My private bank has a lot of funds

[livesoft]

I suppose the TIAA Real Estate Account shares that I own are an Alternative.

The cool thing is that Alternatives go down and sometimes they go up. They do get more press coverage when they go up and less press coverage when they go down.

And since your private bank has a 60/40 portfolio it should be very easy to compare its total return (calculated after your taxes) compared to a 60/40 benchmark fund.

[Valuethinker]

My private bank strongly believes in investing in alternatives in addition to fixed income to ensure a diverse set of investments.

The traditional fixed-income elements of their discretionary portfolios actually have a portion of alternatives. For example, in their 60/40 portfolio, 40% is actually made up of 25% fixed income, and 15% alternatives (hedge funds and commodities).

It is an interesting angle, as it has as an example offered some protection in the last year when fixed income declined.

1. I could make a case for Real Estate, as a protection against inflation and a diversifier. Unfortunately, with Covid, we learned that RE can be structurally risky - there can be an "exogenous shift in the preferences for different types of real estate". In finance speak or in plain English the continued viability of office space & retail is in some question.

(Vanguard REIT index fund probably does the job for a total cost which is lower)

2. I can make a case for Private Equity. But there are US tax issues, I gather? PFIC I think. So whereas in the UK I can hold Closed End Funds that invest in PE, a US taxpayer cannot do the same? The US listed stocks are actually the management companies, not the funds? (I am vague on this).

The fees on PE funds are also killing. You not only pay the high management fees, the 2% & 20%-- the basic fee on committed assets (*not* invested) and then the 20% carried interest on the upside (positive returns).

PE will be highly geared to the stock market but with a lag (since a PE fund is basically small cap value + leverage).

3. note with hedge funds you are paying those sorts of fees as in 2.

4. Commodities? I remember Soros' testimony to Congress: that there is no inherent return to commodities, and a large number of institutional investors were jumping on the "diversification" bandwagon, and it would all end unhappily. Which it did.

Larry Swedroe's posts are a guide here to Commodity investing and where the money is made for investors in it.

5. Swedroe has recommended other sorts of funds here eg reinsurance funds that his fund management firm offers to clients. I gather they have done quite poorly since, however.

[BrooklynInvest]

My private bank strongly believes in investing in alternatives in addition to fixed income to ensure a diverse set of investments.

I've worked for several private banks. They believe strongly in fees. "Hard to access" alternatives are part of the exclusivity pitch. Their benefit to your portfolio is likely negligible over the long run, the fees associated with them are far less negligible.

You're right though - some likely had a benefit last year as bonds and stocks tanked. But worthwhile over a lifetime? Not what I'd do - I think it's a great time to index a 60-40 portfolio for a few bps a year.

Good luck!

[gavinsiu]

Do you understand what those alternatives are and what their downsides are? Yes, they protect you against last year's market crash, but does the asset has its own achille's heel that you don't know about. The next headline could be everyone's portfolio is going up 20% while yours is falling 20%. My preference is to stick with the devil I know and if there is an alternative, I like to know how they work before I invest.

[LadyGeek]

tradez - In order to provide appropriate advice, it's best to keep all of the information in a single discussion. I merged your update back into the original thread. If you have any questions, ask them here.

[TomatoTomahto]

Imo, you aren't in a category to need alternatives (eg, college endowment, family office, etc).

Why would the category I am in matter? Looking after money is the same regardless of wealth. That being said, I have a fairly large portfolio with them, although soon to be reduced as I have been convinced by the forum!

In principle, I mostly agree with you. We have a relatively large portfolio that we manage via Boglehead principles. Ditto most family members, with the exception of one who has access to an alternative investment because his employer manages it; you and I are not welcome there, nothing personal . 7 and 8 digit portfolios are well handled using Boglehead principles.

That said, if our portfolio were more than low 9 digits (it's not and unlikely to ever be that), or our investment horizon were as long as Yale's, we'd be looking at alternatives. That's the region of a family office; we are just lucky/comfortable.

[Fat Tails]

As others have said, they have to make it look complicated to justify their fee.

You could invest it yourself IF you can master your emotions and not buy high and sell low.

Cheers.

[DoctorE]

Here's what a simple two fund portfolio would have done in USD after fees:
USD 60/40 - VT/BND - 1.51% 3Y, 3.32% 5Y, 5.43% 10Y

You raise an interesting point, but there are still choices to be made as to whether you choose a US-heavy Large Cap, All-World, Emerging Markets etc. All have performed differently, and an adviser would argue they can use tactical allocation to move things around if there is a macro need too. My bank has suggested 1% uplift for TAA.

