Personal Finance

Are "Boutique" Money Managers for Affluent People Worth it?

  • Last Updated:
  • Oct 17th, 2019 10:13 am
[OP]
Deal Addict
Mar 21, 2013
3408 posts
4564 upvotes
Edmonton

Are "Boutique" Money Managers for Affluent People Worth it?

Hey all,

I had known a financial planner through business networking a few years years ago. He joined Pavilion Investment, it looks like Mercer bought them since then. Back then, he said that you needed a half million in liquid assets to be able to use their company. It seemed like a pipe dream at the time and I didn't think more of it. Flash forward a few years and things have changed, we just recently passed that number, have over $400k household income this year and over 30 years until we hit 65, making me think that we might need to consider some professional advice or a money manager.

I'm pretty well versed on the basics of index investing, though I seem to invest at the high points so far since a lot of our earnings have come more recently...

Just wondering what you think about these groups - can and do they provide novel investment opportunities or good advice for allocation, tax advantages, etc? What kind of investments could be available to wealthier people that aren't available to others?

Sorry for the "flex" but it's pertinent to the question. PS I hate the word affluent, haha
17 replies
Deal Expert
Aug 2, 2001
16727 posts
6955 upvotes
There are some financial planners that will execute trades on your behalf. Now can these planners beat the index? That's the question. But it would be a value added service that they could provide that is different from the typical mutual funds, and different from what you would be able to do with passive index investing.

Additionally they may be able to help you plan out what investments are best in the big picture. For example, there is a 15% withholding tax on US securities held within a TFSA but not a RRSP. Another example is that you often receive ROC from your investments which should lower your ACB, however an average investor probably doesn't realize this and instead misses out on it. A financial planner should be able to explain this and help you optimize your investments.


I have no idea if your planner is any good - but a good financial planner should be able to help most people for the smallish additional fee they charge (I think 1% is often what I hear for those that trade actively). When it comes to large sums of money you may find that even a 1% or 0.5% difference in return is quite a bit of money, and if you don't have the time to research all the in's and out's of your investments you may find it helpful.
Deal Addict
Dec 4, 2016
1886 posts
912 upvotes
I think household income matters less than the total amount available to invest. Canadian couch potato had a post on non-registered accounts, and the consensus seems to be that if you have maxed out RESP, RRSP, and TFSA, and have more than 200k in non-registered accounts, advanced tax strategies might become necessary. If you need to pay less income tax, speak to an accountant on how to incorporate and structure your income.

At the 1% or even 0.5% annual fees charged by advisers, the tax advantage of holding US securities within TFSA vs RRSP gets wiped out pretty quickly. Better to do some reading on CCP, and decide for yourself if you want to do Norbert's gambit.

So my personal opinion is: maybe seek opinion of money manager if tax from your non-registered accounts become significant.
Member
Jul 2, 2018
264 posts
258 upvotes
My father has used a few and 2 experiences really stood out.

# 1 - This guy was great, $1m liquid minimum, he would present the most random opportunities to make money, scary at times, but he had a track record for success. He thought outside of the box, but was also very careful in protecting his clients. He also helped my father with future retirement planning, estate planning and even gave some unoffocial tax advice. He could connect you to the required professionals for any questions/concerns you had and he got shit done.

# 2 - Became a Portfolio Manager or some crap and hit my father with a 7 figure loss trying to hit a home run using his funds. He then sent a letter to his clients to withdraw their funds because Donald Trump had become president and the markets were going to crash beyond recovery.
Realtor + Investor
Deal Addict
Feb 25, 2007
1310 posts
776 upvotes
Ottawa
We have used such a manager for 13 years. He charges a sliding scale, starting at 1.5% (I think) and going to 1% and below for 7-figure portfolios. In return, he provides financial planning, portfolio management, trade execution, and does our taxes. He manages the bulk of our nonregistered investments, RRSPs, TFSAs, and retained earnings from a small business (whose accountant is an affiliate of his). He keeps our portfolio in a reasonable mix of low-embedded-cost ETFs and occasional mutual funds and other market-traded investments (e.g. bonds held direct); mainly passive but a few active. He "adds value" (see below) by sector rotation. In the rare case of an investment that pays him trailer fees, he rebates those to us.

