Just curious if anyone here uses a wealth management firm or if the vast majority of the users are self managing their investments.

I use Fidelity as my primary brokerage house with some holdings in a couple other places and to this point have entirely self-managed my assets. Living in the DFW area you see ads for some wealth management firms like GDS and was interested if anyone had consulted with them or used their services for investment management.

The obvious downside is the fees associated with such firms which has always been a non-starter to me up to this point but wanted to see everyone's take on this.

Think the value proposition of a wealth manager comes from the side benefits, not sure you truly beat the s&p frequently after considering fees (and you could be lagging). They'll all have presentations showing a significant beat over time after fees, but I suspect it's cherry picked among their varying strategies.

It does help to have some with a bigger bank in my opinion as you get $5MM+. Market research can be valuable. Some offer significant estate planning and income tax structuring guidance that is vastly superior to a general practitioner attorney or your random CPA, but some of it doesn't matter until you get to a taxable estate (I think that's around $30MM). If you are taxable, I suggest you keep at least some at a major bank just to access these services even if you manage most of your money with the boggle heads portfolio.

Fees can always be negotiated, even at the larger banks. But not worth doing in my opinion until your estate is at least $5MM.

I self-managed our portfolio until our early 40s. At that point, things got complicated and we started using an advisor / wealth management. We use Goldman Sachs*. They don't try to beat the S&P and any advisor that presents this as their strategy should be ignored.

My guy is all about developing a plan based on your risk tolerance, goals, and time horizon. We then work the plan. It's one stop shop for anything touching or impacting the plan - money, investments, taxes, insurance, equity plans/agreements at work, etc.

It's flat fee and there is no minimum balance requirement which seems to be somewhat of a myth. I have about 10% of our total portfolio under active management and the other 90% is under advisement only. I can meet with him anytime I want/need to.

Retired at 52. I'm pretty conservative so it's very helpful to have him to bounce things off of because he injects some reality into things and gives me another perspective. It's been totally worth it.

*When we first started using this firm, they were independent. GSWM bought them out along the way, so we are now in the GSWM umbrella with access to all of their investment and marketing research of which there is too much to remotely read.

I do not give out recommendations for him/them only because I only do this for people I know well. Fairly protective of it.

topher06 said:

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Think the value proposition of a wealth manager comes from the side benefits, not sure you truly beat the s&p frequently after considering fees (and you could be lagging). They'll all have presentations showing a significant beat over time after fees, but I suspect it's cherry picked among their varying strategies.

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i have read the fine print on some of those perspectives showing they beat the index but it's not the S&P 500, it's some custom index they cherry picked. It also said it only beat it after taxes and the tax assumption was the highest marginal bracket and living in a high income tax state. So basically it was all BS.

I use Schneider Downs here in Pittsburgh because my wife works there. She manages our investments, tax, and major spending throughout the year and does this for other high net worth families.

I'm not really trying to get anything out of a wealth management firm specifically. I'm primarily asking the question out of curiosity. I'm interested to see what others think of them and whether the see / find value... and in what ways.

As mentioned early, the potential for more sophisticated estate planning and/or tax strategies is intriguing, if those are viable offerings through a firm like what we're discussing. I'm in no way sold their investment strategies alone would be enough to do much for me.

In the end, just looking for different perspectives here.

Baby Billy said:

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Proposition Joe said:

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If it's a better return on your money, data says over time they are unlikely to do better than you just investing in market index funds..

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Unlikely to beat the indexes. Highly likely to beat the average investor buying those indexes

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Not sure I follow. If you're saying they are likely to beat the average trader, I could agree, but a buy-and-hold investor who dollar cost averages into diversified indexes will beat an advisor's post-fees investment return almost all of the time.

Where the advisor adds the most value is personalizing a portfolio to an individuals wants, needs, tax situation, and risk tolerances much better than most can do alone. They also usually do a pretty good job of minimizing the psychological challenges with individuals trading in and out of the market at inopportune times.

Ultimately it makes little sense to pay any kind of AUM% unless they are beating major index funds on a regular basis.

And if they are beating major index funds on a regular basis, they aren't working for Merrill Lynch soliciting people's business and answering emails - they have their own private funds.

That's the truth. People will try and tell you differently and that it's "just how the industry works" -- yeah, it works that way because it's great for them - they make money win or lose.

For most people, tax strategy and wealth management is simple enough that a fixed rate advisor who maybe checks up on you once a year can handle it. Invest in index funds, adjust your risk tolerance as you get closer to retirement, contribute to the most beneficial "pots" in order (eg. pay off high debt, invest to your company match, then roth/backdoorroth ira, HSA if you have access, etc, etc, with your taxable brokerage account being last). It's really not that difficult, people just think it is.

