A fund manager’s view …

This is a little different to all of those “this is what a millionaire thinks” posts, because Evan is in a support role (“my role is more brain storming and putting together documents and calculations….then I prepare materials for the planners’ second meeting and beyond”) at a financial planning office that specializes in sucking the blood out of – I mean assisting – high net-worth clients:

My role is more brain storming and putting together documents and calculations. So basically I see almost every balance sheet that may have significant net worth which goes through my office

Since I’m a sample of one, when it comes to high net-worth clients, it might be interesting to see what Evan sees:

The House is almost always Paid off

Prepaying your mortgage is always a hot topic on Personal Finance Blogs.  Everyone once in a while one of the big players in the field will put a post and it will garner tons of comments.  The comments are usually heated and go both ways about how the move is stupid and then invariably someone will say, its a great move.  Regardless of how you feel, most of the high net worth clients’ balance sheet that I see will have either a paid off house, or one with a very low debt to equity ratio.

They Almost Always Own a Business

Almost every high net worth client’s balance sheet has a business on it.  The types of businesses range from the mundane, lawyer who owns their practice, to beyond what I could have imagined as a viable business.

They Almost Always have Investment/Financial Advisors

Almost every single high net worth client/prospect is not hands on when it comes to their own investments.  Some are more active than others when it comes to asset allocation, but for the most part unless they are in the money business (fund managers, hedge fund execs, etc.) they just don’t deal with it.

Since Evan is coming from a position of observation of his sample size of many, I will observe from my position of a sample size of one:

– I found it valuable to have a business; indeed, it’s the ultimate driver of my financial success; even before selling the business I could use the spare cashflows (after attending to the business’ own growth needs) to fund a substantial real-estate and investment portfolio.

– I own a house, and almost always have … now that I am wealthy, I carry no debt on these houses, but started reducing my debt almost in proportion to the increase in my wealth. It’s not a strategy, just a happenstance. But, I will not hesitate to use some (perhaps, up to 50%) of that equity, if required to fund an investment.

– I certainly use an investment advisor – in fact, multiple; but (here is where my experience diverges from Evan’s observations) Evan says: “Almost every single high net worth client/prospect is not hands on when it comes to their own investments.”, yet the opposite is true for me. Could this be observation bias for either Evan (he does work for a financial planning/advisory firm, right?) and/or for me?

I would never hand the keys over to my Future Fortune [AJC: How do you make $1,000,000? Give an ‘investment advisor’ $10 million … and, wait!] to somebody who has not already made their’s … if so, why do they need me?

Thanks for sharing, Evan!

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9 thoughts on “A fund manager’s view …

  1. Couple Points AJC,

    I am not an analyst nor am I a fund Manager. As I state in the post,

    “My role is more brain storming and putting together documents and calculations….then I prepare materials for the planners’ second meeting and beyond.”

    I really hope you fix that, because I don’t ever want to portray myself as a fund manager or some type of investment expert because I am not.

    Second I am not sure why the blood sucking was thrown in there? Actually most of my job is keeping your 7 million from going to the government when you die. Ignoring your Aussie property, if the estate tax laws don’t change your kids will owe approximately $2,750,000 in CASH to the US gov’t 9 months after your death, and that is IF you have the right will. That also assumes the US doesn’t fix this whole estate tax mess I am sure you’ve read about. Do you have that kind of liquidity? Do you want your kids selling off the property you’ve amassed? That kind of stuff. We work on estate planning and gifting.

    It seems odd, you seem to dislike the post, but I nailed 2 out of 3 regarding the attributes. Did I say anything about WHEN their house was paid off? All I said is by the time it comes across my desk there is usually a low debt amout compared to equity when the balance sheet landed on my desk.

  2. Evan,

    My statistics:

    – Am a hired gun to run a business- get paid a salary & bonus.

    – Fully own my residence.

    – Don’t use any financial adviser.

    Not ultra wealthy, 2 – 2.5 M since I started working 14 years ago. Good enough for now. All made by savings and not much success in investments at all.