As it so happens, this thread has no doubt convinced me that I should go down the bogle route (should I expect anything less from this forum!) and my mind is moving towards IWDA + EIMI. Unless I am analysing it incorrectly, it seems like the iShares MSCI World Index has performed better than the FTSE Vanguard All World. The US Cap heavy has of course performed the best in the long run (S&P500)

The choices you refer to are known as 'tilts'. Whether those tilts are correct or not based on the banker's macro view are to be seen. If you look at the data, most active managers (85%) don't outperform after fees over a decade. If you are confident that your banker and their team are part of the top 15%, then you might edge out some 'outperformance'. JP Morgan puts out a wonderful "Guide to the Markets" which is enough information to form your own view based on their top $ research.

If you are still confident your bank adds value what I would do is open up a self directed trading account at IBKR, Schwab or any other low cost UK brokerage and create a passive portfolio yourself. Run it for 1-2-3-5 years with very little turnover and then compare with your bank's performance after fees. To give it a fair comparison, make sure that you have similar amount of equity % in both portfolios. If your bank runs 60/40, then make sure you have 60% equity in your self directed account. Ideally a globally diversified market cap diversified, low cost ETF.

[exodusing]

In principle, I mostly agree with you. We have a relatively large portfolio that we manage via Boglehead principles. Ditto most family members, with the exception of one who has access to an alternative investment because his employer manages it; you and I are not welcome there, nothing personal . 7 and 8 digit portfolios are well handled using Boglehead principles.

That said, if our portfolio were more than low 9 digits (it's not and unlikely to ever be that), or our investment horizon were as long as Yale's, we'd be looking at alternatives. That's the region of a family office; we are just lucky/comfortable.

At some point it may make sense to switch from low cost broad based index funds (or the like), but at that point I'd be more interested in having a portfolio managed for tax efficiency than alternative investments or "diversifiers". Low nine digits may qualify as that point. OTOH, it's not clear how one would switch from mutual funds to something else in a tax-efficient manner, assuming assets are in taxable and you've held for a long time.

[tradez]

[Thread merged into here --admin LadyGeek]

I have large investments with a major private bank. One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

Whilst I understand the data suggests that 80% of funds do not beat their benchmark for a long period of time, is there any data that is based on fund size? Further to this, some of these funds are more short-term play as opposed to long-term. Below are two examples of funds I invested in about 18 months ago. Granted, they have underperformed their own benchmark recently which isn't the best example to provide, but nonetheless, are there arguments FOR investing in certain funds for shorter periods of time? In regular trading times, they could have very much performed significantly above.

LU1330433738
IE00B4WZJB45

The alternative option I am now considering is to see which sectors the bank like the most / look at the funds they suggest, and then buy the benchmark ETF!?

[mega317]

Sure anything can perform significantly above anything else over short periods. How do you propose to find the overachievers? I'm quite certain that if your bank or anyone else could do that reliably they wouldn't waste time advising you. They'd spend every available second figuring out how to maximize their leverage and invest that the sure thing themselves. Before Joe Public figures it out and drives the price up.

[psteinx]

Your bank will likely spotlight the track records of (recently) WINNING funds.

They probably even recommended these funds, 1/3/5 years ago.

But they probably also recommended some LOSING funds. Those get pushed out of their lineup, and aren't spotlighted anymore. So if you just look at the list of funds CURRENTLY on offer, you're likely to see a lot of great looking funds.

Beware survivorship bias.

Anyways, no, I don't think you, a retail investor, are likely being offered any notably great funds. Even if you have $10m, $50m, or $250m, you're still a small fish on Wall Street.

[smooth_rough]

I have large investments with a major private bank. One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

Whilst I understand the data suggests that 80% of funds do not beat their benchmark for a long period of time, is there any data that is based on fund size? Further to this, some of these funds are more short-term play as opposed to long-term. Below are two examples of funds I invested in about 18 months ago. Granted, they have underperformed their own benchmark recently which isn't the best example to provide, but nonetheless, are there arguments FOR investing in certain funds for shorter periods of time? In regular trading times, they could have very much performed significantly above.

LU1330433738
IE00B4WZJB45

The alternative option I am now considering is to see which sectors the bank like the most / look at the funds they suggest, and then buy the benchmark ETF!?

