Wealth Management

In My Humble Opinion
41

It might make sense to hire a wealth manager if you come into sudden, staggering money early in life, via sports, entertainment, or the lottery. In such cases, there are complicated things like tax issues that come into play (although even those can often be dealt with through a fee-for-service adviser who doesn’t control your money).

But a middle class person trying to build wealth for retirement (or manage wealth in retirement) is better off going with the tried formula: make automatic, regular contributions to low-fee index mutual funds; re-balance once or twice a year to a targeted asset blend; and adjust that blend over the course of your life. Once it’s been set up, this endeavor can be managed in, at most, 2-3 hours per month.

It’s not as difficult as the financial services industry tries to make it look.

Consider the game of checkers. Anyone of average intelligence can learn how to play it in a relatively short time.

Now consider heart surgery. A very complicated, exacting topic, requiring a huge amount of information and skill.

For a middle class person with good spending and saving habits, building long-term wealth is about as hard to learn as checkers.

But the financial services industry wants you to think it’s as hard as heart surgery. They spread lots of false information to give that impression.

And as others have noted above, their fees are sorely misunderstood by most customers, by design. 2% is a lower charge than most of us encounter, but the fact that it’s on your whole portfolio makes all the difference.

I once saw a re-published version of a Sears and Roebuck catalog from around 1900. It offered patent medicines which promised to cure all kinds of ills instantly. We marvel at the fact that people back then trusted such quackery enough to hand over their money for it.

I’m convinced that in the future, people will have the same reaction to most of the services that wealth managers today offer.

Just the opinion of a lay person, albeit a well-off one.

42

We picked an FA recommended by people we trust. Then invested the minimum her firm required while parking the rest in our own self-managed accounts. We watch what she does and (mostly) mimic those asset allocations in the larger accounts. This keeps the % fees smaller since they only apply to what the FA’s overseeing.

43

I’m generally with the anti-manager side of this. The exception if it hasn’t already been noted in this discussion (as it has been previously) is the potential value of a fee-only planner to set things up. For some basic management of a personal portfolio is ‘checkers’. For other people the whole thing is daunting to a degree and for reasons better informed, more naturally suited people have trouble understanding. It’s not always just a desire and belief the manager will make the person more, it’s sometimes a complete lack of idea where to start and what pitfalls may lurk doing it oneself.

The thing I believe most (nothing applies to everybody) people should be able to understand is that if you build up significant (at all significant) wealth you really owe it to yourself to learn ‘checkers’ even if it’s difficult for you. Paying somebody 1% year after year, even assuming they aren’t steering you into stuff that pays them additional commissions or fees…that’s hard to justify in the long run IMO.

44

The problem with that is that people with a $10,000 to invest should have a different asset allocation than those with $100,000, and the same applies to those with a million. It works as a first approximation, but it’s not the right allocation for you, and you’re still paying the advisor something, even if it’s only on 10% of your investments. It’s really not that hard to figure out a three or four fund portfolio; then all you need do is stay the course.