Wealth Management groups -- why used if don't make financial sense

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sitout
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Wealth Management groups -- why used if don't make financial sense

Post by sitout »

Through a number of threads here, the consensus is fairly consistent that various actively engaged wealth management groups, UBS, Goldman, Vanguard private advisor, JP Morgan Private Banking, Morgan Stanley, others, don't warrant the required fee structures versus a do-it-yourself low cost fund approach, particularly for those who are decent students of investing.

If that's the case, how do these wealth management groups do the good business they apparently do?
livesoft
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Re: Wealth Management groups -- why used if don't make financial sense

Post by livesoft »

You know that many people do not wish to be even the worst students of investing and have their fears and anxiety about money that they can avoid by using not-themselves.
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Impatience
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Re: Wealth Management groups -- why used if don't make financial sense

Post by Impatience »

A financial advisor who charges you an arm and a leg is still a lot better, probably, than not saving for retirement at all, or socking every spare dollar in your savings account (or mattress). Most Americans would probably be better off paying an advisor 1% a year than doing whatever they’re doing or not doing now as long as that advisor puts their money somewhere decent.
senex
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Re: Wealth Management groups -- why used if don't make financial sense

Post by senex »

1) Some people have no interest

2) Some people have no ability (would panic sell on every drop etc)

3) Some people don't want the psychological yoke of being "responsible" for investing decisions (second guessing self, fretting about poor performance, explaining net worth declines to spouse, etc)

4) Some people like the self-image (want to say at parties, "my private banker at Goldman says xyz..")

5) Many people actually believe the returns are above indexing, but don't have time/ability/inclination to investigate. (It is hard to determine true post-tax returns, especially the more exotic the investments, especially if you don't do your own taxes).
Last edited by senex on Tue Aug 25, 2020 1:03 pm, edited 1 time in total.
arf30
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Re: Wealth Management groups -- why used if don't make financial sense

Post by arf30 »

People are rich, busy, and not experts in investing, so they leave it to "the professionals".
LarryCarell
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Re: Wealth Management groups -- why used if don't make financial sense

Post by LarryCarell »

I can judge on my own example - had no clue about indexing and all statistic and idea behind it.
GmanJeff
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Re: Wealth Management groups -- why used if don't make financial sense

Post by GmanJeff »

Some investors, perhaps even most who don't frequent this particular on-line forum, want advice for themselves and/or for their successors and prefer to get it from known individuals who can be held responsible for the advice they give, for better or for worse. Such investors also likely believe that the returns and volatility they experience justify the costs of management, whether through a pure robo, a hybrid robo, or a full-service advisory firm, because those results are superior to what such investors expect they would achieve on their own or with unpaid resources as support.
deltaneutral83
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Re: Wealth Management groups -- why used if don't make financial sense

Post by deltaneutral83 »

There isn't another marketing machine I'm aware of that does as good a job muddying the waters as the 1% AUM/front end loads/churned commission guys. To get around this you have to actively educate yourself and while there are plenty of fantastic mediums to do this now, I'm impressed with anyone who used index funds say before 2000, meaning your elders didn't flat out tell you, you just discovered it. I didn't even realize 15 years ago that the relative benchmark(s) return the same thing as all the active managers before fees, after fees is where the fun starts. I just assumed most active guys "beat the market (S&P)" and didn't think there was much to it. I always knew 1% was a lot once compounded, that was never a mathematical problem I just thought active guys "beat the market" by more than 1% each year over time. It's nearly impossible in a taxable account over 20 years and even more impossible to identify it legally in advance.
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AlabamaPaul
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Re: Wealth Management groups -- why used if don't make financial sense

Post by AlabamaPaul »

I know some people who use a Money Manager for for everyday cash management. Some don't have the time due to travel requirements, others don't want to deal with the hassle due to other priorities...
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bottlecap
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Re: Wealth Management groups -- why used if don't make financial sense

Post by bottlecap »

People are busy, not interested, bombarded with messages that investing is difficult and timing is everything, and, most of all, people do not want to be burdened with decision-making.

