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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 tole

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.
  - dap 11y ago
    > Wealthy individuals have access to investment strategies resemble far more the philosophy of large pension funds than robo-advisors. I know these are naive questions, but here goes: do those pension funds differ greatly from large university endowments? How do those differ from what one can achieve using a combination of cheap index funds? Ramit Sethi famously recommended an allocation based on David Swensen's experience managing the Yale endowment. You can find index funds to match that reasonably well. How different will that be from what Yale or a pension fund actually does?
    - lucisferre 11y ago
      They have similar goals, capital preservation, consistent cash-flow so they don't deplete the principal. I'm in Canada so examples we often cite are the Canadian Pension Plan (CPP), Ontario Teacher Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS). All of these do a lot of private equity investing and OMERS in particular has invested in a number of Canadian tech companies and IPOs, incuding recently Shopify and Hootsuite. All of them have had quite impressive and consistent results as well. The problem with using public index funds to mimic these managers asset allocations is the higher volatility of publicly traded assets. For example in 2008 widespread panic caused people to sell their mutual funds and flee to cash which widely hold a variety of assets, so all of them suffered. This included publicly traded Real Estate Investment Trusts (REITs). At one point they were selling for 80% of their on paper asset value, which was entirely irrational. Many money managers that typically invested privately in commercial real estate because of that volatility took that opportunity to buy public REITs at a discount. That being said, you can definitely do a decent job of adding asset class diversification with modern ETFs (and the market for these keeps growing). There are now infrastructure ETFs, REITs (Vanguard's REIT is really well priced), covered call ETFs, etc. Just don't expect to get exactly the same results of these managers and expect to have to handle larger volatility. That being said, if you can weather these market movements, and you are saving regularly, volatility can be a good thing, if you can take advantage of lower asset prices with ongoing contribution then that is great.
      - 11y ago
- deleted 11y ago
  [deleted]
- walshemj 11y ago
  Or just buy into the investment companies that invest in that area. The Rothschild have a publicly traded mutual that anyone can invest in. And you can get aces to property by inversing in REIT's
Retric 11y ago
Access to that tier is why a lot of (ex: sports, inherited wealth, lottery, etc) people who earn a millions, but are not savvy investors end up broke. The financial industry is very good at separating people from their money and unless that's your background it's best to stay the @$%^ away.
- peteretep 11y ago
  > people who earn a millions, but are not savvy > investors end up broke One suspects that's more to do with outgoings than with returns
  - Retric 11y ago
    You can't live on negative returns. Restaurants are a classic example of money pit 'investments', but so are a lot of real estate deals etc.
bradleyjg 11y ago
You want a lawyer and an accountant (both with fiduciary duties) not a salesman.
- prostoalex 11y ago
  Most accountants will steer clear of producing any advice, their m.o. is more of "here're scenarios A, B, and C, portfolios D, E and F, and 9 projected behaviors of those portfolios in aforementioned scenarios. Let us know what you would like to execute." and a five-digit bill 30 days later.
1123581321 11y ago
You are right that you should be, but in practice, a lot of advice at that level is still standardized. Where I agree with you is the wrapper fee on a 50m account ($250-500k/year) is not enough to build a personal advisory staff as diverse and specialized as a good firm should be providing you for that sum, and your personal staff wouldn't have enough to do all year anyway.
wtvanhest 11y ago
I have never worked as a financial advisor, but I did work for a while at a large buy-side firm. If I had $50 million, my biggest concern would be keeping that money safe and lowering volatility. In the case of $50m, you can fully invest it in the stock market, but you need to be ready for wild fluctuations in your wealth. You also need to make sure the brokerage you gave the money to is reputable, or multiple brokerages. (SIPC only covers up to $500,000). You also may accidently buy overly correlated products without knowing it or may think you are buying low risk (bond funds) only to find out that they had super high duration (risk from insurance rates changing). You can always put it in banks, but even that can be risky in times of extreme turmoil. During the last crisis, there were about 6 months when people were genuinely unsure whether all major banks would stay solvent. You are only insured to FDIC limits which will not come close to $50m. You could go with real estate, 100% cash purchase, where you have no debt. (no leverage). As long as you pick a liquid asset class, that is likely safe, but you still need to insure the property and make sure your management team is running it properly which requires a lot of hands on work. You could still lose a lot of money if rates go up etc. Having $50m is really a mo money mo problems scenario. A robo advisor can't fix it if you don't want 100% stock market exposure. I also don't think expensive advisors fix it either.
- alextgordon 11y ago
  For me, the opposite. $50m is about 100x more than I could ever need, so I'd just stick it in $SPY until I die. Volatility is irrelevant as there is no actual risk to life or limb, only the "risk" of numbers going up or down.
  - tamana 11y ago
    If you really don't care about the money, you could donate it and let it be someone else's concern.
    - thatcat 11y ago
      You have the money so you don't have to care about the money; if you gave it away, you'd be stuck caring about money again.
pbreit 11y ago
I think what you're paying for is someone to blame for losses who is not 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.
- dap 11y ago
  > Wealthy individuals have access to investment strategies resemble far more the philosophy of large pension funds than robo-advisors. I know these are naive questions, but here goes: do those pension funds differ greatly from large university endowments? How do those differ from what one can achieve using a combination of cheap index funds? Ramit Sethi famously recommended an allocation based on David Swensen's experience managing the Yale endowment. You can find index funds to match that reasonably well. How different will that be from what Yale or a pension fund actually does?
  - lucisferre 11y ago
    They have similar goals, capital preservation, consistent cash-flow so they don't deplete the principal. I'm in Canada so examples we often cite are the Canadian Pension Plan (CPP), Ontario Teacher Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS). All of these do a lot of private equity investing and OMERS in particular has invested in a number of Canadian tech companies and IPOs, incuding recently Shopify and Hootsuite. All of them have had quite impressive and consistent results as well. The problem with using public index funds to mimic these managers asset allocations is the higher volatility of publicly traded assets. For example in 2008 widespread panic caused people to sell their mutual funds and flee to cash which widely hold a variety of assets, so all of them suffered. This included publicly traded Real Estate Investment Trusts (REITs). At one point they were selling for 80% of their on paper asset value, which was entirely irrational. Many money managers that typically invested privately in commercial real estate because of that volatility took that opportunity to buy public REITs at a discount. That being said, you can definitely do a decent job of adding asset class diversification with modern ETFs (and the market for these keeps growing). There are now infrastructure ETFs, REITs (Vanguard's REIT is really well priced), covered call ETFs, etc. Just don't expect to get exactly the same results of these managers and expect to have to handle larger volatility. That being said, if you can weather these market movements, and you are saving regularly, volatility can be a good thing, if you can take advantage of lower asset prices with ongoing contribution then that is great.
    - 11y ago
deleted 11y ago
[deleted]
walshemj 11y ago
Or just buy into the investment companies that invest in that area. The Rothschild have a publicly traded mutual that anyone can invest in. And you can get aces to property by inversing in REIT's