The first fund is robotics equity fund. Too over-specialized for me.
The second fund is asia ex-japan fund. Too much china for me.

When I first started investing, I looked at sector funds to juice my returns. I threw some money at SE Asia fund, biotech fund etc. Lost small amount of money and time. IMO its not wise strategy to try to use sector funds that way. It becomes chasing the hot funds of the previous year, and market timing. Fidelity is big in sector funds.

But sector funds might be useful to reduce volatility in your AA, such as utilities or consumer staples etc.

[Taylor Larimore]

Full transparency - I have a 7-figure discretionary portfolio with a global private bank. Their fees are about 1% PA + product costs. Breaking down the portfolio I am 60/40 split and it’s made up of about 20 equity ETFs/Funds, and 5 bond funds. They make changes every few months. (Side note: I know this is too conservative given I am in mid 30s)

I’ve spent far too much time now reading about passive investing, and I’m very intrigued to pull the money out and invest it myself. Question I have is why the bank (and most other wealth managers) would invest in so many funds. There must be an advantage to doing this or they would minimize the number/complexity. I don’t believe they do it simply for optics in order to make it look like they are doing a lot. This is a global renowned private bank. There must be advantages.

Keen on your thoughts. I am extremely nervous about pulling the trigger as although it all makes sense on paper, I can’t help but think the bank are professionals and can surely make 1% more than me who has no experience.

tradez:

I think you would be wise to "pull the money out and invest it myself". It is not difficult. Read about The Three-Fund Portfolio. Simply invest in two or three total market index funds and save your money. The bank won't tell you, but their primary interest is taking money from your returns to pay their stockholders.

This is what Nobel Laureates do:

Douglas Diamond: "Asked what he’ll do with his share of the prize money, Diamond said he’ll probably put it in a total market index fund."

Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Daniel Kahneman: "Investors shouldn't delude themselves about beating the market. They're just not going to do it. It's just not going to happen."

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Merton Miller: "Most people might just as well buy a share of the whole market, which pools all the information, than delude themselves into thinking they know something the market doesn't"

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."

With respect to "making changes every few months" read Jack Bogle's Quote below:

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Stay the Course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you."

[Apathizer]

Rather than targeting specific sectors, it would probably be more prudent to add factor slants, specifically small value to an index portfolio. These will have the effect of unintentionally overweighting some sectors, but again this isn't the intention.

The evidence available shows that the only way to increase market cap weight returns is to shift some assets to riskier segments of the market that have higher return potential like small value. This doesn't guarantee higher returns. Small value returns might outperform, they might underperform, that's the risk, or they might perform about the same as the market.

[Beensabu]

You're talking about a short-term sector rotation strategy. That's hard to pull off successfully. Unlikely to find support for that here.

What you will find are iterations of one of the following as a long-term buy-and-hold strategy:

sector funds might be useful to reduce volatility

add factor slants, specifically small value to an index portfolio

Or using an ex-US allocation to somewhat smooth out any unwanted sector overweights that might result from market cap weighting.

[Apathizer]

You're talking about a short-term sector rotation strategy. That's hard to pull off successfully. Unlikely to find support for that here.

What you will find are iterations of one of the following as a long-term buy-and-hold strategy:

sector funds might be useful to reduce volatility

add factor slants, specifically small value to an index portfolio

Or using an ex-US allocation to somewhat smooth out any unwanted sector overweights that might result from market cap weighting.

I have a globally diversified factor slanted portfolio, so do both

[secondopinion]

Is there a reason from a portfolio-level standpoint to buy such? For most investors, they cannot give an informed reason to do so.

[nisiprius]

Robotics is not a "sector."

If your private bank is calling robotics a "sector," something is badly wrong.

Sectors are part of a classification system called GICS, Global Industry Classification System, developed by MSCI and S&P. There are only eleven GICS sectors:

1. Energy
2. Materials
3. Industrials
4. Consumer Discretionary
5. Consumer Staples
6. Health Care
7. Financials
8. Information Technology
9. Communications Services
10. Utilities
11. Real Estate

Sectors are subdivided into industry groups; industry groups, into industries; and industries, into sub-industries. Examples of sub-industries include "Electronic Components" and "Semiconductors."

"Robotics" isn't even an industry or a subindustry. It's a tiny sliver of the market, not a sector. It's probably a "theme." Thematic ETFs are currently a fad. The Rational Reminder podcast did an episode entitled Lighting your Money on Fire with Thematic ETFs.