Being a decision-maker, even a perceived decision maker, pays big bucks, especially about big things. Not having to make decisions pays minimum wage.

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Doctor Rhythm
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Re: Wealth Management groups -- why used if don't make financial sense

Post by Doctor Rhythm »

Same reasons I paid a mechanic to change swap out the spark plugs. I didn’t want to learn how to DIY; I didn’t want to spend the time doing it; and although fairly straightforward, since I’ve never done it, there was a non-zero chance I’d screw up.
DarkHelmetII
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Re: Wealth Management groups -- why used if don't make financial sense

Post by DarkHelmetII »

Impatience wrote: Tue Aug 25, 2020 12:39 pmMost Americans would probably be better off paying an advisor 1% a year than doing whatever they’re doing or not doing now as long as that advisor puts their money somewhere decent.
+1. I think that advice from the likes of Warren Buffett or Jack Bogle to put $$ into an index fund or select few funds and forget about it (plus perhaps some rebalancing) in concept, is generally sound guidance, but for a variety of reasons the reality is many will fail miserably at this approach even to the extent that paying fees that many BH's would consider outrageous will still leave them better off than left to their own devices.
3-20Characters
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Re: Wealth Management groups -- why used if don't make financial sense

Post by 3-20Characters »

If wealthy (I know from family who are), they call and demand what’s needed. Reports, tax documents, send this or that to another party and csr takes care of it without any effort from client beyond initial call or email. CSR follows up on docs, etc and wealth management also has their own services for taxes, attorneys, etc as well if desired. It all seems seamless and costs are well hidden and allows client to spend time with family, take vacations, etc with any free time rather than spreadsheets and TurboTax. Almost looks like you’re getting it all cheap. I bet most people who use wealth manager have no idea of actual $$$ costs to them. Not being wealthy, I need to be more on the ball and can’t afford such concierge service (even if I want it).
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JoeRetire
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Re: Wealth Management groups -- why used if don't make financial sense

Post by JoeRetire »

sitout wrote: Tue Aug 25, 2020 12:31 pm Through a number of threads here, the consensus is fairly consistent that various actively engaged wealth management groups, UBS, Goldman, Vanguard private advisor, JP Morgan Private Banking, Morgan Stanley, others, don't warrant the required fee structures versus a do-it-yourself low cost fund approach, particularly for those who are decent students of investing.

If that's the case, how do these wealth management groups do the good business they apparently do?
Not everyone wants to DIY everything. Everyone pays others to do at least some things for them. Sometimes its oil changes, lawn services, home maintenance, dining, cleaning, and sometimes it's financial planning.
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meowcat
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Re: Wealth Management groups -- why used if don't make financial sense

Post by meowcat »

senex wrote: Tue Aug 25, 2020 12:54 pm 1) Some people have no interest

2) Some people have no ability (would panic sell on every drop etc)

3) Some people don't want the psychological yoke of being "responsible" for investing decisions (second guessing self, fretting about poor performance, explaining net worth declines to spouse, etc)

4) Some people like the self-image (want to say at parties, "my private banker at Goldman says xyz..")

5) Many people actually believe the returns are above indexing, but don't have time/ability/inclination to investigate. (It is hard to determine true post-tax returns, especially the more exotic the investments, especially if you don't do your own taxes).
Emphasis on 4. It's difficult to imagine just how much investors are willing to spend to get that huge ego boost by letting fellow party-goers know that they just got off the phone with their broker, and this is not a joke. My BIL spends upwards of $200k/yr for that ego boost. He wouldn't give that up for anything.
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000
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Re: Wealth Management groups -- why used if don't make financial sense

Post by 000 »

Some have so much money the fees don't matter but the time does -- at least according to their preferences, which may seem irrational to bogleheads.
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AlabamaPaul
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Re: Wealth Management groups -- why used if don't make financial sense

Post by AlabamaPaul »

