11 ms·

Investment advice is one of comparatively few fields where the quality of it available at $50 million in net worth is indistinguishable from $50k [+], but the p

by patio11 11y ago

Investment advice is one of comparatively few fields where the quality of it available at $50 million in net worth is indistinguishable from $50k [+], but the price is 1000x higher. Use a roboadvisor (or a moral equivalent like a target age retirement fund from Vanguard). If you need someone to talk to, the magic words are "fee-only financial planner" -- should cost on the order of $100 to $200 a year for a sympathetic ear that can tell you "Yep you're still on track and not doing anything insane." Edit: forgot the jargon here -- some fee-only planners still charge a percentage. You want someone quoting a flat fee or hourly rate. [+] No financial planner has predictably better-than-market advice regarding investment choice than any other planner -- though heaven only knows how many intimate they do. To the extent they provide a valuable service it is similar to an accountant's: they can hear the totality of your situation and tell you about options/factors you may not have considered, allowing you to sleep better. A representative question: "What's a good way to save for college given we have a 5 year old? What type of account? What general plan? Ballpark how much?"

charlesdm 11y ago
Most also charge a fee based on assets under management. Regardless of performance. So if you have $50m in invested assets, they will charge you (0.)x% on that in a good year (the ones where you make 20-30% in the stock market) and in a bad year (the ones where you lose 20%).
- delazeur 11y ago
  The key phrase here is "fee-only advisor."
  - benmanns 11y ago
    Fee-only advisors still charge fees for assets under management. It's just that they don't get paid commissions for selling you products. What it seems you're looking for is to pay hourly fees only.
akavi 11y ago
While I understand (and agree with) the sentiment, I'm not sure it's 100% true. $50 million might be in the range where complicated tax minimization maneuvers start to become tenable, and you won't get help doing that from a $200 fee-only adviser. Maybe call the upper limit ~$10 million?
- zeckalpha 11y ago
  https://www.betterment.com/tax-loss-harvesting/ https://www.betterment.com/tax-loss-harvesting/
  - delazeur 11y ago
    Sure, but that's the low-hanging fruit of tax avoidance.
  - lucisferre 11y ago
    Tax loss harvesting doesn't have that big of an impact for most people, and has little to do with the detailed tax planning that high net worth individuals expect from the firms they work with. It also only impacts non-tax advantaged accounts and investments and provides much less value than advertised. In fact iirc Betterment's own white paper on this demonstrated it's expected savings to be far less than what Wealthfront was marketing at the time. http://www.etf.com/sections/blog/23212-inside-robo-advisor-tax-loss-harvesting.html?nopaging=1 http://www.etf.com/sections/blog/23212-inside-robo-advisor-t...
- prostoalex 11y ago
  Most of the maneuvers at that level aren't that complicated. Harvested long-term capital gains on equities side, municipals on the income side, depreciation on the real estate side. The crazy income optimization schemes you hear about mainly circle around windfall earnings in areas like finance and private equity. US already taxes investment proceeds at favorable rates, and there's no inherent tax on wealth, if the recipient doesn't start working, his income picture won't be too complicated.
theli0nheart 11y ago
I don't think this is true at all. If you consider "investment advice" to be as simple as "here is what your target allocation should be based on your risk tolerance, so let me just call up the trading desk and have them execute the orders to get you there", then sure. When you pay for "investment advice" at the $50 million net worth price tier, you're paying for access to private equity deals, real estate investment opportunities, a tax advisor who can tell you how to be structure a deal abroad, etc. It's not as simple as plugging in your salary and age into a webpage and having a robot buy and sell stocks for you.
- tonyedgecombe 11y ago
  I'm sure that is what an expensive advisor would tell you, I'm not so sure that it is true.
- patio11 11y ago
  You're not getting much "access to PE deals" when your portfolio has only ~$5 million to allocate to "everything in the world which is not publicly traded stock or bond fund" but I'm sure someone will happily represent that they can arrange that for you if you want to pay $500k per year. You'll get a pretty nice report of your portfolio and (market) returns. Spiral bound and everything. If you want an accountant for international issues, I question the wisdom of doing that unless life/business naturally throws them your way, but $500k buys an awful lot of hours from someone who knows the transaction and localities involved, which your investment advisor does not. (Will every investment advisor in the Chicago phone book happily take a $50 million client who wants to spend $5 million on a modestly nice house in Tokyo? Yes. Do any add value to that transaction? Well, maybe one does. Could you find much better advice? Oh heck yes.)