[secondopinion]

Robotics is not a "sector."

If your private bank is calling robotics a "sector," something is badly wrong.

Sectors are part of a classification system called GICS, Global Industry Classification System, developed by MSCI and S&P. There are only eleven GICS sectors:

1. Energy
2. Materials
3. Industrials
4. Consumer Discretionary
5. Consumer Staples
6. Health Care
7. Financials
8. Information Technology
9. Communications Services
10. Utilities
11. Real Estate

Sectors are subdivided into industry groups; industry groups, into industries; and industries, into sub-industries. Examples of sub-industries include "Electronic Components" and "Semiconductors."

"Robotics" isn't even an industry or a subindustry. It's a tiny sliver of the market, not a sector. It's probably a "theme." Thematic ETFs are currently a fad. The Rational Reminder podcast did an episode entitled Lighting your Money on Fire with Thematic ETFs.

It is a risky and misguided prospect indeed.

[psteinx]

OP, one investment fallacy is that, when you expect a sector of the economy to grow, to think that you therefore have great insight and can beat the market by investing in that sector.

Railroads were the boom industry of the mid 1800s, yet there was a lot of overbuilding and a lot of bankruptcies.

Early in the 1900s, there were, I think quite literally thousands of car companies, most of which sank quickly.

Circa 1999, folks could see that the internet was going to be big (they were right!), but investors bid up internet companies too high, and these tech investors were crushed from 2000-2002.

Yes, robotics are likely to play a bigger part in the economy in the next 5-20 years. Yes, there is much opportunity for companies in this space to grow. But that is not a remarkable insight - many share it. Will *investors* in public robotics companies outperform broad-market investors in the next 5-10 years? Hard to say...

[arcticpineapplecorp.]

I have large investments with a major private bank.

you sure that's a feature and not a bug?

One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

1. can you let us know about these "high performing funds" from "well-respected fund managers"? I'm curious considering you said the other two funds underperformed their benchmark, are you sure these other funds you "have large investments with" have outperformed their benchmark?

2. Also, past performance is no guarantee of future results. If these other funds you didn't name have in fact outperformed in the past, doesn't mean they will in the future.

3. Just because they're not available to "Joe Public retail investors" doesn't mean they're superior. Hedge funds are exclusive too but that doesn't make them better, does it? Swedroe's article on 10 year performance of average hedge fund (hedge fund index) showed it drastically underperformed the S&P500 index fund (yeah, that one that's available to Joe Public retail investors ) and also even most fixed income.

source: https://sports.yahoo.com/swedroe-hedge- ... 00847.html

[secondopinion]

I have large investments with a major private bank.

you sure that's a feature and not a bug?

One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

1. can you let us know about these "high performing funds" from "well-respected fund managers"? I'm curious considering you said the other two funds underperformed their benchmark, are you sure these other funds you "have large investments with" have outperformed their benchmark?

2. Also, past performance is no guarantee of future results. If these other funds you didn't name have in fact outperformed in the past, doesn't mean they will in the future.

3. Just because they're not available to "Joe Public retail investors" doesn't mean they're superior. Hedge funds are exclusive too but that doesn't make them better, does it? Swedroe's article on 10 year performance of average hedge fund (hedge fund index) showed it drastically underperformed the S&P500 index fund (yeah, that one that's available to Joe Public retail investors ) and also even most fixed income.

source: https://sports.yahoo.com/swedroe-hedge- ... 00847.html

Most hedge funds try for either big returns or not marketable investments. Either way, fees, skew, and/or objectives do not lend themselves to beat the market. If I want to take bold risks, I can do it for free. If I want to hedge/buffer, I can do it for free. Seriously, the fees alone allow for quite a bit of speculation.

[arcticpineapplecorp.]

Most hedge funds try for either big returns or not marketable investments. Either way, fees, skew, and/or objectives do not lend themselves to beat the market.

Right and "large investments with a major private bank who pride themselves on access to high-performing funds from well-respected fund managers" don't?

Maybe we can just let the OP weigh in here with some more infornation because so far we're hearing about style without substance (the OP even stated these two funds underperformed their respective benchmarks) so we're pointing out the cognitive dissonance that exists between the OP's beliefs about his "large investments" and the actual poor performance of some of their fabulous funds. Not to mention the bank is, as Nisiprius said, erroneously referring to thematic funds as sector funds, which also casts doubt on the fabulosity of this exclusive, well-heeled bank.

