How wealth managers define rich

[explanade]

https://www.bloomberg.com/news/artic...urce=applenews

Quote:

Here, then, is a real answer, courtesy of the hush-hush world of private banking: $25 million. Twenty-five million dollars in investable wealth. The kind of money you could afford to see dip into the red for a quarter or three, maybe even a year or two, without breaking a sweat. With $25 million, maybe, just maybe, you're starting to be rich. Because in this era of hyper-wealth and hyper-inequality, that is simply where rich begins—a ticket, in truth, to the first, lowly rung of rich. For most of the planet, $25 million represents unfathomable wealth. For elite private bankers, it buys their basic service. Call it economy-class rich. Business class? That's $100 million. First class? $200 million. Private-jet rich? Try $1 billion. We all know the wealth gap between the rich and poor, and the rich and the really rich, is only getting wider, due in large part to the bull market in stocks and wealth generated in private businesses around the world. What may be less apparent, at least outside financial circles, is what all that money is worth to the bankers who discreetly tend those fortunes. No private bankers worth their wingtips will say they don’t care about clients with “only” a few million. Northern Trust Corp., which works with many of the world’s richest families, stresses that in recent quarters more than 50 percent of new clients have had investable assets in excess of $10 million. But “to get the highest level, companies have raised the bar,” said Brent Beardsley, who leads Boston Consulting Group’s work in asset and wealth management globally.

Quote:

The measure of what makes someone rich has changed dramatically in the past two decades. In 1994, when Peter Charrington, global head of Citi Private Bank, first joined the firm, “Three million was largely considered ultra-high net worth across the industry,” he recalled. “Fast-forward almost 25 years, and $25 million is how we define ultra-high net worth.”

[RunningBum]

I found the whole article pretty interesting. I always wondered how the uber-rich invested, and whether they just invest in index funds like me, but on a much larger scale, or if they invest differently, and why.

I see at least 4 reasons listed why they are investing with private investment bankers like thisL

- Setting up estates and trusts. Seems like this could be done directly with a good estate lawyer, although I guess this gets you constant review.

- Liquidity. If your wealth is tied up in your business, real estate, foreign holdings, art, or other non-liquid assets, you might need access to cash, especially if you are wanting to buy the next castle or yacht.

- Investing in private companies. Probably a biggie, that they can find investments opportunities in private companies and IPOs that the rest of us don't have access to.

- Networking. It's probably a good way to meet others like you, which is probably as important as things like this forum is to some of us. You also get access to some high-powered financial advice, though most of the examples given are of celebrity presentations, which I suppose are nice. I'm sure there's also access to major sporting events, concerts, sold out plays, major social events, etc. Maybe access to politicians and policy makers, though they don't get into any of that.

I'm sure they also get great Christmas cards, and fancy bound personal financial reports in a very comfortable office building, which basically is getting your ego stroked.

The annual cost is 1/4 to a full percent, usually on a sliding scale according to assets under management, or maybe total wealth--wasn't clear. If they are setting up trusts and making loans with personal assets as collateral, probably all of your assets, more or less, are considered under management. But even at the low end of fees, if you've got $200M, they are charging you at least $500K for management.

I wonder what % of the rich actually use such a firm?

[explanade]

I'm sure with that much money, they probably want someone to manage at least some of it, so that they don't have to devote a lot of time when they could spend that time on leisure.

They also said it's common for them to use several wealth management firms, though some go and open family office or multi-family office to have scale.

The main example they gave of a private company was Peloton. I really don't know how successful that business is or if it will have staying power.

[RunningBum]

Yeah, but if they are fairly liquid, like someone who sold a business or were at least able to cash out of a significant amount of company stock, they could just invest as I do, only with a couple of 0's on the end of transaction amounts. You can be a buy and hold investor with $100M just as a $1M investor is, right? You can certainly do better than that, but there's risk with higher returns, and a cost in fees to overcome.

A couple of Silicon Valley types I knew personally got into venture capitalist firms. They pooled some of their money with others, and used their industry knowledge and contacts to help decide which start-ups to fund.

[Mdlerth]

Quote:

Originally Posted by RunningBum I wonder what % of the rich actually use such a firm?

It's hard to fathom a person who made that kind of money running a business needing to hire a wealth manager.



I suspect the customer base for firms like this would include a lot of heirs and celebrities. Those folks can come into gigantic fortunes without necessarily being financially savvy themselves.

[RunningBum]

Quote:

Originally Posted by Mdlerth It's hard to fathom a person who made that kind of money running a business needing to hire a wealth manager. I suspect the customer base for firms like this would include a lot of heirs and celebrities. Those folks can come into gigantic fortunes without necessarily being financially savvy themselves.

That certainly makes a lot of sense. Aside from just being a good way for them to invest soundly, it's a good deflector from all the friends and relatives looking for a partner for their fantastic business ideas. You tell them to write up a business plan and you'll run it by your FA. That would stop almost all of them right there, with the rest being nixed as a poor prospect. And if somehow someone does have a truly good idea, it can get a real chance.