  - lucisferre 11y ago
    Speaking as someone who has worked in this industry, you appear somewhat misinformed about how high net worth individual (HNWI) typically invest. Large multi-family office firms pool investments from multiple wealthy individuals (usually investable assets of at least $5M or more) and can access private equity, real-estate deals, commercial mortgages and more. These firms manage multiple billions of dollars, which doesn't make them huge by any measurement, but they are more than large enough to access investment opportunities like these as well as create sufficient liquidity for their clients. Wealthy individuals have access to investment strategies that resemble far more the philosophy of large pension funds than that of robo-advisors. (You can also check out Tiger 21, a sort of investment club for Wealthy people, they post their recommended asset allocations on a regular basis.) They also tend to be more focused on capital preservation and minimizing volatility than strictly beating the market. Their portfolios are typically highly diversified outside of publicly traded assets to accomplish that. Finally, the firms that work with them offer significantly more for their money. Detailed estate planning and legacy planning, tax planning, corporate tax planning, and advice on charitable foundations and more. While I do agree with some of what you are saying about how "advice" is priced, particularly when it comes to the mass market, there is definitely a point in the wealth of an individual where there couldn't be more points of difference between what people get in terms of financial advice. Source: I've worked at a wealth management firm that dealt with HNWI for quite some time. Edit: Just to add a bit on the different this makes for HNWIs At the firm I worked at their client's biggest losses throughout 2008 were no more than 6-7% (after fees were considered), while at the same time being invested in assets that yielded nearly that much in cash flow through dividends, interest, etc. that same year. Since a portion of the portfolio was also invested in public equities (around 30%) and because these client's could easily stomach the markets considering their personal performance they were able to ride it back up without fleeing to cash like so many others did. One of the problem smaller investors face is that in major market crisis situations almost all publicly traded assets take a hit as the mass market migrates to cash. If you follow the herd (as most obviously do or they wouldn't be the herd) you regularly miss out on the benefits of these market movements.
dsacco 11y ago
This comment is true and helpful, but I worry that someone reading this comment might conflate "approximately all financial advisors offer similar advice, regardless of cost" with "no one can beat the market, it's always superior to put your money in an index fund" due to prevailing socio-political opinions surrounding Wall St. Those are two very different statements. To add a little nuance: I always recommend a flat fee financial advisor too, but there are people and funds capable of consistently beating the market. They are just so exceedingly rare that it's difficult to separate them and their results from the crowded noise of people who either think they can or who know they can't but will claim they can anyway. Still, most investors ("retail investors") should use an index fund. Just a minor point that bears mentioning.
- wstrange 11y ago
  In a large field of funds, some small sample will do better than others. That is just statistics. Is there any objective evidence that there are people who consistently beat the market, over the long term? (And let's factor out those who use insider information)
  - Riod 11y ago
    Buffett? Look up the Superinvestors of Graham and Doddsville; addresses your 'just statistics' issue. On the general investment management industry, in aggregate they are the market so why would they outperform it? There are funds that outperform; most people can't buy in though.
    - wstrange 11y ago
      Buffet is not a good example. He is much more than an investor. He takes a large enough position in his investments so that he has control (or major influence) in how his companies are run.
      - Riod 11y ago
        What? He has historically given up his proxies over to management.
Spooky23 11y ago
The advice people really need is tax advice. There's a grey line between investment and tax advice.
inglor 11y ago
