Why do people have financial/wealth/portfolio managers?

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MrCheapo
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Why do people have financial/wealth/portfolio managers?

Post by MrCheapo »

Hi,

So I see a few post every day asking about financial/wealth/portfolio managers, that is, people who make investments decisions for you. And it seems whenever I go to parties (not that often now) that people are very happy with their money managers.

I must be missing something but in this age of ultra-cheap index funds why would you use a money manager? My understanding is that no manager could out-perform a good balanced index portfolio. Further, no one will look after your money better than you will. Even if you are ultra-busy, not too-bright etc. why not use a 3 fund portfolio.

Please enlighten me why you use a money manager rather than handling your money yourself? I'm genuinely curious and eager to learn why.
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Kenkat
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Re: Why do people have financial/wealth/portfolio managers?

Post by Kenkat »

All of humanity's problems stem from man's inability to sit quietly in a room alone.
— Blaine Pascal, 1654


Because people over-complicate investing, or they think of it as a game, with winners and losers, or they panic when things go bad and become overconfident when things go good.

And, in fairness to advisors out there who price their services reasonably, below the basics are complex topics such as withdraw strategies, taxes, long-range planning, estate considerations, etc., etc., etc. When you look at the complex topics discussed here sometimes, it can be very overwhelming. Are these necessary to understand? It depends, sometimes yes.
pizzy
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Re: Why do people have financial/wealth/portfolio managers?

Post by pizzy »

MrCheapo wrote: Thu Oct 07, 2021 4:01 pm Hi,

So I see a few post every day asking about financial/wealth/portfolio managers, that is, people who make investments decisions for you. And it seems whenever I go to parties (not that often now) that people are very happy with their money managers.

I must be missing something but in this age of ultra-cheap index funds why would you use a money manager? My understanding is that no manager could out-perform a good balanced index portfolio. Further, no one will look after your money better than you will. Even if you are ultra-busy, not too-bright etc. why not use a 3 fund portfolio.

Please enlighten me why you use a money manager rather than handling your money yourself? I'm genuinely curious and eager to learn why.
You could ask this about most service based industries.
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Re: Why do people have financial/wealth/portfolio managers?

Post by Grt2bOutdoors »

I am my own money manager. I’m going to answer it though because most people want to brag about their “guy” or their “winners” or that they are above average in looks, dress, career and wealth. An intermediary is there to stand between them and the mirror of reality.
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JoeRetire
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Re: Why do people have financial/wealth/portfolio managers?

Post by JoeRetire »

MrCheapo wrote: Thu Oct 07, 2021 4:01 pm I must be missing something but in this age of ultra-cheap index funds why would you use a money manager?
Probably for the same reasons that some people have someone mow their lawn, paint their nails, clean their house, cook some of their meals, wash their car, make their coffee, etc, etc.

Some people want to do most things themselves. Others would rather spend their time elsewhere and are willing to pay for services.
Just remember: it's not a lie if you believe it.
MathWizard
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Re: Why do people have financial/wealth/portfolio managers?

Post by MathWizard »

When I was young (45 years ago), a man paid me $1 to change the oil in his car
(he supplied tools oil and filter)

I swore I would never pay someone to change the oil in my car because it was so easy.

Now I never change my own oil.

I hope to have my financial life so simplified by the time I can't manage it any more
that I will not have to pay someone, other than the fees associated with accounts like
VTSAX, and transferring money to my bank account each month (so autopay will work).

For anything that I can't simplify, my wife or son will have to take over.
ThankYouJack
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Re: Why do people have financial/wealth/portfolio managers?

Post by ThankYouJack »

I have some family who use one. They don't have interest in personal finance and figure a professional will know more and be better than they could do - which could definitely be the case. I'm not sure what they pay, but I figure if it gets them to invest in a worry free way, I won't try to convince them otherwise. It's probably better than them investing in the 3 fund and panic selling during the next bear market.

I'm all about simplicity are there are simple concepts to investing, but it can also become quite complex.
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JoeRetire
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Re: Why do people have financial/wealth/portfolio managers?

Post by JoeRetire »

MathWizard wrote: Thu Oct 07, 2021 4:16 pm For anything that I can't simplify, my wife or son will have to take over.
What if they aren't interested in taking over?
Just remember: it's not a lie if you believe it.
260chrisb
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Re: Why do people have financial/wealth/portfolio managers?

Post by 260chrisb »

Kenkat wrote: Thu Oct 07, 2021 4:08 pm All of humanity's problems stem from man's inability to sit quietly in a room alone.
— Blaine Pascal, 1654


Because people over-complicate investing, or they think of it as a game, with winners and losers, or they panic when things go bad and become overconfident when things go good.

