What are the best private wealth management firms for a family with $10-$30 million to invest?

www.fidelity.com  www.dough.com  www.ally.com

Individuals ought to maintain their own oversight over their portfolios rather than exclusively outsourcing (hiring) management firms.

Answer by Nate Anderson:

I’ve consulted for registered investment advisors (“RIAs”) and have had the opportunity to see the business practices of a diverse array of providers. There are a few things you need to be on watch for:

At $10m-$30m you need to understand where you fit into the wealth management universe. Flat out, you do not want to go with one of the big branded institutions like Goldman, Wells Fargo, etc. You are a small fish in their pond, and you are not going to get the level of service you deserve. I’ve seen first-hand how big banks just use a standard formula to allocate their customer’s portfolios and then forget about them (in fact I’d built a system to automate the approach for one major bank).

On the investor side of the table I’ve spoken with customers who lost almost everything in 2008 because their wealth manager simply neglected to diversify their portfolios. One example: An investor specified a desire for current income, so the big-branded firm allocated 75% of their portfolio to MLPs, a risky form of equity that pays a high dividend rate but is highly correlated to the energy sector. When energy got crushed, the investor lost millions. If the adviser had diversified at all the investor would have been fine, but their adviser was absent from any kind of responsible portfolio construction.

You need a provider who takes the approach of understanding your entire portfolio, including external assets such as real estate, stock in private companies, and any additional assets. Then they should use the liquid portion of your wealth to diversify and hedge when necessary. If they are good at what they do, they’ll help cut costs too — like helping refinance mortgages at lower rates, implementing tax efficiency polices to cut down on your tax bill, and helping save on insurance and other financial products. That level of service will only be found at one of the smaller-medium sized providers who has the time and expertise.

Another thing to watch out for: Unfortunately many RIAs have conflicts of interest. They offer clients ‘internal’ products or use their referral arrangements with outside funds to earn extra fees. For example, your RIA may have an ‘in-house’ mutual fund. If you end up investing with the internal mutual fund, the RIA will earn an extra 1%-1.5% on top of the annual fee they already charge you, which roughly doubles their revenue. The chances of XYZ’s mutual fund beating every other mutual fund in the universe is almost nil, so if they are pushing their fund, they are probably looking out for their own interests, not yours.

(Note that when working with the big-brand wealth managers they ALL have their own in-house products, which should give you a flavor for how they operate.)

Ask whether the RIA promotes any internal products and whether they have any outside referral arrangements with other providers. Furthermore, ask whether they outsource any aspects of their business– you should know if you are paying for someone else’s expertise.

At $10m-$30m, go with a smaller-medium sized provider with a high level of expertise. You want to be a significant enough client that they treat you extremely well.

The biggest hurdle to picking a quality provider is that you really need to know something about investments in order to ask them the right questions. Don’t make an immediate decision — research and learn as you go. The more informed you are about investments, the better your outcome will be.

What are the best private wealth management firms for a family with $10-$30 million to invest?

About akiramorikawa

superconnection . pattern-recognition . iDesign
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