Sure they do, lots of people beat the market and make more money than the market. Lots of people claim to predict and do better, there are services that measure it: https://www.tipranks.com/analysts/top https://www.tipranks.com/analysts/top You can see all their track records based on completely public information. Every scraped article and piece advice is public and the methods are published in https://www.johnson.cornell.edu/Entrepreneurship-and-Innovation-Institute/News-Events/News-Highlights/EII-News-Article-Detail/ArticleId/35810/Holding-Analysts-Accountable-for-Stock-Recommendations https://www.johnson.cornell.edu/Entrepreneurship-and-Innovat...
- n72 11y ago
  Just briefly looked at tipranks. For the "Adjust how ratings are measured over a time period of:" the max they give is 2 years. This is a ludicrously small sample size at which you can't distinguish skill from luck.
  - inglor 11y ago
    That measures for how long holdings are held (without the analyst reiterating them) before being automatically sold by the system. The analysts are tracked since 01.01.2009 according to their FAQ.
pkaye 11y ago
Can someone give you good financial advice at $200 a year? That is maybe 1-2 hours worth of advice including reviewing your portfolio and meeting up with you. Some plumbers charge more than that rate. If they are any good, they could probably make more money with better use of their time.
- lucisferre 11y ago
  Patrick's numbers seem way off from my knowledge of what is typical in the industry. Typically a fee-only who deals with smaller clients will be around $150-$200 a month for people under $1m[1]. At the higher level of assets someone will likely charge in the thousands for a single session. It is not flat across the board. A $50m nest-egg is often much more complex compared to someone who wants advice at the $50k level. It is not unusual for someone with $50m to pay $10-30k just for an initial session with a firm they are considering working with and then more ongoing. Many of these people wouldn't even consider working with someone who doesn't charge that as they will immediately assume you are not experienced or skilled enough to handle their needs. As with any business, customers often expect to get what they pay for, and pricing to your market is important. [1]: XY Planning (http://www.xyplanningnetwork.com/advisor/ http://www.xyplanningnetwork.com/advisor/) is one example I can think of, and I believe they also work with Betterment for the investments. http://www.thinkadvisor.com/2015/02/27/xy-planning-brings-betterment-institutional-to-nex http://www.thinkadvisor.com/2015/02/27/xy-planning-brings-be...
  - danenania 11y ago
    No one is disputing that are plenty of expensive advisors out there. The question is whether they actually provide any additional value over a 2 hour meeting with a financial planner and a computer-managed index fund. I get the sense that there are many in this thread who are either in the industry or have been convinced to drink the koolaid themselves. I'm seeing lots of handwavey talking points but no substantial data-supported explanations for why the high priced advisors are anything more than gifted salespeople.
    - lucisferre 11y ago
pbreit 11y ago
As you note, even "robo-advisors" are unnecessary. Just go with Vanguard target/lifestage funds (for the bulk of your portfolio)(after paying off credit cards and maxing out your 401k).
- AjithAntony 11y ago
  There is legitimate value added by robos that aren't accessible from target date funds. As to how valuable, it is up to the individuals to decide. - tax-sensitive allocations (i.e. munis in taxable account, reit, total bond in tax advantaged account) - Continuous tax-loss harvesting - Continuously adjustable allocation - forecasting and allocation advice - "goal based" accounts Also user experience is worth something for some people: - UI/Apps - statements, trade confirms, tax forms - electronic only (no reams of paper sent to you) - ease of transferring funds in/out Also note that it can be cheap. WiseBanyan is presently free (charging 25bp to turn on TLH). Betterment at 15bp ends up being only 10bp more than Vanguard's Target date funds funds at 18bp.
ipsin 11y ago
I thought it was interesting that roboadvisors like Wealthfront also charge a percentage of assets, instead of a flat fee. I have Vanguard funds already, and the free tier of Wealthfront. If Wealthfront seems to be doing a better job, I would be tempted to just echo their portfolio balance in my larger account, rather than paying them to do it. Given how much fees can affect returns, I might pay for Wealthfront's services, but I wouldn't pay a lot, and "$250/year per $100k" seems like too much.
sandworm101 11y ago
>>> available at $50 million in net worth is indistinguishable from $50k [+], but the price is 1000x higher. I cannot disagree more. At 50m you have a totally different perspective in this day and age. Investment for profit is often not the primary concern. Wealth protection, transfer from one generation to another, access control, family members, lawsuits ... lots of things that are not relevant with 50k in the bank but become big deals with 50m. The investment advice sought and offered to those with 50m to protect is altogether a different product than that offered to those with 50k. If you have 50m in the bank, "saving" for your kid's college expenses is a radically different question than if you only have 50k. Protection is far more a priority than any 'saving' concept. And taxes! That tiny amount of interest on 50k won't be taxed at nearly the same rate as that from 50m. Therefore an expensive but "tax efficient" scheme based on expensive lawyer advice, not robots, is worth the money.
