Wealth management companies

Investing / Portfolios
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Hi all
I am sure this topic is covered elsewhere so please feel free to include links.

I have been approached a number of times over the years by wealth management companies. Mostly i have told them to politely go away but recently started discusiions with one to understand their offering, fees etc…as i am a cautious beginner investor the thought of a management company feels reassuring.
However on the topic of fees things start to feel a bit murky and i am not convinced that any of the funds recommended can outperform my simple index based fund approach with 0.2 percent charges.
What are your thoughts. Is it better for me to invest alone with higher risk of making mistakes or to go in with a wealth management company. I guess the 3rd option might be something like VIAC invest?

Appreciate your inputs.

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My take is that one needs to differentiate wealth building from management, and most wealth “management” companies are actually taking exorbitantly high fees to do something you could do yourself.

In my opinion real wealth management is something which makes sense once ones crosses the 8 figures, and especially for people who did it by means unrelated to capital markets and/or their time is not worth to do themselves. Eg a couple of people I know who made their wealth by founding, running and then selling successful companies have zero knowledge of the stockmarket, bonds, even CDs and MMFs, simply because they never focused their intellect and effort to learn about them, so they have wealth managers to do everything for them, essentially beating inflation and optimizing taxes, not generating a lot more wealth.

Edit: it’s fairly certain that funds and portfolios made by wealth “management” companies will underperform broadly diversified and cheap index funds from Blackrock, Vanguard and the like because they (the management companies) don’t have trillions in AUM so they have to be more expensive. They often also want to tell a story with their fund picking, like ESG, pandas etc which results in uncompensated concentration. They often make unnecessarily complicated portfolios with 8.23% in fund A and 3.42% in fund B (those two basis points make ALL the difference, I tell you!) to appear they know to do something you can’t. Bogle’s message is simple and effective:

  1. Invest in broadly diversified, low-cost index funds
  2. Ignore the noise
  3. Stay the course
  4. ???
  5. Profit
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When looking through the websites of independent asset managers (aka family offices), I noticed a couple of things

  • Some published their returns net of fees including a benchmark (this transparency I like)
  • Some had innovative products like an ultra-stable portfolio that is geared towards protecting wealth in market crashes or baskets of products that are hard to get or access to private equity or coinvestmets with their clients (putting money where their mouth is)
  • Some had relatable market comments, guiding their readers through the VUCA world
  • Some were cognizant of the fact that fees are the most important aspect in generating returns and have restricted themselves to either a performance-based fee or a percentage less than 0.5% of assets under management
  • Most spin some yarn about knowledge, discretion, clients first and fail to provide any meaningful evidence of their prowess.

Asking for specific costs and services should help you decide if it is worth to you. Else there is always this community who spends considerable time discussion specific questions.

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Thanks for reply. In this case the company i am talking to would take the money and invest it in existing funds. Vanguard etc…

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I would never take any financial product from someone who cold calls you. The changes of scam or rip off are quite high.

I used to work in elsewhere where ethically, we were banned from cold calling. The led to only the grifters being the ones who cold called.

If you want wealth management, I’d go to a well known reputable institution. Not a random caller who could be working from a boiler room.

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I don’t think the goal of wealth management services is to beat the market. They provide a service to take care of managing your wealth, and not just investment management. That means they handle all the administrative tasks, choose your allocation, determine your risk profile. Furthermore, wealth management services take care of other things, like retirement, financing of properties abroad, loan against illiquid company stock, estate planning, tax advisory etc.

For plain investing, there is no benefit from wealth management. For higher wealth levels and more complex activities it can make sense. Of course some people will still choose wealth management services for just investing, which is ok if fees are low.

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The white coat investor is writing quite often about it in US context:

  • being your own assets manager is the best paying hobby to have
  • investing is easy. Financial planning is difficult. But people are ready to pay for the first, and not for the second.

Just some examples from the top of my head.

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