Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
High-Net Worth Investors Not Keen on Index Funds
Old 06-26-2007, 04:34 PM   #1
Recycles dryer sheets
 
Join Date: Jul 2005
Posts: 423
High-Net Worth Investors Not Keen on Index Funds

MutualFundWire.com

by Company Press Release

A new study from Advsior Perspectives found that high- and ultra-high net worth investors (HNW/UHNW), who have assets are managed by RIAs, don't have the same affinity for index funds as individual investors. The study found that HNW/UHN are indexing only 3.8 percent of their marketable securities. Individual investors, on the other hand, in total index 10 to 15 percent of their assets.

Advisor Perspectives today released a study showing that high- and ultra-high net worth (HNW/UHNW) investors, whose assets are managed by Registered Investment Advisors (RIAs), are indexing only 3.8% of their marketable securities. This is in stark contrast to overall data for individual investors. According to Burton Malkiel, author of A Random Walk Down Wall Street and a leading proponent of index funds, individual investors in total index 10-15% of their assets. The study's data shows that wealthy investors using a financial advisor employ active management, in the form of separately managed accounts and actively managed mutual funds, for the vast majority of their assets.

The Advisor Perspectives study is based on the firm's proprietary database, which consists of approximately $50 billion in assets coming from RIAs serving HNW and UHNW clients. The database is segmented by account size, and the average account size in the tier representing the largest accounts is $3.7 million, ensuring that the results accurately reflect the investments of HNW and UHNW investors.

The study's other significant findings include:

* HNW and UHNW investors have 23.8% of mutual fund assets in index funds and exchange traded funds (ETFs). This is in excess of the mutual fund industry average of 10.8% of mutual fund assets in index funds. However, the finding means that only 3.8% of their total assets are indexed, since mutual funds represent only 15.8% of those assets.

* Only 1.0% of assets are indexed to broad-based U.S. market indices (the Dow, S&P, or broader market indices). The remaining 2.8% is indexed to international markets and to subsections of the U.S. markets.

* Wealthy investors make significantly greater use of ETFs than do other investors. Indexed ETFs comprise 78% of index funds in the study, as compared to 36% for the mutual fund industry.

* Barclays, a recognized leader in the ETF market, is the leading mutual fund company in the database, with 12.8% of mutual fund assets.

The database reflects investments in marketable securities and does not include alternative investments (e.g., venture capital, private equity, hedge funds, etc.). If alternative investments were included, the portion of assets indexed would be further reduced.

"Wealthy investors use financial advisors to achieve returns in excess of the market, through their expertise in asset allocation and fund selection," commented Robert Huebscher, CEO of Advisor Perspectives. "Wealthy investors are sophisticated enough to invest in index funds on their own, so it's not that surprising that advisors are using separately managed accounts and actively managed funds to achieve superior results. Now we know the extent to which they are doing this."
__________________

__________________
Olav23 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-26-2007, 05:45 PM   #2
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 174
Quote:
Originally Posted by Olav23 View Post
... found that high- and ultra-high net worth investors (HNW/UHNW), who have assets are managed by RIAs...
Seems a self-defining sample (i.e. those advised by advisors take advisors' advice).

Quote:
"Wealthy investors are sophisticated enough to invest in index funds on their own, so it's not that surprising that advisors are using separately managed accounts and actively managed funds to achieve superior results..."
I suspect the study in question didn't demostrate anything regarding comparative returns, despite the quote.
__________________

__________________
rockyj is offline   Reply With Quote
Old 06-26-2007, 05:54 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,627
Suppose I want a value tilt and a small cap tilt. Technically, a large cap value fund or ETF cannot be an index fund because someone has to decide what is "value". Same for small cap value. Same for international value. Same for emerging markets value. I don't think a TIPS index fund exists.

Thus one can say they don't have index funds when they still are using primarily ETFs, low expense ratio funds, and/or passive investing style.

