Investment Companies

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The Best Investment Companies or the Top Wealth Management Firms – Which Is Best for You?

Discover the Kinds of Investors Best Suited for These Very Different Financial Professionals or Investment Companies

You’ve decided you want help from a financial professional. Good – that’s a big hurdle to overcome, and the truth is – nearly everyone should get outside help in their financial affairs.

wealth management companiesBut what kind of professional do you want? An investment company, wealth management company, financial advisor, investment manager, or financial planner?

For that matter, how about a wealth advisor, investment advisor, or investment planner. We can keep interchanging these words, and it all starts to feel like the same thing.

While there is some overlap between many of these terms, let’s focus on two of the most distinct ones: Investment firms and wealth management companies.

This article will unpack the differences between these so you can clearly understand which one you might be looking for. And if neither seems like the right fit, we have other resources that explain some of the other terms on the list.

For the record, Pillar is a wealth management company that serves high net worth and ultra-high net worth investors who have between $5 million and $500 million in liquid assets.

If you fall into that exclusive category and want to ensure you achieve all your short and long term desired lifestyle outcomes, we would like to speak with you. Click below to have a quick introductory call.

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo

If you want a much more in-depth exploration into how to choose the best financial advisor for your situation,

get our free authoritative guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets.

To understand the differences between investment companies and wealth management companies, use the following list of topics to find what you most want to know, or just read the entire article.

What Does an Investment Firm Do?

The simplest way to understand what investment management companies do is to think of a pool. Investment companies tend to be large,

because their business model is to pool money from many investors into a select group of centralized investment vehicles like mutual funds, stock funds, bond funds,

money market funds, index funds, interval funds, exchange-traded funds, closed-end funds, and unit investment trusts.

Investment frims use money from their customers and invest it in a variety of equities, securities, bonds, and other investment options. Their customers can choose from a great variety of funds composed of hundreds or sometimes thousands of these options.

As the investments grow, the company takes a cut of the profits and passes on the remainder to their customers. Typically, different funds charge different fees, and there is no legal or industry requirement.

Some funds have very low fees, even under 0.1%. These are typically index funds. Others charge over 2%.

According to the Securities and Exchange Commission, each type of fund has different features. Mutual funds and unit investment trusts, for example,

can be redeemed at any time by investors by selling them back to the fund or the trust, directly or via a broker. The approximate sale price will be known based on the value of the shares that day.

Closed-end funds cannot be redeemed in this manner. Instead, they have to be sold to other investors on the secondary market, and the prices are not known until the sale is made.

To be considered an investment company and not a private investment opportunity, the available funds must have more than 100 investors.

Examples of Wealth Management Firms

You have probably heard of most of the top investment companies. Also referred to as online brokers, they include companies like Vanguard, Fidelity, Charles Schwab, and T. Rowe Price.

At these companies, any investor, no matter how much money they have, can open an account, choose funds to invest in, and allocate their money as they see fit.

These companies feel sort of like a bank to most people who use them, but with stocks and bonds instead of just standard interest-bearing or checking accounts.

Most of them offer some of the same services as banks, such as checking, credit cards, and low interest investment options like money market funds.

You can easily transfer funds in and out of your accounts to banks, and to different funds within the same account.

The big companies are structured so that their customers can engage with the company at whatever level they desire.

You can do everything yourself, or you can access help from their financial advisors and investment managers for more individualized service.

They offer almost all their services online, though most also have physical branches in larger cities.

Financial Advisor Fremont

What to Look for in an Investment Company

Kiplingers ranks the top investment companies every year using a variety of criteria, including:

  • • Commissions and fees
  • • Range of investment choices
  • • Mobile app functionality
  • • Available tools
  • • Research ability
  • • Advisory services
  • • User experience

Here’s their 2019 ranking

You can see from those criteria that these companies are attempting to appeal to a variety of preferences, needs, and interests.

For someone who wants help from a professional, they would look at the advisory services at each investment company.

For an investor who wants to spend extra time doing it all themselves, they would want a company with lots of available research and tools that are easy to use.

For those looking to minimize costs, they would want a wide range of investment options and low fees.

So, if you choose to go with a big company, you would want to think about what matters most to you about the experience, and find the company that seems to offer that.

Who are the best companies?