000 wrote: Tue Aug 25, 2020 4:12 pm Some have so much money the fees don't matter but the time does -- at least according to their preferences, which may seem irrational to bogleheads.
My daughter's family is one of these, though they don't have the "so much money" part yet... :shock:
mptfan
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Re: Wealth Management groups -- why used if don't make financial sense

Post by mptfan »

senex wrote: Tue Aug 25, 2020 12:54 pm 1) Some people have no interest
I would go so far to say that most people have no interest. Bogleheads represent a very tiny minority.
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anon_investor
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Re: Wealth Management groups -- why used if don't make financial sense

Post by anon_investor »

Bottom line, people do not know any better...
JBTX
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Re: Wealth Management groups -- why used if don't make financial sense

Post by JBTX »

On the surface, it seems logical that it is worthwhile to pay for financial professional help just as you do with taxes, legal help, medical help, etc etc. While for many with some effort they can DIY, I think many here probably underestimate how intimidating it can be for most people.
retired@50
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Re: Wealth Management groups -- why used if don't make financial sense

Post by retired@50 »

sitout wrote: Tue Aug 25, 2020 12:31 pm
If that's the case, how do these wealth management groups do the good business they apparently do?
They have very effective salespeople.

People want to believe that if you work hard at something (picking stocks or mutual funds) that you'll be good at it. This is true for auto mechanics, plumbers, carpenters, etc. You can learn a trade and become very skilled at it with practice, etc. The salespeople simply further this notion, even though it isn't true for security selection or market timing maneuvers.

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illumination
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Re: Wealth Management groups -- why used if don't make financial sense

Post by illumination »

Many wealthy people view it like any other professional service. A CPA tax knows way more about tax law than a layman, so it makes sense to pay someone to do your tax return. A financial planner "knows" more than most about stocks, bonds, and retirement accounts, so it's a smart way to invest and have an edge. It's "insurance" that you don't do something stupid with your nest egg. Also, since other "rich" people do it, it must be better than the "normal" way people invest. Add that there's a fancy office and a lot of jargon most people don't understand and it's like a club for the elite.

The internet has really exposed much of this now as information about how to properly invest is far more accessible. If you asked me (or most people 20 years ago) I would say you need experts to do all of this for you, otherwise it's just gambling. All I could go off was printed articles about the subject that were usually pretty self serving. A lot of these misconceptions evaporate when you embrace passively managed index funds. Once you see that even elite hedge funds underperform a basic index something like 90% of the time, paying someone to manage your money starts looking foolish and you start examining the whole model.
Last edited by illumination on Tue Aug 25, 2020 5:43 pm, edited 1 time in total.
MikeG62
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Re: Wealth Management groups -- why used if don't make financial sense

Post by MikeG62 »

anon_investor wrote: Tue Aug 25, 2020 4:30 pm Bottom line, people do not know any better...
^This (for the most part)

Read Where Are All The Customers Yachts, by Fred Schwed if you still have questions.
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htdrag11
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Re: Wealth Management groups -- why used if don't make financial sense

Post by htdrag11 »

Not sure if the stats are accurate when I googled the number of members here. How does 90,000 sound? I'm in the home theater forum, but probably 95% of the people in our country do not own a projector, yet there are over 1 million members there. So how many people do you think need help from a CFA/CFP/FP, etc.?

Guess most people just hire a "professional". If anything, they could help us avoid stupid mistakes like pull all the money out in a down market but jumping back in while the market is peaking.

DW just think that I'm cheap. She knows better since she has 2 FPs. :oops:
Olemiss540
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Re: Wealth Management groups -- why used if don't make financial sense

Post by Olemiss540 »

Why do people fall for pyramid schemes? Because they are swindled through slick sounding salesmen to believe that having some money allows them access to some special investment options.

I would gladly pay a mechanic for a brake job, but would NEVER pay a mechanic to sell me brake pads for life at a cost of 2.5% of my vehicle cost every year regardless of need or braking success.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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