If you buy into the premise from my book Wealth Management Unwrapped that you are the figurative CEO of My Wealth, Inc, you will be business-minded in your approach to your wealth. However, most individuals continue to do five things they would never do if they were running a business.
1. Don't decide which products to manufacture.
Rarely is the purpose of your wealth the centrepiece of the conversation as you interview potential advisers. That's because too many firms you interview are more interested in first showing you their impressive capabilities so you will hire them.
2. Don’t calculate the cost of production.
Fees are a big secret in wealth management today. First, you have no 'blue book' to look at as you can for cars. Certain fees are not disclosed, and other fees are hidden in fine print. There's no price comparison – online or otherwise.
3. Fire all employees except those in the IT department.
What CEO would trust just one department's employees and their unique expertise to perform all the duties of finance, operations, manufacturing, human resources, and marketing? So why do investment firms claim to be a one-stop-shop for wealth management? Wealth management is far more than just investing, and yet, the ads promise too much. Hire this firm, and your entire family will live your dream, well planned and in addition, will earn stellar returns on your portfolio.
4. Use only friends or relatives as vendors.
Because these are my friends from my club, my philanthropy, my neighborhood, I hire them as my vendors. I trust them like family! No CEO does this, yet many families of substantial wealth rely on a cadre of advisers selected on that very narrow and dangerous criteria, and worse, often do not measure whether or not they are even properly performing the job they were hired to do.
5. Don’t require a management information system, and if you do get reports, don't insist that they be concrete, relevant or understandable.
Imagine a CEO realising they did not know what last year's expenses or profits were, or how many products were sold versus sales targets. So why would the CEO of My Wealth, Inc accept reports from money managers or advisers that fail to show fees, returns and risks with clear graphics?
Four out of the original ten principles of principal® described in Wealth Management Unwrapped, represent best business practices for the CEO of My Wealth, Inc. You can implement these tomorrow.
1. Know your expectations, needs and goals. Decide the purpose of your wealth before selecting an adviser or investing in a fund. Figure out exactly what you need and want, and also your expectations.
2. Know the conflicts Ask to see what fees are charged, how they are disclosed, and what the cost benefit looks like.
3. Measure outcomes Justify why you might still hire your friends as vendors or hire just one firm to ‘do it all.’
4. Insist on consistent communications Jointly design a management report that clearly and succinctly shows what you need to see so you will know if My Wealth, Inc, is doing what you expected.
Charlotte Beyer founded the Institute for Private Investors (IPI) in 1991 and served as CEO until her retirement in 2012. Her book, Wealth Management Unwrapped, was published by RosettaBooks in October 2014.