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JLP’s QotD: Do Only the “Rich” Get Good Investment Advice?
By JLP | June 15, 2006
According to this article, 65% of investing Americans believe that those more money are able to get better investment advice.
For the most part, I think this is true. Most fee-only financial planners still work from an assets-under-management platform, so they can’t really help those who have no assets to invest. Commission-based advisors also have no interest in helping those with few assets because they need to get paid for their time. So, that means that those investors with few assets are left on their own or must visit an hourly financial planner, which will cost them $150 - $250 per hour. However, it is NOT THE END OF THE WORLD! Most people can read one book and get a good-enough idea on how to manage their money. That book is The Coffeehouse Investor
Topics: Investing |
June 15th, 2006 at 10:54 am
Yeah, even when I am an old fart and have tons of money, I still don’t think I will be able to stomach paying somebody thousands of dollars a year just to manage some mutual funds. Or however much money it will cost by then. People shouldn’t be so afraid of money! It is not going to bite you!
June 15th, 2006 at 11:22 am
Well, money buys happiness (though not absolute), and it certainly can buy sound financial advice (though also not absolute). Count me in to that 64% group.
June 15th, 2006 at 11:48 am
I’ve been reading the “Millionaire Mind” and Stanley seems to believe that your net worth is correlated with the quality of advice you receive (i.e. the advising team you build). In his interviews w/ millionaires (and decamillionaires) it seems these interviewees believe the advice is worth what they pay for it.
June 15th, 2006 at 12:48 pm
The most interesting takeaway I have from that article is that Americans think $100,000 is considered “rich.”
At that level, I have a really hard time believing that those people get _better_ investment advice. They may have more access to advice, period, because they sign up with a brokerage firm that solicits its services, because they have peers who invest, or because they have access to CNBC on cable TV. But that advice is not necessarily good.
If you truly get into the “rich” category of Americans, then I think there’s something else at play that might be getting mistaken for getting good advice.
At wealth levels beginning at $5-10M or so, all sorts of higher-echelon financial services open up that offer access to oftentimes superior investment classes such as institutional shares (with lower management fees) and private equity (e.g. private placement and private offering), to name a few. These are vehicles to which that those with less money seldom have access. In which case, sure, the rich get “better” advice
June 15th, 2006 at 6:08 pm
1. They have enough money to hire good people, not just the dude in a cheap suit who says “fully fund your 401K and here’s a whole bunch of nice life insurance that you have to have…”
2. Ricemutt’s right - there’s lots of stuff that becomes available once you cross certain thresholds. Among other things, you can’t get anywhere near VC funds without a seven-digit net worth, usually starting with a crooked number. Other funds have a “net worth disclosure” where you have to affirm that your non-house net worth is over a certain amount before you can invest. Higher-end financial types know about these, but the dude at Schwab or American Express probably doesn’t.
3. Rich people don’t need the “elementary education” stuff that ordinary people need (did you fund your 401K at least to the employer match?) basically by definition. So there is a market for investment education and a market for “wealth management”, and they are probably two different markets. The American Express guy probably can help with this, except when he’s trying to sell you overpriced annuities and such…
June 16th, 2006 at 12:19 pm
It probably is a good idea to define “rich”. The short answer is, and it is my favorite answer to give - It depends.
Wow, does it ever depend. This is the business I am transitioning toward, so I am also a bit biased with some real world experience. Advice varies with each person, couple, family, and situation that financially changes their lives and the wishes they have.
There is so much information out there, and so much misinformation as well.
Poor decisions about money can bite you, figuratively at least. Consider the hard working employee that one day after 30 years, has had enough work and decides to retire.
Knowing nothing about the rules of retirement accounts, and only overhearing years ago about the employer having a 401(k) did the employee save anything, then when saving - elected the money market option.
Upon retiring, elected the lump sum (and since the employee was only 57 years old was penalized appropriately).
The employee saved a little, was penalized to the max, and wound up taking a job clerking, stocking, and sacking groceries since Social Security and Medicare won’t kick in until later on. The spouse had to remain working to keep insurance on the two of them.
Since the rules are so draconian, whatever decision is made is set in stone with no opportunity for a reversal. There is nothing that can be done except be thankful Social Security is there for them in a few years.
Good investment advice can be had for a reasonable price, but it has to be sought out. It may cost some money - even a fairly hefty current fee in today’s dollars, but the cost of getting no advice can be much higher in future dollars.
Investing in money markets with 30 years until retirement is not prudent, and taking a lump sum at retirement before attaining at least 59.5 years of age shows a total abscence of education, advice, planning and judgement.
Do Only the “Rich” Get Good Investment Advice?
No, but anyone wanting to do invest appropriately for differing goals that has neither the will, nor the inclination to get educated, or the necessary mental fortitude to deal with market events would do well to invest in an advisor they trust so they don’t make crucial mistakes.
Good advice is out there, but you have to take more time than you do when picking a movie to watch to look for it.
June 16th, 2006 at 1:50 pm
[...] One of AllFinancialMatters’ questions of the day was Do only the rich get good investment advice? JLP and most commeters think that the rich can easily hire the better financial planners. [...]
June 18th, 2006 at 10:54 am
Being able to pay $150-300/hr for finacial advice is no guarantee of getting GOOD financial advice — as the lives of many NFL and NBA players can atest.
In fact, it’s almost certainly harder to find a genuinely useful financial planner than it is to “do it yourself.” For 99% of us the basics are plenty. How much more do you need to know than John Bogle will tell you for free? Still, if you want the graduate course, read David Swensen.
This really isn’t rocket science.
June 19th, 2006 at 10:14 pm
It often pays to be a contrarian. If you believe this I advice you to avoid financial help! They all seem to have the same boring ideas of what you should do with your money.