Tan Kin Lian's Blog: Wealth manager

Thursday, November 19, 2009

Wealth manager

A wealth manager is a person working for a bank who helps the high net worth people to manage their wealth. Usually the client needs to have assets of more than a certain sum, e.g. $250,000.

The wealth manager tells the client that they will help the client to earn a good return on the wealth and will tell some stories about how this can happen. But there is no guarantee.

In some cases, the wealth manager can help the client to make some money but in other cases, the wealth manager loses money for the client. On average, the loses outweigh the gains.

The wealth manager is usually involved in advising on short term speculations on the currency or stock markets. These speculations are at best a zero sum game. The gains made by some come from the losses made by the other speculators.

However, the wealth managers and the banks earn a large fee and commission from handling these transactions. So, in the long run, the clients tend to lose out. For each client that makes money, there is likely to be another client that loses a larger sum, due to the fees.

The experience of many clients who entrusted their wealth to be managed by the wealth managers had been disappointing during the current downturn of the market. However, during good times, they have not been great either.

The lesson: invest for the long term. Avoid short term speculations. The wealth managers cannot help you to spot winning trends. If they can, they would be wealthy on their own.

Tan Kin Lian

12 comments:

Robert Tan said...: A wealth manager may be useful for someone who has a lot of wealth but have below average ability to manage his/her wealth.

One possible scenario when this could happen is when a simpleton wins a large lottery. Another example could be a child who come into large inheritance without having the skills or temperament to manage the inheritance prudently. In such instances, it may be a good idea to find someone whom you can trust or rely on to help you manage your wealth in order the minimize the risk of it being squandered or lost through foolish actions/inactions.

However, if you are of at least average knowledge and expertise in financial and investment matters, I suspect that you probably would do better than most who uses the service of a wealth manager.; November 19, 2009 8:46 AM
Tan Kin Lian said...: I agree with Robert Tan. Most people can do better by following the simple rules of investing in a diversified fund for the long term, rather than depend on the advice of a wealth manager.

The client pays too much in fees to the wealth manager and the bank for the recommended products and suffer from churning.

It is also dangerous for the simpleton to depend on the wealth manager, who may churn the portfolio to earn higher commission, and lose money for the client. Many of these simpleton clients have lost a large part of their principal through the ill-advised speculations made by the wealth managers.; November 19, 2009 8:50 AM
Anonymous said...: I don't really trust wealth managers to manage my hard-earned money. I prefer to DIY.

starlight; November 19, 2009 9:51 AM
Anonymous said...: Wealth Managers are employed by the Financial Institutions. They are remunerated by the FIs. Ultimately, their allegiance will be to their employers.

Clients are a revenue source. The more he FIs extract out of them, the higher the remuneration that will be paid to Wealth Managers.

In other words, there's already a big CONFLICT of INTEREST. The dice is already loaded.; November 19, 2009 9:55 AM
Anonymous said...: i have a friend who entrusted
US$250,000 to a wealth manager. At the end of 3 years, he got back 5k. so i let u judge whether it is better to do it yourself or let others do it. if u have a large sum and dont know anything, just place in fd and as long as there is no hyper inflation, it is better to loose through normal inflation.; November 19, 2009 10:07 AM
Vincent Sear said...: Traditionally, so-called wealth managers were trustees for widows and orphans. They handled large sums of bequest placed under trust deeds, they didn't speculate and aimed for decent returns to sustain the endowments only.

The idea was, if I could make so much money, I could manage it myself, why should I need your help? Unless I'm dead and my wife and orphan need your help.

Today's version of wealth managers is quite different.; November 19, 2009 10:40 AM
Anonymous said...: Ha Ha Ha.
Conflict of interest.
Ask xx to look after yr chicken.; November 19, 2009 12:04 PM
Anonymous said...: Consumers are suckers and losers. Whoever they turn to for advice there is a fear that they will be fleeced.
If you are thinking of engaging an insurance agent to do wealth management you are doomed from the start. If they have no idea of insurance planning what do they know about wealth planning? You are using a salesman whose sole motive is to make a commission from dumping useless financial products on you.
If you use an FA charges will be stacked high against you. You have charges from switching fee, advisory, trailer etc other than sales charge. If the charges are disclosed then you can decide whether to be mauled or not but very they are hidden from you.
To DIY....well it is not easy as you think or not that hard. If you are willing to invest in a body of knowledge and willing to set aside time to manage your portfolio.You can buy direct from portals and don't waste money on agents or FA or wealth managers many of whom are salesmen too.
Hope MAS will encourage the set up of these portals for funds, insurance product without load.
Use a middleman or more correctly use a human being and whose remuneration is from the sale of the products you are doomed. All ethics and honesty will be thrown out of the windows.; November 19, 2009 12:12 PM
Wealth Journey said...: Agreed with Mr Tan.
If you have no passion in investment and do not have the aptitude as well, it is better for you to do :-
1) Foreign Currency Deposit (AUD is a suitable currency for hedging against SGD)
2) Index ETFs

As with all things, you need to know when to buy in. Price is what you pay, Value is what you get.; November 20, 2009 3:12 PM
A Singaporean said...: Since we are doing hypotheticals here, lets talk about the simpleton who just happens to own some amount of money but don't know how to deal with it. At the start he might be contented to just keep his money in a saving deposit or a fixed account. Then he learns that money will depreciate and one or more people will advise him to invest. But how to invest? He starts asking around. I think that there is a 90% chance that he will run into one of those bank or insurance salesmen before getting genuine good advice. By then it would be too late because he would have invested the money in the wrong places. This is Singapore today.; November 21, 2009 3:39 AM
Dr Leong YS said...: Spot on - if one makes the money and unsure how to do it; then still wants to get a return; go into FD, ETF, Mutual Funds (go in with eyes opened), buy real estate etc. Don't ask a "Wealth Mgr" and by the way, ask him/her how much wealth he/she has. You get the answer that way.; November 21, 2009 7:27 PM
Anonymous said...: A Singaporean,
with so many insurance agents on the prowl and unqualified, 95% to be specific, not bouncing into one of them is like striking a first prize TOTO. Sure die...folks with money never got beyond them.; November 22, 2009 12:12 AM