As you can see, there is no single answer to this question. One might be best for investors who want to do it themselves, while another might be best for those looking for a more comprehensive array of services,

and still another might be best for those looking for the most easy-to-use online or mobile experience.

5 Drawbacks of Using the Big Companies

There are at least five reasons to avoid entrusting the bulk of your wealth and the successful achievement of all your most desired lifestyle outcomes to a large investment company.

1. Limited Expertise – You’re on Your Own

For those looking for more personalized help from the top investment experts, you will have a hard time finding it at even the best investment companies.

Yes, there are some true experts at these firms, but they are hard to reach and have limited caseloads.

These big companies are where many new financial advisors go for their first jobs, to learn their craft. They are trained by their supervisors to do it ‘their way,’ whether that’s good for you or not.

Their advice to you does not come only from their own experience. It comes from what the company wants to sell you.

So, you will end up having to make a lot of your investment decisions on your own. The company will give you advice, but you’ll have to do some work to make sure it’s what you want. You’ll still be on your own.

Plus, even if you do connect with true experts at the big investment firms, you must accept that they are not fiduciaries or Registered Investment Advisors (RIA). They are brokers and dealers, which means they earn commissions.

Plus, if you need expertise in any other areas like estate planning, accounting, or tax planning, you will not find top experts in these specialty fields at the big investment companies. Pretty much all the experts in these fields run their own firms.

2. No Personalization

Top investment companies cannot offer true customization in financial planning. They have pre-set systems and recommended asset allocations for various risk tolerances. They have boxes, and they will fit you into them, one way or another.

This is still true even if you seek the help of personal financial advisors at these firms. They are using company software, company methods, and serving company priorities.

They cannot adapt to the ultra-specific needs, questions, life situations, and goals for each of their many thousands of clients.

You will also experience more turnover at the big firms, as their personnel is constantly changing and shifting around. It is highly unlikely you will work with the same advisor for twenty years. You are a number, not a person.

Another aspect of de-personalization comes from their attempts to be all things to all investors.

Because they’re devoting so many services to all different kinds of people, those seeking personalized and customized financial planning – the kind that many high net worth investors want – have to compete for attention.

In 2018, Vanguard’s median average account size was $22,217. So, half the people who have accounts with them have less than $22k.

Vanguard simply doesn’t have the personnel, the resources, or the finely tuned systems to devote themselves fully to individual investors the way a private wealth management firm can.

3. Serving Their Supervisors’ Interest Before Yours

Big investment company advisors are not fiduciaries, and they will not always recommend courses of action that are in your best interests. They are serving another master.

Do they think about the extra taxes you’ll pay when they recommend a trade that will incur short term capital gains? Do they tell you about that?

Or are they just focused on the gross return? Net return is all that matters. What good is 12% growth if you pay 40% of it in taxes?

Do they have a plan for adapting your portfolio if your life situation changes and you need to adjust your desired lifestyle outcomes?

They have to also serve their own bottom line, and this invites an inherent conflict of interest. They have quotas to meet. They have internally developed products and services to sell.

It’s not that your success doesn’t matter to them. Not at all. Again, these are good companies that offer a lot of great services. But your interests are not all they care about. Not so with a fiduciary.

4. Weaker Performance

Most investment companies operate based on Wall Street’s methods and Wall Street’s beliefs. It’s how they were trained, and it’s all they know.

One thing this produces, as mentioned already, is a fixation on raw returns to the exclusion of other factors that affect performance.

They don’t consider things like costs, unexpected life events, or the need for personalization and customization – especially for high net worth investors.

They won’t tell you about the failure of nearly every actively managed fund to outperform or even keep up with the market.

If you ask, they will probably grudgingly admit it, but they’ll persist in sticking to their belief that with smart fund managers, good research, and good timing, many of their funds can outperform the market.

They can’t, and they won’t – especially over ten and twenty year periods – in almost every instance.

If you want some data for this, Kiplingers reported in 2018 that 84% of large cap mutual funds unperformed against the S&P 500 over the previous five years. And those were good years – the heart of the 11 year bull market.

We have much more data on this, and much more to say about it in our free guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets.

In that guide, you will be amazed by what you haven’t been told about most financial advisors and the big investment companies – it is strongly recommended reading for everyone.