And, in fairness to advisors out there who price their services reasonably, below the basics are complex topics such as withdraw strategies, taxes, long-range planning, estate considerations, etc., etc., etc. When you look at the complex topics discussed here sometimes, it can be very overwhelming. Are these necessary to understand? It depends, sometimes yes.
This is well said! I have an advisor for a portion of my wealth and have for nearly 20 years from a time when I wasn't real savvy about investing although I understood the importance of it and had money in a 401K to rollover into an IRA. He's a personal friend and we make decisions together. With him I have a combination of mutual funds and stocks. I pay reasonable AUM fees but have structured my funds to be mainly VG funds and Indexes within the portfolio. Due to these fees, my plan is to draw from this portfolio first when I retire and manage my next rollover myself as I do my taxable portfolio. Lots of folks need an advisor for the above mentioned issues. I don't have any of those issues but have learned a lot from my advisor over the years and continue to as I approach the withdrawal phase of life.
Dave55
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Re: Why do people have financial/wealth/portfolio managers?

Post by Dave55 »

I used several investment advisor's for about 10 years then went DYI. I learned a lot from them and was too busy running a company at the time to DYI.

I have good friends who use an advisor, love the guy and are totally satisfied with him. They have a very nice low fee arrangement with the advisor. They know nothing about investing and do not care to learn anything about it, hence the advisor.

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
hnd
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Re: Why do people have financial/wealth/portfolio managers?

Post by hnd »

There is much more to wealth managment than choosing a investment portfolio. Most people are also less risk averse than they believe and will make stupid decisions when they are losing money.

Why do people hire personal trainers? Everyone knows that eating right and exercising is the key to being healthy?!!
ThankYouJack
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Re: Why do people have financial/wealth/portfolio managers?

Post by ThankYouJack »

MrCheapo wrote: Thu Oct 07, 2021 4:01 pm
I must be missing something but in this age of ultra-cheap index funds why would you use a money manager? My understanding is that no manager could out-perform a good balanced index portfolio. Further, no one will look after your money better than you will. Even if you are ultra-busy, not too-bright etc. why not use a 3 fund portfolio.
Can you explain more about your understanding?

I bet plenty of money managers are doing better than my 3 fund portfolio, especially with US thumping international and the bond market. My sibling's portfolio (managed by her financial manager) I'm sure is destroying mine. Maybe I'll make up some ground whenever there's a bear market, but hopefully this bull continues on for a while.
mbasherp
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Re: Why do people have financial/wealth/portfolio managers?

Post by mbasherp »

MrCheapo wrote: Thu Oct 07, 2021 4:01 pm My understanding is that no manager could out-perform a good balanced index portfolio.
This is a conclusion which seems more and more common in the indexing crowd and which is not correct. I am an index investor, but I don’t believe this.

What the data shows is that most active managers underperform the indexes after factoring in fees, expenses and taxes. The remaining ones who do outperform are not guaranteed to continue beating the index because it could just be luck or whatever other X factor which may not persist.

The result is that while there are and have been those who truly beat the market AND it is the result of repeatable skills, they are so few that picking them out of the haystack borders on a fool’s errand. That is why I invest passively, myself.

There is wisdom in “good enough.”
backpacker61
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Re: Why do people have financial/wealth/portfolio managers?

Post by backpacker61 »

MrCheapo wrote: Thu Oct 07, 2021 4:01 pm I must be missing something but in this age of ultra-cheap index funds why would you use a money manager? My understanding is that no manager could out-perform a good balanced index portfolio. Further, no one will look after your money better than you will. Even if you are ultra-busy, not too-bright etc. why not use a 3 fund portfolio.

Please enlighten me why you use a money manager rather than handling your money yourself? I'm genuinely curious and eager to learn why.
I do handle my finances myself, but I think a case can be made for many people to engage help.

The truth is that in the aggregate, investors with advisory relationships have better outcomes than those that do not.

Most people are not bogleheads and have no interest in becoming one (or even have heard of them).

Many people could use help with goal setting and budgeting, for example.

Many individual investors buy stocks at the wrong time, sell at the wrong time, or structure portfolios in tax inefficient ways. Use tax exempt bonds when they should use taxable. Or vice versa. Neglect to secure umbrella insurance. Or fail to take full advantage of their employer sponsored retirement plan. Or fail to contribute to an HSA despite being eligible to do so. Or fail to invest the unspent HSA balance if they do have one. Or file for Social Security too early. Make poor decisions about pension lump sum offers. And so on ...

Just looking at the decision-making of many people I'm related to leaves me scratching my head. Many of them would have been better off with an advisor. Even at (much maligned) Edward Jones or Ameriprise.
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Re: Why do people have financial/wealth/portfolio managers?

Post by Broken Man 1999 »

backpacker61 wrote: Thu Oct 07, 2021 5:54 pm
MrCheapo wrote: Thu Oct 07, 2021 4:01 pm I must be missing something but in this age of ultra-cheap index funds why would you use a money manager? My understanding is that no manager could out-perform a good balanced index portfolio. Further, no one will look after your money better than you will. Even if you are ultra-busy, not too-bright etc. why not use a 3 fund portfolio.

Please enlighten me why you use a money manager rather than handling your money yourself? I'm genuinely curious and eager to learn why.
I do handle my finances myself, but I think a case can be made for many people to engage help.

The truth is that in the aggregate, investors with advisory relationships have better outcomes than those that do not.

Most people are not bogleheads and have no interest in becoming one (or even have heard of them).

Many people could use help with goal setting and budgeting, for example.

