3 Top Investment Brokerage Firms – How Well They Serve Ultra High Net Worth Families[/vc_wp_text][vc_wp_text]The results are in from an exclusive investigation of three top investment brokerage firms.
If you have ultra high net worth and are unhappy with your current financial plan for any reason, you’re probably struggling to find a clear path through the myriad options available. Big national brokerage firms like Fidelity, Schwab, and Vanguard offer one set of options. Independent wealth management firms and financial advisors offer another. Multi-family offices offer yet another.[/vc_wp_text][vc_raw_html]JTVCaGZjbSUyMGlkJTNEJTIyMjIlMjIlNUQ=[/vc_raw_html][vc_wp_text]But when you scan through their websites, everyone seems to offer more or less the same thing. It’s pretty hard to nail down a set of clear differences without investing a whole lot of time.
There’s got to be an easier way to compare the big brokerage firms to the independent wealth managers and multi-family office companies. Something like a Consumer Reports for ultra high net worth families, right?
Now there is.
And it’s a good thing you’ve found this page, because the differences are vast. For even more insights into this, get the 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning– a free guide written for high net worth families and investors.
This page summarizes the key findings from an ‘undercover’ investigation we ran, where we went behind the curtains of these three investment brokerage firms – Vanguard, Schwab, and Fidelity.
If you take a few minutes to read this, you will have dramatically enlightened yourself about how these companies operate, what they offer and don’t offer, and how they’re different from wealth management specialists. The time you’ll spend on this page will save you weeks that you would have to otherwise spend to gather the same information.
Yes, weeks. Perhaps months.
So take a few moments to advance your understanding and gain some much-needed clarity. Your future financial security and the life you desire to live are at stake.[/vc_wp_text][vc_wp_text] Table of Contents
Table of Contents
What Is Ultra High Net Worth Investment Expertise?
Ultimately, if you have $25 million or more in net worth, this is the question you are trying to answer.
If you have eight or nine figures of wealth, almost every investment company and financial advisor out there will say they can serve you, from local banks to discount brokerage firms to secretive hedge fund companies to independent financial advisors out walking the street for leads.
We had a guy come to our office recently who had over $300 million. His finances were so complicated that his tax return was four inches thick. Maybe you can relate. He went to Wells Fargo a while back because they had supposedly set up a family office service. Well, after he spent some time with them, it wasn’t hard to see that they didn’t have anything like a family office service. They just wanted to manage his accounts and take their percentage.
That’s not ultra high net worth expertise.
What do you really need, and who can actually deliver it for you? What kind of expertise should you be looking for from a company that says they offer ‘wealth management services?’
We conducted the investigation you’re going to read about to answer that question with regard to where most people end up going – to large national discount brokerage firms like Fidelity, Schwab, and Vanguard. There are a few other firms with their size and reach too, and the results from our investigation would apply to those companies just as well.
How We Conducted this Investigation
All the major stock brokerage firms offer some type of wealth management service. Schwab calls theirs Private Client. Vanguard calls theirs Flagship Select. Fidelity just calls theirs Wealth Management.
Each website has a dedicated section for these services where you can read about the services they offer. And each page has a phone number and sometimes other ways to contact the company to get started.
So, that’s what we did.
We created a fictional ultra high net worth persona, complete with backstory, life and career goals, financial details, and some specific challenges and questions this persona needed help in answering.
We hired someone to then go through the wealth management consultation process with Fidelity, Vanguard, and Schwab. The goal was to experience their customer service, see what they proposed for how to invest our assets and solve our problems, and find out what their wealth management service really offers.
Our investigator took detailed notes and wrote up a series of articles based on what was learned. What you’re now reading is the broad-brush summary of that investigation. As you go, you’ll see links to the other articles that get into even more detail.
In general, we found that all three companies are very good at certain things, but lacking in others – specifically with regard to serving families with ultra high net worth. For average investors, any of these companies would be terrific places to go for investment advice and service.
But you are not an average investor.
Let’s look at the first problem our investigator found.
Wealth Management Experts Who Don’t Agree
You would think that if most wealth management experts were in fact experts, that they would agree on some of the basics. Basics like, where is the market headed.