5. They Make Commissions

Some of the top investment companies make a lot of money selling packages and products, or by directing their clients to particular funds that have higher internal fees and commissions.

Why Choose a Wealth Management Firm

An independent wealth management firm, in contrast to big companies, is not for everyone.

It is designed specifically for people of affluence, because high net worth and ultra-high net worth investors and households have very different needs and expectations from the companies they work with – not just the financial ones.

High net worth refers to liquid net worth, not including the house you live in. If your home is worth $700k, and you have $400k in liquid assets, you do not have high net worth.

Generally speaking, high net worth refers to having $1 million to $30 million, and ultra-high net worth is anything above that.

What are some things high net worth investors expect that average investors don’t need to think about as much? Here are a few:

1. Personal, ‘White Glove’ Service

When you call, you need someone to answer. When you have a special circumstance come up, you need someone who can take the time to speak to it.

Why? Because when it comes to money, the stakes get higher the more you have.

High net worth households are in the highest tax bracket. For this, you’re both vilified and celebrated in media – vilified for having more,

and celebrated when you give it away. You’ll pay the highest estate taxes and inheritance taxes.

You’ll lose the most (with an inferior financial plan) when something goes wrong, be it something external like a business failure or a market downturn,

or something within your household, like a divorce or a child who publicly embarrasses themselves. Jeff Bezos lost $37 billion when he got divorced.

You’ll have unique tax planning needs, because minimizing taxes wherever possible can save you millions over a lifetime.

You’re as concerned with building wealth as you are with protecting it. You have really challenging decisions to make with what happens to your money after you die.

If someone has just $200,000 to their name when they die, it’s not that difficult to decide what to do with it. No one’s life will change forever with amounts like that.

But if you have $20 million, it’s a very, very different story.

These reasons, and many others, are why we wrote a book about the art of protecting wealth beyond just your lifetime.

The Art of Protecting Ultra-High Net Worth Portfolios and Estates, Strategies for Families worth $25 Million to $500 Million is the definitive work on what ultra-high net worth families need to know and do as they seek to maximize their lifestyles and influence.

Private, independent, fiduciary wealth management companies like Pillar deliver service at this level, because we understand your needs, and have structured our entire company around meeting them for all our clients.

We take fewer clients, so we can serve you more, know you better, and be part of your trusted team of experts.

As your wealth builds, you’ll work with a number of experts in insurance, accounting, estate law, and other specialties. Wealth managers are part of that team.

Big investment firms simply don’t offer this type of service. It’s not their business model.

2. Customized Investment Planning

Wealth managers like Pillar don’t offer you an array of pre-defined investment options. We don’t just talk about high risk, moderate risk,

and low risk and ask which one “feels” right for you. The difference between that and what we offer is like the difference between Little League baseball and the Major League All-Star Game.

If that sounds boastful, it’s not meant to be. It is an accurate description, just like everything else you’ve read in this article.

We lay out facts, and use straight talk to tell it like it is. We do not want to work with just anyone who calls us, so it’s not a problem if this turns some people away.

How is our process so different from the big companies? The best way to find out is to talk to us, and let us create a truly customized portfolio and then run it through our proprietary stress-testing process.

What you’ll experience along the way will feel good. It will be what you have always hoped to experience from a wealth manager.

Click below to plan your quick first call.

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo

The second way to learn our process requires less of a commitment from you. Simply get our eBook about how we achieve lifelong performance and wealth protection for our clients.

Read Improving Portfolio Performance, the Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity, and you will understand what you can do,

and how we can help, in order to achieve all your most desired lifestyle outcomes without stressing or burning yourself out for the rest of your life.

Our planning process takes the burden off of you, so you can actually enjoy the life your wealth was supposed to provide.

3. Optimized Investment Performance

As a high net worth investor, you don’t want the highest performance possible, because that also brings with it the highest risk.

People who chase after that are the ones who lose 70% of their wealth when the market collapses.

We’ve seen it happen, far too many times, in families who have come to us after their previous advisors or investment firms left their portfolios in shambles.

It’s painful to watch.

But you also don’t want to miss out on building your wealth throughout your lifetime.

What you’re looking for is what we call optimized investment performance. It is optimized because it balances risk with performance and security.

We believe in consistently building wealth, to the highest degree possible, without suffering the big losses that come when you bet it all on the market.