Many individual investors buy stocks at the wrong time, sell at the wrong time, or structure portfolios in tax inefficient ways. Use tax exempt bonds when they should use taxable. Or vice versa. Neglect to secure umbrella insurance. Or fail to take full advantage of their employer sponsored retirement plan. Or fail to contribute to an HSA despite being eligible to do so. Or fail to invest the unspent HSA balance if they do have one. Or file for Social Security too early. Make poor decisions about pension lump sum offers. And so on ...

Just looking at the decision-making of many people I'm related to leaves me scratching my head. Many of them would have been better off with an advisor. Even at (much maligned) Edward Jones or Ameriprise.
My bold!

I agree 100%. While Edward Jones and Ameriprice will take some of the returns, I believe those folks are still better off than not investing because of fear, lack of knowledge, etc. whatever is preventing them from doing it themselves.

Not everyone is interested in DIY. Those who are might do better, but in reading some of the posts made here, DIY doesn't always beat using an advisor.

So, yeah, if DIY means using low ER funds with an appropriate AA, DIY might very well be much better. As we have seen though, DIY to some means chasing returns, churning their accounts, buying high, selling low, not all DIY will beat using an advisor.

DIY doesn't mean higher returns for all.

Broken Man 1999
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Jamech
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Re: Why do people have financial/wealth/portfolio managers?

Post by Jamech »

I think some people who are not knowledgeable, experienced or interested in investing like the idea of having a "professional" make investment decisions for them. They have no idea of the cost or if they do they look at the fees as a small portion of their portfolio's increase (especially if their reference begins after 2009) rather than calculating the cost per month/year. Many of the salesmen are very good at what they do (selling financial products) and can discern the financial literacy of the client and convince them to "invest". One salesman convinced a co-worker to open a Roth IRA as an emergency fund (just to get a foot in the door and establish the relationship until the 401K becomes available, IMO).

I think some people like the idea that they are prosperous enough to need a financial advisor/planner.
They like to make comments like "my financial guy said" and "I'll check with my financial guy".

Many of these people may be well served by using an advisor but the cost is high.
dukeblue219
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Re: Why do people have financial/wealth/portfolio managers?

Post by dukeblue219 »

Jamech wrote: Thu Oct 07, 2021 6:53 pm I think some people who are not knowledgeable, experienced or interested in investing like the idea of having a "professional" make investment decisions for them.
This whole post is spot on. Couldn't agree more. Professional help isn't bad, it's just that there is a huge industry of expensive professionals that aren't acting as a fiduciary.
MathWizard
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Re: Why do people have financial/wealth/portfolio managers?

Post by MathWizard »

JoeRetire wrote: Thu Oct 07, 2021 4:20 pm
MathWizard wrote: Thu Oct 07, 2021 4:16 pm For anything that I can't simplify, my wife or son will have to take over.
What if they aren't interested in taking over?
In my case that is not a problem.

My wife is was a bookkeeper who started 2 businesses, but she is my age, so my son may need to take over.

At age 32 ,his net worth exceeds what mine was at that age, and he has already agreed to take over if we can't.
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teen persuasion
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Re: Why do people have financial/wealth/portfolio managers?

Post by teen persuasion »

There is also fear.

Fear of making a big mistake - better leave it to an expert.

Fear of the stock market, or investments in general - don't understand how it works, I'm not going to DIY.

Then there's fear of numbers and math. There's a surprising number of people who struggle with math, so avoid it like the plague. If I'd go to a doctor for surgery, I should go to a financial advisor for investing, right?
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Re: Why do people have financial/wealth/portfolio managers?

Post by jarjarM »

Sometime it's just something that they don't want to deal with. My parents are using Edward Jones but it allows them to focus on what's really important to them, enjoying their retirement and play with the grandkids. I don't agree with EJ management but I also won't fault them for it since the growth of the asset isn't as important to them and us.
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GerryL
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Re: Why do people have financial/wealth/portfolio managers?

Post by GerryL »

I just signed my estate planning documents this week, after several rounds of edits. The POA was the scariest, because it essentially gives your designated agent the power to do anything with your money that you can do.

Well, there are some things I would not do, and I certainly don't want my agent to do. I had the lawyer remove a couple of paragraphs, including one that said the agent could hand over "the keys to my kingdom" to a broker who could them make decisions and execute trades without having to consult the agent.
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Re: Why do people have financial/wealth/portfolio managers?

Post by eye.surgeon »

MrCheapo wrote: Thu Oct 07, 2021 4:01 pm Hi,

So I see a few post every day asking about financial/wealth/portfolio managers, that is, people who make investments decisions for you. And it seems whenever I go to parties (not that often now) that people are very happy with their money managers.

I must be missing something but in this age of ultra-cheap index funds why would you use a money manager? My understanding is that no manager could out-perform a good balanced index portfolio. Further, no one will look after your money better than you will. Even if you are ultra-busy, not too-bright etc. why not use a 3 fund portfolio.

Please enlighten me why you use a money manager rather than handling your money yourself? I'm genuinely curious and eager to learn why.
I've asked myself the same question. I think it's the same reason some people still use travel agents.
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Re: Why do people have financial/wealth/portfolio managers?

