Wealth Managers - and Fees 1% or more

How much money do you have to invest?

How old are you (if you're comfortable saying)?

What's your goal with this money? Retirement? Starting or buying a business?

Why do you want a "wealth manager"? Are you uncomfortable with investing (this is OK, many of us are)?

Quote from Brian1 : How much money do you have to invest? How old are you (if you're comfortable saying)? What's your goal with this money? Retirement? Starting or buying a business? Why do you want a "wealth manager"? Are you uncomfortable with investing (this is OK, many of us are)?

Good questions - The money is primarily for a young family member so we have the luxury of time. My concern has alway been - How do you really know how well your CFP is doing in relation to other firms?

So as we are looking for a long term relationship, We decided one idea is to split proceeds between 3 companies giving each an identical asset allocation and risk tolerance profiles. Afford them 2-3 years minimum to manage the funds and see who established the best return and has the best customer service.

We understand in doing this -

• There will probably be some duplication in the portfolio which means increased exposure.

• As each firm gets only a third ... reaching lower fee tiers is more difficult so we may initially be paying more in cumulative fees than if we had selected a single firm.

But at the end of the 2-3 years ... and understanding past performance does not guarantee future results At least we will have an better indication of which long term firm to re-consolidate the accounts under a single management.

But going back to my original thought ... Why not charge fees on what they make ... not what they manage.

Quote from roadrunnercj : Looking to hire a wealth management company to invest some funds. My concern however is the standard 1% to 1.5% of invested asset fee schedule seems unmotivated. Wouldn't a system where the fee was simply a percentage of yearly return be better? MAYBE, ALTHOUGH THERE WOULD BE A STRONG INCENTIVE TO INVEST YOUR MONEY VERY AGGRESSIVELY. I mean if I had $1,000,000 to invest, sure there is a slight incentive to increase the account balance, but it is pretty diminished compared to the guaranteed 10K-15K a firm gets regardless of the ROR. And as they were not instrumental in accumulating the original balance anyway ... it seems a better option would be to offer a fee of 0% on the first million but 10% on yearly accumulated balance above the original deposit. THEY WON'T BE ALL THAT INSTRUMENTAL IN EARNING YOU MONEY EITHER. INVESTMENT MGRS. TEND TO MOVE IN A HERD-LIKE FASHION. THE REBELS RUN HEDGE FUNDS & TAKE BIG RISKS THAT USUALLY END IN DISASTER. If they only got paid on the money they MADE - they would be more motivated to perform and actually could easily make more provided they achieved a 12% rate of return in the example above. 12% ROR IS REALLY DIFFICULT TO PULL OFF CONSISTENTLY. SOME OF THE HEDGE-FUND GUYS CAN DO IT. BUT, AT A MINIMUM, YOU'RE GOING TO PAY A 2% MGMT FEE + 20% OF RETURNS. SKILLED PEOPLE DO NOT WORK FREE. And yes markets go down so you could implement a indexed based flat fee for minimizing your downside. IN THAT CASE, EXPECT TO GIVE UP A HUGE PORTION OF YOUR GAINS. ONE HEDGE-FUND MASTER TAKES 40% + 4%. WITH AN INDEX-BASED FEE, EXPECT TO HAND OVER 50%+. OF COURSE, THAT'S ASSUMING YOU CAN FIND ONE WILING TO ACCEPT THE KIND OF FEE STRUCTURE YOU'RE LOOKING FOR...VERY DOUBTFUL. Kind of new to this so maybe I am missing something.

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Quote from roadrunnercj : Looking to hire a wealth management company to invest some funds. My concern however is the standard 1% to 1.5% of invested asset fee schedule seems unmotivated. Wouldn't a system where the fee was simply a percentage of yearly return be better? I mean if I had $1,000,000 to invest, sure there is a slight incentive to increase the account balance, but it is pretty diminished compared to the guaranteed 10K-15K a firm gets regardless of the ROR. And as they were not instrumental in accumulating the original balance anyway ... it seems a better option would be to offer a fee of 0% on the first million but 10% on yearly accumulated balance above the original deposit. If they only got paid on the money they MADE - they would be more motivated to perform and actually could easily make more provided they achieved a 12% rate of return in the example above. And yes markets go down so you could implement a indexed based flat fee for minimizing your downside. Kind of new to this so maybe I am missing something.

Avoid "wealth managers" like the plague. Diversification across different firms is fine; if you don't know what you're doing, you can stick with Vanguard, Fidelity, and one other that I'm sure other people here can suggest.

You can find funds that do have the pay structure like what you're asking for--pay for performance (sort of). They're called hedge funds. Don't use them, they're very dangerous unless you have something very specific in mind, and they aren't doing very well these days. Most of them deal with larger investors anyway.

What you would find very helpful is a fee-for-service financial adviser. I can recommend that you use a service like Angie's list to help you find someone who can put together a plan for you who does not manage your assets, who does not charge you a fee as a share of your portfolio, and who does not take any compensation from any fund or financial institution that they recommend. This person--who will charge you $100 to $200 an hour or so--will help you set up a tax-advantaged portfolio (for example, there are tax advantages to filing certain types of assets away in an IRA, and other types of assets in an individual taxable account). They can help you create a plan using index funds and maybe a few other special mutual funds to diversify your portfolio, and then you execute the plan. You can follow up with them every few years. These folks have an incentive to give you clear and helpful advice so that you recommend their services to other people, and they also often have knowledge about the tax code that you can use to minimize your relative's tax burden once you decide on a portfolio with which you and the relative feel comfortable.