Quote:
Wealthy investors use financial advisors to achieve returns in excess of the market, ....
I haven't seen any data to show that wealthy investors who use FAs do in fact achieve returns in excess of the market. Does anybody have data that I am unaware of?
__________________
LOL! is offline   Reply With Quote
Old 06-26-2007, 06:34 PM   #4
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
At least we now know that the wealthy are made up of a lot of suckers.

Gee, I wonder why the wealthy use ETF's and not plain old index funds. Could it be because the ETF's can generate commissions for some advisors while the index funds don't? Or it could just be that to use an advisor, you probably have to have a brokerage account, and purchasing ETF's is generally cheaper than cheap index funds.

I wonder how many of them use DFA. saluki, anyone?

- Alec
__________________
ats5g is offline   Reply With Quote
Old 06-26-2007, 06:48 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by sparkythewonderdog View Post
Seems a self-defining sample (i.e. those advised by advisors take advisors' advice).
DING!...ah, you know the rest...

I'm pretty sure that many ultra high net worth investors dont invest in mutual funds at all...or a lot of equities either...

This is a bit like a banana company labeling the product "LOW FAT!". Sure...so are rocks...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 06-26-2007, 06:57 PM   #6
Full time employment: Posting here.
 
Join Date: Sep 2006
Posts: 678
Quote:
Originally Posted by LOL! View Post
Suppose I want a value tilt and a small cap tilt. Technically, a large cap value fund or ETF cannot be an index fund because someone has to decide what is "value". Same for small cap value.
Really? Tell that to Vanguard, because they have a Value Index Fund (VIVAX), and a Small Cap Value Index Fund (VISVX), not to mention their Mid Cap Value Index Fund.
__________________
JustCurious is offline   Reply With Quote
Presumably many are in hedge funds
Old 06-26-2007, 07:11 PM   #7
Recycles dryer sheets
aenlighten's Avatar
 
Join Date: Apr 2007
Posts: 275
Presumably many are in hedge funds

and other private equity and real estate owned situations. Will the Bancrofts sell the WSJ or not? I don't think the returns have been great, but when you are in that ballpark, control is more important. This may be their opportunity to realize those returns, or they may just wait until a future opportunity.
__________________
aenlighten is offline   Reply With Quote
Old 06-26-2007, 07:37 PM   #8
Thinks s/he gets paid by the post
BigMoneyJim's Avatar
 
Join Date: Feb 2003
Location: DFW
Posts: 2,627
I was playing the mental exercise the other day of "how would I invest tens or hundreds of millions of dollars?" It occurred to me that mutual funds are less attractive because I could buy an index-ish portfolio with lower trading fees than a mutual fund would charge in yearly fees. Or at least I think I could...it was more of a concept exercise and not a researched cost-benefit analysis.

I would still prefer mutual funds over having a personal financial manager. Don't believe me? Give me a few dozen million dollars and I'll show you.
__________________
BigMoneyJim is offline   Reply With Quote
Old 06-26-2007, 07:55 PM   #9
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
Originally Posted by Olav23 View Post
"Wealthy investors use financial advisors to achieve returns in excess of the market, through their expertise in asset allocation and fund selection," commented Robert Huebscher, CEO of Advisor Perspectives. "Wealthy investors are sophisticated enough to invest in index funds on their own, so it's not that surprising that advisors are using separately managed accounts and actively managed funds to achieve superior results. Now we know the extent to which they are doing this."
It's so hilarious.
__________________
Spanky is offline   Reply With Quote
Old 06-26-2007, 08:14 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 9,906
I wonder how HNW/UHNW are defined. Heck, some of us are probably HNWs and don't even know it! :confused:
__________________
Yes, I have achieved work / life balance.
travelover is offline   Reply With Quote
Old 06-26-2007, 08:40 PM   #11
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Quote:
Originally Posted by travelover View Post
I wonder how HNW/UHNW are defined. Heck, some of us are probably HNWs and don't even know it! :confused:
The standard definition of HNW = $500K+

UHNW = $2.0M+
__________________
saluki9 is offline   Reply With Quote
Old 06-26-2007, 08:45 PM   #12
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Quote:
Originally Posted by ats5g View Post
At least we now know that the wealthy are made up of a lot of suckers.