Post by csmath »

Jamech wrote: Thu Oct 07, 2021 6:53 pm I think some people who are not knowledgeable, experienced or interested in investing like the idea of having a "professional" make investment decisions for them. They have no idea of the cost or if they do they look at the fees as a small portion of their portfolio's increase (especially if their reference begins after 2009) rather than calculating the cost per month/year. Many of the salesmen are very good at what they do (selling financial products) and can discern the financial literacy of the client and convince them to "invest". One salesman convinced a co-worker to open a Roth IRA as an emergency fund (just to get a foot in the door and establish the relationship until the 401K becomes available, IMO).

I think some people like the idea that they are prosperous enough to need a financial advisor/planner.
They like to make comments like "my financial guy said" and "I'll check with my financial guy".

Many of these people may be well served by using an advisor but the cost is high.
This is correct. In addition, they have been exposed to decades of financial advertising and financial pornography. They are sure that the professionals know what they are doing. They just “know” that the average person gets trampled on and loses all their money to the Wall Street suits. I’ve had enough conversations with people where they look at me cross-eyed when I say that most professional fund managers don’t beat the market, after fees, over the long run. It just doesn’t match what they already “know” must be true.
h82goslw
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Re: Why do people have financial/wealth/portfolio managers?

Post by h82goslw »

Because some people just love to say “I got a guy” in reference to a financial advisor
UpperNwGuy
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Re: Why do people have financial/wealth/portfolio managers?

Post by UpperNwGuy »

I do my own investing and have no need of an advisor. However, when I owned a home I hired out all the carpentry, electrical, and plumbing repairs. I'm not good at those things, and the possibility — probability — of my screwing things up frightens me. I refuse to criticize those who feel the same way about investing as I feel about home repairs. Let the professional do it.
Last edited by UpperNwGuy on Fri Oct 08, 2021 6:42 am, edited 1 time in total.
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Re: Why do people have financial/wealth/portfolio managers?

Post by Mr.BB »

Most people actually don't know how they're doing compared to a basic index fund or what their actual cost are with the money manager and what percent they're actually losing overall with the AUM and other expense ratios.
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burritoLover
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Re: Why do people have financial/wealth/portfolio managers?

Post by burritoLover »

The oil change and home repair analogies are flawed because nowadays it is very easy to see up an auto-investing schedule so you can literally be completely hands-off. Target date or balanced funds exist so you don't have to even deal with rebalancing.

Just takes a little self-education - that is what is boils down to - most people are too lazy to do this or they have this preconceived notion that you to have some innate investing skill in order to be successful with investing.
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Jamech
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Re: Why do people have financial/wealth/portfolio managers?

Post by Jamech »

About 2 years ago an EJ advisor made inroads into my workgroup at a Fortune 500 company, many employees having 25+ years with the company and very robust 401K balances. He has signed up 3 that I know of, maybe more. I asked these people “who managed your affairs before you talked to Mr. EJ?”. Of course the answer is “they did”.

Part of the problem may be that once they have fallen into the EJ web and been sold a narrative (and this guy has been with EJ over 20 years so he is very good at sales) and been very public about it, it may be difficult for them to admit that maybe it was a mistake, that maybe it was not the best idea.

But it’s really not my concern how people spend their own money so when they bring up “their guy” and all the wonderful things he is doing for them I just say “that’s nice” and walk away.

Something about leading a horse to water…

Hey, maybe the horse ain’t thirsty!
DrivingFun
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Re: Why do people have financial/wealth/portfolio managers?

Post by DrivingFun »

hnd wrote: Thu Oct 07, 2021 5:01 pm There is much more to wealth managment than choosing a investment portfolio. Most people are also less risk averse than they believe and will make stupid decisions when they are losing money.

Why do people hire personal trainers? Everyone knows that eating right and exercising is the key to being healthy?!!
I'm kind of confused by this entire thread, probably because I'm missing something. I suppose if we're talking about the very narrow scope of an advisor that would literally do nothing more than advise on which financial instruments to put your money in, I get it. But the world of wealth management/financial planning, early retirement planning, taxation, etc. is very complicated. If you're at all interested in FIRE, it makes my head spin the sort of gymnastics that need to be done to minimize taxes, eligibility for Obamacare, etc. It takes some very very serious understanding and planning. But maybe I'm thinking of something else and not what everyone else in this thread is talking about.
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Re: Why do people have financial/wealth/portfolio managers?

Post by hnd »

DrivingFun wrote: Fri Oct 08, 2021 7:43 am
hnd wrote: Thu Oct 07, 2021 5:01 pm There is much more to wealth managment than choosing a investment portfolio. Most people are also less risk averse than they believe and will make stupid decisions when they are losing money.