- ForHackernews 11y ago
  > And taxes! That tiny amount of interest on 50k won't be taxed at nearly the same rate as that from 50m. Actually, it will probably be taxed at a lower rate. Interest on a savings account is taxed as ordinary income, while investment income on a $50m portfolio will likely be taxed at the 15% (or perhaps 20%) capital gains rate.
  - sandworm101 11y ago
    That's what the advice does, it makes sure your interest is gets investment treatment. Ideally, it isn't taxed. Ideally, the attorneys setup a structure whereby gains aren't treated as any sort of income until one decides to realize them.
    - deleted 11y ago
      [deleted]
    - WalterBright 11y ago
      > Ideally, the attorneys setup a structure whereby gains aren't treated as any sort of income until one decides to realize them. There's no need to "structure" that. Buy stock and hold will do it.
vonnik 11y ago
I agree with Patrick's top point, but I think many people mistake the role of the financial advisor. (I used to work at FutureAdvisor, which was bought by BlackRock last year and is now providing robo-advice through institutions, so I know a little about the space, and have learned from others who know more.) One of the main roles of a financial advisor, for people with $50MM or more, is to act as a relationship broker. They put very wealthy people in touch with other very wealthy people; e.g. "If you're going to be in Hawaii, you might want to look up X, who's doing some really interesting things in this sector..." Brokering relationships is more than facilitating interesting conversations. It helps the FAs' clients build their businesses. For example, if you happen to be a venture capitalist who already made your first fortune, and you're looking to raise from LPs, then a financial advisor might introduce you to their other clients, such as Family Y, which lives off the rents created by their 19th-century match-book empire. A lot of people don't realize that FAs are doing a lot more than running your numbers, and insofar as that's all they do, they will be replaced by robo-advisors.
harry8 11y ago
Why giving advice has become a field where you are allowed to charge a wealth tax is beyond me. It cannot last. 1% of your wealth every year, year after year. Just imagine if the government tried that on. "We're having a 1% wealth tax to fund education and health for the very poor." And yet if you do it fund luxury property and porche consumption, that's ok somehow. No doubt there will be a bunch of people commenting here who are stupid enough to have bought the con or have a vested interest arguing that 1% wealth tax is value for money...
- vehementi 11y ago
  It's about them extracting some of the value they create. If you're not the most rational of decision makers, paying 1% of your wealth per year for 10 years to save you from losing 30% of it in a panic by selling at a low when the market crashes, then it's worth it. Now from that perspective think of all the people you know who may make stupid decisions like that (or just not investing in the most efficient way). The value to those people would surely be 1% per year. The question is how low can we drive the cost of those services via competition (of which robo advisors is one)?
- prostoalex 11y ago
  > Why giving advice has become a field where you are allowed to charge a wealth tax is beyond me. Charging a percentage for assets under management creates an incentive to grow that pie, slowly but surely, keeping everybody happy. Charging a flat or an hourly fee creates an incentive to "wham, bam, thank you mam, next customer please" type of interaction.
  - ars 11y ago
    Then maybe charge a fee on profit, not on asset under management.
    - prostoalex 11y ago
      This creates an incentive to severely ramp up the portfolio risk in the hopes of striking it big. Sure, almost all client portfolios will go broke, but the winning one will pay off for the losers. Such wealth management firm would have an issue surviving past year 1.
Mikeb85 11y ago
> Investment advice is one of comparatively few fields where the quality of it available at $50 million in net worth is indistinguishable from $50k [+], but the price is 1000x higher. Completely false. With $50 million you have access to all sorts of investment vehicles that you don't have access to with $50K. Hedge funds for example. Also, with $50 million you have more worries - the bank won't insure $50 million cash, so you need to be invested in something, with the aim of wealth preservation while paying as few taxes as possible.

