I have shared that I became a millionaire by age 35 through ownership of stock options at my fast-growing employer in the late 1990s (thanks Internet Bubble!). I also shared that I had a financially-modest upbringing and didn’t have any trusted mentors who were managing much personal wealth.  So now I find myself with some wealth, no one trusted with whom to work, and I was completely unprepared with how to deal with a sum of money – how to not lose it, maybe grow it, and not let it ruin me or my relationships (subject for a later post). I know, I know, I hear the reader saying “I wish I had his problems,” but I was afraid that I was going to blow this opportunity for my growing family, and I have since seen a number of friends and co-workers who did just that with their newfound wealth.

So I did some research to learn about everything I could on wealth management platforms like Goldman Sachs, Morgan Stanley, Merrill Lynch; individuals who sold advice and plans (Certified Financial Planners, and others); insurance salespeople who fashioned themselves as wealth managers; and other salespeople who got paid in commissions by convincing clients to buy specific products from them. What a cast of characters! I took more than 20 meetings with many different types of providers, and I’ll share some thoughts from what I learned.

The low-cost brokerages were those with which I had existing relationships (Vanguard, Schwab in particular), but I didn’t know how to invest a large sum of money on those platforms without some guidance. Those firms have now introduced new services to help people do that (Vanguard Financial Planning Services comes to mind), but they didn’t offer those back then (more on this below).  

So I hit up the “wealth management guys” and got many sales pitches from slick brokers selling either an “assets under management model” (“AUM,” where they charge an annual fee based upon percentage of the assets on their platform) or by commission on transactions.  My fear was that the transaction guys would churn my account by making a lot of unnecessary trades, and the AUM guys would overcharge me while not providing much on-going value.  I dug into the value they would provide beyond the platform, and at that time, each broker had a different approach/model for clients for determining risk, asset allocation, and monitoring. That was a good start, but I didn’t really see the on-going value for the annual retainer when all they did was re-balance asset percentages to a set model, and I didn’t see that they could provide any personalized advice as my family’s situation changed.

At that time, I had a long-standing relationship with a college buddy who sold insurance for Northwestern.  NW is a great insurance company which is still “mutual” (ownership structure I like) and has been financially stable. Since you are making long-term commitments with life insurance, you really need the insurance company to be around after paying them for 30 or more years, so your heirs get the death “benefit.” I got the pitch back then – buy more insurance but packaged as an investment. Back then the product was pitched as a lower, more stable return investment suitable as a replacement for bonds in a portfolio.  Recently, many insurance companies are trying to position themselves more broadly as wealth management platforms and will provide a platform to invest broadly in equity, fixed income, and more. I wasn’t, and haven’t been since, convinced, but I still use NW for life insurance products with more than 30 years as a client.

The scariest of the group were the lightly credentialed, independent sales people selling financial products on commission.  It only took a couple meetings to realize that these people seemed to be the least interested in my success, but very much in their own.

Finally, I spent time evaluating CFPs, who walked me through their approach, how they provided value, and how they got paid. I can see that for many people who don’t have the interest but need the face-to-face relationship and high-service level, CFPs can be a strong (albeit costly) complement. Some CFPs also provide additional services beyond investment management, like evaluating insurance products, providing in-practice estate attorneys to help with wills, healthcare proxies, and trusts, and in-house Certified Public Accountants (CPAs) to help with taxes. Further, some CFPs act as fiduciaries (they legally commit to put the client’s interests over their own). CFPs each have different compensation models – always ask how they are paid – and are usually paid by AUM fee, commissions, or hourly.

Today there are also “robo advisors” like Wealthfront which use automation to walk a client through a risk profiler, determine an asset allocation model, and make recommendations on specific allocations, all for a relatively low-cost, AUM percentage. These are limited to just helping with investment management (no tax, insurance, or estate help), but these new players have forced the older brokerages like Vanguard and Schwab to up their game with similar offerings for investment management. If an investor doesn’t need or want the face-to-face relationship, high service-level, and higher cost of a CFP, these can be strong, lower-cost alternatives.

So what did I do? I decided to take the financial planning responsibility on myself, and directly coordinate the other specialists (a CPA for taxes, estate attorney, business attorney, life insurance agent, property/casualty insurance agent) I sought. Once I understood what the job entailed, I believed that I could provide better personalized attention to my family’s needs than a professional managing over a hundred clients or more with a fixed approach. I am grateful to be where I am now with my knowledge and comfort managing my family’s overall financial needs, without having to pay a wrap fee or AUM fee to an advisor.

(One footnote: I have it set up in my trusts and estate plans that if I were to die before my wife, who has no interest in this subject, a local trust company will take over the management of the family finances. This firm has CFPs, CPAs, attorneys, and others on staff, similar to a “multi-family office.” I’ll cover this in a later post.)