Wealth Management Lies – Episode 586

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, on this episode, we’re going to be talking about wealth. And this is in the private wealth space. And we’re doing this because it comes from a thread from X. And I particularly loved it because he was bashing on the private wealth community. And so I’ve enjoyed it. Kim, can you set the stage and explain, define private wealth and give some context there from perspective? Sure. So this is probably people that have accounts of half a million dollars, much larger, of course, and the private wealth managers that charge their annual fees to do the work that they do for you, it could be retirement account dollars, could be regular dollars, it doesn’t really matter.

[00:55] And it is so amazing to me when you look at the actual dollar figure of the damage that is occurring because somebody charges you a 1% fee or it might be one and a half, or it might be half a percent a year. So quick analysis, we use the truth concepts calculators, I’ll do the best job that I can describing this verbally to take a look at two different scenarios, one was a million dollar account, one was something where 10,000 a year is added and there was no money to begin with. In either case, we can apply the stock market rate of return per year, not an average rate of return, but the actual, for example, S&P 500 index per year, every single year’s return. And then we can apply whatever that fee is that gets removed from your account.

[01:55] And we can see the total amount of fees measured over a 30 year period, that’s just a good lifetime to measure things over, and the total opportunity cost that those fees caused. So a quick example, if over time, I think one of the examples actually didn’t make a big difference, whether there was a lump sum or dollars were added, as long as in the end, the total was about the same, just for this analysis, kind of a, you know, a school black and white environment, not incorporating a whole bunch of the gray areas, the total compensation on this million dollar account was about 120,000. Well, that caused opportunity cost of about that same amount of money again. In other words, the 120 that came out of the million, that somebody’s

[02:49] just thinking, you know, this is 1% a year, no big deal, is not meaning that, oh, your average was 10, so now you get nine, it’s your million is now less by 120,000. And because that 120,000 of fees came out, it’s now less by approximately another $120,000, whereby your account is now at about 750,000. And those dollars are gone because the fees come out every year. And by the way, this is true of taxes as well. When the account is taxed annually, they create opportunity cost. And this is what people do not realize. So a dollar fee comes out, that means basically at least another dollar, depending on the interest rates that you use, is lost from the account because the fees come out along the way and that account no longer has

[03:44] the fee money to earn the gain. So you have private wealth managers out there making millions of dollars a year, many of them are providing a valid service that absolutely might be worth three or 4,000 a year, but not the 10 or so thousand that they’re typically getting, you know, just rough numbers on that million dollar account, 1%. And it is shocking what that does to your own wealth because you do not understand the long-term nature of fees plus opportunity costs. I haven’t read the X thread that you referred to, but was that essentially what the guy was addressing? Yeah, you know, you actually nailed it pretty well. There was five points. The first one, having not read this because I wanted to review with you

[04:41] is his first point was they have provided virtually no value in, and here’s the word, growing my net worth. You just talked about the fees. So the growing. Yeah. And notice most people, they just want, they’ll talk about the home runs that happened, but the majority of people kind of sit in silence because they’re seeing those fees and that’s what I loved about this thread. Second point was they are structured against success and there was one thing in his comment, his thread on point two that I loved. I’m going to read it verbatim, which he said that he goes, you know what I want to invest in? The small scrappy guy who bought two properties in Southern California or Idaho or Oklahoma and learned how to work with contractors and flip them.

[05:36] Now he wants to buy 10 or a small apartment building and do the same. But private wealth managers are focused on acquiring and retaining large rich clients. I read that and I thought, like, we’ve just found the prosperity thinkers economy, the group right here. This is small, scrappy, prosperity thinking people. It’s not a magnet for like, well, I’ve got this lump of money and I don’t want to do anything. And I want to check out of society. Like, sorry, last time I checked, like that retirement word isn’t something that you’re too keen on. Way too selfish. Absolutely. Point three is the idea that they are going to set you up with unique advisors who will help is malarkey. Why would you say that’s true or untrue?

[06:39] Why would you say that, Kim? Well, in today’s world, there is so much trading that goes on in an automated fashion from all of the various algorithms and whatnot that very wise and smart people have set up well before any human being can get their hands on anything. And this has been the promise for years. You know, we did an article a long time ago that showed research that a monkey throwing darts could get about as good of a return as some very highly educated, amazingly connected manager. And it just is sad to me that this space still exists. And yet it is what the SEC feels is the best, most ideal structure for compensation between these wealth managers. Now just think about that. If you have an entrepreneurial mindset at all, do you even

[07:42] want the term manager applied? I mean, to me, a manager is just absolutely status quo. And that word does not usually go with the growth word at all. Nevertheless, these wealth managers are under the protection even of the SEC because that entity in our government feels like it’s the best structure out there and aligns that person, the wealth manager, with their clientele’s interests. That’s not accurate. And it’s a shame that this information is not out there more. So good for you for finding the thread and good for the person that wrote it. Absolutely. And for any of you listeners that are tuning into this as a first episode or maybe you’ve bounced around, you’ll notice, and if we go back one episode,

[08:34] the remedy for overcoming a bubble market or chaos or a cap size. Kim explained, he said it was cash flow. It’s having that emergency savings. It’s having some liquidity and we’re not hearing that from wealth managers. That is flash bang, whatever else that looks like and laziness. It’s, and that’s not a community that we stand for. So Kim, it was really cool to get your feedback, to be able to explain the wealth management and we’re going to call this prosperity thinking because that’s where we are. So thanks for sharing that with us on today’s episode. And for all of you listeners, if you’re not already subscribed to the YouTube channel, there’s additional content on there. There’s short clips.

[09:26] You can share it with your friends. We’ll make sure to put that in the show notes so that you can share that with your friends. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit prosperity thinkers.com.