by patio11 11y ago

charlesdm 11y ago

Most also charge a fee based on assets under management. Regardless of performance. So if you have $50m in invested assets, they will charge you (0.)x% on that in a good year (the ones where you make 20-30% in the stock market) and in a bad year (the ones where you lose 20%).

delazeur 11y ago
The key phrase here is "fee-only advisor."
- benmanns 11y ago
  Fee-only advisors still charge fees for assets under management. It's just that they don't get paid commissions for selling you products. What it seems you're looking for is to pay hourly fees only.

akavi 11y ago

While I understand (and agree with) the sentiment, I'm not sure it's 100% true. $50 million might be in the range where complicated tax minimization maneuvers start to become tenable, and you won't get help doing that from a $200 fee-only adviser. Maybe call the upper limit ~$10 million?

zeckalpha 11y ago
https://www.betterment.com/tax-loss-harvesting/ https://www.betterment.com/tax-loss-harvesting/
- delazeur 11y ago
  Sure, but that's the low-hanging fruit of tax avoidance.
- lucisferre 11y ago
  Tax loss harvesting doesn't have that big of an impact for most people, and has little to do with the detailed tax planning that high net worth individuals expect from the firms they work with. It also only impacts non-tax advantaged accounts and investments and provides much less value than advertised. In fact iirc Betterment's own white paper on this demonstrated it's expected savings to be far less than what Wealthfront was marketing at the time. http://www.etf.com/sections/blog/23212-inside-robo-advisor-tax-loss-harvesting.html?nopaging=1 http://www.etf.com/sections/blog/23212-inside-robo-advisor-t...
prostoalex 11y ago
Most of the maneuvers at that level aren't that complicated. Harvested long-term capital gains on equities side, municipals on the income side, depreciation on the real estate side. The crazy income optimization schemes you hear about mainly circle around windfall earnings in areas like finance and private equity. US already taxes investment proceeds at favorable rates, and there's no inherent tax on wealth, if the recipient doesn't start working, his income picture won't be too complicated.

theli0nheart 11y ago

I don't think this is true at all. If you consider "investment advice" to be as simple as "here is what your target allocation should be based on your risk tolerance, so let me just call up the trading desk and have them execute the orders to get you there", then sure. When you pay for "investment advice" at the $50 million net worth price tier, you're paying for access to private equity deals, real estate investment opportunities, a tax advisor who can tell you how to be structure a deal abroad, etc. It's not as simple as plugging in your salary and age into a webpage and having a robot buy and sell stocks for you.