Gee, I wonder why the wealthy use ETF's and not plain old index funds. Could it be because the ETF's can generate commissions for some advisors while the index funds don't? Or it could just be that to use an advisor, you probably have to have a brokerage account, and purchasing ETF's is generally cheaper than cheap index funds.

I wonder how many of them use DFA. saluki, anyone?

- Alec
The "study" sounds a little flawed in many ways. Failing to include ETFs as indexed investments sounds like a big problem.

As for DFA, they make up a small % of the market. for the most part they will not allow an adviser to use their funds unless they swear on the book that they either are or will soon be fee only (as in no insurance or brokerage commissions)

The fact is that most advisers and most brokers really believe they can beat the market. I (and the firm I work for) is of the belief that our clients can be better served by controlling risk, educating clients about how markets work, and orienting people to viewing their investments towards accomplishing goals as opposed to beating indexes.
__________________
saluki9 is offline   Reply With Quote
Old 06-26-2007, 09:27 PM   #13
Moderator
bssc's Avatar
 
Join Date: Dec 2005
Posts: 9,940
My first thought is I wonder how many of them have annuities inside their IRAs since that is what their advisor told them was best.

I also agree that the quote at the end of "Wealthy investors are sophisticated enough to invest in index funds on their own, so it's not that surprising that advisors are using separately managed accounts and actively managed funds to achieve superior results." seems fuzzy.

If indexed funds outperform 70% of the actively managed funds, how do wealthy investors "achieve superior results"? Or is it that the advisors achieve superior results. Where are the customers' yachts anyway? Do advisors of high net worth people have special access to a crystal ball to determine in advance which funds will have those results? I would disagree with his phrase "it is not surprising" because if they could do this, it would be surprising to me.
__________________
bssc is offline   Reply With Quote
Old 06-26-2007, 10:28 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,299
Quote:
Originally Posted by bssc View Post
If indexed funds outperform 70% of the actively managed funds, how do wealthy investors "achieve superior results"? Or is it that the advisors achieve superior results.
Maybe it depends where you put the emphasis:

Quote:
Wealthy investors use financial advisors to achieve returns in excess of the market,
It says they use them to achieve above-market returns. It does not say that they actually succeed.

Kinda like 'I am going to use this new fad diet to lose weight....'

More seriously, any mention of 'risk adjusted' returns?

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 06-26-2007, 10:28 PM   #15
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
Originally Posted by bssc View Post
If indexed funds outperform 70% of the actively managed funds, how do wealthy investors "achieve superior results"?
They own the other 30%.

Quote:
Or is it that the advisors achieve superior results.
They receive big commission checks and year end bonus.

Quote:
Do advisors of high net worth people have special access to a crystal ball to determine in advance which funds will have those results?
They also have intuition, foresight, wisdom, inside info and time machine.
__________________
Spanky is offline   Reply With Quote
"Advisor Perspectives" .. they must think we are retarded!
Old 06-27-2007, 06:42 AM   #16
Thinks s/he gets paid by the post
ladelfina's Avatar
 
Join Date: Oct 2005
Posts: 2,713
"Advisor Perspectives" .. they must think we are retarded!

argh.. what a dumb article.

I'm still unclear as to the real categorization of the people actually holding these accounts.
Quote:
The database is segmented by account size, and the average account size in the tier representing the largest accounts is $3.7 million, ensuring that the results accurately reflect the investments of HNW and UHNW investors.
Is it made clear whether these multi-million$ accounts are 100% of the person's holdings or 50% or 10% (with the other 90% in indexes, for example?). Maybe you have $50 million and invest $3 million with some advisor just for the heck of it.. to see what happens.. While no one likes to throw money away..you're not going to cry over fees at that point the way you would if you are at the brink of ER and watching your pennies like most people here.

