I was discussing this week with one of my business associates the relative attributes of investment advice, exploring the difference between several labels used commonly in the industry, the result of "marketing" departments' endeavour to sell more products designed to make money for the producer. The term Wealth Manager is increasingly slipping into the investment vernacular of today. Years ago, long before marketing departments, they were known as investment counselling firms.
So what is the difference? Wealth Management should by definition apply to the management of family or individual wealth, encompassing financial and non-financial assets. In its purest form it requires the advisor to take a holistic view of the financial and non-financial assets and advise accordingly on the global picture, often with an advisory and discretionary mandate. This may include managing fiscal and corporate structures, private placement funds, real estate, businesses and portfolios of marketable securities.
An investment advisor may have a more specific remit, for example management of a portfolio of securities or a fund, but not a global remit for all the other financial and non-financial investments held by the investor.
The fees charged and the costs incurred vary widely, dependent on what the advisor is mandated to advise on. Whatever the mandate, the investor should remember that it is them not the advisor who is providing 100% of the capital and it is the investor not the advisor who is taking 100% of the risk on the capital. Reputational risk pales in comparison to loss of irreplaceable capital.
Reflecting on our discussion, I am reminded of what Benjamin Graham, the celebrated investor and analyst said in his classic The Intelligent Investor written in 1949. "The leading investment counsel firms, who charge substantial annual fees, make no claim to being brilliant, they do pride themselves on being careful, conservative and competent. Their primary aim is to preserve capital over the years and produce a conservatively acceptable rate of income."
The only aspect of the investment process that we can control is the cost and our emotions. Asymmetric risk and reward for investment advice has long been a sad indictment of the investment industry driven by profit and not a duty of fiduciary care to the investor. The regulators, after decades of neglect, are now beginning to apply more scrutiny to costs and fees relative to advice being given, but sadly too little too late! Sensible investors are aware of not only what they own and why, but what costs they are paying for the service provided. From the time we engage as investors in the investment process, the more of our own capital we keep the more we make. Choose wisely when considering investment advice.