Why people paying fee for custody or wealth management , when you can buy low fee index fund etf by yourself ?

[troubled soul]

I see in this forum , so many people are discussing wealth management and its provider, they charge crazy amount of the fee for their service like UBS, DBS , Barclay , BNP Paribas etc.
When You can buy low fee or zero fee Index ETF for that.

Some says that You can diversify your portfolio using their service. This can also done by you, in today world each and every category has its own low fee ETF.

Why people paying huge fee ? When you have cheap option are available .

In today world Brokerage account is more Safer than bank account .



I have $15 million , and open account with SAXO bank and buy BOND or Stock index ETF with low fee .
Why should I go to big name like UBS, DBS , Barclay , BNP Paribas and pays high fee when you get the same result. I do not think that they have some secret investment strategy .
IN worst case saxo bank goes out of the business . I can still own by ETF . like when in 2008 Bear Stearns goes out of business , the customer who has stock in their brokerage account are safe and transfer to the JPMorgan.

So why people paying high fees ? Because they are big brand or I am missing something.

Thanks

 

[Gediminas]

In today world Brokerage account is more Safer than bank account .

What is your reasoning for that?

 

[rowena]

https://www.offshorecorptalk.com/threads/best-private-banking-options.30266/post-155810

 

[troubled soul]

What is your reasoning for that?

If bank goes out of business, Your Bond deposit amount will be gone , But in case of the Brokerage account Stock holding will be there and transfer to another brokerage , IF brokerage account goes out of business.

That is my understanding , Correct me If I mention anything wrong.

Thanks

 

[jangpark]

Some says that You can diversify your portfolio using their service. This can also done by you, in today world each and every category has its own low fee ETF.

Why people paying huge fee ? When you have cheap option are available .

This is because inexperienced people still have a bit more trust and confidence in having a "professional" manage the money for them. If you look at the financial securities market, a beginner will be totally overwhelmed by the sheer amount of jargons. Finding your way through that maze is extremely time-consuming. The wealth management advertise their fees quite cleverly so it looks like the fees are only around 1%, which doesn't sound too much for the confidence of having an experienced manager.

I have $15 million , and open account with SAXO bank and buy BOND or Stock index ETF with low fee .

I have a question regarding this one if you don't mind. Does SAXO bank ask for proof of source of funds? How did you prove such a huge amount $15 million?

Why should I go to big name like UBS, DBS , Barclay , BNP Paribas and pays high fee when you get the same result. I do not think that they have some secret investment strategy .

You're correct. Over the long term (10-15 years), very few hedge fund manager beats the S&P 500, if any. But that's a fact wealth managers try to bury by out-advertising. You go to wealth management websites and they will show you a chart indicating their performance during the last 5 years, but they won't show a comparison with S&P 500 during the same period.

IN worst case saxo bank goes out of the business . I can still own by ETF . like when in 2008 Bear Stearns goes out of business , the customer who has stock in their brokerage account are safe and transfer to the JPMorgan.

I wonder what happened to customers with stocks held in Lehman Brothers' brokerage account, do you know?

So why people paying high fees ? Because they are big brand or I am missing something.

Big brands do play a part in it, yes. But mostly because people are inexperienced with stock investing

 

[rowena]

What is your reasoning for that?

Because custodian accounts are different from regular bank accounts. If you deposit money to your bank, the bank can use your money(ex: they use your money as loan to other customers). This is not the case for custodian accounts.

You only use brokers to buy assets not for storing. It means your assets held in a custodian account. Custodian accounts can only be used to safekeeping the assets and they're not assets of the custodian bank. In case of broker firm fail there is no problem because they don't have your assets. In case of custodian bank account fail, it is not a problem again because the assets are not the property of the bank and creditors can't access the bank's custodian assets(by law).

There are still ways to lose money like brokerage fraud but it is very unlikely because they're well regulated and audited especially publicly listed brokerage firms.

 

[Martin Everson]

Why should I go to big name like UBS, DBS , Barclay , BNP Paribas and pays high fee when you get the same result. I do not think that they have some secret investment strategy .

Because they actually provide wealth management services which contains assets protection, inheritance planning, white label fund creation, life insurance wrappers, offshore structures, trusts etc. This on going advice is worth something. You can also get personal access to some of the best fund managers at investment events they organise and also client networking events. You also get preferential access on IPO's etc as many of these banks are the book runners for the IPO. If you have offshore companies they will take these and in fact offer you them as part of wealth planning. Btw I bank with every name you mentioned except DBS.

Their direct investment advice they give in my opinion useless if you know the basics of financial markets and products. But the advice I get on how to structure my wealth and where to book my assets etc for succession planning is invaluable. You do not get this with a broker. You cannot even send your portfolio to a thirdparty with a broker which you can do with a private bank. The fees they charge for all services from brokerage to custody etc are negotiable. You can ignore whatever they write on their website if you have more than $10m to invest.