If I want to take bold risks, I can do it for free. If I want to hedge/buffer, I can do it for free. Seriously, the fees alone allow for quite a bit of speculation.

Secondopinion, this thread isn't about your investing prowess. It's about whether the OP truly understands what s/he's investing in with this large bank. They've convinced him/her they're the best of the best. But if s/he were sure there'd be no need to ask some "average" Joe public retail investors, right? And now the group is raising good questions as if to say, "Are you so sure you're getting what they advertised?" And "How are you sure of that?"

You know some did very well with Long Term Capital Management too. Until they didn't.

The overarching theme here is the belief that exclusivity is superior. I provided examples to demonstrate that's a dangerous assumption. In fact, the doubt was already sowed by the OP back in this post here:
My Private Bank Has A Lot of Funds

[tradez]

If your private bank is calling robotics a "sector," something is badly wrong.

Not to mention the bank is, as Nisiprius said, erroneously referring to thematic funds as sector funds, which also casts doubt on the fabulosity of this exclusive, well-heeled bank.

To confirm, these were referred to as thematic funds by the bank; it was me the misspoke as I am new to all this terminology. The bank is one of Goldman Sachs, Credit Suisse, HSBC Private, UBS or BNP Paribas, so all pretty well-heeled if you ask me... They tend to suggest the equity part of the portfolio is made up approx 80% a regular global equity mix, and the remainder in these thematic funds to try and bring additional upside, but at additional risk, of course.

[LadyGeek]

tradez - As noted earlier, it's best to keep all of the information in a single discussion which can focus on a single topic - your portfolio. I merged your update back into the original thread. If you have any questions, ask them here.

This topic is in the Non-US Investing forum because it attracts members experienced with non-US investments. The other forums are intended for US investors. Taxation, regulations, and available investments are different, meaning that the advice you receive in the US forums may not be appropriate for your situation.

[Ricola]

You may want to compare your after-all cost returns to the 60/40 Balanced Index Fund VBIAX.

[exodusing]

I have large investments with a major private bank. One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

In my experience, the leading reason people invest with the major private banks is to say things like this. I've yet to have anyone actually demonstrate the funds perform any better over time than publicly traded index funds, but saying that you invest with Goldman Sachs (the one I hear the most about) sounds impressive to many. I wonder how many basis points that's worth.

[nyclon]

I have large investments with a major private bank. One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

In my experience, the leading reason people invest with the major private banks is to say things like this. I've yet to have anyone actually demonstrate the funds perform any better over time than publicly traded index funds, but saying that you invest with Goldman Sachs (the one I hear the most about) sounds impressive to many. I wonder how many basis points that's worth.

Private banks have tiers of customers. The lower tiers like the razzle dazzle and will buy investments that only “dumb money” would consider. These are the not so great but are private and exclusive offerings. The managers of those funds pay the banks to distribute because the offerings aren’t good enough for savvy investors.

The savvier and more wealthy customers they have know better. They negotiate fees, keep the banks on their toes and demand the best investments, if available. These fund managers don’t need bank distribution because they’re so good at what they do.

I hate to say it crassly but it’s similar to showing off gaudy items and bragging vs paying up for quality and not needing the attention.

The trade off here is ego for basis points. Bragging about vanguard and their harbourvest partnership? Not sexy.

[Taylor Larimore]

Full transparency - I have a 7-figure discretionary portfolio with a global private bank. Their fees are about 1% PA + product costs. Breaking down the portfolio I am 60/40 split and it’s made up of about 20 equity ETFs/Funds, and 5 bond funds. They make changes every few months. (Side note: I know this is too conservative given I am in mid 30s)

I’ve spent far too much time now reading about passive investing, and I’m very intrigued to pull the money out and invest it myself. Question I have is why the bank (and most other wealth managers) would invest in so many funds. There must be an advantage to doing this or they would minimize the number/complexity. I don’t believe they do it simply for optics in order to make it look like they are doing a lot. This is a global renowned private bank. There must be advantages.

Keen on your thoughts. I am extremely nervous about pulling the trigger as although it all makes sense on paper, I can’t help but think the bank are professionals and can surely make 1% more than me who has no experience.

tradez:

I was the beneficiary of a Testamentary Trust managed by the largest bank in Miami. When I received the trust money the increase in value was pathetic. I sued the bank. This is part of my 11-page suit:

"During the period of time that the trust funds were being managed and invested by Southeast Bank, the corpus of the trust experienced an increase in value of approximately one-half percent per year. During the seventeen year period preceding the distribution of the trust assets to the beneficiaries, the Dow Jones Industrial Average rose approximately three hundred percent (300%).