Retric 11y ago

Access to that tier is why a lot of (ex: sports, inherited wealth, lottery, etc) people who earn a millions, but are not savvy investors end up broke. The financial industry is very good at separating people from their money and unless that's your background it's best to stay the @$%^ away.

peteretep 11y ago
> people who earn a millions, but are not savvy > investors end up broke One suspects that's more to do with outgoings than with returns
- Retric 11y ago
  You can't live on negative returns. Restaurants are a classic example of money pit 'investments', but so are a lot of real estate deals etc.

bradleyjg 11y ago

You want a lawyer and an accountant (both with fiduciary duties) not a salesman.

prostoalex 11y ago
Most accountants will steer clear of producing any advice, their m.o. is more of "here're scenarios A, B, and C, portfolios D, E and F, and 9 projected behaviors of those portfolios in aforementioned scenarios. Let us know what you would like to execute." and a five-digit bill 30 days later.

1123581321 11y ago

You are right that you should be, but in practice, a lot of advice at that level is still standardized. Where I agree with you is the wrapper fee on a 50m account ($250-500k/year) is not enough to build a personal advisory staff as diverse and specialized as a good firm should be providing you for that sum, and your personal staff wouldn't have enough to do all year anyway.

wtvanhest 11y ago

I have never worked as a financial advisor, but I did work for a while at a large buy-side firm. If I had $50 million, my biggest concern would be keeping that money safe and lowering volatility. In the case of $50m, you can fully invest it in the stock market, but you need to be ready for wild fluctuations in your wealth. You also need to make sure the brokerage you gave the money to is reputable, or multiple brokerages. (SIPC only covers up to $500,000). You also may accidently buy overly correlated products without knowing it or may think you are buying low risk (bond funds) only to find out that they had super high duration (risk from insurance rates changing). You can always put it in banks, but even that can be risky in times of extreme turmoil. During the last crisis, there were about 6 months when people were genuinely unsure whether all major banks would stay solvent. You are only insured to FDIC limits which will not come close to $50m. You could go with real estate, 100% cash purchase, where you have no debt. (no leverage). As long as you pick a liquid asset class, that is likely safe, but you still need to insure the property and make sure your management team is running it properly which requires a lot of hands on work. You could still lose a lot of money if rates go up etc. Having $50m is really a mo money mo problems scenario. A robo advisor can't fix it if you don't want 100% stock market exposure. I also don't think expensive advisors fix it either.

alextgordon 11y ago
For me, the opposite. $50m is about 100x more than I could ever need, so I'd just stick it in $SPY until I die. Volatility is irrelevant as there is no actual risk to life or limb, only the "risk" of numbers going up or down.
- tamana 11y ago
  If you really don't care about the money, you could donate it and let it be someone else's concern.
  - thatcat 11y ago
    You have the money so you don't have to care about the money; if you gave it away, you'd be stuck caring about money again.

pbreit 11y ago

I think what you're paying for is someone to blame for losses who is not you.