More about wealth managers

Further to my previous post about wealth managers and why they’ve never called me, here’s an interesting NY Times article about the business practices of the wealth management team at JP Morgan Chase.

It’s a pretty interesting piece and I would recommend giving it a read, but, if you’re busy, here’s the money quote:

“These [former JPMorgan] financial advisers say they were encouraged, at times, to favor JPMorgan’s own products even when competitors had better-performing or cheaper options. With one crucial offering, the bank exaggerated the returns of what it was selling in marketing materials, according to JPMorgan documents reviewed by The New York Times.

The benefit to JPMorgan is clear. The more money investors plow into the bank’s funds, the more fees it collects for managing them.”

Now, I should point out that not all wealth managers behave like this. Many independent advisors take a fee (like 1% of assets under management) that notionally makes them agnostic about what products they put their clients into. But, that said, it would surprise me if that fee included assets put into real estate.

So, wealthy people have a situation where the people they pay to advise them are either directly incentivized to sell them bad products or at least not incentivized to sell them real estate, even if real estate would represent the best allocation of their assets. It’s kind of ironic that the people in the best position to pay for good financial advice are, in some ways, the people with the highest barriers to receiving good advice.