[COcheesehead]

I know someone who got a large payout, $64 million, from a lawsuit. They use a wealth manager because they just don't want to screw with it. They travel and enjoy their kids and don't worry about money.

[rodi]

Interesting article. I think I'll stick with my index funds since I don't qualify for rich. Lol.

[ExFlyBoy5]

Quote:

Originally Posted by COcheesehead I know someone who got a large payout, $64 million, from a lawsuit. They use a wealth manager because they just don't want to screw with it. They travel and enjoy their kids and don't worry about money.

I could see that as a good idea. If I came into a large fortune (as I would define as $10M+), I would probably see that a large percentage of it was managed professionally. My "bucket list" would be longer and more expensive, so I wouldn't want to spend the time I do now dealing with my stash.

[athena53]

Aw, shucks. I'm only a peasant.

I imagine that life gets complicated up there in the stratosphere even if you keep your invested assets in index funds. Multiple houses, estate planning issues, tax strategies (maybe foreign taxes if you own property outside of the US)...a good wealth manager can have a team of experts in each area and monitor the big picture. If you've still got businesses it's even more complicated. My BIL and SIL made their millions buying cable TV franchises with their investors' money, adding subscribers and programming and then selling the franchise at a profit. They were shrewd enough to wind the business down as they saw the market become saturated and competitors such as Dish emerge, but I think they had to file personal tax returns in many states. They owned a home in midtown Manhattan as well as one on the NJ shore so there needed to be a strategy to choose the principal state of residence. BIL was a CPA but I'm sure they had good advisors.

I'm glad my life will never get that complicated.

[LOL!]

This was an article about leeches, wasn't it?

[DrRoy]

I made the upper part of the 9.9% but I'll never get here.

[GravitySucks]

Another bell curve I'm on the (far) left hand side of.

[RunningBum]

So here's a question. For those of you managing your own portfolio now, would you start using such a service if you somehow found yourself in, say, 9 figures net worth? And why? And if your answer is so that you don't have to spend the time to manage it, how would you see the process taking more time, as opposed to just doing the same as today, just with larger numbers?

[RunningBum]

Me first? I'd probably listen to what they have to say and see for myself what the benefits really are, but I kind of doubt it.

[LOL!]

Quote:

Originally Posted by RunningBum So here's a question. For those of you managing your own portfolio now, would you start using such a service if you somehow found yourself in, say, 9 figures net worth? And why? And if your answer is so that you don't have to spend the time to manage it, how would you see the process taking more time, as opposed to just doing the same as today, just with larger numbers?

Probably not. I would probably put a huge chunk separate into a Total US, Total Int'l, and maybe tax-exempt bond fund and manage my current pint-size portfolio without much extra thought. I might do a little trust or something for estate planning purposes.

I know my BIL is about in this range and he doesn't have anyone help him. He even told me that he doesn't mind if estate taxes get most of his money instead of his kids because they can stand on their own two feet.

Most of the article was about all the extra hassle of owning things or having things own you. I would probably own even less things.

[mpeirce]

Quote:

Originally Posted by RunningBum So here's a question. For those of you managing your own portfolio now, would you start using such a service if you somehow found yourself in, say, 9 figures net worth? And why? And if your answer is so that you don't have to spend the time to manage it, how would you see the process taking more time, as opposed to just doing the same as today, just with larger numbers?

I honestly don't think I'd invest any differently.

I might have a full time CPA as I think tax issues would be a pretty big deal - things like ROTH conversions wouldn't be on the table at that income level. And I expect even a full time CPA could save me more than his salary would cost me.

[Chuckanut]

If being worth less than 25 million keeps my money out of the hands of the 'wealth managers' then I would consider that a benefit of not being among the super rich.

[jollystomper]

Quote:

Originally Posted by RunningBum So here's a question. For those of you managing your own portfolio now, would you start using such a service if you somehow found yourself in, say, 9 figures net worth? And why? And if your answer is so that you don't have to spend the time to manage it, how would you see the process taking more time, as opposed to just doing the same as today, just with larger numbers?

The only portion of the service I would look to use is investments related to estate wealth management. At that level there is no way we would outlive the money, and we would have more options on how to leave it to various individuals and organizations. We would also be subject to estate taxes. Those are areas where I can see using such a service.

[CaliKid]

Quote:

Originally Posted by Chuckanut If being worth less than 25 million keeps my money out of the hands of the 'wealth managers' then I would consider that a benefit of not being among the super rich.

The reality is very wealthy people have a much better chance of having true wealth managers that actually earn their keep. The rest of us peasants get some guy hoping for 1% to tell us which ETFs to invest in. I have seen true wealth managers as well as family office operators and it's different than your guy at Morgan Stanley and certainly different the annuity salesperson down at your corner bank.