How much would you have to have to pay an FA

[Milton]

aying that someone with a $50 million portfolio (for example) shouldn't retain a trained, qualified FA to help manage their vast fortune just because that FA isn't himself/herself a multimillionaire is kind of like saying you shouldn't take advice from your doctor because he's overweight and has high blood pressure. It could be that his medical knowledge and skills are unparalleled but he simply lacks self-control and discipline with his own personal habits. That doesn't mean he can't diagnose and treat your medical condition with his extensive knowledge and expertise.

I would suggest choosing another doctor ... there are plenty of good physicians available, and one might as well employ a cook who eats his or her own cooking.

 

[NW-Bound]

A long time ago, I read a story about Bill Gates vetting and choosing a manager for his money. The guy eventually picked had a record so clean that he never had even a parking ticket.

I will never have that problem with my money. If my stash somehow growed to 10 times its current size, I simply scaled my trades to 10x. I am so diversified that even if I were 100x richer, trades 100x larger than what I do now would still be drops in the ocean, although I would be more careful to do limit orders only. I never buy or sell all shares of a position at one time. Right now, trading a few hundred shares at a time, I tend to watch the bid/ask and do a quick market order, then I am done.

It's a non problem, really, as I do not see how I can get that rich to worry about it.

 

[jzajzz]

FAs are not estate planners even if you find one who thinks he/she is. Find an attorney in your state that specializes in estates.

Re portfolio, my impression is that it takes $1m to interest a true Registered Investment Advisor. These guys are legally fiduciaries and that is what you want. I think sticker prices for FAs like this start at 2% for $1M and slide down from there. I just helped select an FA for a nonprofit and at a $4M level, we were quoted prices ranging from 40 to 75bps from the 8 firms we sent RFPs to. Obviously, they knew they were in a competition and came with sharpened pencils.

Attorneys can manage your estate from the legal side.. but in general their financial knowledge is minimal.. an FA that specializes in estate planning might be better .but like everything you have to vet them.. financial education for FA's is lacking outside of investment education .. a CFP does not make you an estate planner.

I would get information from all sources .... attorneys , FA's , tax guy and insurance guy as well .. and study as much as you can .. it's your money. paying one person 1-2% of your asset when he's not necessarily an expert at everything is quite expensive.

There are FA's who charge flat fees .. it's not a great deal for the average person but for someone with a lot of cash /asset it could be the a great solution . if the fee is a tiny percentage of their portfolio

 

[scrabbler1]

Even though my portfolio's value has tripled in the last 15 years, I have actually simplified it over that time in terms of the number of funds I am spread out in.


In the early 2000s (when I was still working), I liquidated some of the dogs and consolidated my holdings into fewer funds, both in my old 401k and taxable account. Today, as an early retiree depending on the investment income from the taxable portion of the portfolio, it is mainly on autopilot with only occasional tweaks for rebalancing purposes.


Having internet access to the portfolio, unlike many years ago, has made it a lot easier to monitor it and make transactions. If my portfolio were to double or triple again, I would probably branch out a little more into a few more funds, but it wouldn't be too tough to keep an eye on things. The autopilot nature of it would remain unchanged - some investment earnings get automatically transferred to my local bank's checking account which then automatically pays most of my bills.


The time I don't spend on financial activities like those I can spend reviewing my portfolio. I don't need any paid FA. I have an unpaid Account Executive at Fidelity I can bounce ideas off once in a while.

 

[audreyh1]

That's what I do. Our portfolio keeps getting bigger (knock on wood) but I keep simplifying.

 

[marko]

I think you reach a point where DIY just doesn't cut it anymore. One can personally take care of a 4 bedroom home but a 12 bedroom, 14 bath house would be another matter altogether.

I think once you hit $50MM+ (pick a number) there's just too much going on and too much risk to not have someone taking a second look at what you're doing. People in that realm of wealth often live quite differently, have different COL profiles and develop different needs and risks.

 

[NW-Bound]

I think you reach a point where DIY just doesn't cut it anymore. One can personally take care of a 4 bedroom home but a 12 bedroom, 14 bath house would be another matter altogether.

I think once you hit $50MM+ (pick a number) there's just too much going on and too much risk to not have someone taking a second look at what you're doing. People in that realm of wealth often live quite differently, have different COL profiles and develop different needs and risks.

Yes, but I think my threshold would be a lot higher than $50M. Maybe $500M.

Doing my own trades is not the same as cleaning a 12-bedroom house. Instead of entering 500 shares into an online order, I just enter 5000 shares. Or I can break it out into many orders. Right now, I do not trade everyday, so would think I still have time to manage a portfolio 10x larger.

If I had even more, say $500M, I might be occupied with other activities that are now open to me, and lose interest in investing and outsource it to a manager. Or maybe not. I may still be too interested in the stock market to give it up to somebody else. And I need something to do when I am not traveling or doing stuff like gardening.

I will never know, because the only way I could get a big pile of money is to win the lottery, and I do not play that game.

 

[NW-Bound]

At some point, I will stop doing my own trades, and divide my money into a few balanced funds.