But as we found in our investigation, depending on which company invests your wealth, your plan will be built upon very different assumptions.
Differences in Market Forecasts
Vanguard said they expected the next ten years to earn lower investment returns than historical averages, but that international would do better during that same time period.
Fidelity, in contrast, said they expected big growth in the coming decade because we are at the start of what their analysts call the business cycle. And when the business cycle starts over, growth typically follows, especially the first few years. Fidelity also correctly identified that bonds currently have higher risk that in the past, and that a typically ‘conservative’ investment portfolio that is heavy on bonds may in fact underperform, especially if interest rates go up.
Schwab didn’t get into this level of detail in the several conversations we had with them.
What’s the point of all this?
It’s not to say that either of these companies will be wrong about their predictions. But when one expects lower returns, and another expects big growth over the same time period, it’s pretty hard to say that both could be right. Furthermore – no one knows the future. Both could be wrong in a dozen different ways. In 2019, no one knew covid was coming. What’s coming two years from now? No one knows.
How much will their investment plan reflect these underlying assumptions about the markets? That’s a fairly big question when you’re planning to entrust eight figures of wealth to a brokerage firm.
What if they get it wrong?
Differences in Concentration Risk Protection
Concentration risk happens when you have too much wealth in one asset or asset classes. A common version of this happens when someone owns company stock. We’ve had people come in to our office withover 70% of their wealth tied up in company stock.
That’s a very risky predicament!
Sure, you figure your company is big and stable and is going to be around. Right?
Tell that to former employees of AOL-Time Warner. Or Myspace. Or Enron. Or Washington Mutual. Or… you get the idea. If your company stock plummets, and you are over-invested, your net worth will go down the toilet.
Likewise, you don’t want to have oversized portions of your portfolio invested in just a handful of equities.
How do Fidelity, Schwab, and Vanguard protect your wealth against concentration risk?
Fidelity recommends no more than 5% of your portfolio be invested in any single stock. The Fidelity wealth manager we spoke with revealed that JP Morgan’s limit is 10%. Vanguard also has a 5% limit in the portfolios they create for clients.
Vanguard takes it even further, wanting no more than 20% of your total portfolio to be invested in individual securities of any sort. So if you have stock in ten companies, and the total value of those stocks is more than 20% of your portfolio, Vanguard will recommend that you sell the excess. In general, Vanguard’s default position is to recommend selling individual stocks and invest it in index mutual funds. That’s their bread and butter.
Schwab didn’t specify a limit to concentration risk.[/vc_wp_text][vc_wp_text]
Is This What Protecting Your Wealth Looks Like?
All the conversations we had with the high net worth specialists at these three companies – once we finally reached them – were very helpful. Each wealth manager shared very smart insights into our situation. So nothing we’re saying here is meant to make these companies look bad. In fact, Pillar Wealth Management uses these companies for some of our custodial accounts.
But consider this…
We made it very clear in talking with all three brokerage companies that protecting our wealth was more important than maximizing growth that might entail undue risk.
Furthermore, each advisor concurred that protecting our wealth was, for us, probably the best financial goal to pursue, as it related to the investment plans they were developing for us.
So it came as quite a surprise when our proposals read as follows for how to allocate our investments:
Vanguard: 75% stocks, 25% bonds
Schwab: 80% stocks, 20% bonds
Fidelity: some variation, but 85% stocks, 15% bonds for part of our portfolio, and 70/30 for the rest
When you look at the history of the market, at its volatility, and at the investment losses that cause portfolios to crater during the worst recessions and crashes, it is not unusual to see overall value decrease by 30%, 40%, 50%.
After the 2001 recession, we had a couple come to us after another firm lost them over 80% of their wealth in the dotcom crash. 80%!
How do these kinds of losses happen?
They happen because the portfolio was not created to protect wealth. Most of the time, they are weighted too heavily toward volatile, aggressive stocks. Some financial advisors out there create plans that are 100% invested in stocks.
As Yoda might say, “protect your wealth, that does not.”
