Investment Management

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Investment Management: Comparing Private Independents to Large Public Firms

Plus: Find Out If You’re the Type of Investor Who Should Hire an Investment Manager

Investment management is how financial advisors and wealth managers put their plans into action.

A plan is created, based on your short and long term financial and lifestyle goals. That plan will include recommendations for how and where your portfolio should be invested.

The investment manager then does the actual work of placing your money in various investments, and then working with it over time to produce growth and fulfill the purpose of the plan.

A typical investment manager is also a financial advisor or wealth manager, at some level. But not all financial advisors are investment managers.

Which arrangement is best for you? After reading this, hopefully you will be armed with enough information to decide your next move as you seek to achieve lifelong financial serenity.

If you are a high net worth or ultra-high net worth investor with between $5 million and $500 million in liquid assets, Pillar Wealth Management may be a firm you want to speak with.

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo

If you need more help choosing the best financial advisor or investment manager for your situation, we have created the most authoritative guide on the subject.

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

Use the following table of contents to learn what you need to know about the top investment management firms, how they work, and how to find the best ones for you.

What Is Investment Management?

As with many terms in the financial industry, investment management can refer to more than one activity.

The simplest understanding is that an investment manager manages your investment portfolio on an ongoing basis by making trades and buying and selling equities, bonds,

and other holdings to better position you for long term growth, or whatever investment objectives you may have. Ultimately, it is about delivering an enjoyable life for individuals, and stability for businesses, pension funds, and larger entities.

Many of the more commercial investment managers also offer other services such as tax service, budgeting, and banking for individual investors.

Wealth managers are less likely to offer these services, as they devote their attention to helping their high net worth clients reach their long term goals.

They do this in part by investing generous amounts of time maintaining the relationship and advising them as their life situation and the world around them continue to change.

Investment managers can serve individuals, but because their work is specialized, they don’t typically serve average income investors who don’t have much to invest.Wealth managers are a specialized branch of investment managers who only serve high net worth clients.

Investment managers can also serve institutions like colleges, foundations, workplace or government pensions and retirement funds, and insurance companies.

Basics of Investment Management

Investment management involves an array of skills and processes, including but not limited to:

  •  Managing asset allocation

The most important factor in any financial plan is the asset allocation. Get this wrong, and it doesn’t much matter what else you get right. The portfolio will underperform.

  •  Analyzing your financial picture

As part of developing the financial plan, the investment manager will analyze your financial statements and holdings in all your various accounts so they can make the necessary adjustments that will help you achieve your long term financial goals.

  • Strategic portfolio planning

The best investment managers will have a process for linking your portfolio performance to the achievement of your desired lifestyle outcomes.

Do you want $500,000 set aside for your grandkids’ college educations? Your investment manager should have a way of including this in their strategic planning.

  • Selecting and distributing to equities

With the overall plan and goals in place, the investment manager must then choose the specific equities, mutual funds, bonds, commodities, and other holdings that they believe are best suited for each investor’s desired lifestyle outcomes – their long term goals.

  • Monitoring and ongoing adjustment

As time goes on, the investment manager must continually bend the curve back in line with the original plan.

A good analogy is like an airplane flying from New York to Seoul. It’s a long flight, and in general, you’re flying west. But as you fly, you must continuously make small adjustments to keep the flight on target.

As you get closer to the destination – the goal – your adjustments become more specific and more targeted so you can be sure to land on the runway. You don’t want to land in the water or crash into the city.

And you certainly don’t want to end up in a different country.

Without help from a top investment management firm, you are basically flying without any instrumentation, but in a general westward direction, hoping things will make sense as you move along.

These are the basics.

As we go on, you’ll see what distinguishes private, independent investment managers from the large firms.

Do You Need an Investment Management Firm?

What sort of individual or entity needs help from an investment manager? The simple answer is, the more complex your finances and the higher the stakes, the more help you need.

What does ‘complexity’ mean? To be clear – it does not mean out of control and behind on payments. For that, you need a debt counselor. Financial complexity, or what we could call ‘portfolio overwhelm,’

happens when an investor struggles to keep up with all their various accounts and investment decisions.

It means they have little sense of how to methodically and consistently build their wealth in such a way that they know they are on track to achieve their most desired lifestyle outcomes.

Investment management is not a one-time act.

You don’t just create a plan, set it on autopilot, and go on with your life. Instead, every month, you earn more money. And every month, you have decisions to make about this:

  • Where do you put it?
  • How much do you allocate to each account, or each fund?
  • You were told to maintain a certain asset allocation, but how do you do that?
  • Do you sell current equities and bonds to rebalance, or do you add new income to keep the allocation correct?
  • How often?
  • If you need to take money out, which account should you use?
  • How do avoid paying needless taxes and avoidable fines?
  • How do you minimize your investment costs so your gains aren’t slashed in half?