That is about as much investing outsourcing as I will ever do.

 

[Milton]

KISS

I think you reach a point where DIY just doesn't cut it anymore. One can personally take care of a 4 bedroom home but a 12 bedroom, 14 bath house would be another matter altogether.

An unpersuasive analogy. As NW-Bound implies, personally managing a 10X portfolio is not more physically demanding than personally managing an X portfolio.

I think once you hit $50MM+ (pick a number) there's just too much going on and too much risk to not have someone taking a second look at what you're doing.

A higher value portfolio need not have any more complexity or risk than a modest one: sticking to two or three index funds is a strategy that works well for UHNW.

Nothing requires "(a lot) going on" … Warren Buffett has repeatedly suggested simplicity, even for huge investment portfolios:

The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal…. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness.

If “investors” frenetically bought and sold farmland to each other, neither the yields nor prices of their crops would be increased. The only consequence of such behavior would be decreases in the overall earnings realized by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties.

Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.

 

[marko]

An unpersuasive analogy. As NW-Bound implies, personally managing a 10X portfolio is not more physically demanding than personally managing an X portfolio.

A higher value portfolio need not have any more complexity or risk than a modest one. Nobody says there has to be a lot "going on" … sticking to two or three index funds is a strategy that works well for UHNW.

Respectfully disagree. It's not the portfolio management that changes. Granted it's the same amount of work; adding an extra "0" to the number of shares is easy.

What changes at a certain level is the lifestyle and the risks, demands and focus. People in the $100MM+ level of NW just tend to live differently, have different tax, money management, spending, risk and estate planning profiles than someone with $5MM.

You're a bigger target to scammers, might have 3, 4 or 5 homes and a small staff. Tax laws change regularly and a good accountant might point out how and where one might be overpaying or, at risk of violating some obscure area of tax law.

At some point, serious philanthropy may come in, presenting a whole new set of risks and opportunities.

Do you need someone to run $100MM in an index fund? No. But there is a financial point where life can get a whole lot more complicated and a few lawyers and accountant or two become more critical in financial advisement.

Even my oft-mentioned miserly grand-dad (mid/high 8 figures), who hated paying for even a newspaper, reluctantly had a set of advisers who'd steer him in matters of estate planning, taxes and general management of his affairs.

YMMV, but to me anyone with $100MM+ who goes it alone without anyone looking over their shoulder would be out of their mind.

 

[audreyh1]

Yes, but I think my threshold would be a lot higher than $50M. Maybe $500M.

Doing my own trades is not the same as cleaning a 12-bedroom house. Instead of entering 500 shares into an online order, I just enter 5000 shares. Or I can break it out into many orders. Right now, I do not trade everyday, so would think I still have time to manage a portfolio 10x larger.

If I had even more, say $500M, I might be occupied with other activities that are now open to me, and lose interest in investing and outsource it to a manager. Or maybe not. I may still be too interested in the stock market to give it up to somebody else. And I need something to do when I am not traveling or doing stuff like gardening.

I will never know, because the only way I could get a big pile of money is to win the lottery, and I do not play that game.

You don't even have to break a trade into many orders. Unless you specify all or nothing for a limit order, the brokerage does it for you. If the share size is very small compared to the daily volume, it will barely affect price.

Agree the house analogy doesn't hold.

 

[traineeinvestor]

Another reason for employing a financial adviser is as a safety check against doing so something really stupid. I might think I am well able to manage my finances but I have seen (or read about) plenty of cases where people go off the rails and destroy their financial security through bad decision making (including a some relatives who managed to blow multimillion dollar fortunes). Paying some small FA fees is a form of insurance for me ...


... says the man who's currently thinking about using a margin facility to buy individual shares ...

 

[Bikechuck]

I think that I would be likely to handle my own investments at pretty much any level of assets.

That said, I have used an attorney on a one time basis to help me with a Will, Trust, Living Will etc. I would invest in additional estate planning services if my estate was worth more than $5.0 million or whatever the current cut-off is for federal estate taxes but I am unlikely to get there.

 

[Scuba]

Many really wealthy folks do not simply invest in publicly traded securities. They invest in private equity deals and all sorts of other vehicles that may require third party involvement to get access to. YMMV, but it would surprise me if many UHNW folks were invested only in a few index funds. Warren Buffet himself certainly doesn't restrict his portfolio to Vanguard funds. I think he intended his advice for the average person, not the UHNW crowd.

In any event, this is not a "one size fits all" decision.

 

[audreyh1]

Another reason for employing a financial adviser is as a safety check against doing so something really stupid. I might think I am well able to manage my finances but I have seen (or read about) plenty of cases where people go off the rails and destroy their financial security through bad decision making (including a some relatives who managed to blow multimillion dollar fortunes). Paying some small FA fees is a form of insurance for me ...


... says the man who's currently thinking about using a margin facility to buy individual shares ...

If you stick to broadly diversified low-cost mutual funds, rebalance only occasionally to maintain your AA, and don't use margin, it's really hard to see where the big screw ups are going to happen.....

Keep it simple.

 

[audreyh1]

Many really wealthy folks do not simply invest in publicly traded securities. They invest in private equity deals and all sorts of other vehicles that may require third party involvement to get access to. YMMV, but it would surprise me if many UHNW folks were invested only in a few index funds. Warren Buffet himself certainly doesn't restrict his portfolio to Vanguard funds. I think he intended his advice for the average person, not the UHNW crowd.

In any event, this is not a "one size fits all" decision.

But they don't have to.

Some of them simply put it all in municipal bonds.

 

[Scuba]

But they don't have to.



Some of them simply put it all in municipal bonds.

Agreed, no one has to invest in anything they don't want to.

My point was that one reason people may want an FA as their portfolio grows is to access asset classes that aren't closely correlated with financial market cycles. People who have large portfolios sometimes choose to diversify their assets beyond publicly traded financial markets. Some advisors can help provide access to alternative vehicles.

 

[audreyh1]

I know many universities and endowments and public pension funds do this, but I honestly don't see why an individual would suddenly want to get into more exotic investments simply because their nest egg was way larger. There is diversification, and there is deworsification.

I wonder how much it is financial companies hard-selling their "special" and "exclusive" services.

Universities etc. are going to hire financial services simply for CYA reasons, and often private equity doesn't work out at all, and there are plenty of underperforming hedge funds, but "everybody does it", so they fear looking foolish otherwise.

And, by the way, this stuff is way beyond Joe Blow FA's paygrade.

 

[Scuba]

I agree, Joe Blow FA wouldn't know much about these avenues.

 

[marko]

And, by the way, this stuff is way beyond Joe Blow FA's paygrade.

If we're talking about Joe Blow FA from the likes of E Jones, absolutely yes.

However there are FA's for UHNW folks who are quite expert and specialize in more exotic opportunities. Generally private companies with limited clientele.

Most of these guys won't even talk to you if your NW is under $100MM and generally operate in a more rarefied realm of financials that appeal to UHNW clients. Services usually include legal, philanthropic, trusts, tax and multi generational wealth management to name a few. Way over the heads of Joe Blow FA's

 

[audreyh1]

OK - so let say you don't need to worry about it until you reach $100M.

We have the answer folks: It's at least $100M!

 

[marko]

OK - so let say you don't need to worry about it until you reach $100M.

We have the answer folks: It's at least $100M!

Sometimes I'm a little too subtle. Sorry. A lifetime deficiency of mine.

My point was that there are different levels of FA's.

Each meet certain levels of need. IMO the financial needs of someone with $1MM NW are generally different from those with $100MM.

 

[Texas Proud]

Wow.... some people seem pretty low to me.... I can manage $10 to $20 mill on my own... not a lot more work than I do now (and I am not close)...


BUT, if I won one of those super lotteries and had over $100 mill I would than hire some people... but not pay a % of NAV unless it was really low... like 25 to 50 BPs..... that is still $250 to $500K to them.... I should be able to get a lot of service for that kind of scratch.... but since you should be making anywhere between $5 and $10 mill a year in profits it becomes a minor expense to you...

OK - so let say you don't need to worry about it until you reach $100M.

We have the answer folks: It's at least $100M!

Go back and look at post #13.... I said that a LONG time ago

 

[Sojourner]

Do you need someone to run $100MM in an index fund? No. But there is a financial point where life can get a whole lot more complicated and a few lawyers and accountant or two become more critical in financial advisement.

Even my oft-mentioned miserly grand-dad (mid/high 8 figures), who hated paying for even a newspaper, reluctantly had a set of advisers who'd steer him in matters of estate planning, taxes and general management of his affairs.

YMMV, but to me anyone with $100MM+ who goes it alone without anyone looking over their shoulder would be out of their mind.

+1

I would say $100MM for sure, but even at much lower levels like $12-15MM, it's costing you only a tiny fraction of your yearly passive income to outsource all the obscurities of estate planning, tax optimization, and other complex issues that you probably don't want to become an expert in yourself just to save a few bucks. At $12MM, for example, your monthly passive income would be roughly $35,000. Retaining a fee-only FA for a quarterly review of your portfolio would cost only about $3,000 (assuming $100/hr for 8 hours, 4 times per year). It's hard for me to comprehend how anyone would think, at that level of net worth, this wouldn't be a wise use of money. At that level of wealth, I would certainly want at least an annual "checkup" on my portfolio by a trained professional, just like I go in to see my doctor once a year for a complete physical exam.

 

[marko]

+1

It's hard for me to comprehend how anyone would think, at that level of net worth, this wouldn't be a wise use of money. At that level of wealth, I would certainly want at least an annual "checkup" on my portfolio by a trained professional, just like I go in to see my doctor once a year for a complete physical exam.

I think a lot of people equate "FA" with some of the more popularly advertised investment firms; E. Jones, LPL, R. James and the like.

As I've noted above, there are other firms where the term FA may be a little more broader and comprehensive than some guy, 2 years out of school offering annuities on commission.

If I may borrow from Gatsby: "The (very) rich are different from you and me"