  3. That is some fantastic stuff Mike. I am almost positive that the title of Hired Gun is the best title, ever.

    I wasn’t trying to provide hard and fast rules with that post, despite AJC trying to paint that picture. In fact I say in it,

    “Right off the bat, I am going to tell you that I have no idea what got them there, for that I would defer to studies and books that are done on the subject. I do not deal directly with high net worth clients.”

  4. @ Evan – Hi and sorry about the ‘spin’ that you picked up. Totally unintended.

    1. Job description fixed!

    2. The Fund Management INDUSTRY (specifically, in this post I accused your FIRM – not you – of the same!) are the blood-suckers (and, some of my best friends are the chief vampires!), certainly not YOU!

    As you say, you are just part of the process preparing stuff for the fund managers … actually, YOU add value, but I can’t see how somebody who still works for a living (the person doing the ‘advising’) can tell ME how to invest my money. When they get some and build a track record of their own, then I’ll def. listen!

    I LOVED your post, otherwise it wouldn’t be here … I never ‘pick on’ individuals, that would be plain rude!

    So, other than the value judgement on your bosses, my post is merely an observation of your observations, sorry if it appeared any other way.

    PS Feel fee to boil me and pickle me on your blog, if you feel so inclined 😉

    @ Mike – An amazing result, just from savings! You can send the Apple Gift Card back, looks like I need the money more than you do 🙂 What % of you income do you (or, did you) save – on average – over those 14 years? Did you have a very high income compared to those around you?

  5. To add to the sample of 7m7y readers:

    1. most people would consider our household to be HNW

    2. I do not consider being a partner in a professional services firm to being the same as owning my own business. In any event, career earnings + three specific investment decisions have driven our financial success (most of the rest is detail)

    3. I do most of my investments myself, even though I am not professionally qualified. All of the financial advisers and wealth managers I have seen (and I have seen a lot of them) have charged high fees but totally failed to show that they can add anything to my investment portfolio that I cannot do myself (bear in mind that they would have to beat me by at least 2-3% pa just to generate the same return because of their fees). Show me some value add and I will reconsider

    4. we have a large mortgage on our home. With interest rates still below 1% pa, why on earth would I want to pay it off before retirement?

  6. “bear in mind that they would have to beat me by at least 2-3% pa just to generate the same return because of their fees”

    @ TraineeInvestor – an EXCELLENT point 🙂

  7. Adrian,

    Thanks for the gift card- am going to use it to buy my wife an IPhone 4!

    I saved about 50% of my pre-tax income since I started working. I’ve been making pretty big bucks the last 5 years since I moved to SE Asia, usually around $300 – $500k a year. This year should be exceptionally higher given we sold our business so a few crumbs are thrown to the hired guns!

    It helps that our expenses are kept low, no kids yet and very little housing expenses. Effective tax rate is about 33%, live off the remaining 17% and save the rest. We travel like crazy on the 17%.

    I’ve had some successes with investing but offset by equal flops, so net I’m even. Best financial decision was buying a residence 100% in cash 5 years ago and then making a good salary to save up.

    A very different journey than yours but one that is near and dear to me.


  8. @ Mike – You need to write a book; Mike Hunt’s Recipe For Financial Success:

    1. Save 50% of your income

    2. Live somewhere cheap

    3. Pay cash for your house

    4. Keep job!

    It’s a good position to be in … but, don’t forget to invite the boss home for dinner 😉

  9. Investment adviser might have their place, however, I would never just hand over my hard earned money to let them do with it what they will. I could see asking advice (when needed) but thats as far as it goes. I would prefer to invest and grow my own money. This way, If I mess up, Its my fault, not someone else either making bad choices ,or flat out stealing my money.

    look at the many actors who have given up control of their hard earned cash only to find when they are ready to retire,they are flat broke,and owe the Government money.

    Call it lack of trust or whatever, But I Like to keep track of my own.

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