My day job is pretty sophisticated strategic and financial planning for corporations, so I run circles around him in our personal financial planning, though for most people he'd do a more than adequate job. We therefore find the main benefit is i) convenience, and ii) tax optimization. While I'm sure I could figure it out, I'm happy to not have to be spending my free time deciding what ETF to hold in my RRSP vs TFSA, when to pull the trigger on crystallizing a tax loss, how much dividends to withdraw from the business, or even just keeping track of the ACB of my investments. Together i) and ii) are worth quite a bit to us, though his 5-figure pricetag for that alone would be a bit steep. To his well-masked irritation, I've made him annually benchmark performance to a Couch Potato-like portfolio, to see if he is actually iii) "adding alpha" (in investment parlance) via his sector rotation and active trading. Somewhat to my surprise, in most years as well as over the long term, he is -- but basically only about the amount he takes in fees. So while our own philosophy is more passive than active (at least for market traded securities), we figure we're essentially getting i) and ii) for free.

For anyone with a portfolio this size, it also makes sense to consider if if makes sense to add non-market-traded investments, such as real estate, private lending, and angel investing to the mix. Done well, you should get higher returns in return for lockups and lower liquidity. We slightly dabble in some of these ourselves, but anyone who has ever offered to "advise" us or manage a portfolio in this way has had misaligned incentives. You do of course have to watch out for the Bernie Madoffs, but equally importantly, you have to watch out for non-fraudulent "advisors" who would offer you access to something promising-sounding, but where you'd be taking all the risk and they'd be getting, directly and indirectly, far too much of the return.
Deal Addict
Oct 23, 2017
1872 posts
1400 upvotes
GTA West
I decided to spend the 1% for a discretionary manager on approaching retirement about 10 years ago, after a spotty record in managing our investments myself with a broker. I accumulated a nice low 7-figure retirement fund but had made the usual investment mistakes, and found myself on the sidelines with too much cash far too often. By this time I was looking at couch portfolio options.

I was also having some health problems and realized that if I passed away, my wife would have no idea what to with our assets. And even with a couch potato portfolio, there would still be the administrative tasks of making withdrawals from our multiple RRIF's and LIF's, paying taxes, and rebalancing the portfolio.

I figured our broker would try to fatten himself up by moving our assets to high fee funds if I asked him for advice with this. And that is exactly what he proposed when I raised the possibility of my demise - he sent me a prospectus for Brandes Funds.

I spent a year or so interviewing money management firms to find the right fit with a discretionary portfolio manager. Now that I am retired, our investments are on cruise control and handled with a great deal of discipline within well-defined boundaries. Fixed income investments are rolled over as soon as they expire, and equity trades are far and few between, keeping our costs low. We have access to quality ETF's like DFA for the US. We do have real estate assets in the form of some REIT's and of course the house we live in. Since I can't make any trade decisions myself, I am not tempted to dabble or respond emotionally to changing markets, and make foolish decisions not in keeping with our long term goals. I think about that 1% (actually under that now) but realize that if it prevents me from making a bad investment decision every year or two, it is worth it. I still have Nortel shares with a $25,000 loss in my RRSP to remind me of that. Our income is deposited every month with the correct taxes withheld, so that our income tax pretty much balances by the end of the year.

So all in all, I consider that "1%" to be well-spent. No, I am not beating the market, but who can, over the long term? Only Bernie Madoff, and that term did end after all. Our portfolio manager is 20-25 years younger than I am and a partner in his firm, so we are hopeful that he will be around as long as we need him.
Last edited by Dealmaker1945 on Oct 6th, 2019 1:56 pm, edited 1 time in total.
Deal Fanatic
Jul 1, 2007
8483 posts
1580 upvotes
Blubbs wrote: Hey all,

I had known a financial planner through business networking a few years years ago. He joined Pavilion Investment, it looks like Mercer bought them since then. Back then, he said that you needed a half million in liquid assets to be able to use their company. It seemed like a pipe dream at the time and I didn't think more of it. Flash forward a few years and things have changed, we just recently passed that number, have over $400k household income this year and over 30 years until we hit 65, making me think that we might need to consider some professional advice or a money manager.