If bank goes out of business, Your Bond deposit amount will be gone , But in case of the Brokerage account Stock holding will be there and transfer to another brokerage , IF brokerage account goes out of business.

Not true. Custody accounts of any bank within EU are ring fenced from the banks own assets under EU law. Your custody account at a bank is not affected by the bank going out of business in EU. I discussed the details in another thread in detail.

 

[avalanche]

Because they actually provide wealth management services which contains assets protection, inheritance planning, white label fund creation, life insurance wrappers, offshore structures, trusts etc. This on going advice is worth something. You can also get personal access to some of the best fund managers at investment events they organise and also client networking events. You also get preferential access on IPO's etc as many of these banks are the book runners for the IPO. If you have offshore companies they will take these and in fact offer you them as part of wealth planning. Btw I bank with every name you mentioned except DBS.

Their direct investment advice they give in my opinion useless if you know the basics of financial markets and products. But the advice I get on how to structure my wealth and where to book my assets etc for succession planning is invaluable. You do not get this with a broker. You cannot even send your portfolio to a thirdparty with a broker which you can do with a private bank. The fees they charge for all services from brokerage to custody etc are negotiable. You can ignore whatever they write on their website if you have more than $10m to invest.




Not true. Custody accounts of any bank within EU are ring fenced from the banks own assets under EU law. Your custody account at a bank is not affected by the bank going out of business in EU. I discussed the details in another thread in detail.

Can we have a link to this thread?

 

[BlueMist]

I am trying to understand this as well. The super rich people I know seems to don’t mind the fees on either negative EUR rates or investment options. They have €100M+ and won’t bother handling them themselves. They want to sleep well and will always choose UBS and Credit Suisse which will offer them to spread the portfolio across different jurisdictions under one bank.

There are also products not available to self invest, like dimensional funds. I don’t know much about them but I vaguely read they can be even better alternative to low cost ETFs. These are available only to the licensed wealth management firms and require some minimum investment amount.

Also when I spoke to UBS, once you have €5M portfolio with them, they will open accounts for your trading or holding companies where you have no minimum requirements.

 

[Martin Everson]

Can we have a link to this thread?

See my below posts.

https://www.offshorecorptalk.com/th...s-of-crises-covid-19-corona.28440/post-126057
https://www.offshorecorptalk.com/threads/fscs-depositor-compensation-schemes.24550/post-84732

 

[Pembroke]

I wonder what happened to customers with stocks held in Lehman Brothers' brokerage account, do you know?

They did not lose their money but it took a while. With a brokerage account you have no credit risk on the securities who are merely in custody at the broker/bank but you can always have fraud.

 

[Pembroke]

You're correct. Over the long term (10-15 years), very few hedge fund manager beats the S&P 500, if any. But that's a fact wealth managers try to bury by out-advertising. You go to wealth management websites and they will show you a chart indicating their performance during the last 5 years, but they won't show a comparison with S&P 500 during the same period.

This is very true indeed. Not only hedge funds managers, normal asset managers are no better: 99% of funds do not outperform the index net of fees over a long enough period. Also don't forget the practice of asset managers to close/merge the non performing funds to improve the stats.

 

[Golden Fleece]

99% of funds do not outperform the index net of fees over a long enough period.

That is a recent phenomenon, since the 2008 financial crisis. How can experts in stock selection possibly compete against a stock market index when the financial repression of artificially low interest rates pushes up the value of all assets, even the stock of companies that have never made a profit? Even zombie companies now stay in business (e.g., companies that need bailouts, in terms of low-interest loans, to operate -- or an indebted company that is able to repay the interest on its debts but not repay the principal).

 

[Pembroke]

That is a recent phenomenon, since the 2008 financial crisis. How can experts in stock selection possibly compete against a stock market index when the financial repression of artificially low interest rates pushes up the value of all assets, even the stock of companies that have never made a profit? Even zombie companies now stay in business (e.g., companies that need bailouts, in terms of low-interest loans, to operate -- or an indebted company that is able to repay the interest on its debts but not repay the principal).

No it has nothing to do with interest rates but everything with efficient markets. I'm active in 'real estate picking' and the real estate market is inefficient allowing you to find deals below market value but not stocks that are traded every millisecond. Everything is in the price and you're trading against computers anyway. Yes there are exceptions such as Warren Buffett and Fundsmith. But overall stock picking in actively traded shares is a losers game that will give you below market returns (market returns minus management fees and other fees). Mathematically it's the only possibility.

 

[Golden Fleece]

No it has nothing to do with interest rates but everything with efficient markets. I'm active in 'real estate picking' and the real estate market is inefficient allowing you to find deals below market value but not stocks that are traded every millisecond. Everything is in the price and you're trading against computers anyway. Yes there are exceptions such as Warren Buffett and Fundsmith. But overall stock picking in actively traded shares is a losers game that will give you below market returns (market returns minus management fees and other fees). Mathematically it's the only possibility.