We also work to minimize your taxes and many other costs, because if we can save you money in those areas, that’s money you get to keep from your investment performance.

Imagine two investment managers, both of whom earn you 10% in gross returns. But one does nothing to avoid taxes, fees, interest, commissions, and many other costs you can end up paying.

Those can drag that 10% down to 5%. The other manager avoids or minimizes every cost imaginable, and earns you a net growth of 8.5%.

This is the difference between elite-level wealth management like what Pillar provides, typical financial advisors, and big brokerage wealth management companies.

For someone with a $20 million portfolio, that 3.5% annual difference is $700,000.

How much farther ahead can you get over ten, twenty, forty years, doing it our way?

Financial Advisor Belvedere Tiburon

Drawbacks of Using Wealth Management Firm

Just as there are drawbacks to big investment firms, even the best wealth management companies have their downsides. This is not for everyone.

For instance, wealth managers may offer more services than you need. Maybe you have no kids and don’t need estate planning or life insurance.

Maybe you’ve had one job your whole life and have just one retirement account, and are happy with it.

Maybe you have a strong background in finance and believe you can handle most of it. Maybe you even enjoy it. Most people don’t, but some do.

You might not need all the extra services offered by wealth managers.

Also, you might not be as concerned with long term performance as other people. Maybe you don’t want your portfolio tinkered with once every quarter, and are content with letting the chips fall where they may.

Some people really don’t care that much about earning 8% or 10% or 6%. If it’s not that important to you, then you probably don’t need a wealth manager.

Another reason you might choose an investment firm over a wealth manager is that you aren’t interested in talking about goals and desired lifestyle outcomes.

You aren’t a certified financial planner, and don’t want to get into all that structure. It might feel suffocating or restricting.

It’s not – our process is built to adapt to changes in plans and updated goals – but sometimes it can still feel that way.

How to Understand Your Investment Goals

Let’s talk about goals for a moment. Do you have any? Have you written any of them down, or at least thought about them? Here are some questions to consider:

1. Do you spend time doing what you really want to do?

2. If you could spend your time doing anything in the world, what would it be?

3. Do you travel whenever and wherever you want?

4. Is there a cause in which you want to be involved?

5. Do you have any unfulfilled dreams?

6. When would you like to stop working? Age, net worth?

7. Is your net worth and portfolio able to protect you from inflation, deflation, and depression?

8. If you become disabled – physically or mentally – will you be more than adequately provided for?

9. How will future tax laws affect your plan and your answers to these other questions?

10. How much of your estate do you want to pass on, to whom, and when – including while you’re still alive?

We have dozens more questions like this.

Big questions.

For the person who believes investment performance has no relationship to desired lifestyle outcomes, we would humbly suggest that such a person simply hasn’t thought about it enough.

 

investment companies

Your answers to questions like this are inextricable from your investments. And therefore, we approach investment planning with that mindset – that your financial plan should be tailored to meet your life goals,

not just a certain number of dollars or a percentage of growth divorced from any context.

If you answer questions like these, and then look for an investment plan that assures you the chance of one day experiencing your answers, then a big investment company is not the right path for you. They simply don’t offer service at that level.

We do. In fact, this is all we do, and we love doing it, because we love seeing our high net worth friends live out their desired lifestyles and have the influence and impact they want to have on the world and in the people they care about.

Hire a Professional Financial Advisor in Your Area

The truth is, it’s actually not that important to work with an advisor or wealth manager in your area.

With today’s technology, you can do online meetings just as easily (and perhaps more safely) than in-person meetings. Documents are easy to sign and transfer. Accounts can be opened and closed online.

There’s really nothing that needs to be done in person anymore. For most investors, it’s about finding the best investment company or the best wealth manager, period. Location irrelevant.

How many people who have money in Schwab or Vanguard live near their headquarters or one of their branches? Hardly any.

Private, independent advisors and wealth managers are thus no different.

So if what you’ve read here has clarified that you are best suited for a big investment company, then use the top 10 lists you can find online, and pick the one that seems best for you.

If what you’ve read has made it clear you need more personalized, customized, concierge-style service and financial planning,

and the most optimized investment management and performance available, then look for a top wealth management firm.

You can start by talking to us and see if we’re a good fit for each other.

 

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo

Financial Advisor Walnut Creek