Why do people hire personal trainers? Everyone knows that eating right and exercising is the key to being healthy?!!
I'm kind of confused by this entire thread, probably because I'm missing something. I suppose if we're talking about the very narrow scope of an advisor that would literally do nothing more than advise on which financial instruments to put your money in, I get it. But the world of wealth management/financial planning, early retirement planning, taxation, etc. is very complicated. If you're at all interested in FIRE, it makes my head spin the sort of gymnastics that need to be done to minimize taxes, eligibility for Obamacare, etc. It takes some very very serious understanding and planning. But maybe I'm thinking of something else and not what everyone else in this thread is talking about.
I think the larger overall issue is that many "advisors" or "planners" are crappy at their jobs or not truly working in your best interest. The field is fraught with landmines. But yes as I said, there is much more to it than deciding where to invest.
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Re: Why do people have financial/wealth/portfolio managers?

Post by wrongfunds »

In Before The Lock! Nothing actionable here!!
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Re: Why do people have financial/wealth/portfolio managers?

Post by Jags4186 »

People have money managers because they either don't want to manage their own money or believe that someone else can manage it better than they can.

It's that simple.
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Re: Why do people have financial/wealth/portfolio managers?

Post by tibbitts »

burritoLover wrote: Fri Oct 08, 2021 7:14 am The oil change and home repair analogies are flawed because nowadays it is very easy to see up an auto-investing schedule so you can literally be completely hands-off. Target date or balanced funds exist so you don't have to even deal with rebalancing.

Just takes a little self-education - that is what is boils down to - most people are too lazy to do this or they have this preconceived notion that you to have some innate investing skill in order to be successful with investing.
And how many books, websites, threads on Bogleheads, etc. did you read before you knew how to set up auto-investing and what you should invest in? I think Bogleheads just don't have the ability to comprehend the entire gradual process they've gone through to get to the point of understanding finances that they're at. It certainly is way beyond what's required to learn to change oil or do many home repairs. To some extent you have to enjoy investing and treat it like a hobby to want to d-i-y, just like that oil change or home repair. While from other threads we know that some Bogleheads can clearly d-i-y almost everything in their lives, most people are much more limited in ability or time or both and have to choose priorities. While Bogleheads might tell everyone to prioritize finances, they only say that because of all the knowledge they've accumulated necessary to come to that conclusion.
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Re: Why do people have financial/wealth/portfolio managers?

Post by ruralavalon »

JoeRetire wrote: Thu Oct 07, 2021 4:13 pm
MrCheapo wrote: Thu Oct 07, 2021 4:01 pm I must be missing something but in this age of ultra-cheap index funds why would you use a money manager?
Probably for the same reasons that some people have someone mow their lawn, paint their nails, clean their house, cook some of their meals, wash their car, make their coffee, etc, etc.

Some people want to do most things themselves. Others would rather spend their time elsewhere and are willing to pay for services.
Some of us are old/impaired and need/want some help.

We can handle the money management, but can't easily handle mowing the lawn, shoveling snow, cleaning house, cooking meals, doing laundry, washing the car, etc, etc.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Why do people have financial/wealth/portfolio managers?

Post by arcticpineapplecorp. »

ThankYouJack wrote: Thu Oct 07, 2021 4:17 pm It's probably better than them investing in the 3 fund and panic selling during the next bear market.
i think this is a fallacy, though people continue to believe that if they are in actively managed funds or have an advisor they will be able to sidestep bear markets. Evidence shows otherwise.

even if active managers or advisors get out it's usually after the market's already declined. Perhaps they don't have the entire losses of the market because they got out while the worst was yet to happen, but then the problem becomes that the advisor/active manager can not know when the worst will be, then the market goes up and then the advisor gets in and misses some of those gains. Missing gains is more important than experiencing temporary losses but try convincing people of that who are fear based.

also there's evidence (was discussed a few weeks ago on bogleheads) that stock pickers may do fine on the buy side, but their mistakes on the sell side is why they do so much worse than the market (i.e., they sell too soon leaving money on the table or too late after the stocks decline).

If the only choices are: 1. do it yourself or 2. hire an advisor, then if the advisor will help them stay the course whereas the individual would not, then the advisor probably will help them do better than they'd do for themself (even after fees). Behavioral errors are a big problem with investing. Investor know thyself.

That doesn't mean you have to pay more than is necessary. When you decide you need an advisor you can choose: 1. high priced wealth management or 2. Vanguard PAS. The latter will do better overtime because of the lower fees. Returns come and go but fees are forever.

Finally, having an advisor doesn't prevent you from firing an advisor or ordering them to sell everything in a panic. The advisor's job is to talk you off the ledge. Their ability to do that will vary upon their expertise in psychology, behavioral finance and ability to influence.
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aristotelian
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Re: Why do people have financial/wealth/portfolio managers?

Post by aristotelian »

Primary reason I see is people who are financially illiterate. They know they will not do a good job on their own and can't or don't want to out the time in to learn themselves. Kind of like contracting out mowing the lawn , house maintenance etc.

Second most common is they think their guy is beating the market and will produce excess returns net of fees.

Third would be to get an outside professional opinion. I think this is the most valid reason but probably the least common.
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burritoLover
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Re: Why do people have financial/wealth/portfolio managers?

