Three questions for your wealth managers
The head of sales in a US software company where I worked many years ago — a man of great humour — would gather the sales team, as the end of the quarter approached with its rush to get final deals closed, to get them focused. “It’s near the end of the quarter,” he would say, “so you must qualify sales leads carefully to make sure there is enough time to win the business by the end of the quarter. To qualify a sales lead, just ask the prospect two questions: 1. Do you have a million dollars? 2. Do you have it on you?”
It is helpful to be succinct with questions, so assuming you’ve recently sold your business for a few tens of millions and are seeking someone to manage it for you, let me suggest three questions to help you choose a wealth manager, private bank or family office:
1What is the TER? The most important fee metric is TER, or Total Expense Ratio. This is the total of all the charges you will pay from the various layers of fund management, including the Private Bank portfolio management fee, investment advisor fees, fund of fund manager fees, equity fund manager fees and so on. It’s quite hard to work out if you invest in a so called ‘product’ — a Japanese Equities Fund for example — exactly how much the TER is, especially if it’s being provided by the bank itself. Fortunately, if you ask, they are obliged to tell you. They may wriggle, not least because the TER depends on the makeup of your investment portfolio. But insist on being given an estimate. Aim for a 1% TER, split perhaps half between the Private Bank and the fund managers. This will be higher for alternative investments, such as Private Equity. You may not quite get to 1%, but it’s a good target.
2What has been your investment performance been over the last seven years? Performance is harder to measure, because every portfolio is different. You may have more equities, or more invested in Asia, or a preference for tech stocks. So again, they may wriggle and again, you should insist. Ask for the performance of a ‘balanced’ portfolio and make sure it’s after fees have been applied. Then compare it with the most suitable benchmark. That could be a stock market index adjusted for dividends, or one provided by commercial providers, such as Asset Risk Consultants (ARC). You must target a return that is higher than inflation; would you be satisfied with inflation plus 3%? Has the provider achieved that return in recent times? The reason for asking for seven year performance data is that is roughly the length of an economic cycle and it’s easy to show a rosy return by being selective about the time periods (remember that it has been a boom time for investments since 2008!)
3Do I like you? Well, of course you shouldn’t ask this directly, but this will be a pretty important relationship. Do you like the location, language and the people? Does the office feel welcoming and somewhere you would be comfortable to visit? The account manager may change, so meet the owners and or the directors before you make a decision. And, as the saying goes, if there is any doubt, there is no doubt. There are many people in different locations who would happily manage your wealth, so you might as well shop around until you find someone you like.
You might like to do this with at least three providers before deciding who to work with. If you don’t know where to start, come and talk to us, or just Google, “Multi-family office”, “Wealth managers” or “Private Bank”. Good luck and happy hunting.