Efficient markets do not prop up zombie companies. The Western economic and financial systems are now irreversibly broken. If you want to stay in the stock markets, the only sane way to do so is by properly hedging, either learning to do it yourself or paying someone to do it. That is what a real hedge fund does. That hedging is insurance and insurance costs money, which is why it is difficult to beat the indexes when artificially low interest rates push up the value of all assets.

Many index traders may lose everything at some point, when everyone dumps the same index stocks at the same time. That is why I invested it in my own business with far better returns than the stock market and with far less risk and volatility. This nasty socialist experiment with high debt, artificially low interest rates, and Modern Monetary Theory will end in disaster. Get your wealth out of the Western financial system.

 

[Pembroke]

Efficient markets do not prop up zombie companies. The Western economic and financial systems are now irreversibly broken. If you want to stay in the stock markets, the only sane way to do so is by properly hedging, either learning to do it yourself or paying someone to do it. That is what a real hedge fund does. That hedging is insurance and insurance costs money, which is why it is difficult to beat the indexes when artificially low interest rates push up the value of all assets.

Many index traders may lose everything at some point, when everyone dumps the same index stocks at the same time. That is why I invested it in my own business with far better returns than the stock market and with far less risk and volatility. This nasty socialist experiment with high debt, artificially low interest rates, and Modern Monetary Theory will end in disaster. Get your wealth out of the Western financial system.

You have a certain investment view about about the current state of financial markets which might be right or wrong but that's a different topic. I'm not saying you should go in all stocks at the moment. I actually share your fear about where the zero interest rates and high debt levels will lead to. My own portfolio is very conservative. But the track record of the hedge fund industry is not good at all; none of them beat the index (remember the famous bet by Warren Buffett: Buffett's Bet with the Hedge Funds: And the Winner Is …) due to fees. The 2%/20% fee structure of hedge funds only make hedge fund managers rich and makes it next to impossible to get good returns over a long period. But they might succeed for a while gambling with your money (until there's a short squeeze ;-).

 

[avalanche]

Efficient markets do not prop up zombie companies. The Western economic and financial systems are now irreversibly broken. If you want to stay in the stock markets, the only sane way to do so is by properly hedging, either learning to do it yourself or paying someone to do it. That is what a real hedge fund does. That hedging is insurance and insurance costs money, which is why it is difficult to beat the indexes when artificially low interest rates push up the value of all assets.

Many index traders may lose everything at some point, when everyone dumps the same index stocks at the same time. That is why I invested it in my own business with far better returns than the stock market and with far less risk and volatility. This nasty socialist experiment with high debt, artificially low interest rates, and Modern Monetary Theory will end in disaster. Get your wealth out of the Western financial system.

Do you still have a chance to lose everything if you invest with no leverage? I doubt it.

Especially wondering if having position in something like VWRL safer than pure S&P500 investment.

 

[Golden Fleece]

You have a certain investment view about about the current state of financial markets which might be right or wrong but that's a different topic. I'm not saying you should go in all stocks at the moment. I actually share your fear about where the zero interest rates and high debt levels will lead to. My own portfolio is very conservative. But the track record of the hedge fund industry is not good at all; none of them beat the index (remember the famous bet by Warren Buffett: Buffett's Bet with the Hedge Funds: And the Winner Is …) due to fees. The 2%/20% fee structure of hedge funds only make hedge fund managers rich and makes it next to impossible to get good returns over a long period. But they might succeed for a while gambling with your money (until there's a short squeeze ;-).

I do not necessarily disagree with you. I agree that hedge funds that do not hedge do not serve a purpose (at least not until we return to a true market economy where stock-picking becomes important again). I am saying that there is a place for real traditional hedge funds that actually hedge.

Much of what you say is correct in the theoretical sense, but not in actual practice. Studies show that most people buy high and later sell low during a crisis, which means that it might take them up to a decade or more to break even. For example, it took the NASDAQ 17 years to recover its losses from its 2000 high. Such people would be far better off incurring the cost of hedging, whether by doing it themselves or through a hedge fund. Moreover, studies also show that index investors almost never achieve index returns because of investor psychology reasons. So, even investors who invest in index funds rarely achieve index returns.

 

[Pembroke]

Sure human psychology is always the weak factor. Do you know the study where they went through the client portfolios of a big bank to see who got the best returns? They discovered there was a specific segment of clients that did better than all the others... they seemed to have discovered the holy grail .... what did they do to get such returns... and then they discovered they were clients who had ... passed away and therefore nobody had traded the account for years and did not step in and out of the market I am all in favour of combining non correlated assets if this is what you mean by hedging.

 

[tomboy]

This is one of the most interesting reading I’ve had in this forum. Thank you all