Life expectancy in the 1700s was shockingly short compared to today. Even more extraordinary was the fact that it was lower on average amongst sections of the British Peerage.
Those who were the wealthiest often lived the shortest lives.
Rich diets might have contributed, the diet of your average 1700s peasant was no fun, but it was healthier that the diet of the wealthy. The rich ate too much meat, too little vegetables and drunk too much wine.
The other factor at play though was the quackery that they could afford to buy. It made them much more likely to get poisoned.
At the time medicine was a developing science, to put it mildly, and only the rich could afford these ‘doctors’. It hadn’t been that many years since William Butler the physician to King James I was practicing. He had once revived a clergyman, who had taken an overdose of opium while writing a sermon, by slaughtering a cow and placing the vicar inside the carcass.
In short, if you were poor, you lived a simpler life and were safe.
The same is true in advice and investing.
We once had a prospective client reject our approach because it was too simple for his level of wealth. A large investment bank had bedazzled him with the ‘science’ of complex investments, including a lot of structured investments in his portfolio.
As a side note, the definition of a structured investment is:
‘An investment so complex that the issuing bank only understands their profit to be made and not your profit or risk.’
In fact I was recently speaking to the Head of Product at a large adviser firm who was including more and more of these opaque investments in client portfolios because ‘we can disclose a lower total cost’.
Of course, our approach of investing this individual’s money in global equities and bonds with the broadest possible spread and the lowest possible cost would have made him more money, but he will never know that.
The same goes for advisers, wealth managers and bankers who overcomplicate the tax structuring or spread your portfolio over 26 different funds (including tiny investments in obscure commodity funds).
Complexity sells because it looks clever and people are willing to pay more for it.
Unlike some sectors, financial advice and investment management both provide the best result when the simplest and least costly options are deployed.
This might mean that in the future clients with smaller portfolios, managed at low cost by simple algorithms make more money than the rich clients. That will truly be the democratisation of finance.
Be careful that paying more for a more complex service isn’t just reducing your own returns.
Cost and complexity in managing money can be the poison of the quack.
If you want an honest review of your existing wealth manager’s portfolio, send it to us for a look at our office in Hook, Hampshire.