Are You A “Leftover” Investor?
By Jeffrey Strain, April 3rd, 2006 | 6 Comments »
For a lot of pfbloggers and those that read us, the goal seems to be $1 million in net worth (or net worth minus housing). For those trying to attain this goal, you might think that wall street investment companies would be interested in helping you invest. According to Market Watch and a new study by Cerulli Associates, what they will actually consider you is “leftovers.” It seems that $1 million doesn’t buy much respect on Wall Street these days and anyone with “more than $500,000 but less than $2.5 million” to invest gets the “leftover” tag. To get quality treatment on Wall Street, you need to have eight figures to invest:
High-net-worth individuals with eight figures or more in their bank account often receive “family-office-like” treatment, where they get estate planning, trusts services and preferred investor status. These are the kind of investors who were made privy to shares of hot Internet IPOs of the 1990s.
Meanwhile, the rest of us suffice with “commoditized service” as Cerulli puts it. That’s a nice way of saying “off-the shelf.”
The average net worth of a U.S. household is $55,000, according to the U.S. Census Bureau. This is the terrain of discount brokers like Charles Schwab & Co.
It would seem to me that a Wall Street company that would cater to these “leftovers” could do pretty well considering that they represent 10% of total households in the US, even if it were a scaled down version of the eight figure customers. There are always opportunities when segments of the population are being under-served and it will be interesting to see if Wall Street catches on or if it’s a newcomer that taps the potential profits of these investors
This is why if your worth is not above the leftover tag you should invest directly with DRIPs, IRAs, or into 401(k)s and cut out the middle man. The more I read on investing the more I believe I am better off doing it myself so having Wall Street companies ignore me is just fine.
How right you are!
I was talking to a financial advisor at JPMorgan Chase about bringing in a substantial amount of money, and he directed me to a “managed mutual fund” program they developed. Essentially, Chase’s MMF program is supermarket approach where they recommend a basket of funds based on your risk profile. All are actively managed funds. Some have waived sales charges if bought through the MMF program. In exchange, Chase charges as much as a 1.5% management fee. Truly ridiculous program.
I’m firmly in the “leftover” camp on the high end.
I’ve got accounts with Schwab. I’ve been a client for more than twenty years.
I’ve also had accounts with Merrill Lynch. What to say? Want to feel like “sheep?” (As in led to the slaughter.) Or like “Prey” instead of like a “client?”
I recommend Schwab to anyone who asks.