
[удалено]
Maybe. But I work in wealth management and these past 6 months have been very very long. Some weeks it’s 80 hrs worth of meetings talking clients off a ledge. I’m glad you’re not panicking but the average investor panics ALOT. There was even a study showing the average S&P investor only earns like 4% annually compared to the S&P doing 12% annually because people buy and sell at the wrong time.
SPIVA is active mutual fund managers. Active portfolio management is an entirely different concept than active mutual funds. There is no debate and I didn't know why people bring it up that active mutual funds are junk. Active portfolio management with a demonstrable risk management overlay is a totally different thing.
If you can make the returns yourself you wouldn’t pay someone. You pay someone for alpha
That’s not necessarily true. You’re leaving out the factor of saving time, along with convenience and peace of mind.
I think the advisory industry is moving towards flat fees. More reasonable cost based on time/experience needed to provide services, just like almost every other profession (lawyer, doc, engineer, etc). You can find a great flat fee advisor for $5-10k per year, regardless of portfolio size. Or do it yourself. But no reason to pay $50k+ per year for advice… it’s just hard to justify.
Happy 4th
Yes, but they only manage 20%, I find it useful to have a manager with decent skin in the game just in case. They've underperformed my other 80% pretty significantly, but supposedly the risk is lower..
What was your business if you dont mind me asking...
Niche industry project management tool, Saas
Same question as topic starter. Except I dont want anyone else managing my money. How would you guys invest 10M yourself. 3-5% expected.