If you have $30 million and you lose 30% of it in a market crash, you just lost $9 million. Gone, just like that. The scale of loss that can happen in crashes for families with ultra high net worth is just staggering. It’s incomprehensible for the average investor.
We care about wealth protection so much that we wrote a whole book about it. And you can request a free copy of The Art of Protecting Ultra-High Net Worth Portfolios And Estates: Strategies for Families Worth $25 Million to $500 Million.
But let’s not lose sight of the main point here.
These three brokerage firms all knew that protecting our wealth was very important to us. And yet, each of them proposed asset allocations with over three fourths of our portfolio invested in stocks. They even called these moderate portfolios.
When you have $40 million, an 80/20 asset allocation is not moderate. It’s very aggressive.
A Look Inside the Consultation Process of Large Brokerage Firms
Going through this experience was eye-opening. We wrote a very detailed article about the consultation processes for Fidelity, Schwab, and Vanguard, which you can see here.
Here’s a quick summary of the major flaws we observed:
Slow to Onboard Us
All three firms dropped the ball in various ways in the process of connecting us with a wealth manager – someone who could understand and relate to our unique, ultra high net worth scenario.
Vanguard did well at first, but then went dark for over a month after we had been told a high net worth specialist would contact us. We had to contact them to see what happened.
Fidelity connected us with a person who would have been great for an average investor, but who did not have the ability to serve our complex needs or understand what was at stake for us. It took several conversations before we finally got to speak with the right person.
Schwab did the best getting us to the wealth manager the fastest, but it still took over a month from the initial contact.
And remember – we contacted each company through their wealth management service web pages. We called the numbers on those pages – not the main phone number. But still, we spoke to one, sometimes two people before finally speaking to the wealth manager.
So you have to ask yourself:
If this is how these companies handle it when an actual high net worth customer calls them, how prepared are they to work with you? How much do they prioritize this type of service over what the vast majority of their customers need?
Do you want to wait a month before even speaking with a wealth manager from your company of choice?
All three firms required us to sign up for an account before getting a proposal. Vanguard’s was a guest account and was an easy process. But the other two at first wanted us to open actual accounts and just not fund them. But this entails giving them personal information before you’ve even had any chance to decide if you want to work with them. Fidelity even wanted a Social Security number.
You should not have to open an account just to get a wealth management proposal.
Slow Investment Proposals
It was well over a month, closer to two, before we got actual proposals from these brokerage companies. Schwab’s came the fastest of the three, but it was also the least detailed.
Vague Investment Proposals
As already mentioned, Schwab’s proposal was light on details. It didn’t address any of the specific scenarios we brought to the table. It just gave an asset allocation that was too aggressive for someone saying they want to protect wealth as their top priority, and then some other projection data based on their investment process.
There’s a reason this proposal was so vague though, which will be revealed in just a bit.
Fidelity’s proposal was in some ways more specific, but in other ways less. They did address several of our unique and challenging problems, and we had a rich discussion about those. But they didn’t give any kind of written document outlining a basic investment plan, or give projections for that plan’s success.
Vanguard was the most forthcoming about offering a proposal, and the one they delivered did list some specific funds – all Vanguard funds – where our money would be invested. So that was good. But their proposal didn’t even use the amount of money we had. It was just a template, and did not address any of the more challenging circumstances we brought to the table.
See more of what was in the investment proposals from each firm. [/vc_wp_text][vc_wp_text]
Partial Wealth Management – What They Do and Don’t Do
Another major shortcoming with all three firms is that they farm you out to other specialists.
None of the big brokerage firms offer specialized service for tax planning and accounting, life insurance, or estate planning. They will advise you on these things, and they have specialists who know more about them than a typical financial advisor.
But you have to go find your own specialists to do the actual work. Schwab and Fidelity will recommend specialists to you whom they have vetted. Vanguard makes you do all the legwork yourself.
None of them just take care of this kind of stuff for you. It’s just not their business model.
Schwab even tried to farm us out to other wealth management specialists in their vetted network. They don’t appear to have anyone on their team who does this actual work either. This is why Schwab was scant on some of the details discussed earlier in this article. Because you won’t get those details until you meet with a wealth management specialist from their network.