I will not go into more detail, but it should be clear that a bank can underperform a simple Boglehead investor.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "You get to keep exactly what you don't pay for."

[jg12345]

If your private bank is calling robotics a "sector," something is badly wrong.

Not to mention the bank is, as Nisiprius said, erroneously referring to thematic funds as sector funds, which also casts doubt on the fabulosity of this exclusive, well-heeled bank.

To confirm, these were referred to as thematic funds by the bank; it was me the misspoke as I am new to all this terminology. The bank is one of Goldman Sachs, Credit Suisse, HSBC Private, UBS or BNP Paribas, so all pretty well-heeled if you ask me... They tend to suggest the equity part of the portfolio is made up approx 80% a regular global equity mix, and the remainder in these thematic funds to try and bring additional upside, but at additional risk, of course.

Hi OP
Everyone said what you should do, there is not much to add.

What I want to note however is the following:

1) be self aware. marketing is, at its basic, a form of manipulation to induce people in wanting an item or service more than what they would not want it otherwise [source: a marketer for one of the oldest consumer goods company]. This is what is happening with you. It might be that in your case, because of your existing convictions generated by big bank marketing, paying 1 percent is what you need to sleep well at night. Until you reach the self awareness that these services are overpriced (or a scam, as the instructive legal case above suggested it is - and I would agree with that), you will not be able to pull the trigger.

2) In order to be self aware that you are being scammed or at least taken for a ride, someone suggested you might have to read a bit more. It is possible that doing that would help. I am not clear as to what would help you. You might want to think about it yourself.

3) Whether you read more or not, please read and finally convince yourself (as we all here, so I am not sure what you have been reading) that the "plethora of options" that you refer to does NOT exist. The most important choice is a single one and it is the stock-bond AA. Once that is chosen, we suggest one and only one option: FTSE all world/ MSCI ACWI for stocks, and global bond aggregates for bonds (you might want to break it down into dev+EM, but that's to save money on TER if you are using UCITS funds, not a real different option)

4) You also opened a thread on alternatives. As a marketer, the reason for a seller suggesting alternatives is very clear: other people have no access, so there's an evident value to the customer, access. Whether access delivers better return over your lifetime, I do not believe that's the case: as someone else noted, usual candidates for alternatives are Universities, who have a time of horizon of several hundred years. Your expected lifetime is much shorter (considering current health knowledge!)

5) Balancing might seem an advantage too. However, if that is very important to you, you can also buy ETFs that use the "one and only approach" described above, and do the rebalancing for you (Lifestrategy ETF or target date retirement ETFs)

I hope this helps. In case you don't manage making the move, you might also move only 50% and leave the rest with the scammers/big name private bank.

Best of luck

[exodusing]

I have large investments with a major private bank. One of the benefits they pride themselves on is access to high-performing funds from well-respected fund managers. These tend to not be available to Joe Public retail investors.

In my experience, the leading reason people invest with the major private banks is to say things like this. I've yet to have anyone actually demonstrate the funds perform any better over time than publicly traded index funds, but saying that you invest with Goldman Sachs (the one I hear the most about) sounds impressive to many. I wonder how many basis points that's worth.

Private banks have tiers of customers. The lower tiers like the razzle dazzle and will buy investments that only “dumb money” would consider. These are the not so great but are private and exclusive offerings. The managers of those funds pay the banks to distribute because the offerings aren’t good enough for savvy investors.

The savvier and more wealthy customers they have know better. They negotiate fees, keep the banks on their toes and demand the best investments, if available. These fund managers don’t need bank distribution because they’re so good at what they do.

I hate to say it crassly but it’s similar to showing off gaudy items and bragging vs paying up for quality and not needing the attention.

The trade off here is ego for basis points. Bragging about vanguard and their harbourvest partnership? Not sexy.

Being savvy and wealthy is not inconsistent with finding ways to mention their relation to Goldman regarding investments and the economy.

[abuss368]

I suppose the TIAA Real Estate Account shares that I own are an Alternative.

The cool thing is that Alternatives go down and sometimes they go up. They do get more press coverage when they go up and less press coverage when they go down.

And since your private bank has a 60/40 portfolio it should be very easy to compare its total return (calculated after your taxes) compared to a 60/40 benchmark fund.