Most of this gets more difficult in retirement, in part because you have to start withdrawing minimum amounts at various ages from different accounts.

Planning ahead for annual taxes, estate taxes, and medical costs – it doesn’t get easier, but investment management helps you be ready for all this.

So the need for investment management help increases as you gain wealth, as you age, and as your life situation gets more complicated.

For high net worth investors, seeking the help of a wealth management firm like Pillar is the most recommended path.

For investors with less net worth but who still have financial complexity, you’ll want to look into larger investment companies or private independent financial advisors who serve people in your situation.

This is why we strongly recommend, for just about everyone, our authoritative guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets

Advantages of Private, Independent Investment Management Firms

The best investment firms to go after – especially for high net worth investors – will be private, independent fiduciaries, not the large asset management firms and investment companies. Here are a few reasons why:

1. No Conflicts of Interest

Large publicly traded investment firms have more layers of administration to fund as well as their own shareholders, so they will charge higher fees, or they will find other ways to charge you.

One way or another, they are getting their money, even if their marketing promises zero or super-low fees.

They have other interests to serve – their own.

But a private independent firm that also operates as a fiduciary will have no conflicts of interest. Or, if they do, they will disclose them to you and be honest about the pros and cons of their approach.

2. Greater Expertise

Most of the big investment firms hire younger new people to run their programs. They hire fresh out of college. The large firms are where new finance specialists go to learn the trade.

Once they’ve mastered it and if they like it, they will consider starting their own independent firms.

Of course, this isn’t always true, so don’t just assume every independent investment management firm will have greater expertise. Some advisors jump straight to owning their own firm.

The best investment managers know how to study a client’s personal financial situation and desired lifestyle outcomes, create a financial plan based on those goals,

and then select the best equities, funds, bonds, and other investment options to achieve them.

Pillar’s process for this is unlike anything you will find at other firms. If you have between $5 million and $500 million, you will be very interested to see how we create our 100% customized plans and manage our clients’ investments.

For a good introduction to our process, get our free eBook, Improving Portfolio Performance, the Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.

 Or, keep reading. We’ll give more details near the end.

3. The Time You’ll Save!

Remember the ‘portfolio overwhelm’ we talked about earlier?

As you get older and wealthier, the time you will spend analyzing statements, transferring money around, buying, selling, and trading equities and funds, managing taxes,

rebalancing to maintain your ideal mix of bonds and stocks, researching and planning, creating estate plans, preparing for retirement, dealing with debt, selling businesses, cashing out stock options,

managing required minimum distributions, running a foundation, minimizing estate taxes, responding to a life crisis or an external global market crisis – this takes TIME!

With a top investment manager on your side, you don’t have to spend time on almost any of this.

You can enjoy your life, knowing all these critical tasks are being handled by a professional whose job is to give you the enjoyable lifestyle you desire – especially in retirement.

For high net worth investors – almost all of whom have much more financial complexity than normal – this is the only reason you need to work with an investment manager.

You will save time. You will save time. You will save time.

4. One-Stop Family Financial Planning

The best investment managers and especially the top wealth managers offer much more than just investment management. They will also help coordinate the other services you’ll need – especially if you have high net worth.

These including tax planning, estate planning, retirement planning, life insurance, and many other tasks that all serve your goal of protecting your wealth.

Protecting your wealth is an art, which is why we titled our signature work on the subject as such. If you have high net worth,

you will get more value out of this book than we could ever charge for it: The Art of Protecting Ultra-High Net Worth Portfolios and Estates, Strategies for Families worth $25 Million to $500 Million.

5. Customizes Your Financial Plan and Ongoing Management

Large firms don’t customize plans, because they can’t. They use systems that are pre-set with a variety of investment options.

They will find a way to fit you into their boxes. There will be elements of customization, but they cannot completely tailor their planning or management processes to your specific needs.

For instance, suppose you have a major life event when you’re 62 and you have to stop working sooner than planned.

How will this affect your financial plan? What should your investment manager do differently now to adapt to this unexpected shift?

With a customized plan like the ones Pillar creates for all our clients, making this shift is relatively simple.

If you have a bulky, boxy plan, the best they might be able to do is adjust your risk tolerance or rework your asset allocation.

But it won’t be specific to how your goals and desired lifestyle outcomes have now shifted.

