$700k/yr income in WM or leave to try to be a PM & hopefully start investment company in the future?

An opportunity has opened for me to be making approx $700k/yr doing wealth management/financial advising. My ultimate goal is to start an investment company like Berkshire Hathaway, or start a hedge fund. Just something that does pure capital appreciation and not life insurance, annuities, retirement planning, and other random stuff I will have to deal with in WM. I'm almost 30, and $700k is a lot of money. Will my experience in WM help towards my long-term goal? To what extent will the skills transfer? and which skills will I be lacking?

I'm currently an AFA. I took the job to break into finance. My plan was to get experience, do MBA and/or CFA, and then apply for an analyst or associate role, and work my way up in the portfolio management world from there till I am successful and comfortable enough to start my own investment company. But now, this opportunity has given me more to think about. Those offering me the opportunity believe that making about $700k/year starting around age 30 will put me in a good place financially to start an investment company in the future. They also think that I can take the CFA and continue to prep towards starting an investment company as I work in WM. I on the other hand think WM on the scale that I am being offered will take up so much of my time that I might not be as good of an investor as I would be if I was focusing exclusively on investments as a PM without worrying about the auxillary stuff such as life insurance, social security rules, retirement planning, etc. But then again, I just don't want to walk out of an almost million dollar/year opportunity without serious thought. Please help! I need to decide soon. And by soon, ideally before the end of the year. The uncertainty and the weight of this is uncomfortable to carry.

 

Thank you so much for the response and advice. You can see the previous post under my profile for more context. I will be buying one of my bosses' book. The $700k is the approximate income after payments for the book. The book currently earns over a million. & no, no sizeable inheritance that I know of lol. The pursuit is not solely for financial reasons. it is because I think I will enjoy buying securities and other businesses for capital appreciation purposes. The goal will be to keep getting bigger and bigger with no end in sight. To me, it is more single-minded than WM, and I am at my best when I have a single goal to focus on and dedicate all my energy to. In this case, that one goal will be to make my clients as much money as possible, which also works out well for me because I will make a lot of money as well if I am good at it and if I have a decent-sized AUM which will only keep growing, hopefully. I'm an enneagram 8, so my personality type is what I'd imagine as that of a conqueror. I need something very interesting, sports-like competitive that will keep my blood boiling. I think the strive for returns can satisfy this.

Beyond this, the other reason why I love investing is my need for control and power. It would be nice to eventually be at a place in life when I can have board seats on companies and influence certain outcomes. Also, being a person of varied interest, investing gives me the ability to partake in any field I want. For instance, I don't have to be Zuckerberg, I just need to buy a huge chunk of Meta to have a say. I also don't need to start a mining company to be involved in the mining industry, etc. These things and more are why I dream of running a successful investment company. I just think it would make me feel unlimited and actually live life in the way I want. I feel very constrained as is.

Now, in wealth management, I can't really do this. We are bound by suitability rules, so even if you're managing a huge AUM, you have to segment it and manage it per each client's needs and investment risk profile. Yeah, $700k is great living and I am beyond privileged to even have this consideration at this stage in life, but I am afraid that I might not be fulfilled in WM. It seems too tame, and it also seems too scattered. You are essentially a jack of all trades. You do investments (bound by client suitability), you do retirement planning, you're involved in estate planning, you master social security rules, you know much about life insurance, etc. I would be a bit more fine with it as a starter if it was just investments bound by suitability.

That's why this is so hard because the options seem like: (1) settle for a very lucrative position that I might not enjoy as much as what I am aspiring for; or (2) Pass on a great, probably almost once-in-a-lifetime opportunity at this relatively young age, and pursue my dream which is very hard, uncertain, but potentially very fulfilling to me and potentially way more lucrative than WM if done exceedingly well.

Or could there be a way to combine both? Maybe do WM for a while and make some money and learn important WM strategies, and then try to launch an investment company? Some of my WM clients might even double as early investors if they believe in my abilities that well. What do you think?

 
Most Helpful

LOL I'm sorry but someone had to say it, you sound cringe and ridiculous. I don't think you know what you're actually getting yourself into. This just sounds like a teenager's wet dream of what he imagines investing/trading as a career would look like.

Do you think you're not constrained by client mandates as a PM? Do you realize that as a PM, your livelihood depends on these people not pulling their money out when you drawdown? 

Investing/trading is equally as constrained, if not more so (returns, sharpe, drawdown, diversification, etc.). You're looking at this with rose-tinted glasses. Even with Buffett's acumen, you'd be fired several times over with the mandates that people have to keep. Do you think you're better than Warren Buffett?

Scaling a fund to any significant degree is extremely difficult unless you're pedigreed (i.e., have an established track record at a reputable fund already), and the economics don't really make sense unless you can get to $250mm+. 

