Need Advice: Asset Management of Family Portfolio

Brave to post that on here. “No cost or risk”. That’s funny. The risk is having 40% of your real profits extracted from your estate for eternity. Never accept “free” advice.

@Mike, I service both U.S. and Canadian clients. our fees are the same on both sides of the border. if you offer superior service, you charge a fair price no matter what. even in the U.S., 0.5% all in on $10M is not crazy.

@Huskie. our 2% is for accounts under $100,000. anything over $100,000 is 1.5% and it falls down to 1% once you hit $1M. so it’s not really that punitive and it is likely the people below $500,000 and over $5M who get the best value, though there are always exceptions in between.

@ghibli. a key missing component with your approach is that the patriarch/matriarch of the family fund aren’t sure about what happens to the money once they are dead. one of our key benefits to large family accounts is that the patriarch/matriarch can be sure that their kids and other beneficiaries are in good hands when they die. we can basically run a family foundation for them as well and tie the childs’ involvement in the foundation to his inheritance if need be. for some, this is worth more than the entire amount they pay us.

^ I was referring to discovery meetings.

Much smaller market, very different banking system and regulatory environment than in the US. However, new rules on disclosure of fees is currently being implemented so its going to be interesting to see the result.

edit: I could go on and on but I’m actually really busy. (you know, churn DSC or whatever according to Ghibli)

This is not an advantage to charging a wrap fee. This can be done by an advisor who charges an hourly fee just as well as one with a wrap fee.

It’s just not that complicated. Fee for service attorneys and paid trustees can take care of everything for far less than $50,000 a year plus embedded product fees(probably another 100K) on a 10 million dollar account. It’s a nice gig, but these people are being taken to the bank. Think about that. Actually more than $50k because it’s probably stepped. The value of the service provided is not proportional to the value of the estate and should not be linked. Would love to run Bill Gate’s affairs on a percentage basis. Amazing people tolerate this model. It’s like listening to an annuity salesman try to tell me his 5-7% and 1% in trail is justified. Beyond comical. Yet, a good social liberal sleeps well at night.

so in the case of the specific situation i detailed above where there are 2 account owners and 7 beneficiaries, you’re going to go to a fee-only advisor and ask him to separately sit down with all of these people several times a year so that the account owners can feel confident that the relationship between the advisor and the beneficiaries is solid? it would cost several hundred thousand a year.

i can understand your stance with incredibly simple situations but when there are multiple hands in on the pot and you want to spend much less time managing your affairs, a fee-based advisor is the only route. if someone manages the funds himself, he will be executing transfers all day long to the many beneficiairies and so on.

another thing, assuming most of the assets are in non-registered/retirement accounts, by using passive ETFs, you’re spending what, 0.1% after-tax for passive investment management. by using us and getting charged 0.5% pre-tax, 0.24% after-tax (Ontario tax rates), you’re only paying $14,000 more for active management, unlimited meetings, tax planning, insurance planning, estate planning, piece-of-mind when you die and a single contact for basically everything in your entire life, not to mention a reliable POA that you can trust if your situation requires.

i think your view of HNW advising is a little skewed toward the typical media view that making money in managing someone’s entire financial picture is wrong, even if your hurdle rate is only 0.14% after-tax.

finally, any schmuck who will sit down and charge you $5,000, or less, for a single meeting isn’t going to be very good at his job. do you really want some “genius” who makes like $100,000/yr giving one-time advice on a $10M investable estate? no. if he was any good, he’d be making at least $500,000 and would have a different service offering. there is far too much risk in creating a one-time plan for a $10M account and then walking away. guys who sit down and create one-time plans are the Saul Goodman of the financial advisory world.

Ghibli I agree with you. I think this industry is absolutely insane. It’s too bad too because there are a lot of people who could use the help of an honest advisor who charges a fair amount. Unfortunately those are few and far between.

^Can you at least say “fee-only” is the only route. Makes my stomach churn less. Fee-based means we get to hide some of our compensation or at least burry it in the fine print.

^ So what’s a “fair amount”? on say a $10 million portfolio then?

Yes. 9 people meet with the advisor and he charges them an hourly rate. I’ll assume that each person needs two full dedicated days per year, or 16 hours. That’s 144 hours of work total per year. At an industry standard $200 per hour, that equates to $28,800 in fees paid per year. What is this clients AUM? If we’re talking a $10M account, this equates to a wrap fee of 0.288%.

Said another way, if you’re charging 1%…and delivering 144 hours of work…you’re charging that client $694 per hour. You must be a heck of an advisor to justify that hourly rate.

…and lets be honest, you don’t spend 144 hours a year on that client.

You can’t “bury it” (meaning the dealer/advisor fee).

The client has to sign off on a Fee-based agreement and their account statements would report the amount of fees paid, in dollars, on a quarterly basis, summarized on their year-end statement they would need for tax reporting purposes. (at least in Canada)

fee-based simply means a % of assets. on both our Canadian and U.S. statements, it clearly states your annual fee rate and annual fees paid in dollars YTD.

fee-only is one time charges. fee-based means recurring fee. fee-based doesn’t mean mutual funds, where comp is blurry.

I don’t know about Canada, but 10 million is peanuts. That is the absolute minimum for a lot of firms here. Hell, that is exempt from estate taxes for a couple in America’s friendly states. Easily done on your own, but if you want to part with 150k a year, I guess there are suckers born every minute and car salesman willing to take advantage of them.

In the states, fee-based allows commission and trails. Fee-only does not. STL can fill you in if you like. “RIAs only” have to be fee-only unless they get dual licenses. Then they would not be RIA only.

you just proved my point with math.

our fee on $10M is 0.5% pre-tax, 0.24% after-tax.

compare to your scenario where you spend, 0.288% before-tax, 0.13% after-tax, plus 0.1% MER on an ETF portfolio, for a total of 0.23% after-tax. almost identical and this assumes you can sit down with a competent person for $200/hr. we priced it out once. to cover the risk involved and including the cost of our time, our rate is $500/hr. in a beta city. good luck finding $200/hr so that you can acheive the same fee but do 90% of the grunt work.

and yes, for this household we easily put in 144 hours a year.

Huskie: Advisors could charge a different hourly rate, just like Lawyers, Accountants, Eye Dr etc. It depends on their business model and what they want to charge for their services.

I think that is a great question. It’s going to vary based on complexity of the issues at hand, but in general you should think about it as a cost for need situation. Advisors should get paid for their hard work. If it takes you 20 hours initially to build their investment portfolio, they should pay you 4K cash for that service ($200 * 20). But you and I both know that monitoring that portfolio and rebalancing it over time is not going to take 20 hours every year, so don’t charge them for it. Sure, maybe circumstances change and they need a major reassessment, do the work and charge an hourly rate.

Setting up a DFA might take you several hours…charge them for it. But thats a one time deal so you should get paid once for that work.

Many ways to be able to deduct fee-for-service estate planning and investment management. What kind of products are your HNW clients put in?

$200 per hour sounds low to me.