Trust Planning

Trust Planning

Estate Planning and Wealth Management

The Best Private Wealth Management

A few years ago Barons listed the Top Wealth Management Firms, but what it  actually listed was the 40 biggest firms, not the best money managers. Big difference. According to a study not named in the article, only the year before, "nearly 45% of wealthy investors fired an investment advisor." And that was a good year for investors. If half of the wealthy decided they didn't have the best money managers, then where are they?

Who Are the Best Wealth Managers?

Long-term, the biggest university endowments are typically among the best wealth managers. The top few (including Stanford, Yale and Harvard) do much better than the stock market (i.e compared to stocks, bonds, or a combination of stocks and bonds). How they do it is very interesting, it includes a very serious, mathematical application of Modern Portfolio Theory. David Swensen, the famous wealth manager running Yale's Endowment, describes his investment approach, modified to suit the individual investor, in his book Unconventional Success: A Fundamental Approach to Individual Investment. Note that you cannot match Swensen's investing record (in the 20+% realm for many years), as he has a team of number-crunching, statistics-wielding, professorial brainiacs working full time on a single account; and he has Yale invest very heavily in private equity, which is hard to do on a smaller account, especially if short-term liquidity is desired. Swensen's team has a willingness to break the rules outlined in Unconventional Success as they are institutional investors, who can afford a big team of the best money managers who can scour the market and take advantage of "inefficiencies" in the system.

In some years, university endowments do not fare as well as the stock market, encouraging non-professional investors to stick with a simple 60-40 stock/bond ratio in their portfolio. See NYT article on how businesses and universities invest. Yale is an institutional outlier even in bad years, often still beats the market (see article).

Professional money mangers are divided into classes according to the minimum account size they accept: twenty million, two million, $500,000 and less than $500,000. If you have less than $100,000, you may be better of managing this yourself. (Although, even with a smaller amount of money, there are money mangers that will work for you.) There are free online services that suggest good asset allocations.

It may be worth giving up one or two percent and hire a professional money managers. To a large extent you can then forget about the money and focus on other areas of your life. A good money manger, in the long-run, should be able to earn back their fees in increased returns. Research now shows that market timing and security selection does play a role in long-term returns, but it is much smaller than asset allocation decisions; and note that Swensen makes some of Yale's money by “market neutral” funds that employ short-term, micro-decisions on investments that take advantage of market inequality opportunities that can only be found by full-time, professional investors looking very carefully.

Note that Swensen's approach, and the approach of the vast majority of investors, does not effectively take into account the effects of his actions, long-term, on society--amazingly, at the time of writing this Swensen had Yale owning tobacco stock. Socially responsible investing is a critical area to consider. You and your children will have to live in the world your investments have created. We are now feeling the effect of the last few decades of unethical bank and stock market investing; we see the effects in the weakness of our economy, damage to our environment, and our relationship with our neighbors around the globe. Read the section on ethical investing and compare Yale's portfolio to the efforts by the government of Norway.

Many individual money managers are increasingly either intrinsically socially responsible or willing to work with you on that basis. (See Socially Responsible Investing and realistic expectations for a money manager.)

NOTE: You must make an informed decision and decide if a particular money manger and their strategy will work for you long term. Investing is so personal and you shoulder all the risk yourself, so only you can make this decision.

If you have a socially responsible investing (SRI) money manager or an ethical private wealth management company or individual you would like to put in a good word for (or suggest your services), send trustplanning.com your suggestion.