Look at Fundrise!
Tony

[tradez]

If your private bank is calling robotics a "sector," something is badly wrong.

Not to mention the bank is, as Nisiprius said, erroneously referring to thematic funds as sector funds, which also casts doubt on the fabulosity of this exclusive, well-heeled bank.

To confirm, these were referred to as thematic funds by the bank; it was me the misspoke as I am new to all this terminology. The bank is one of Goldman Sachs, Credit Suisse, HSBC Private, UBS or BNP Paribas, so all pretty well-heeled if you ask me... They tend to suggest the equity part of the portfolio is made up approx 80% a regular global equity mix, and the remainder in these thematic funds to try and bring additional upside, but at additional risk, of course.

Hi OP
Everyone said what you should do, there is not much to add.

What I want to note however is the following:

1) be self aware. marketing is, at its basic, a form of manipulation to induce people in wanting an item or service more than what they would not want it otherwise [source: a marketer for one of the oldest consumer goods company]. This is what is happening with you. It might be that in your case, because of your existing convictions generated by big bank marketing, paying 1 percent is what you need to sleep well at night. Until you reach the self awareness that these services are overpriced (or a scam, as the instructive legal case above suggested it is - and I would agree with that), you will not be able to pull the trigger.

2) In order to be self aware that you are being scammed or at least taken for a ride, someone suggested you might have to read a bit more. It is possible that doing that would help. I am not clear as to what would help you. You might want to think about it yourself.

3) Whether you read more or not, please read and finally convince yourself (as we all here, so I am not sure what you have been reading) that the "plethora of options" that you refer to does NOT exist. The most important choice is a single one and it is the stock-bond AA. Once that is chosen, we suggest one and only one option: FTSE all world/ MSCI ACWI for stocks, and global bond aggregates for bonds (you might want to break it down into dev+EM, but that's to save money on TER if you are using UCITS funds, not a real different option)

4) You also opened a thread on alternatives. As a marketer, the reason for a seller suggesting alternatives is very clear: other people have no access, so there's an evident value to the customer, access. Whether access delivers better return over your lifetime, I do not believe that's the case: as someone else noted, usual candidates for alternatives are Universities, who have a time of horizon of several hundred years. Your expected lifetime is much shorter (considering current health knowledge!)

5) Balancing might seem an advantage too. However, if that is very important to you, you can also buy ETFs that use the "one and only approach" described above, and do the rebalancing for you (Lifestrategy ETF or target date retirement ETFs)

I hope this helps. In case you don't manage making the move, you might also move only 50% and leave the rest with the scammers/big name private bank.

Best of luck

Thank you very much for such a detailed post. Thougtt provoking to say the least.

On the alternatives/commodities front, having that as part of the AA has resulted in 2% performance in 2022 vs the portfolios without alternatives though. But I guess that is short term thinking...

[afan]

I guess it’s also the comfort knowing that if there was a huge macro economic change, they would rebalance the portfolio or change the weighting whilst a passive investor may not have that knowledge.

Abundant data show that the passive investor who did NOT change the portfolio in response to these events would be better off than the "expert" active investor who did.

[tradez]

I have been doing further research into the Bank's historical performance on the 60/40 and 80/20 portfolios and can confirm that on a 3yr, 5yr and 10yr basis, it has outperformed LifeStrategy 60 and 80 (GBP) net of fees. I am reminded that what a private bank discretionary portfolio does is not actively stock pick, but in essence, does what LifeStrategy does where your appropriate risk-based AA is split across multiple funds and indexes. I expect that most bogleheads would advise to still go with LifeStrategy over a bank, but the data would suggest otherwise. My understanding is LifeStrategy isn't the best though so hopeful that the suggested 2 or 3 fund strategies have outperformed however I am not sure how to backtest these.

Having read Smarter Investng by Tim Hale, I do agree that stock-picking active funds that attempt to beat the indexes is a losers game, (and I have seen this in the bank's performance) however, when a private bank or wealth manager is not stock-picking, but performing a similar service to a LifeStratgy or similar fund, is there more of a reason to not just write it off?

Performance below if anybody would like to test. Note the bonds portion for these actually has some alts to derisk.