Schwab operates sort of like a general contractor on a construction job. They know good people to work with in the various specialties and can help you find them, but they don’t do the actual work. So they help you build a team.
But this is what a multi-family office like Pillar Wealth Management is – all the time. We have the team. It’s already here, ready to go the moment you decide to work with us.
This is a HUGE difference between the big brokerage firms and an independent wealth management multi-family office.
See 3 ways brokerage firms fall short in serving ultra high net worth families.
Will Their Investment Plans Work?
As you read a moment ago, it took a while to get actual proposals from each of the three brokerage firms.
But once you have these plans in hand, what kind of assurances do you have that it will succeed? And what does ‘succeed’ even mean?
When it comes to finances, the typical definition of success means that you achieve all your goals. But ‘goals’ isn’t really the best word for this. A financial goal might be that you can buy a second home, or sell a business, or start a foundation. But we’re talking about more than just those things – though those certainly are one part of this discussion.
What we’re really talking about is – are you able to live the life you desire, and without stress or worry about your finances failing to support it?
That’s what success means.
If you’re out there achieving all these things, but you’re constantly feeling the pressure and stress,hoping your investments pay off, worried about the market collapsing at the wrong time – that’s not success. That’s anxiety.
So, whatever plan a financial advisor develops for you, there must be a way to accurately assess its chances of success. You need a tool, something quantifiable, data-driven, mathematical, and objective.
What do the big brokerage firms use?
Fidelity and Schwab both use something known as Monte Carlo. Vanguard uses Monte Carlo too, but they have also developed their own distinct model called VCMM, which uses GDP growth, interest rates, price/earnings ratios, unemployment data, and other metrics.
Whatever the tool, the idea is to project the most confident likelihood that your plan will succeed. No one knows the future, and no projection is 100% guaranteed. But we do have a lot of data from history, and these models both use some of that data.
That data can include market crashes, bull and bear markets, inflationary periods, depressions, recessions, wars, natural disasters, and any other national or global events that affect market growth.
By pulling data from the last several decades, advisors can run your plan through a model like Monte Carlo to see how well it should perform – even under stress.
Sounds reasonable, right? Well, here’s the problem.
Monte Carlo excludes the worst market events in history. It excludes the Great Depression. It excludes the 2008 crash. It excludes the biggest market downturns. So that means, when Monte Carlo projects how well your investment portfolio will perform, it is giving you a falsely inflated picture of reality.
Why would you exclude these market downturns? They really happened! And everyone has to live through them. So why create a tool that pretends as if they didn’t, and then use that to tell you how well your portfolio is likely to perform?
It is truly baffling. In our investigation, we even asked this question of one of the advisors, and he didn’t really have an answer. That’s just how the model works, he said.
Monte Carlo is basically a sham. And you need something better if you want true peace of mind about your long term financial security – no matter what the market does. In a moment, we’ll share how we do it at Pillar Wealth Management.
Or, you can stop waiting and schedule a call right now to talk with one of our founding wealth managers – each of whom has over 30 years of experience serving ultra high net worth clients.
Some Points in Favor of Large Brokerage Firms
Our investigation did reveal a number of strengths at Vanguard, Schwab, and Fidelity. As we’ve said already, these are all excellent companies. They fall short in their service to families with ultra high net worth, and you’re learning how. But they do well in several areas too.
Here are some strengths of all three firms:
• Offer a distinct service for wealthy clients – you will not be treated like all the typical investors
• High quality advisors – all three high net worth advisors we spoke with were knowledgeable, and demonstrated a genuine concern for helping us succeed and find solutions
• Strong background support – there is a support team of service specialists and analysts behind each advisor at these companies. It is not all just one person
• Lower fees – all three offer lower percentage fees to their high net worth clients
• Online tools – you have a lot of information at your fingertips, and it’s easy to navigate
There’s quite a bit more to say about all these strengths, as well as the ways these companies fall short. Here’s a more complete discussion of the pros and cons of these three brokerage firms.
Customization – the Gold Standard for Wealth Management
While we can discuss the pros and cons of what various companies and financial advisors offer, the place where multi-family offices like Pillar Wealth Management really stand apart is in how they create customized wealth management plans for each client.