Post by burritoLover »

tibbitts wrote: Fri Oct 08, 2021 8:51 am
burritoLover wrote: Fri Oct 08, 2021 7:14 am The oil change and home repair analogies are flawed because nowadays it is very easy to see up an auto-investing schedule so you can literally be completely hands-off. Target date or balanced funds exist so you don't have to even deal with rebalancing.

Just takes a little self-education - that is what is boils down to - most people are too lazy to do this or they have this preconceived notion that you to have some innate investing skill in order to be successful with investing.
And how many books, websites, threads on Bogleheads, etc. did you read before you knew how to set up auto-investing and what you should invest in? I think Bogleheads just don't have the ability to comprehend the entire gradual process they've gone through to get to the point of understanding finances that they're at. It certainly is way beyond what's required to learn to change oil or do many home repairs. To some extent you have to enjoy investing and treat it like a hobby to want to d-i-y, just like that oil change or home repair. While from other threads we know that some Bogleheads can clearly d-i-y almost everything in their lives, most people are much more limited in ability or time or both and have to choose priorities. While Bogleheads might tell everyone to prioritize finances, they only say that because of all the knowledge they've accumulated necessary to come to that conclusion.
It doesn't take long - you could get enough info from the BH wiki alone and then ask a few questions in the forums. Or at the very least, reading a handful of the recommended books from the wiki. If people spent 1/10th the time they spend on useless social media activities on educating themselves in DIY investing, they'd be golden.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
mikejuss
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Re: Why do people have financial/wealth/portfolio managers?

Post by mikejuss »

My own takeaway from much of what has been discussed here--and perhaps I'm wrong--is that money managers are not worth hiring if you're a Boglehead with something like a 3-fund portfolio but that a financial planner can be very useful during the decumulation phase of retirement.

P. S.: Who are the Bogleheads' preferred financial planners? I don't believe that Rick Ferri does financial planning. Whom do you recommend?
Last edited by mikejuss on Fri Oct 08, 2021 9:42 am, edited 1 time in total.
hnd
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Re: Why do people have financial/wealth/portfolio managers?

Post by hnd »

burritoLover wrote: Fri Oct 08, 2021 9:17 am
tibbitts wrote: Fri Oct 08, 2021 8:51 am
burritoLover wrote: Fri Oct 08, 2021 7:14 am The oil change and home repair analogies are flawed because nowadays it is very easy to see up an auto-investing schedule so you can literally be completely hands-off. Target date or balanced funds exist so you don't have to even deal with rebalancing.

Just takes a little self-education - that is what is boils down to - most people are too lazy to do this or they have this preconceived notion that you to have some innate investing skill in order to be successful with investing.
And how many books, websites, threads on Bogleheads, etc. did you read before you knew how to set up auto-investing and what you should invest in? I think Bogleheads just don't have the ability to comprehend the entire gradual process they've gone through to get to the point of understanding finances that they're at. It certainly is way beyond what's required to learn to change oil or do many home repairs. To some extent you have to enjoy investing and treat it like a hobby to want to d-i-y, just like that oil change or home repair. While from other threads we know that some Bogleheads can clearly d-i-y almost everything in their lives, most people are much more limited in ability or time or both and have to choose priorities. While Bogleheads might tell everyone to prioritize finances, they only say that because of all the knowledge they've accumulated necessary to come to that conclusion.
It doesn't take long - you could get enough info from the BH wiki alone and then ask a few questions in the forums. Or at the very least, reading a handful of the recommended books from the wiki. If people spent 1/10th the time they spend on useless social media activities on educating themselves in DIY investing, they'd be golden.
If people spent 1/10th the time they spend on useless social media activities on educating themselves in home repair, they'd be golden.

If people spent 1/10th the time they spend on useless social media activities on educating themselves in oil changes, they'd be golden.
KineticSync
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Re: Why do people have financial/wealth/portfolio managers?

Post by KineticSync »

I think in many cases people believe they're delegating the investment risk. They aren't thinking of it in those terms, they're thinking they're hiring an "expert" who has deep knowledge of an arcane business and has their best interests at heart. This shows up in statements like "more comfortable", "can sleep better" and so forth. In reality, of course, risk can't be delegated (only hedged) and these folks aren't any safer than they were. In fact, they've actually opened themselves up to more risk (a la Bernstein) by hiring someone whose credentials they don't understand to do something for them that they themselves choose not to understand.

Estate planning, tax planning, even per-hour fiduciaries, yeah. But engaging in the fallacy that some guy who knows how to beat the market is going to spend his time investing my money rather than just making zillions himself, that's a costly delusion.
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Toons
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Re: Why do people have financial/wealth/portfolio managers?

Post by Toons »

Kenkat wrote: Thu Oct 07, 2021 4:08 pm All of humanity's problems stem from man's inability to sit quietly in a room alone.
— Blaine Pascal, 1654


Because people over-complicate investing, or they think of it as a game, with winners and losers, or they panic when things go bad and become overconfident when things go good.

And, in fairness to advisors out there who price their services reasonably, below the basics are complex topics such as withdraw strategies, taxes, long-range planning, estate considerations, etc., etc., etc. When you look at the complex topics discussed here sometimes, it can be very overwhelming. Are these necessary to understand? It depends, sometimes yes.