60/40: 1.4% 3Y, 2.8% 5Y, 6.0% 10Y
80/20: 3.9% 3Y, 4.5% 5Y, 10Y (N/A due to inception date)

[DoctorE]

How did you come to the conclusion that your bank is outperforming the LifeStrategy?
https://www.vanguardinvestor.co.uk/inve ... erformance
https://www.vanguardinvestor.co.uk/inve ... erformance

[chw]

Believe it or not, the answer is quite simple: the advisor makes your portfolio investments seem complex using many funds when just a handful (less than 5) will accomplish the same goals, and almost always with higher returns (due to no advisor fee, and usually much lower cost funds). Complexity is rule one for advisors when setting up a client’s portfolio in order to make you think you would not be able to do the advisor’s job. The regular trading is also unnecessary, and is part of the facade.

It sounds like you need an IPS(Investment Policy Statement), which is a roadmap for you to follow in your investing life. It sounds like you are realizing the advisor is taking you for a ride, and it’s time to move on after educating yourself here. Run, don’t walk…

I retired from a well respected global bank, with the private wealth managers you describe. They are fine folks to work with, but they truly make their money off their clients that are too lazy to figure out the basics of what to do with their money. Most are highly educated/talented in different ways, but prefer to an advisor to hold their hand. Many clients like to humble brag about having their money with XXX Bank, for the perceived status it may impart on them.

Beware of some of the portfolio comparison you are doing. Some of the strategies being used may be using higher risk methods to outperform benchmarks, which almost always will revert to the mean, or underperform the mean.

[glorat]

is there more of a reason to not just write it off?

Not saying this is happening here but if you want to check for a reason to write it off...

Fund providers often launch or a show a huge variety of funds. As some underperformed, they get closed down and no longer show. Only the over performers are kept on the list.

Survivorship bias

[chazas]

I let Schwab manage a reasonably sized IRA for a while because they gave me a “discount” on their AUM fee, to only .5%. Same thing, in about 20 active funds, with a lot of trading and new prospectuses in the mail all the time. At the time I had not consolidated all my old 401Ks which were in simpler vehicles. One day I sat down to compare performance - and what do you know, when I cut through the fluff the Schwab portfolio was trailing my other accounts. So I compared to what I thought were appropriate indices - trailed there too, shockingly by a bit more than the AUM fee and fund expenses. I went “full boglehead” shortly thereafter.

I also have a “private banker” from Citi. I’ve let them give me presentations a couple of times but there was a lot of marketing fluff of the kind OP has encountered. When I started asking about actual performance vs indices they didn’t have a lot to say.

My recently deceased mom had most of her money with Rockefeller. Same deal, when I got the account it made no sense, there were so many small positions in a lot of high expense, actively managed funds. The adviser, a distant family friend, exuded wealth and confidence but that was really just marketing. I transferred everything into my Fidelity account, sold them and consolidated.

Yes, some people can beat the market. They likely can’t do it consistently. If they would they wouldn’t be selling their secret sauce to retail investors, even high end retail investors, they’d be running hedge funds or managing their own money.

[Stork]

I can recommend https://www.johnkay.com/product/the-lon ... d-edition/

Well end entertainingly written, I recommend the bit about the bankers vs the clients' yachts near the end.

[jg12345]

I have been doing further research into the Bank's historical performance on the 60/40 and 80/20 portfolios and can confirm that on a 3yr, 5yr and 10yr basis, it has outperformed LifeStrategy 60 and 80 (GBP) net of fees. I am reminded that what a private bank discretionary portfolio does is not actively stock pick, but in essence, does what LifeStrategy does where your appropriate risk-based AA is split across multiple funds and indexes. I expect that most bogleheads would advise to still go with LifeStrategy over a bank, but the data would suggest otherwise. My understanding is LifeStrategy isn't the best though so hopeful that the suggested 2 or 3 fund strategies have outperformed however I am not sure how to backtest these.

Having read Smarter Investng by Tim Hale, I do agree that stock-picking active funds that attempt to beat the indexes is a losers game, (and I have seen this in the bank's performance) however, when a private bank or wealth manager is not stock-picking, but performing a similar service to a LifeStratgy or similar fund, is there more of a reason to not just write it off?

Performance below if anybody would like to test. Note the bonds portion for these actually has some alts to derisk.

60/40: 1.4% 3Y, 2.8% 5Y, 6.0% 10Y
80/20: 3.9% 3Y, 4.5% 5Y, 10Y (N/A due to inception date)

lifestrategy 60/40 CAGR over last 10y is 6.5% (lump sum 10k became 18.8k)
lifestrategy 80/20 CAGR over last 5y is 5.9% (lump sum 10k became 13.3k)

In both cases, substantially better than Private Bank