There is a lot to say about this, and about why large brokerage firms fall far short of the level of customization you need. See this article for more about customization and why big firms can’t deliver it.
Here’s the biggest challenge you’ll face regarding personalized financial plans:
Every firm will say they create customized portfolio and investment plans.
And depending on what you mean by customization, they can all be telling the truth. If you give one person a 60/40 asset allocation because they feel like taking fewer risks, and you give another person 80/20 because they want to be more aggressive, you can call that customization. And in some ways, it is.
But that doesn’t even scratch the surface of what ultra high net worth families need. Remember the client who came to our office with the 4-inch tax return? That’s what we’re talking about here. No one with a four inch tax return has a financial situation so simple that you can just ‘customize’ their asset allocation around their vague guesses and feelings about risk, and call it a day.
Here are 8 aspects of customization for high net worth investors. And again, you can read much more about these here.
1. Choosing Funds
You can customize the types of funds each investor uses for their portfolio. These can include large cap, mid cap, ETFs, index funds, actively managed funds, and many more choices. Most large brokerage firms will offer this type of customization.
2. Choose from ALL Funds
While the big brokerage companies say you can choose from any funds – including ones from other companies, they only sort of mean it. In our investigation we learned that they will often charge higher fees for non-company funds. Vanguard, for instance, recommended only Vanguard funds in the proposal they created for us. Why? Because they make more money from these. Nothing wrong with that, of course. But this is their default recommendation.
Fidelity openly admitted that they charge more if you choose non-Fidelity funds, and they gave a good reason for why. Again, nothing wrong with this. But it colors the degree of customization you are really getting from these firms. Yes, they can pick from all available funds, but that is not their standard operating procedure.
3. Asset Allocation
You saw earlier the basic allocations created for us by Vanguard (75/25), Schwab (80/20), and Fidelity (various, starting with 85/15).
These can be customized too, and all three firms made it clear that we could change these if we wanted. The problem here is, how do you really know if you should change your allocation, and to what?
This comes back to the need for an objective, mathematical instrument that can evaluate the confidence you can have in your plan’s success.
Asset allocation should be customized, but it should not be guessed, or based on vague feelings about “risk tolerance.” These companies were told we wanted to protect our wealth, and yet they all proposed pretty aggressive asset allocations that – in the next market crash – are unlikely to do a very good job at protecting our wealth. We’re looking at 30-50% losses in a severe crash with those kinds of allocations.
4. Other Investment Opportunities
Here’s where big brokerage firms start to fall short. What about investing in real estate, or business, or life insurance? There are other forms of investment – some of which are much more secure than the stock market. Full customization frequently includes these sorts of things, especially for families with ultra high net worth.
The big brokerage firms will not incorporate these types of investments in their plans for you. So if you want investments like these – then those companies cannot fully customize your plan.
5. Retirement Account Distributions
Withdrawing from retirement accounts like IRAs and 401ks is very complicated. Income levels determine tax rates, for one, and there are costly penalties – in addition to higher taxes – for doing it wrong. You cannot create a customized plan without incorporating this into it.
6. Tax Planning
Tax minimization is a major aspect of any customized plan for someone with ultra high net worth. We get this question possibly more than any other, because the wealthy face the highest tax rates in the country (despite what you may hear on TV).
Every state has different tax laws too. Some retirement accounts are taxed when you withdraw from them. Some aren’t. Sometimes, it depends on when you withdraw from them. Inheritances get taxed. Estates get taxed.
A customized plan must address all these issues, and it must do so years in advance.
7. When You Retire
There are huge tax implications depending on when you retire. But obviously, there are also huge income implications. So, the date you retire affects your investments because you’ll start depending on them for income. But it also affects your taxes. And the situation is very different if you’re 50 compared to 65. It’s different again if you’re over 72, and every year in between.
Ultra high net worth families tend to have more options regarding when to retire. A fully customized plan will include recommendations and options for this critical decision.
8. How Much You Set Aside
Estate planning, charitable trusts, foundations, life insurance – what you want to happen to your money after you die is an essential, not optional, part of any financial plan for someone with ultra high net worth.