How Big Asset Management Firms Work

If you seek personal investment management help from a large firm like Vanguard, Schwab, E-trade, or Fidelity, they will have a fairly generic consultation process. 

It will include many of these common features:

      • • A limited array of asset allocation options (like “high risk,” “moderate risk,” etc)
      • • Standard questions they ask everyone
      • • Blanks to be filled in
      • • Checkboxes to check
      • • Gathering your account information like savings, debt, mortgage, investments
      • • Inputting your data into a computer
      • • Telling you about their great service and all the reporting you’ll get (which is all automated – they want to talk to as few people as possible)
      • • Projections about how your investments will perform over 20-40 years at average market growth rates

At the big firms, your goals, dreams, and financial situation will be forced into their pre-determined procedures. Anything outside of that gets noted and acknowledged respectfully, but it doesn’t really change what they fundamentally do for you.

And this is fine for most investors. Most people don’t need anything more than this. And the efficient reporting systems, online access, and variety of available bonds and stock investments serve the needs of most investors.

Put another way, large investment firms use an internally formulated investment process, which they follow for everyone. But it is limited in what it can do for investors who need more, as you’ll see in a bit.

Independent investment management firms like Pillar will often deposit your actual money into the large companies, which then function as a third-party custodian. So, Pillar does not personally ‘have’ our clients’ money.

We manage it, but it is held by a third-party. This is a good arrangement, and you should insist on it no matter which private firm you work with, because it protects you from getting duped by an unethical financial advisor.

What Most Large Investment Management Firms Cannot Do

Have No Process for Helping with Your Biggest Questions

Here are some of the questions asked especially by high net worth investors, many of whom also own businesses and real estate:

      • • Can I really retire at age 50?
      • • How much should I set aside for unplanned future major expenses?
      • • Will my passive income and investment growth be enough to sustain my lifestyle?
      • • Should I sell one of my properties?
      • • Should I sell my business?

These are the questions that matter the most!

An investment manager cannot answer these questions simply by filling in blanks and checking boxes.

They need an adaptable, customizable process that begins with listening, and can build every possible answer into its planning process.

Suppose your investment manager is discussing changing your plan, and gives you two projections for your future performance (knowing that these are just guesses, because past performance has no bearing on the future).

First, they present a lower-risk asset allocation which is projected to earn 6% annually. Then, they offer a higher-risk allocation with a 9% projected annual growth rate.

What does this really mean for you? Is the 9% option better, knowing that it could also swing much lower if another recession or sudden market downturn hits?

Does anyone have a data-driven process for answering questions like this?

Most investment managers who deal with customers at large firms are – to be completely honest – not much more than glorified tellers.

When you ask questions like this, most of them will suggest that it ultimately depends on your own preferences, goals, and judgment.

“It depends” is the simplest way to avoid answering a difficult question. Another common one – “It’s hard to say for sure.”

You have a lot at stake. And yes, these answers do depend on your desired lifestyle outcomes. That’s why you need an investment manager who has figured out a process for helping you make difficult financial decisions, with confidence.

How does Pillar answer questions like this? Find out in our eBook, Improving Portfolio Performance, the Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.

No Customized Response to Market Volatility

What happens if the market crashes right after you retire? Or right before you had planned to? What if it stays down for many years in a row? What if it rides a rollercoaster for ten years, barely gaining over a prolonged period?

All of this has happened – just since the year 2000.

When market forces start moving in ways you cannot control, how should you respond? Here’s a quick 3-step response to market volatility

What adjustments you should make in your portfolio? If you were planning to buy or sell real estate, should you stick with your plan? What about your estate plan? Should you adjust your lifestyle?

How do you know?

Almost no investment managers, and certainly not big Wall Street firms, have a customized process for answering questions like these. And this is when timing is everything.

When the coronavirus hit in February 2019, the market imploded. By June, it was back up, only to slosh around for a while beyond that.

If you had sold your shares in March, you would have missed the surprisingly fast initial rebound, which included two of the biggest single day market gains in history.

Imagine being retired, at 70 years old, and having an investment manager recommend cutting your losses and getting out of the market in March or April.

Bad advice. And that’s an easy example. Ongoing investment management that achieves all your long term goals involves many more situations like this, on a smaller scale, that come up frequently.

Large investment management companies do not have a process they can activate immediately when life throws you a financial lemon. You need more than someone telling you to “wait it out.”

10 Largest Investment Management Companies

To be clear on what we’re talking about, the ten largest investment management companies currently are:

        1. Bank of America
        2. Morgan Stanley
        3. J.P. Morgan Chase
        4. Wells Fargo
        5. UBS
        6. Charles Schwab
        7. Vanguard
        8. Fidelity
        9. Goldman Sachs
        10. Northern Trust

Most of these companies have pretty good reputations. Though, the fact that some do not, and the reasons for it, is one reason not to put too much consideration on the size of a firm’s assets under management.

