Vetting Those Who Look After Your Money

Just because someone is licensed, and been around for decades, doesn't mean they have your best interests at heart.

When you get down to it, regardless of whatever data might be found via the internet, HNW individuals all tend to follow a similar path:

They are good at their "one thing" and they trust the firms they work with to establish a plan and portfolio that grows their wealth.

It's not rocket science. Well, maybe it is, but they aren't interested in the science. They only want the rocket.

Forbes has a great chart that shows how HNWI's allocate their portfolios:

rich asset allocation

Granted, this is assuming you have $200MM to invest. A paltry sum for most of you, I'm sure.

Returns Generated

The commonality among this level of investment, though, is that these investors aren't getting much more than 10% returns, on average. Why is this?

It's fairly easy to see why when you look at the fees so many active management firms charge. When a fund is charging a literal arm and leg, along with points and exorbitant commissions, there is an inevitable bite into the ultimate return of the fund. Because of this, many ultra HNWI's are turning to what are known as family offices.

How a Family Office Works

Family Offices are changing the game for the ultra wealthy. Because they are able to hire a firm to work with them exclusively, along with their needs for legal / tax and additional advisories, they wield what is believed to be a lot more power. What many of them are missing, though, are financial professionals that are beyond reproach.

The natural inclination to help the ultra wealthy earn by risking their money (not the professionals) and build nice commissions is what is driving these firms into directions financial ethics and integrity might otherwise insist they do NOT do.

My Suggestion

Whether one is a low level investor / beginner or the most elite and wealthy family in the Western hemisphere, the proper vetting of hedge funds, financial managers, planners, legal firms, and high level tax attorneys is more than a must... it's an absolute guaranteed need.

Nothing needs to be done "today." Nothing. Money does something abhorrent to people, in that it gets them to follow sexy a lot faster than predictable and honourable.

We all know that if something doesn't feel quite right, it probably isn't. There isn't an argument in the world that is best answered by being convinced. Only after vetting a group of professionals is one properly convicted... and until an individual is convicted, the words they hear whispered into their ears are at least slightly distorted.

Feel free to follow up with questions or thoughts, and your perspectives. All are welcome and invited to contribute.

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