Finding a money manager or hedge fund isn't as easy as it once was, it appears--even for ultra-wealthy investors. These days, most "ultra-wealthy" families, 53%, according to a survey by the Institute for Private Investors (IPI), hire a consultant or advisor to help them find a new manager, up from 27% in 2007.
In fact, finding a "trusted advisor," for a wealthy family is getting more and more complex, says Charlotte Beyer, founder and CEO of the IPI, which provides education and a collaborative forum for wealthy families. After the past two-plus years of market and economic crisis, the exposure of bad behavior on the part of some institutions, the proliferation of investments such as auction rate securities that left many investors without liquidity at the very least, and the Madoff and other scandals, investors realize that they need advisors they can trust, and they are, it seems, willing to pay someone to help find them. These consultants can take a family through the process of writing their request for proposal and interviewing and vetting prospective advisors.
Finding that "trusted advisor--that's getting very complex," notes Beyer. Families used to find their "trusted advisors" through friends or other referrals. "I'm not sure it's always going to end well," Beyer adds.
Who regulates these consultants? How does a wealthy family know that consultant they are hiring to find their "trusted advisor" doesn't have conflicts of their own? Surely there are good, great and not-so-great consultants in this area, but the analogy is pretty simple--as in retail investing--how does a retail investor find a great investment advisor or broker? Is it better to go to a branded firm, independent, bank or insurer? The goal is to find the great "trusted advisor" to be the advocate for a family with hundreds of millions of dollars in assets. That's a great and valuable find for a family--as well as for the advisor--and may be very well worth paying for. But who vets the consultant?
Allocating assets is getting more complex as well. In the IPI survey, half of the ultra-wealthy investors who participated intend to boost allocations to global equity holdings and commodities; 20% of participants are investing half or more of their holdings "outside of their domestic market." In the 2007 survey, only 12% reported that extent of diversification.
Comments? Please send them to firstname.lastname@example.org. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.