Remember, much of that wealth comes from smaller investor portfolios. Last we heard, Vanguard’s average account value was about $22,000.

So, in terms of financial complexity and overwhelm, especially for high net worth investors, these companies are not the leaders in terms of customization, expertise, or personal concierge service.

How Much Do Investment Managers Charge?

Upfront fees for investment managers can range from nearly 0% up to 2%. Most common is around 1% of the portfolio’s value, each year.

Wealth managers often use a sliding scale, with a fee that declines as the size of the portfolio increases. Pillar uses this approach.

But many investment management firms also earn money in other ways, and this is why the upfront fee shouldn’t be looked at as the only cost that matters.

If a manager charges 0.4% annually, but then also makes commissions, kickbacks, and money from other internal fees, that 0.4% doesn’t tell the full story.

Here are six other sometimes hidden costs and fees that, especially if you’re paying more than one of them, can easily eclipse the base fee charged by the investment manager.

How to Find the Best Wealth Manager

This is hard to answer for several reasons. First, the law forbids investment advisors from using testimonials, and we are not allowed to show performance data for specific clients.

Second, a lot of people really like their advisors, but some of them just don’t realize how much they’re missing out on.

So asking friends, family, and coworkers is a good place to start, but it will only get you so far.

Third, you can do online searches, or respond to marketing you might receive in the mail, such as free seminars. But there, you’re having to navigate claims and promises you have no way of verifying.

So what can you do? How do you find the best investment managers when the information you need most isn’t legal, and the information that’s out there is not always reliable or useful?

We recommend starting with our free guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets, even if you don’t meet the net worth requirement.

You will learn so much!

We packed everything we could think of into this single resource. It has no equal that we have seen. And if you’re wondering, it is not a veiled sales pitch.

Not everyone is an ideal client of Pillar, and we actually turn some people away  if we don’t think they’re a good fit. The relationship has to work both ways. This is a genuinely helpful resource.

Beyond that, our recommended process for finding top investment managers is this:

        • 1) Know what you need and want – clarify and specify your goals, hopes, investment philosophy
        • 2) Look for investment managers who match what you want, on paper
        • 3) Talk to them

Talking to them is the only way to find out if they are the best option – for you. When you talk to them, the most important thing you want to find out is their process for planning and investment management.

That is #1, by far.

Pillar’s process – which is unlike any other we know of – can be summed up in three parts.

    1. 1000 Portfolio Stress Tests Based on Real Historical Data

Did you know your portfolio can be tested against market performance data? We test it against data going back about 100 years, before the Great Depression.

How would you have held up during World War 2, the inflation of the 1970s, on Black Monday, or during the dotcom bust? How well would you have done in the 1950s or the 1990s boom years?

Our testing process will show you.

But that’s the easy part. If they wanted to, every investment manager could do that. (Why don’t they?)

The treasure that awaits, that you simply have to stick around to dig up, comes when we run your portfolio through 1000 hypothetical stress tests, what we call ‘what if’ scenarios.

We have created 1000 such scenarios. These are events, and combinations of events, that haven’t happened, but very well could.

They are often more extreme than anything that has occurred in real life. The market performance data behind these scenarios comes from the same 100 years of historical data.

So – we run your portfolio through those 1000 stress tests, and see how it holds up.

    1. Assess Your Portfolio’s Comfort Status

If your portfolio performs well enough that you are projected to exceed – not meet – ALL your most desired lifestyle outcomes through the end of your life in 75-90% of the stress tests, you are in what we call the Comfort Zone.

We call it this because being in this position virtually assures you – as much as is humanly possible as far as we know it – that you will get to live out your life as you desire.

If you fall outside that Zone, we make targeted adjustments to things that are within your control and rerun the tests until you are back in the Zone.

For instance, if the market collapses, do you need to adjust your investment plan?

Well, it may turn out that if you just reduce the amount you plan to give to your heirs by $50,000 per child, that you can ride out the downturn without changing anything else, and remain in the Comfort Zone.

Just an example, but that’s the sort of thing we can adjust within your 100% customized financial plan before re-running the 1000 stress tests.

    1. Ongoing Investment Management

Once your plan has been adjusted, what remains is to keep it current, and maintain its Comfort Zone status.

We update all our clients’ plans every quarter, rebalance their asset allocations back in accordance with their plans, re-run the 1000 stress tests, and keep them comfortable.

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo