Wealth Management Company Worth It?

[RetiredAt49]

So earlier this year I sold my home and netted $1.8 million. I was frozen in fear what to do with that sum of money so decided to work with a wealth management company.

I’ve been researching a lot since then and feel like I could/should switch to a low fee ETF/other but my account with my wealth management company is performing better (including fees) than most ETF’s I’m tracking as well as the S&P 500.

I also have $50,000 in Betterment and $50,000 in Wealthfront and my Wealth Management account is still tracking 3-4% higher.

 

[travelover]

How much are they charging you and what are they delivering for the money?

 

[RetiredAt49]

How much are they charging you and what are they delivering for the money?

1.15% fee. Comes with financial planning, tax advice, Monthly webinars where they talk about the market conditions and portfolio strategy. Most importantly they are beating or at least on par with other ETF’s/S&P 500 net of fees.

 

[teejayevans]

If you’re frozen in fear in this market, then yes, you need someone to talk you off the ledge when the market eventually tanks.
Imagine the fear when your investment drops by 30%.

 

[target2019]

What funds do they have you invested in? They are likely to be high fee in addition to the AUM fee you mentioned. Just my guess, but the devil is in the details. Since this is probably a taxable brokerage there may be a large tax bill when you exit their investments.

 

[ImThinkin2019]

We are doing a test right now of the Morgan Stanley wealth management group. In a year or two we will be able to compare their results to our various index and managed mutual funds.

The reason we are doing this is my FIL followed a broker from firm to firm and ended up at Morgan Stanley. Then the broker left and there's been a big push to get customers into the wealth management program. Wealth harvesting, I call it.

FIL will not pay an advisory fee. Instead he relies on himself and has not done so well. Holding individual stocks and not paying attention, while the price and dividends drop. Look at AT&T if you want to commiserate. They bought it a long time ago when the thing to do was buy blue chip stocks for safety.......

 

[prudent_one]

As long as you understand the impact of fees over time, and would be aware of possible churning, then do whatever gives you peace of mind. Personally I think it's an unnecessary expense but at the same time not everyone wants to mess with that stuff.

 

[Dtail]

What is the history of their performance net of fees vs, low cost index funds?
The managers can beat the indices over a certain time frame, but not necessarily over a longer period of time.

 

[Exchme]

AUM advisors are worse than used car salesman. At least you know the used car salesman is lying to you. The statistics on who outperforms the market at the same level of risk are indistinguishable from random chance before fees and are consistently behind the market after fees.

Go with fee only advisors that are just working for the consultation, not a continuous AUM fee. An innovative approach is PlanVision that I believe costs $198/yr, they make you a financial plan for you, recommend low cost, broadly diversified funds (for instance Vanguard's Total Market ETF is 0.03%) and gives you a subscription to e-money where you can track how you are doing and make some projections.

Note that if you go down the path of tears with an AUM advisor, that the 1.15% is just the advisors cut, the funds still have to operate and they have their own costs. When we had and advisor, the funds charged 0.55-0.85% on top of the advisor fee and eventually we dug through the prospectus and figured out the funds invested in other funds and those also had a cost of 0.55-0.8%, so all told we were 2+%.

It's very hard to grasp how serious these fees are. If the funds before fees return 8%/yr and they take 2%, then over your investing lifetime, they have more of your money than you do! And the fees come rain or shine, profit or loss.

It took us four years and tens of thousands in fees and far more than that in lost returns for us to wise up, but just stay away from AUM advisors.

 

[HarveyS]

It is not difficult for an active manager to beat the index funds in an up market. The true test will be in a down market. My experience with ML (10 years ago) is that they create complex portfolios with 40 - 50 stocks, use high cost mutual funds, and pepper in some options-like funds. I went there for simplicity and got just the opposite. Although performance net of fees was slightly better than accounts I had outside of ML, I still moved everything out and self manage.
One more thing: When you compare performance look at the asset allocation beyond just stocks/bonds/cash. Look at the sectors that you are invested in. You may find you are tech-heavy and thus easily beating a SP500 index. But to me, that is apples/oranges comparison.
Having said all that, if it helps you sleep at night, by all means stay with them. Just have all the info on what it is truly invested in and what your are actually paying.

 

[Dash man]

If they have you in stocks or funds with a high concentration in the FAANG type stocks, you would be doing well now. But too much concentration in tech or any sector can bite you when the market turns. Make sure you know what they have you invested in.

 

[mrfeh]

So earlier this year I sold my home and netted $1.8 million. I was frozen in fear what to do with that sum of money so decided to work with a wealth management company.

I’ve been researching a lot since then and feel like I could/should switch to a low fee ETF/other but my account with my wealth management company is performing better (including fees) than most ETF’s I’m tracking as well as the S&P 500.

I also have $50,000 in Betterment and $50,000 in Wealthfront and my Wealth Management account is still tracking 3-4% higher.

To answer your question: no.

If you are capable of controlling your emotions, do this instead:

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[pjigar]

1.15% fee. Comes with financial planning, tax advice, Monthly webinars where they talk about the market conditions and portfolio strategy. Most importantly they are beating or at least on par with other ETF’s/S&P 500 net of fees.

A rising tides lifts all boats. It is best to invest in low cost broad markets fund for retail investors. Almost all mutual funds consistently under performs the market after the fees. That is not to say you can't consistently beat the market but those souls are very rear and they would be generally perform in an opposite direction to the market. YMMV.

 

[Rainbowdash]

Sometimes the wealth management companies are very tricky on how they calculate their performance. Make sure they compare performances from Jan 1 to December 31. I’ve seen many times where these people bring up charts over a period of 3 or 4 months but fails big when overall results are over long periods of time.

 

[fidler4]

To answer your question: no.



If you are capable of controlling your emotions, do this instead:



https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

The link doesn’t work for me.

 

[mrfeh]

The link doesn’t work for me.

Works for me.

ETA: you need to click on it; don't copy & paste

 

[flyingaway]

One of my friends bought TQQQ WITHOUT a wealth management company, he is up 3 times of NASDAQ, up 69% this year. When in a bull market, the one who want to run risk is a winner, but it may be different for a long time.

 

[target2019]

The link doesn’t work for me.

Below is the conventional URL.

https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

The other link starts out with a Registration symbol (®) in the URL when you paste it. You can see it transformed in my link above which will probably work for you.

 

[marinauser]

A simple comparison of rates of return from Betterment versus the managed account doesn't tell the entire story. What is the overall risk profile of the two accounts? Do they hold similar amounts of bonds/cash? Are the bonds of similar duration and quality? What is the breakdown of equities in each account? Small, mid and large cap? International? Emerging markets? All of these figure into upside/downside risk and are important to understand. Also, what are the tax implications of each acccount? Is one generating a lot of capital gains that you owe taxes on? Short term gains?

 

[capjak]

Wow, better than the S&P 500 etf ITOT which is up 25% this year thus far so

you made more than $450,000 after fees on your 1.8 million this year alone.

Congrats

If they can show you their past performance for the last 30 years and if it beats the S&P500, than it is worth it.

 

[FI_RElater]

Wow, better than the S&P 500 etf ITOT which is up 25% this year thus far so

you made more than $450,000 after fees on your 1.8 million this year alone.

Congrats

If they can show you their past performance for the last 30 years and if it beats the S&P500, than it is worth it.

So, since that's a NULL set, I'm guessing that you'd say not to use such an advisor with that high of fees.

 

[Chuckanut]

It's very hard to grasp how serious these fees are. If the funds before fees return 8%/yr and they take 2%, then over your investing lifetime, they have more of your money than you do! And the fees come rain or shine, profit or loss.
.

+1

I look at these fees in regards to the percentage of gain/loss rather than the total amount invested. If the fee is 1.25% and my funds are up 8% this year, that means I have given almost 16% of my gains to the advisor. Not so good.

 

[OldShooter]

We are doing a test right now of the Morgan Stanley wealth management group. In a year or two we will be able to compare their results to our various index and managed mutual funds. ...

An important point in this post: A few months is an impossibly short time for evaluation of any kind of investment strategy. When I do evaluations, I don't even pay attention to the numbers for the first couple of years. This is for diversified strategies; a rifle-shot sector strategy needs longer as sector performance can take years to really show its stripes. For grins, here is real data comparing a particularly bad Morgan Stanley salesperson with a simple index portfolio of about 2/3 US total market and 1/3 international total market:

​

Most of performance is luck. If you look here: S&P SPIVA gateway: https://www.spglobal.com/spdji/en/spiva/#/
you will see that roughly 30-40% of managers are winners over one year, but that number is close to cut in half in the second year, and so on. When you get out to 5 or10 years it is a tiny percent who are still winning.

So why not hire the lucky managers? Short version: no one knows how to spot them ahead of time. These reports: S&P Persistence gateway: https://www.spglobal.com/spdji/en/indexology/core/persistence-scorecard/ pretty much nail the coffin closed. Here's one of the top academics explaining: Dr. Kenneth French on picking a manager: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

... I’ve been researching a lot since then and feel like I could/should switch to a low fee ETF/other but my account with my wealth management company is performing better (including fees) than most ETF’s I’m tracking as well as the S&P 500. ...

So, you're on the right track here. Your current portfolio may well be beating the S&P right now, but that is not predictive. So, yes, take the money and run! Be grateful for your good luck.

... When in a bull market, the one who want to run risk is a winner ...

This is truth, but far from the whole truth. There are many who run risks who do not win. They do not post this news on the internet, either, so you do not get the whole picture. Nassim Taleb calls this "silent evidence" and uses this story:

"Diagoras, a nonbeliever in the gods, was shown painted tablets bearing the portraits of some worshippers who prayed, then survived a subsequent shipwreck. The implication was that praying protects you from drowning. Diagoras asked, “Where are the pictures of those who prayed, then drowned?”
​

The other factor here is that big wins can only come in non-diversified portfolios. Another guru, William Bernstein, advises:

“Do you think that by choosing a portfolio of only a few stocks that you hope will score big, you are maximizing your chances of becoming wealthy? Indeed you are, but you are also maximizing the chances of a retirement of cat food cuisine”

(on investing for retirement) “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”

​

Some good reads:

"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

 

[teejayevans]

The OP said “I was frozen in fear what to do with that sum of money”.

That tells me he needs a FA of some kind.

It doesn’t matter if you or I can get better returns investing with low cost index funds, he won’t.
Unless you can watch the market drop by 30% (like it did March 2020) and react with nothing more than a yawn, you should not be trying to do it yourself.

 

[RetiredAt49]

The OP said “I was frozen in fear what to do with that sum of money”.

That tells me he needs a FA of some kind.

It doesn’t matter if you or I can get better returns investing with low cost index funds, he won’t.
Unless you can watch the market drop by 30% (like it did March 2020) and react with nothing more than a yawn, you should not be trying to do it yourself.

Well said and yes, I was frozen/paralyzed because I had never had that large sum of money before. Upon the sale of my home, I spread that money across nearly a dozen Money Market accounts (because FDIC) and I was working 60 hours/week as a Director of Engineering and didn't have the time to research. Thanks to this website (and Bogleheads/others) I'm getting a better feel for things. Also about to retire so I'll have more time on my hands.

My point is that had I not put that money with a Wealth Management company I would have missed the 20+% increase. Because I'm only 49 years old, they recommend 100% equities and have me spread across 80 different individual stocks (no ETF's or mutual funds or anything with more fees).