What exactly is "Wealth Management"

They ask for money in return for telling you what to do with your money.

 

Financial advisor...

 

A way to get cash from people that do not want to take the time to manage it for themselves.

In some cases a good wealth management group or person can be very useful and helpful for those that have acquired wealth, such as over $2mil, but do not want to spend time watch it themselves and just want to live a stress free life.

However, in most cases that I have had to deal with these people, their primary objective is to create fees for themselves and their company. When my parents died we had companies coming out of the woodwork wanting to "manage my wealth." None of them had ay original ideas. And none of them were cheap. So I just decided to do it myself. Doing well too and saved myself about 5% per year.

 

Wealth Managers, in my experience, tend to be people without wealth purporting to know more about wealth than people with wealth.
Wealthy people shouldn't really need wealth managers.
I never really understood why anyone falls for that.
I would take advice from Warren Buffet, but he is, as is common with successful people, too busy being successful to give advice.
That leaves unsuccessful people to the role of advice givers. It just doesn't add up

 

We've heard from a few people who are competent enough and confident enough to manage their own money. However, there are wealthy people who can't manage it on their own though: heirs, athletes, artists, etc. Some people can generate revenue, but it doesn't mean they know how to keep or cultivate it. There are professionals and executives with high incomes but that doesn't mean they know how to invest or not blow it all, either. Having worked a bit with creative types and their management I've seen healthy situations where the artists/performers were kept apart from large parts of their money which was managed professionally. This allows them to build for retirement and a lifetime of passive income rather than a few hot years.

Put another way - does the king manage his flocks and till his own farms?

That said, I wouldn't invest with someone who didn't practiced what he preached. But just because they are not as well off as the client doesn't mean that they are bad stewards.

 

No but I bet he keeps his eye on the treasury!!!!

 

Buy an old Ferrari that will appreciate in value.

That'll be $1000.

End Wealth Management.

 

For those who can't...teach.

 

Wealth Management, Investment Advisor............not a one will work for a percentage of your PROFITS indexed against T-Bills, LIBOR, etc. They all want an annual slice of the underling assets.

Profiting from the flow of other people's money......at least investment bankers and venture capitalist are honest about their roles.....ahhhhh usually!

 

Buying bonds and not losing your ass in the market.

 

You don't want that, and there are two reasons.

First - the most common way to beat an index, any index, is to assume additional risk. The ol' risk vs. reward argument. If the only way your advisor is going to get paid is to beat the index, you'd be giving him incentive to assume addtional risk than your comfort level indicates. With your money.

More to the point - suppose the guy has a great first half-year, beats the market by a ton. He doesn't want to risk losing his paycheque for the year, so he goes to cash to consolidate the gains and sit on them...which may not be what you want. By the same token, he may have a bad first half, and the only way to get paid at all is to ramp up the risk level in the second half. Neither is a good idea.

Sorry - we don't pay police only when they catch the bad guys, we don't pay firemen only when they save the building, and we don't pay pro ball players only when they make the playoffs. Investment people perform a valuable service (with the exception of the unethical practitioners in the industry) and they're entitled to earn a living.

Second - the purpose of active management is NOT to beat the index. The purpose of active management is to change the risk/return characteristics of the index to align with the customer's comfort level.

The fact that you HAVE wealth does not, by itself, mean you are capable of MANAGING it. Sure, some are, but not all. The fact that you can write a killer software program, or perform surgery or build homes is great - but doesn't automatically mean you can define your own risk level, devise an appropriate asset allocation based on that risk level and market stats, factor in tax minimization, establish a trust for your kids, fashion your will, review and select the proper insurance coverage, etc etc etc.

Neil

 

I only charge a hair under one percent.. JJ

 

Well, it is all about increasing yours.

Oh, did you mean the client's wealth??????

 

I know how to do all that stuff, building houses included.

 

Aren't a lot of high-net worth people creating their own investment groups to handle only their wealth?

Bill Gates, Michael Dell, Dan Sydner, ect.

How do they pay these people in comparsion to a management company?

 

Good points, well made, but it would lead someone to conclude that the function of "active management" is simply capital preservation and that is not worth an annual fraction of my assets. Honestly, I've polled many of my friends and colleagues who have retained professional investment advisers and money managers and not a one can recommend the service.

There is no question that the average money manager will outperform an investor who is too lazy to check and tweak their their portfolio monthly, and for that segment they most certainly earn their cut.

I am an VERY strong advocate of paying others to perform tasks they can do better than I. Thanks to improved software tools and the availability of valid investment performance information, investment "consumers" are beginning to realize that most money management exists for the sake of the skimmed commissions; mutual funds included.

 

The key is finding a good money manager. Find those that have massive amounts under management, years of experience, are held to ethical standards, and are wealthy themselves. They are typically going to be running their own firm, highly respected, and highly skilled. In my estimation there are about 4,000 wealth advisors that would fit this criteria.

If you work with a manager like I have discribed they can help you reduce income taxes, increase your spendable dollars during retirement, eliminate risk, eliminate estate taxes, increase your return on investments, and give you peace of mind. Typical investors lose between $3M-5M in wealth by making poor financial decisions during their lifetime. Both in true cost and in lost opportunity costs. A great planner will help you avoid the mistakes that the majority of the population make.

Matt

 

My friend just opened his opened his own Wealth Management firm:
http://www.nwmllc.com/

 

Do wealth management firms create "new" wealth, or do they simply preserve wealth? How does one create a balance where a sizeable income is generable, well increasing asset wealth over the long-term?

 

Most times they do neither.

 

The all stars are running hedge funds.

 

Most of thse are worse.

 

Not quite. There is a big difference between "Wealth Management" and "Investment Management."

Matt