Excellent
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nedsaid
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Re: Why do people have financial/wealth/portfolio managers?

Post by nedsaid »

arcticpineapplecorp. wrote: Fri Oct 08, 2021 9:06 am
also there's evidence (was discussed a few weeks ago on bogleheads) that stock pickers may do fine on the buy side, but their mistakes on the sell side is why they do so much worse than the market (i.e., they sell too soon leaving money on the table or too late after the stocks decline).
This effect is one reason that individuals should not invest in individual stocks. The buy decision is relatively easy, the sell decision is relatively difficult. Going from memory, individual investors who pick their own stocks on average trail the market by 4 percentage points a year, two big reasons: first their stocks picks aren't too good, the stocks individuals sell tend to do better than what they buy to replace. Individual investors have a big problem with this but institutional investors are not immune.

Other culprits for underperformance are performance chasing and lack of patience. Institutional investors are not immune from this either.
A fool and his money are good for business.
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burritoLover
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Re: Why do people have financial/wealth/portfolio managers?

Post by burritoLover »

hnd wrote: Fri Oct 08, 2021 9:39 am
burritoLover wrote: Fri Oct 08, 2021 9:17 am
tibbitts wrote: Fri Oct 08, 2021 8:51 am
burritoLover wrote: Fri Oct 08, 2021 7:14 am The oil change and home repair analogies are flawed because nowadays it is very easy to see up an auto-investing schedule so you can literally be completely hands-off. Target date or balanced funds exist so you don't have to even deal with rebalancing.

Just takes a little self-education - that is what is boils down to - most people are too lazy to do this or they have this preconceived notion that you to have some innate investing skill in order to be successful with investing.
And how many books, websites, threads on Bogleheads, etc. did you read before you knew how to set up auto-investing and what you should invest in? I think Bogleheads just don't have the ability to comprehend the entire gradual process they've gone through to get to the point of understanding finances that they're at. It certainly is way beyond what's required to learn to change oil or do many home repairs. To some extent you have to enjoy investing and treat it like a hobby to want to d-i-y, just like that oil change or home repair. While from other threads we know that some Bogleheads can clearly d-i-y almost everything in their lives, most people are much more limited in ability or time or both and have to choose priorities. While Bogleheads might tell everyone to prioritize finances, they only say that because of all the knowledge they've accumulated necessary to come to that conclusion.
It doesn't take long - you could get enough info from the BH wiki alone and then ask a few questions in the forums. Or at the very least, reading a handful of the recommended books from the wiki. If people spent 1/10th the time they spend on useless social media activities on educating themselves in DIY investing, they'd be golden.
If people spent 1/10th the time they spend on useless social media activities on educating themselves in home repair, they'd be golden.

If people spent 1/10th the time they spend on useless social media activities on educating themselves in oil changes, they'd be golden.
Nope - there's no skill involved in setting up a DIY investment portfolio once you understand the benefits of low-cost broadly diversified index funds. You could literally open an account at Vanguard or Fidelty or wherever, choose a low-cost target date fund or balanced fund and set up auto-invest - all in less than a day and then do absolutely NOTHING from that point forward except maybe some contribution increases once a year as your salary increases. Or you could do a 3-fund portfolio which you could rebalance once a year - not really that complicated.

I could read about patching the stucco on my house - pretty much guaranteed my first attempt doing this will look like crap. I do my own oil changes, but there's no set and forget it process for DIY oil changes - I will be getting my hands dirty and taking up my time to do all future oil changes. In fact, I've spent way more time doing oil changes on all our cars this year than managing my portfolio.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Impatience
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Re: Why do people have financial/wealth/portfolio managers?

Post by Impatience »

Because the wealth management industry is absolutely busting at the seams with skilled and motivated salespeople and marketers. And those talents work just as well as they do in any other industry whether it’s soft drinks or yoga pants or mutual funds.
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Re: Why do people have financial/wealth/portfolio managers?

Post by tibbitts »

hnd wrote: Fri Oct 08, 2021 9:39 am If people spent 1/10th the time they spend on useless social media activities on educating themselves in home repair, they'd be golden.

If people spent 1/10th the time they spend on useless social media activities on educating themselves in oil changes, they'd be golden.
That's the point: you could substitute repairing their appliances, fertilizing/cutting their lawn, painting their house, replacing their fence...

Something I've learned here over the years is that most Bogleheads take an engineering approach to a problem: they have a compulsion to understand exactly how something works, what caused a problem, and only then maybe decide whether to have someone else deal with the details. Example: while I was sitting in traffic a few days ago, my car suddenly dumped most of its cooling system contents onto the street. The Boglehead approach would be to analyze exactly why that happened, probably down to the exact component that failed. But lots of people would accept that the problem was the engine suddenly overheated, and simply get the car to a mechanic. Bogleheads just can't comprehend the latter approach to almost anything in life, because it's generally not optimal from a financial standpoint, and Bogleheads are all about optimizing... everything.
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Re: Why do people have financial/wealth/portfolio managers?

Post by Jamech »

In fact, they've actually opened themselves up to more risk (a la Bernstein) by hiring someone whose credentials they don't understand to do something for them that they themselves choose not to understand.