As mentioned earlier, the big brokerage firms don’t directly work on any of these things. They will farm it out to specialists – the kinds of experts you can access directly at a multi-family office like Pillar Wealth Management.[/vc_wp_text][vc_wp_text]
How Pillar Wealth Management Differs from Big Brokerage Firms
You can get a more complete picture of how we’re different by getting our free guide, written exclusively for families with ultra high net worth. Claim your copy of 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning.
For starters, here are 5 ways Pillar serves ultra high net worth families.
1. Full Customization
We create truly 100% customized plans. No client’s plan looks like any other. We have clients with 35/65 asset allocations, and others with 60/40. We have clients in real estate and others without it. We have clients with company stock they want to keep, and others who want help selling it. Estate plans look different every time. Tax minimization, retirement distributions, medical considerations, planning ahead for unknown and known big expenses – there’s almost no limit to what we do, if it serves the client’s financial security.
We could go on and on, but the point is clear – we help you live the life you want to live, and we make sure your finances are all but guaranteed to support it.
2. Proprietary Software to Project Your Plan’s Success
As mentioned earlier, we have developed our own proprietary process for evaluating the likelihood of success for your financial plan. We use over 100 years of market history and other historical data, and we do not exclude the worst market crashes, unlike Monte Carlo.
And we don’t stop there.
When we run your plan through our software, we run 1000 simulations, which we call stress tests. These reveal how your plan will hold upin a variety of possible world and market events, some of which are more extreme than anything that has happened in real life.
When your plan succeeds in 75-90% of these stress tests – meaning you surpass all your goals and live the life you desire, free of worry – you are in what we call the Comfort Zone. It’s the place of serenity, the absence of anxiety.
Financial security doesn’t get much more ironclad than that.
3. Quantifiable Risk Assessment
Baked into our proprietary process is a way to quantify risk tolerance. It’s no longer just a guess.
How does your plan change if we adjust your asset allocation from 60/40 to 50/50? We can make that change and re-run the process to see how the long term projections change.
What happens if you want to invest $5 million in a startup or a foundation, and you weren’t planning on that when we first created your plan? Simple – we just add that into your plan, re-run the stress tests, and see if you’re still in the Comfort Zone. If you are, then great. If not, you can either scrap your plan, adjust your plan (like, lower the amount), or adjust your portfolio elsewhere so you can follow through on the new plan.
See – that’s what customization should look like. As your life changes, as your desires change, your plan and its certainty of success can change with you.
4. Quarterly Adjustments
Even if you don’t change your own desires and life plans, other things will happen in the world that will cause your plan to lose its relevance. Kids grow up. Parents need medical help. Work situations change. Markets crash and boom. Wars come and go. These things affect your finances.
That’s why we revisit your plan four times per year, re-run the stress tests, adjust whatever has changed in your life, and make sure you’re still on track to succeed.
So, your success is always current and assured – as much as humanly possible.
5. Multi-Family Office
For anyone with over $25 million, hopefully you’re starting to see this as an essential service, not an optional one.
You’re going to need a way to minimize your taxes – while you’re working, in retirement, and as your life comes to an end. This could include life insurance, charitable trusts, donor advised funds (DAFs), deciding how much to leave to your heirs, and so much more.
With a multi-family office, you get all this service in one place. You don’t have to hunt around for experts, meet with them, interview them, gain their trust, and hope they don’t retire or move on you. With a multi-family office, you can avoid all that wasted time and frustration.
And at Pillar Wealth Management, all these services are included in the same flat fee. These services are not offered at a higher rate. They are given to all our clients as needed, at no extra charge.
Why? Because this is what we do. It’s our business model. It is not the business model of Fidelity, Schwab, Vanguard, JP Morgan, or any other investment brokerage firm. Those places are great if all you have to deal with is choosing where to invest your money.
But as a person with ultra high net worth, you have much more to deal with than that. And Pillar’s multi-family office exists to serve people just like you.
You can schedule a free call and meet our founding wealth managers on your very first call – not a month later. Click the button below to get started.
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