I'm pretty well versed on the basics of index investing, though I seem to invest at the high points so far since a lot of our earnings have come more recently...

Just wondering what you think about these groups - can and do they provide novel investment opportunities or good advice for allocation, tax advantages, etc? What kind of investments could be available to wealthier people that aren't available to others?

Sorry for the "flex" but it's pertinent to the question. PS I hate the word affluent, haha
No advisor/planner/portfolio manager/whatever will help you consistently beat the markets. If they say they do, then they're either BSing you or they're delirious. I make this claim as an advisor myself.

Good advisors do holistic financial planning and help you build a well-diversified portfolio and maintain your investment discipline over the long-term. They don't help you time the markets, they tell you not to sweat it if by random bad luck you happened to invest new money at a high point.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Sr. Member
User avatar
May 10, 2008
609 posts
523 upvotes
Vancouver, BC
You can take my response with a grain of salt because all this happened when I was younger and I don't know the details. In a nutshell, my parents tried all these. $500k minimum. $1M minimum. Boutique financial advisors. Bank financial advisors (the ones that only deal with rich people). They are all the same. Never again.

My parents now invest their own money, and they do crazy, risky things. Sometimes I prefer not to hear about it because it scares the hell out of me. But they are still doing better than when they let someone else invest for them.

Just because they charge more or require a minimum networth, it doesn't necessarily mean they are better. I have a high school classmate who does this for a living. She works for a major bank and only takes high networth clients. This is the same girl who was a total airhead and almost flunked out of school, so I have doubts about how good these people really are.

Hope this helps.
[OP]
Deal Addict
Mar 21, 2013
3408 posts
4564 upvotes
Edmonton
Angel Girl wrote: You can take my response with a grain of salt because all this happened when I was younger and I don't know the details. In a nutshell, my parents tried all these. $500k minimum. $1M minimum. Boutique financial advisors. Bank financial advisors (the ones that only deal with rich people). They are all the same. Never again.

My parents now invest their own money, and they do crazy, risky things. Sometimes I prefer not to hear about it because it scares the hell out of me. But they are still doing better than when they let someone else invest for them.

Just because they charge more or require a minimum networth, it doesn't necessarily mean they are better. I have a high school classmate who does this for a living. She works for a major bank and only takes high networth clients. This is the same girl who was a total airhead and almost flunked out of school, so I have doubts about how good these people really are.

Hope this helps.
Very helpful, thanks. As well as all the other detailed posts, thanks to all!
Sr. Member
Dec 25, 2015
530 posts
327 upvotes
Canada
I’m confused. Why not just buy VGRO and get charged 22bps and call it a day lol

I have no experience with planners but try it for a year, learn what they’re doing , and do it yourself.

The 1% fee is $100000 on a 1M portfolio over 10 years.
Sr. Member
Jul 28, 2008
840 posts
218 upvotes
Toronto
wolfs004 wrote: I’m confused. Why not just buy VGRO and get charged 22bps and call it a day lol

I have no experience with planners but try it for a year, learn what they’re doing , and do it yourself.

The 1% fee is $100000 on a 1M portfolio over 10 years.
Good financial planners will go over complex estate planning/tax planning/risk management. They'll consider your unique circumstances when making any sort of recommendation. For many with larger portfolios the value is often there.
Deal Fanatic
Jul 1, 2007
8483 posts
1580 upvotes
wolfs004 wrote: I’m confused. Why not just buy VGRO and get charged 22bps and call it a day lol

I have no experience with planners but try it for a year, learn what they’re doing , and do it yourself.

The 1% fee is $100000 on a 1M portfolio over 10 years.
Problem isn't "boutique advisors" or whatnot. There are good advisors out there. Problem is there are plenty of bad ones and to many of them their "value add" is overly complex, sophisticated investment strategies.

