This is a thread about real-world wealth management, which I have been doing for over 25 yrs. Last week I posted a note about a client whose $200k account is now over $1 million after 22 yrs growth at +8%/yr. The responses were so interesting.
Some said "she could just have bought an index and done as well". Others said "think how much more she would have had if she didn't pay fees". Others thought it impossible that the account had done that well over that long a period. So I will address each comment
For almost all of our clients, wealth management is about a lot more than just chasing high returns. We manage risk, consider taxes, think about extended families and talk about planning over decades. Obviously you don't get that when you buy an S&P Index ETF.
So perhaps she could have done as well with an index (although in her case actually not) but that was not all that she was paying for. She knows and we know it. Not apples to apples.
So is it worth paying us for what we do? Not if all you want is pure alpha at low cost. By all means, go buy the very low cost ETF and God bless. Maybe you can do your own multi-generational tax planning, currency risk adjustment, capital gains timing. No need to pay me.
As for argument that we couldn't have done that well, either you believe me or you don't. Here's the truth about ETFs in Canada: They are a dumb idea. The Canadian market is much too dominated by energy, materials and banks. We have been, for example, 0 weight energy for years.
That alone has given us a huge positive variance over the TSX. What about just buying the S&P instead? Well, you can do that, and although it is a market cap weighted index that gives you much too much Apple, Amazon, Facebook etc. it is probably better than the TSX. But...
What about currency risk? Don't forget the CDN$ has been as low as US$.62 and as high as US$1.07 in the past 20 years. How about taxes? Huge advantage for CDN dividend stocks for taxable accounts, and extra reporting for US holdings. Not to mention possible US estate tax problems
So in summary, I would say wealth management is pretty much like every other service. Mostly you get what you pay for, and if you don't want value-adds, then don't buy them. Once final, totally true story about the period between Sept 1, 2008 and April 30, 2009, (great recession)
At the start of the market crash we had about 400 client families. Over the next 8 months, 12 of them, or 3%, left us or made us, despite of advice, liquidate their portfolios. The other 97% following our advice and didn't sell. We had a horrible 8 months together. But...
By Dec 2010 all clients were back where they had been before the crash. They lost two years of time and lots of sleep, but no capital. And for our income-dependant clients, only 3 of our 50 holdings cut dividends. Our clients' cash flow was unchanged. Nobody went hungry.
Do you think 400 clients of discount brokers had the same result? I don't have data but I bet at least 10x as many sold out, many at the just the worst time (March 2009). But at least they paid low commissions while committing market suicide.