tonyedgecombe 11y ago
I'm sure that is what an expensive advisor would tell you, I'm not so sure that it is true.
patio11 11y ago
You're not getting much "access to PE deals" when your portfolio has only ~$5 million to allocate to "everything in the world which is not publicly traded stock or bond fund" but I'm sure someone will happily represent that they can arrange that for you if you want to pay $500k per year. You'll get a pretty nice report of your portfolio and (market) returns. Spiral bound and everything. If you want an accountant for international issues, I question the wisdom of doing that unless life/business naturally throws them your way, but $500k buys an awful lot of hours from someone who knows the transaction and localities involved, which your investment advisor does not. (Will every investment advisor in the Chicago phone book happily take a $50 million client who wants to spend $5 million on a modestly nice house in Tokyo? Yes. Do any add value to that transaction? Well, maybe one does. Could you find much better advice? Oh heck yes.)
- lucisferre 11y ago
  Speaking as someone who has worked in this industry, you appear somewhat misinformed about how high net worth individual (HNWI) typically invest. Large multi-family office firms pool investments from multiple wealthy individuals (usually investable assets of at least $5M or more) and can access private equity, real-estate deals, commercial mortgages and more. These firms manage multiple billions of dollars, which doesn't make them huge by any measurement, but they are more than large enough to access investment opportunities like these as well as create sufficient liquidity for their clients. Wealthy individuals have access to investment strategies that resemble far more the philosophy of large pension funds than that of robo-advisors. (You can also check out Tiger 21, a sort of investment club for Wealthy people, they post their recommended asset allocations on a regular basis.) They also tend to be more focused on capital preservation and minimizing volatility than strictly beating the market. Their portfolios are typically highly diversified outside of publicly traded assets to accomplish that. Finally, the firms that work with them offer significantly more for their money. Detailed estate planning and legacy planning, tax planning, corporate tax planning, and advice on charitable foundations and more. While I do agree with some of what you are saying about how "advice" is priced, particularly when it comes to the mass market, there is definitely a point in the wealth of an individual where there couldn't be more points of difference between what people get in terms of financial advice. Source: I've worked at a wealth management firm that dealt with HNWI for quite some time. Edit: Just to add a bit on the different this makes for HNWIs At the firm I worked at their client's biggest losses throughout 2008 were no more than 6-7% (after fees were considered), while at the same time being invested in assets that yielded nearly that much in cash flow through dividends, interest, etc. that same year. Since a portion of the portfolio was also invested in public equities (around 30%) and because these client's could easily stomach the markets considering their personal performance they were able to ride it back up without fleeing to cash like so many others did. One of the problem smaller investors face is that in major market crisis situations almost all publicly traded assets take a hit as the mass market migrates to cash. If you follow the herd (as most obviously do or they wouldn't be the herd) you regularly miss out on the benefits of these market movements.

dsacco 11y ago

This comment is true and helpful, but I worry that someone reading this comment might conflate "approximately all financial advisors offer similar advice, regardless of cost" with "no one can beat the market, it's always superior to put your money in an index fund" due to prevailing socio-political opinions surrounding Wall St. Those are two very different statements. To add a little nuance: I always recommend a flat fee financial advisor too, but there are people and funds capable of consistently beating the market. They are just so exceedingly rare that it's difficult to separate them and their results from the crowded noise of people who either think they can or who know they can't but will claim they can anyway. Still, most investors ("retail investors") should use an index fund. Just a minor point that bears mentioning.

wstrange 11y ago
In a large field of funds, some small sample will do better than others. That is just statistics. Is there any objective evidence that there are people who consistently beat the market, over the long term? (And let's factor out those who use insider information)
- Riod 11y ago
  Buffett? Look up the Superinvestors of Graham and Doddsville; addresses your 'just statistics' issue. On the general investment management industry, in aggregate they are the market so why would they outperform it? There are funds that outperform; most people can't buy in though.
  - wstrange 11y ago
    Buffet is not a good example. He is much more than an investor. He takes a large enough position in his investments so that he has control (or major influence) in how his companies are run.
    - Riod 11y ago
      What? He has historically given up his proxies over to management.

Spooky23 11y ago

The advice people really need is tax advice. There's a grey line between investment and tax advice.

inglor 11y ago

Sure they do, lots of people beat the market and make more money than the market. Lots of people claim to predict and do better, there are services that measure it: https://www.tipranks.com/analysts/top https://www.tipranks.com/analysts/top You can see all their track records based on completely public information. Every scraped article and piece advice is public and the methods are published in https://www.johnson.cornell.edu/Entrepreneurship-and-Innovation-Institute/News-Events/News-Highlights/EII-News-Article-Detail/ArticleId/35810/Holding-Analysts-Accountable-for-Stock-Recommendations https://www.johnson.cornell.edu/Entrepreneurship-and-Innovat...

n72 11y ago
Just briefly looked at tipranks. For the "Adjust how ratings are measured over a time period of:" the max they give is 2 years. This is a ludicrously small sample size at which you can't distinguish skill from luck.
- inglor 11y ago
  That measures for how long holdings are held (without the analyst reiterating them) before being automatically sold by the system. The analysts are tracked since 01.01.2009 according to their FAQ.

pkaye 11y ago

Can someone give you good financial advice at $200 a year? That is maybe 1-2 hours worth of advice including reviewing your portfolio and meeting up with you. Some plumbers charge more than that rate. If they are any good, they could probably make more money with better use of their time.

lucisferre 11y ago
Patrick's numbers seem way off from my knowledge of what is typical in the industry. Typically a fee-only who deals with smaller clients will be around $150-$200 a month for people under $1m[1]. At the higher level of assets someone will likely charge in the thousands for a single session. It is not flat across the board. A $50m nest-egg is often much more complex compared to someone who wants advice at the $50k level. It is not unusual for someone with $50m to pay $10-30k just for an initial session with a firm they are considering working with and then more ongoing. Many of these people wouldn't even consider working with someone who doesn't charge that as they will immediately assume you are not experienced or skilled enough to handle their needs. As with any business, customers often expect to get what they pay for, and pricing to your market is important. [1]: XY Planning (http://www.xyplanningnetwork.com/advisor/ http://www.xyplanningnetwork.com/advisor/) is one example I can think of, and I believe they also work with Betterment for the investments. http://www.thinkadvisor.com/2015/02/27/xy-planning-brings-betterment-institutional-to-nex http://www.thinkadvisor.com/2015/02/27/xy-planning-brings-be...
- danenania 11y ago
  No one is disputing that are plenty of expensive advisors out there. The question is whether they actually provide any additional value over a 2 hour meeting with a financial planner and a computer-managed index fund. I get the sense that there are many in this thread who are either in the industry or have been convinced to drink the koolaid themselves. I'm seeing lots of handwavey talking points but no substantial data-supported explanations for why the high priced advisors are anything more than gifted salespeople.
  - lucisferre 11y ago

pbreit 11y ago

As you note, even "robo-advisors" are unnecessary. Just go with Vanguard target/lifestage funds (for the bulk of your portfolio)(after paying off credit cards and maxing out your 401k).

AjithAntony 11y ago
There is legitimate value added by robos that aren't accessible from target date funds. As to how valuable, it is up to the individuals to decide. - tax-sensitive allocations (i.e. munis in taxable account, reit, total bond in tax advantaged account) - Continuous tax-loss harvesting - Continuously adjustable allocation - forecasting and allocation advice - "goal based" accounts Also user experience is worth something for some people: - UI/Apps - statements, trade confirms, tax forms - electronic only (no reams of paper sent to you) - ease of transferring funds in/out Also note that it can be cheap. WiseBanyan is presently free (charging 25bp to turn on TLH). Betterment at 15bp ends up being only 10bp more than Vanguard's Target date funds funds at 18bp.

ipsin 11y ago

I thought it was interesting that roboadvisors like Wealthfront also charge a percentage of assets, instead of a flat fee. I have Vanguard funds already, and the free tier of Wealthfront. If Wealthfront seems to be doing a better job, I would be tempted to just echo their portfolio balance in my larger account, rather than paying them to do it. Given how much fees can affect returns, I might pay for Wealthfront's services, but I wouldn't pay a lot, and "$250/year per $100k" seems like too much.

sandworm101 11y ago

>>> available at $50 million in net worth is indistinguishable from $50k [+], but the price is 1000x higher. I cannot disagree more. At 50m you have a totally different perspective in this day and age. Investment for profit is often not the primary concern. Wealth protection, transfer from one generation to another, access control, family members, lawsuits ... lots of things that are not relevant with 50k in the bank but become big deals with 50m. The investment advice sought and offered to those with 50m to protect is altogether a different product than that offered to those with 50k. If you have 50m in the bank, "saving" for your kid's college expenses is a radically different question than if you only have 50k. Protection is far more a priority than any 'saving' concept. And taxes! That tiny amount of interest on 50k won't be taxed at nearly the same rate as that from 50m. Therefore an expensive but "tax efficient" scheme based on expensive lawyer advice, not robots, is worth the money.