Truth is... https://ritholtz.com/2019/09/investing-for-the-elite/
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Addict
Jul 19, 2004
1252 posts
468 upvotes
Vancouver
I think it's more useful for professionals (doctors/lawyers) where your time is worth so much more than trying to learn how to manage a portfolio/estate planning/tax planning.
Deal Expert
User avatar
Jan 27, 2004
45389 posts
8421 upvotes
T.O. Lotto Captain
someone16 wrote: I think it's more useful for professionals (doctors/lawyers) where your time is worth so much more than trying to learn how to manage a portfolio/estate planning/tax planning.
Yep thats the one!

Or the old rich type... people who come from families with immense wealth. In order to not screw it up they pretty much hire help.
Deal Addict
Oct 21, 2014
1551 posts
1957 upvotes
Burlington, ON
Blubbs wrote: Hey all,

I had known a financial planner through business networking a few years years ago. He joined Pavilion Investment, it looks like Mercer bought them since then. Back then, he said that you needed a half million in liquid assets to be able to use their company. It seemed like a pipe dream at the time and I didn't think more of it. Flash forward a few years and things have changed, we just recently passed that number, have over $400k household income this year and over 30 years until we hit 65, making me think that we might need to consider some professional advice or a money manager.

I'm pretty well versed on the basics of index investing, though I seem to invest at the high points so far since a lot of our earnings have come more recently...

Just wondering what you think about these groups - can and do they provide novel investment opportunities or good advice for allocation, tax advantages, etc? What kind of investments could be available to wealthier people that aren't available to others?

Sorry for the "flex" but it's pertinent to the question. PS I hate the word affluent, haha
Have you considered a fee only adviser? I would go that route rather than have someone manage the money for you. I have seen over the years so many times an investment adviser who takes outsized fees for mediocre performance while producing a nice looking yearly report. You should strive to become an expert at managing that money and a fee only adviser can help you - why spend so much time developing yourself to not understand the fruits of that hard work?

If you manage your excess capital well over the coming decade, you won't need to worry about that job anymore. Think about it.
Deal Fanatic
Oct 1, 2004
6203 posts
620 upvotes
Toronto
What are the chances of these money managers running off with your money? Assuming they get you to sign a contract giving them the right to invest in your behalf, can they not just invest in something shady and run off with the money?

Does anyone have experience with PWL? Or can recommend a good fee only planner in Ottawa?
Deal Addict
Oct 23, 2017
1872 posts
1400 upvotes
GTA West
greg123 wrote: What are the chances of these money managers running off with your money? Assuming they get you to sign a contract giving them the right to invest in your behalf, can they not just invest in something shady and run off with the money?

Does anyone have experience with PWL? Or can recommend a good fee only planner in Ottawa?
They should hold your assets in a custodial account(s) with someone like National Bank or TD. Then you have visibility on your accounts via monthly statements sent directly from the custodian as well as web access, so that you can always see your assets. The manager should only be able to make trades, not withdrawals. Also, the scope and ratio of assets that can go in your account is normally defined in a contract called an IPS or investment policy statement.
Deal Fanatic
Sep 23, 2007
5061 posts
1158 upvotes
The skill of the manager matters, but you should focus on skill in tax optimization and risk management. Don't expect someone that can consistently beat the market. Given 100 managers, you can expect some to beat the market, some to go below, and some perform at market. So I wouldn't give much weight to historic performance.

You should also consider your degree of comfort in managing investments, and also the degree of comfort in letting others manage your money. Naturally nobody will give a damn about your money more than you. Consider your degree of knowledge.

Also consider your time. Some affluent people use such services because they are busy with other things. It takes quite a lot of time to stay on top of all the market trends.

I'd say if you need to ask, then don't use a manager. Fundamentally cutting out the middleman is always saving you a known cost. If you have enough knowledge and enjoy managing your own money, do it yourself. Don't expect someone to do it better than you. If you ever get super busy with family or business, then that's a good time to consider having someone manage it for you. Even then I would prefer to keep some degree of control.

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