Now, if you have complicated situations (multiple businesses -- just one business is still pretty simple, you're just adding in a cash balance plan or solo-401k in that ranking) they are absolutely worthwhile - but at a fixed rate.

Paying an AUM is a sucker's move.

Generally, these have been my thoughts as well. The business model certainly seems to work in favor of the management firm and doesn't generate enough value to me as a client that I've ever seriously entertained it… again, just looking at investment advice specifically. If there are other ancillary benefits to using a wealth management firm, then those are things I'd be more interested in. But not at the expense of paying AUM.

RogueAg said:

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I'm not really trying to get anything out of a wealth management firm specifically. I'm primarily asking the question out of curiosity. I'm interested to see what others think of them and whether the see / find value... and in what ways.

As mentioned early, the potential for more sophisticated estate planning and/or tax strategies is intriguing, if those are viable offerings through a firm like what we're discussing. I'm in no way sold their investment strategies alone would be enough to do much for me.

In the end, just looking for different perspectives here.

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They are. You will just need to research to determine the full suite of services that the firm offers. I don't use our guy purely for investment. It's for one shop shopping on all things money as I mentioned earlier. Our tax situation is a little more complicated than your average joe also.

Regarding AUM, I generally agree that there is not a reason to have them actively manage all of your investments. Exception that I have our guy managing is our muni bond ladder. That's a constant churn with multiple bonds constantly maturing. I in no way have the time or patience to manage that myself so they get 0.4 out of me to manage that. That's our current cash flow supplement as I'm retired and my wife is self-employed.

Everything else is just under advisement and I make any and all moves there when we decide to make a change.

But paying him that for your muni bond ladder is almost the equivalent of a fixed rate. He's doing a task and you know exactly the amount of money you are paying him for that task (and there's no downside risk that the bonds will suddenly come in at half their value). Though I'd bet that entire process is automated on their end.

If nothing else, if a management firm wants to charge you an AUM, have them list out specifically what they will be handling for you throughout the year. Calculate what you'd be paying them annually per your AUM, and see if it makes sense.

At the end of the day, there are tens of thousands of wealth management companies out there. Few if any are beating the market long-term. So from an investment standpoint there's little data backing up their worth. And reality is there aren't a bunch of super secret tax loopholes that only the guys who managed in Finance are privy to. The Internet has leveled the playing field on understanding what options exist. There's absolutely advice that can help you out, but it can be had for far less than an annual AUM %.

Proposition Joe said:

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But paying him that for your muni bond ladder is almost the equivalent of a fixed rate. He's doing a task and you know exactly the amount of money you are paying him for that task (and there's no downside risk that the bonds will suddenly come in at half their value). Though I'd bet that entire process is automated on their end.

If nothing else, if a management firm wants to charge you an AUM, have them list out specifically what they will be handling for you throughout the year. Calculate what you'd be paying them annually per your AUM, and see if it makes sense.

At the end of the day, there are tens of thousands of wealth management companies out there. Few if any are beating the market long-term. So from an investment standpoint there's little data backing up their worth. And reality is there aren't a bunch of super secret tax loopholes that only the guys who managed in Finance are privy to. The Internet has leveled the playing field on understanding what options exist. There's absolutely advice that can help you out, but it can be had for far less than an annual AUM %.

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I directionally agree with Joe on this (I'm a self-advisor), but his first paragraph is mostly bunk.

I think you're arguing that it isn't a good deal, which is fine (even though you don't know someone's unique situation). But, are you suggesting that because it's easy and automated for the advisor, it's not worth anything? Really? Let's say they invested $15 million to automate that process, and charge clients an average of $1000/year to recover their costs and make a profit. Are you saying that's wrong? Are you really anti-free enterprise?

Also, there IS A DOWNSIDE RISK to bonds - they don't usually have the volatility of equities, but just wait till the next municipal or US Government debt downgrade, and see if the bonds lose value. If an advisor gives you a heads up that Detroit or Cleveland debt may be headed for a downgrade, they have probably paid for themselves with that information alone.

Proposition Joe said:

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But paying him that for your muni bond ladder is almost the equivalent of a fixed rate. He's doing a task and you know exactly the amount of money you are paying him for that task (and there's no downside risk that the bonds will suddenly come in at half their value). Though I'd bet that entire process is automated on their end.

If nothing else, if a management firm wants to charge you an AUM, have them list out specifically what they will be handling for you throughout the year. Calculate what you'd be paying them annually per your AUM, and see if it makes sense.

At the end of the day, there are tens of thousands of wealth management companies out there. Few if any are beating the market long-term. So from an investment standpoint there's little data backing up their worth. And reality is there aren't a bunch of super secret tax loopholes that only the guys who managed in Finance are privy to. The Internet has leveled the playing field on understanding what options exist. There's absolutely advice that can help you out, but it can be had for far less than an annual AUM %.

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Yes, I'm sure it's automated but it's something I can't / won't manage myself so I'm fine paying them to do it. It churns monthly and I don't have the wherewithal to do the research for the reinvestment decisions they make.

Agree on AUM%. It's dumb. Fixed fee or DIY.

I bleed maroon said:

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Proposition Joe said:

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But paying him that for your muni bond ladder is almost the equivalent of a fixed rate. He's doing a task and you know exactly the amount of money you are paying him for that task (and there's no downside risk that the bonds will suddenly come in at half their value). Though I'd bet that entire process is automated on their end.

If nothing else, if a management firm wants to charge you an AUM, have them list out specifically what they will be handling for you throughout the year. Calculate what you'd be paying them annually per your AUM, and see if it makes sense.

At the end of the day, there are tens of thousands of wealth management companies out there. Few if any are beating the market long-term. So from an investment standpoint there's little data backing up their worth. And reality is there aren't a bunch of super secret tax loopholes that only the guys who managed in Finance are privy to. The Internet has leveled the playing field on understanding what options exist. There's absolutely advice that can help you out, but it can be had for far less than an annual AUM %.

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I directionally agree with Joe on this (I'm a self-advisor), but his first paragraph is mostly bunk.

I think you're arguing that it isn't a good deal, which is fine (even though you don't know someone's unique situation). But, are you suggesting that because it's easy and automated for the advisor, it's not worth anything? Really? Let's say they invested $15 million to automate that process, and charge clients an average of $1000/year to recover their costs and make a profit. Are you saying that's wrong? Are you really anti-free enterprise?

Also, there IS A DOWNSIDE RISK to bonds - they don't usually have the volatility of equities, but just wait till the next municipal or US Government debt downgrade, and see if the bonds lose value. If an advisor gives you a heads up that Detroit or Cleveland debt may be headed for a downgrade, they have probably paid for themselves with that information alone.

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Nope, I wasn't clear. Was basically saying it IS a good deal as long as he thinks its worth what he's paying for that convenience. I am all about different people willing to pay different amounts to take mental load away. I pay for some stuff I could easily do myself but it's a chore to always remember it.

I bleed maroon said:

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Baby Billy said:

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Proposition Joe said:

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If it's a better return on your money, data says over time they are unlikely to do better than you just investing in market index funds..

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Unlikely to beat the indexes. Highly likely to beat the average investor buying those indexes

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Not sure I follow. If you're saying they are likely to beat the average trader, I could agree, but a buy-and-hold investor who dollar cost averages into diversified indexes will beat an advisor's post-fees investment return almost all of the time.

Where the advisor adds the most value is personalizing a portfolio to an individuals wants, needs, tax situation, and risk tolerances much better than most can do alone. They also usually do a pretty good job of minimizing the psychological challenges with individuals trading in and out of the market at inopportune times.

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Saying you're a buy and hold investor is a lot different than actually being disciplined enough to do it for your entire life. Fact is most people aren't. And yes that's a fact.

And before you get angry I'm not necessarily talking about the people spending time on a business/investing message board, but I'd bet that's true for "most" here too

I have four managed funds at Stephens. If one underperforms, he/it is replaced by another advisor. Those are my largest accounts

For the past five years or so, I opened my own account at Vanguard. My 1 yr., 3 yr. and 5 yr. returns are 27%, 17% and 14% respectively. I've built my personal account from zero to 2/3rds of my work retirement account, in large part due to contributions, but the returns obviously helped. My work account returns are 9%, 8.6% and 6.75% respectively.

Obviously, the bull market run helps. But I also question what their return would be in a bear market vs. me.

I'm thinking of ditching my advisors, especially when factoring in cost. My goal is to get my personal investment account equal to the managed account. But I'm starting to even question waiting for that.

Baby Billy said:

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Proposition Joe said:

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If it's a better return on your money, data says over time they are unlikely to do better than you just investing in market index funds..

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Unlikely to beat the indexes. Highly likely to beat the average investor buying those indexes

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Actually, as stated before, highly unlikely to beat individual investors buying index funds/etfs.

See "The little book of common sense investing "-Jack Boogle, "The psychology of money "-Morgan Housal, and "A random walk down Wall Street "- Burton Malkiel, if you need proof.

An individual investor buying index funds /etfs, will do better than 85% of financial managers, and that's before fees!

Have about 2/3 with a firm I pay 1% to and self manage about 1/3. The 1/3 portion is growing as that's typically where all new deposits are going. We take some pretty stupid flyers with the funds we manage ourselves. Some have been home runs and some have gone to zero. I'm not entirely sure who is outperforming who at this point. I will say that I get access to investments through our firm that I wouldn't have otherwise that I think have been good for us. If we can just double our money every ten years, we'll be content. I don't need to be Bill Gates.

If guys are beating the market consistently, they aren't working at Morgan Stanley or Charles Schwab.

Doesn't mean they can't do it in any one year - also doesn't mean you couldn't do it yourself in any one year.

But calculate whatever AUM they are charging you in a given year and determine if that amount of money is worth "the other stuff" they do for you. I'd say in very few instances would that be the case.

You know how "you only pay if we win!" often isn't a great deal?

"You pay if we win or lose!" isn't much better. It's your money, and there's people who want to siphon off of it.

OP, it really depends where you are at in your career and the time you are willing to devote to DIY.

Can you do it all yourself? Absolutely, and no one cares more about your investments than you of course. But that's part of the problem i.e. money is too personal and we are not perfectly rational, which can lead to some pretty poor decisions. Hiring an advisor helps add a layer at least so you don't make those types of mistakes.

Full disclosure I'm a CFP and manage a few hundred $M. Love my job, love my clients, love my firm. Average client AUM is about $3-6M, and almost all are retired or retiring soon. For the most part they have no interest in worrying about it, and would rather spend that time traveling, with grandkids, serving/volunteering etc.

What do we do to 'earn' our fee? Well consistently we are beating the benchmarks, but that's not the point. It's all about integrating everything together. Taxes and estate planning in house. Insurance analysis & referrals (we don't sell any products). For some clients we pay for cybersecurity measures and luxury travel concierges.

I've negotiated and facilitated quite a few car deals over the years simply for clients that don't want to deal with it. Helped a widow sell her husband's relatively substantial gun collection last week, for which she was very grateful.

If you have the time, inclination, and some degree of financial expertise then by all means do it yourself. If not, I'm happy to provide referrals to someone that can help in DFW or a one-time planner perhaps.

I'm not rallying against financial planners - I already mentioned, I use one.

He's fixed cost.

Planning, risk management, withdrawal strategy are all very important. They are also almost all fixed-scope services. CFP's aren't reinventing the wheel.

If the value is in the value-add advice, why is the fee tied to portfolio size?

Because if I have a $5MM portfolio or a $15MM portfolio, the strategy isn't going to require 2-3x the work.

1% on a $5MM portfolio over 20 years will cost you $3.31 MILLION. And that's if the advisor actually matches the market.

Fixed cost meaning subscription, flat fee (not a percent)?

Yeah all kinds of valid arguments for every fee model. My $15M client is not paying 3x my $5M client. Maybe 2x.

And the services we provide are actually expanded at different levels. Tax preparation is a real cost and you wouldn't believe how hard it is to find and hire good CPA's. Estate planning even more complex and expensive as you go up the food chain, and yes we pay for that too.

Your take is simplistic, but I get it. Why own an index fund with an expense ratio of 0.1% when you can own virtually the same at 0.05%. But that's not how the math works. Most subscription based advisors still adjust their fees based on assets, and likely don't even manage the investment side.

Glad you have someone that is providing what you need at a decent fee.

Neutics,

Would love to hear more about this, I've not seen any group that "consistently we are beating the benchmarks" after their fees much less meets the benchmarks and add value such as "Taxes and estate planning" and in addition to " cyber security and luxury travel concierges". Not disparaging your post but as a target customer for you and have not seen those types of results anywhere I have looked I am intrigued. The money has to come from somewhere and it seems like your model finds more than the firms that I have talked to.

Again, don't get me wrong in that I don't find value in the service provided. And there are absolutely significant life events that require savvy planning.

But I'd bet they aren't happening annualy, yet that AUM fee still is.

Getting people on board with AUM is a great gig if you can get it, but it's because you are able to sell it to the customer, not because its fiscally defensible.

Maybe we are the unicorn then! There are very few firms who can do what we do and live up to their promises. You are right to be wary and I'll be as transparent as I can and I am certainly not a salesman.

Again, your frame of reference is completely different. Clients know exactly what they pay, see the performance net of fees, and most of the other value adds are in fact annual/ongoing. Now paying a percent just for handling the investment side with limited planning is ludicrous

A little industry secret for you. While everyone was concerned about fee compression and robo advisors taking over, in reality there is more and more demand for those that can do everything comprehensively. So instead of lowering fees most larger firms are instead adding services for the same level of fees. This is a good thing