Estate planning, tax planning, even per-hour fiduciaries, yeah. But engaging in the fallacy that some guy who knows how to beat the market is going to spend his time investing my money rather than just making zillions himself, that's a costly delusion.
Perfect description of what is happening.
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Re: Why do people have financial/wealth/portfolio managers?

Post by tibbitts »

burritoLover wrote: Fri Oct 08, 2021 9:56 am Nope - there's no skill involved in setting up a DIY investment portfolio once you understand the benefits of low-cost broadly diversified index funds. You could literally open an account at Vanguard or Fidelty or wherever, choose a low-cost target date fund or balanced fund and set up auto-invest - all in less than a day and then do absolutely NOTHING from that point forward except maybe some contribution increases once a year as your salary increases. Or you could do a 3-fund portfolio which you could rebalance once a year - not really that complicated.

I could read about patching the stucco on my house - pretty much guaranteed my first attempt doing this will look like crap. I do my own oil changes, but there's no set and forget it process for DIY oil changes - I will be getting my hands dirty and taking up my time to do all future oil changes. In fact, I've spent way more time doing oil changes on all our cars this year than managing my portfolio.
But you only know that it isn't more complicated because you spent countless hours researching the issue and finally concluded that "wow, there isn't anything more to this investing thing." Well until you started looking at loading factors, slicing and dicing, the ins and out of commodities, tax efficiency...
mikejuss
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Re: Why do people have financial/wealth/portfolio managers?

Post by mikejuss »

tibbitts wrote: Fri Oct 08, 2021 10:03 am
hnd wrote: Fri Oct 08, 2021 9:39 am If people spent 1/10th the time they spend on useless social media activities on educating themselves in home repair, they'd be golden.

If people spent 1/10th the time they spend on useless social media activities on educating themselves in oil changes, they'd be golden.
That's the point: you could substitute repairing their appliances, fertilizing/cutting their lawn, painting their house, replacing their fence...

Something I've learned here over the years is that most Bogleheads take an engineering approach to a problem: they have a compulsion to understand exactly how something works, what caused a problem, and only then maybe decide whether to have someone else deal with the details. Example: while I was sitting in traffic a few days ago, my car suddenly dumped most of its cooling system contents onto the street. The Boglehead approach would be to analyze exactly why that happened, probably down to the exact component that failed. But lots of people would accept that the problem was the engine suddenly overheated, and simply get the car to a mechanic. Bogleheads just can't comprehend the latter approach to almost anything in life, because it's generally not optimal from a financial standpoint, and Bogleheads are all about optimizing... everything.
Yes, this approach is sometimes tiresome; sometimes outsourcing the solution to a problem is not a bad thing. But understanding how investing works is, in my opinion, a good use of one's time.
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arcticpineapplecorp.
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Re: Why do people have financial/wealth/portfolio managers?

Post by arcticpineapplecorp. »

another thought regarding the fees is there's a disconnect between the fee and the feeling of paying the fee.

similar to how people spend more when using credit cards as opposed to cash, i think there would be a lot more pain associated if people had to pay separately by check to their advisor, rather than having the fee automatically deducted from their investment account.

also if the account increased by an amount that's more than the fee, i think people don't care, though they should:

example:
acct starts with $100k
by end of year grew to $108,000 (8% growth),
advisor then takes out $1080 (1% of $108k)
which leaves the ending acct value $106,920

since $106,920 is still more than the $100,000 they started with, do you think people react positively or negatively?

Would they react the same if they have to pay $1080 fee at the end of the year out of pocket?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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burritoLover
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Re: Why do people have financial/wealth/portfolio managers?

Post by burritoLover »

tibbitts wrote: Fri Oct 08, 2021 10:07 am
burritoLover wrote: Fri Oct 08, 2021 9:56 am Nope - there's no skill involved in setting up a DIY investment portfolio once you understand the benefits of low-cost broadly diversified index funds. You could literally open an account at Vanguard or Fidelty or wherever, choose a low-cost target date fund or balanced fund and set up auto-invest - all in less than a day and then do absolutely NOTHING from that point forward except maybe some contribution increases once a year as your salary increases. Or you could do a 3-fund portfolio which you could rebalance once a year - not really that complicated.

I could read about patching the stucco on my house - pretty much guaranteed my first attempt doing this will look like crap. I do my own oil changes, but there's no set and forget it process for DIY oil changes - I will be getting my hands dirty and taking up my time to do all future oil changes. In fact, I've spent way more time doing oil changes on all our cars this year than managing my portfolio.
But you only know that it isn't more complicated because you spent countless hours researching the issue and finally concluded that "wow, there isn't anything more to this investing thing." Well until you started looking at loading factors, slicing and dicing, the ins and out of commodities, tax efficiency...
You can make anything more complicated than it needs to be. That includes oil changes - you could spend countless hours investigating which oil is best , the best change interval, sending off used oil to get an oil analysis, figuring out which oil filters have the best protection, and so on. Those that were willing to have someone else do their investing for them are not likely to do a deep dive into this stuff if they attempt DIY.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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