I am fortunate to know a lot of smart people. Many of these smart people are successful, and make decent money. Many of those have significant positive net worth. But a surprising amount of them – I would guess over half – don’t choose to invest in publicly quoted equities. They are investing novices, and proud to admit it. This blog post is for them, and their friends/family.
Imagine you are under 50, and have £1k to add to your savings. I don’t mean in your pension, which I think most people handle differently to savings. I mean ‘put aside’ but retrievable on a rainy day / for a house deposit / for school fees / similar.
Where would you put your next 1k of savings? Or more to the point, £10k of savings? Or £50k of savings?
I caught up with a very successful friend of mine this week. She sold a big chunk in her business a year ago, clearing >£10m of cash. She has been meaning to decide what to do with the funds but has been too busy / fearful / etc to decide. So the money has been sitting in cash in her bank account. But she told me today that she’d decided to go with a Swiss Bank and use them to open an offshore bond, putting £5m into it.
I sighed, rolled my eyes, and generally acted in a not-very-empathetic manner. Then I asked her to consider taking £1m of her £5m, doing a simple Do-It-Yourself approach instead, and comparing the difference over a few years. She asked me to drop her an email with some details. So today I sent her an email, which I reproduce below. Please note that this is not financial advice, just encouragement.
Any comments/improvements would be very welcome. For reference, Jane lives and works in the UK, has several kids, and has a husband who works in the public sector. Jane has a net worth of at least £20m.
As promised here is what I would encourage (note – not advise) you to consider as you deploy your funds.
This post is a follow-up to my September post – how private bankers injure your wealth.
I recounted how I was rather horrified/shame-faced to analyse the fees I’ve been paying one of my private banks for far too long. When you considered the double layer of fees due to my ‘fund of funds’, I was paying around 2.05% for a discretionary portfolio. And the performance didn’t in any way justify this level of fees.
I had some very useful comments about my predicament. The gist was that I should try to negotiate. Perhaps I could even offer to introduce some
total suckers very daft friends to the service. The commenters included people, like me, who do value the service from a private bank and who empathised with my intention to keep the relationship live – albeit at a lower cost base than before.
So, what happened next?
I confronted my bank with my analysis. I suspect they were thinking ‘what took him so long?’ because they were ready for me. And, no, they haven’t fired me yet – unlike the other private bank in my portfolio.
It turns out they are all too happy to stop managing discretionary portfolios manually, and they have an alternative approach. Read the rest of this entry »