It's also unclear whether "managed accounts" at some multi-million-dollar level actually offer access to IPOs and hedge funds and real estate or private-equity deals or high-yield corporate bonds that the "average investor" doesn't touch. Like the Yale portfolio scenario, that extra edge could give them better returns than run-of-the-mill mutual funds.

And how does one even parse this:
Quote:
Wealthy investors are sophisticated enough to invest in index funds on their own, so it's not that surprising that advisors are using separately managed accounts and actively managed funds to achieve superior results. Now we know the extent to which they are doing this.
What is the definition of the "extent"?

Ha! ... in fact the "truth" is buried here, in the first bullet point:
Quote:
mutual funds represent only 15.8% of those assets
Soooo "mutual funds are better than index funds because rich people buy a higher percentage of mutual funds vs. index funds (in their managed accounts) compared to the general population"

BUT (what the article should say is) "rich people only invest 16% of their money in mutual funds, including index funds".

!!!

Talk about trying to put lipstick on a pig.
__________________
ladelfina is offline   Reply With Quote
Old 06-27-2007, 10:33 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Most UHNW investors have advisors, and I don't see that changing anytime soon.

Reality is that most folks in that net worth area are not comfortable doing things themselves, whether they can or not. They view it as risk transference.

Investment PRODUCTS ARE commoditized, investment ADVICE is not............

So, I guess the REAL discussion is what is ADVICE worth? To most on this board, nothing...........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 06-27-2007, 10:35 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by Spanky View Post
They own the other 30%.

They receive big commission checks and year end bonus.

They also have intuition, foresight, wisdom, inside info and time machine.
Most UHNW investors are nowhere near any mutual funds, they are invested in real estate, hedge funds, managed futures, ETF's and individual stock accounts with private money managers.
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 06-27-2007, 10:37 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by bssc View Post
My first thought is I wonder how many of them have annuities inside their IRAs since that is what their advisor told them was best.

Very few, if any....unless the local insurance guy was a college buddy...........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 06-27-2007, 10:43 AM   #20
Recycles dryer sheets
 
Join Date: Jul 2005
Posts: 423
Quote:
Originally Posted by FinanceDude View Post
Most UHNW investors have advisors, and I don't see that changing anytime soon.

Reality is that most folks in that net worth area are not comfortable doing things themselves, whether they can or not. They view it as risk transference.

I think this is only part of the case. I think it is also very much about priorities. I assume UHNW individuals are very busy people. Do they need to concern themselves with asset allocation, or is it a better utilization of their time to focus on their core business/philanthropy/outside interests?

I'd say they could read one of the Bogle guides and be 95% of the way there. But then again, I could read car repair for dummies and change my own oil, tune up my car, fix it when it breaks down, etc. But I choose, instead, to spend my time on other things and rely on a car mechanic for that .001% of my time that I need that service. (as opposed to spending months learning the mechanics of the car, and keeping that knowledge up to date, to use that skill .001% of the time)
__________________

__________________
Olav23 is offline   Reply With Quote
Reply

Tags
net worth


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Approximate Vanguard Total Stock Market Index with S&P 500 and other fund(s)? Dude FIRE and Money 17 02-18-2007 08:25 PM
net worth spreadsheet Martha FIRE and Money 26 07-31-2005 10:09 PM
Net Worth by Age Anon FIRE and Money 18 09-14-2004 05:34 PM
Net worth sunrunner4@hotmail.com Life after FIRE 23 08-11-2004 12:23 PM
Updated Net Worth Figures - How Do You Rate? intercst Other topics 0 01-22-2003 07:00 PM

 

 
All times are GMT -6. The time now is 09:17 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.