ForHackernews 11y ago
> And taxes! That tiny amount of interest on 50k won't be taxed at nearly the same rate as that from 50m. Actually, it will probably be taxed at a lower rate. Interest on a savings account is taxed as ordinary income, while investment income on a $50m portfolio will likely be taxed at the 15% (or perhaps 20%) capital gains rate.
- sandworm101 11y ago
  That's what the advice does, it makes sure your interest is gets investment treatment. Ideally, it isn't taxed. Ideally, the attorneys setup a structure whereby gains aren't treated as any sort of income until one decides to realize them.
  - deleted 11y ago
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  - WalterBright 11y ago
    > Ideally, the attorneys setup a structure whereby gains aren't treated as any sort of income until one decides to realize them. There's no need to "structure" that. Buy stock and hold will do it.

vonnik 11y ago

I agree with Patrick's top point, but I think many people mistake the role of the financial advisor. (I used to work at FutureAdvisor, which was bought by BlackRock last year and is now providing robo-advice through institutions, so I know a little about the space, and have learned from others who know more.) One of the main roles of a financial advisor, for people with $50MM or more, is to act as a relationship broker. They put very wealthy people in touch with other very wealthy people; e.g. "If you're going to be in Hawaii, you might want to look up X, who's doing some really interesting things in this sector..." Brokering relationships is more than facilitating interesting conversations. It helps the FAs' clients build their businesses. For example, if you happen to be a venture capitalist who already made your first fortune, and you're looking to raise from LPs, then a financial advisor might introduce you to their other clients, such as Family Y, which lives off the rents created by their 19th-century match-book empire. A lot of people don't realize that FAs are doing a lot more than running your numbers, and insofar as that's all they do, they will be replaced by robo-advisors.

harry8 11y ago

Why giving advice has become a field where you are allowed to charge a wealth tax is beyond me. It cannot last. 1% of your wealth every year, year after year. Just imagine if the government tried that on. "We're having a 1% wealth tax to fund education and health for the very poor." And yet if you do it fund luxury property and porche consumption, that's ok somehow. No doubt there will be a bunch of people commenting here who are stupid enough to have bought the con or have a vested interest arguing that 1% wealth tax is value for money...

vehementi 11y ago
It's about them extracting some of the value they create. If you're not the most rational of decision makers, paying 1% of your wealth per year for 10 years to save you from losing 30% of it in a panic by selling at a low when the market crashes, then it's worth it. Now from that perspective think of all the people you know who may make stupid decisions like that (or just not investing in the most efficient way). The value to those people would surely be 1% per year. The question is how low can we drive the cost of those services via competition (of which robo advisors is one)?
prostoalex 11y ago
> Why giving advice has become a field where you are allowed to charge a wealth tax is beyond me. Charging a percentage for assets under management creates an incentive to grow that pie, slowly but surely, keeping everybody happy. Charging a flat or an hourly fee creates an incentive to "wham, bam, thank you mam, next customer please" type of interaction.
- ars 11y ago
  Then maybe charge a fee on profit, not on asset under management.
  - prostoalex 11y ago
    This creates an incentive to severely ramp up the portfolio risk in the hopes of striking it big. Sure, almost all client portfolios will go broke, but the winning one will pay off for the losers. Such wealth management firm would have an issue surviving past year 1.

Mikeb85 11y ago

> Investment advice is one of comparatively few fields where the quality of it available at $50 million in net worth is indistinguishable from $50k [+], but the price is 1000x higher. Completely false. With $50 million you have access to all sorts of investment vehicles that you don't have access to with $50K. Hedge funds for example. Also, with $50 million you have more worries - the bank won't insure $50 million cash, so you need to be invested in something, with the aim of wealth preservation while paying as few taxes as possible.