 

Dude I need to be honest with you, this is ridiculous. Point by point:

- You need something interesting & competitive: Do you have any idea how hard investing is, esp without any real experience? I'm at one of the best AMs in the world and we're still wrong 1 out of 3 times (wrong defined as underperforming the benchmark). We've honed our craft over decades & that's still the upper limit. I've trained for years and am just getting a solid grasp on one sector, never mind all the other sectors. There are virtually no great self-taught investors from the past 3 decades. The closest I've ever heard of is Mohnish Pabrai and that guy started his shop over 2 decades ago when markets were WAY less competitive. You have virtually no shot at replicating that over the next 2-3 decades esp with markets as competitive as they will continue to get as AI shifts the game 

- Need for control and power: Are you serious right now? You really think you can buy a huge chunk of Meta, or for that matter any company that matters at all (>$1bl) and have a say? First of all, you will likely never have enough capital to buy that big a chunk and secondly, we're in the Top 5 shareholders of many, many large companies and even we don't get a say in how they're run. Not really, we offer some advice once in a while and the company takes it if they want or they don't 

 

You can just buy a book from someone? TIL.

Those clients are totally fine with their wealth manager just selling to a new manager who they don't know?

You sound like a  nice guy and the above experienced users have already given their 2 cents and a red pill to swallow. Good luck

 

LOL. Yh, WM can be quite lucrative. Most people I hear of make $250k+. It does take a while for most of them to get there though. I am just very fortunate to be seen as the "right person" in the right place at the right time. It really is a blessing, and I am very grateful for it. I will be an outlier if I take the opportunity.

 

I personally would take the WM gig and see how you like it. After several years you'll have enough invested in your personal accounts that you can basically run your own money/test your investing prowess. I would continue to try and scale the business and you could probably clear $1MM+ a year at some point and you may find that you like the industry. Each client is different so it keeps it interesting. 

 

You'll also definitely be able to pursue your CFA in this job provided you find the time for it. Don't expect the investment side of this job to be any more than being able to discuss broad investment principles - most WM advisors only go as far as advising which pre-built portfolio to invest their client's funds into, with no investment analysis involved. Most clients certainly don't have the patience to discuss complex investment strategies.

 

Are you at a wire house or independent? How much are they charging for the book and how long is the earnout (I’m assuming ~3x t12 production)? Honestly if it’s a quality book then this is a massive opportunity and at some point it does come down to money. Going the investment management route is a long road and doesn’t guarantee you’ll ever make $700k a year. Yes some make billions but that clearly isn’t the norm. 
 

the way I see it, you have a chance to grow into $1-2mm a year job where you’ll have a great life, don’t need to live in a HCOL city, and will have time for family when the time comes. There’s a lot of people in high finance who dream of this type of opportunity. The grass isn’t always greener. 

 

Thank you very much for the response! I work at an independent firm. As of now, they have asked if I will be interested & I am yet to give them a response, so we have not gone into the deep details. However from having access to all accounts including my two bosses', and from what they have told me, they both make over a million each. The $700k will be the approximate yearly income after payments for the book. I expect that the book will around 4 mill at least. It is a quality book. Around $250M AUM.

What's also great is that he will stay on for the gradual transition over approx. 3 years, so he will pass on the goodwill he has built with the clients over many years. From all you all have advised, I am pretty sure I will take the offer. I can give you more details as they unfold if you're interested in knowing more.

 

You expect the $250 million AUM book to generate $4 million in fees? I was under the impression most advisors operated under a fee on assets model which started at 1% (if you’re lucky) and went lower for larger accounts. Assuming 1% on $250 million in advisory fees, what other work generates $1.5 million in fees? Do clients have to pay for additional services like tax? Either way, inheriting a stable PWM book is an amazing opportunity. I know everyone here shits on retail but the older I get the more I would love an opportunity like this.

 

going rate is 3x trailing 12 month production if the book is a 100% advisory/discretionary type of accounts, basically where the clients are getting charged fees for advice and not brokerage fees. If a book is 100% brokerage business then the valuation is roughly 1X trailing 12 month production. With different account types then you just do ratios and math to see what it should be worth. 

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!
 

$700k/year? Take that WM position. That’s like unheard of at the age of 30. And if you grow the book…and you work another 20 or so years, you could be making way more than that. Then, guess what? You sell the book when you retire. It’s basically your business. Build in an investment strategy into the book for some portfolios and manage the assets. You’re still going to be a PM, just at the retail level. 
 

 

Thank you all for the opinions and advice. This is exactly what I needed. I appreciate all the responses and will almost certainly act accordingly. What you all have stated is where I was kinda leaning. I was also just trying to make sure that I was making the best decision for my long-term goal as well. I appreciate you all once again. This has been enlightening.

 

As someone who works in WM - I clearly have a biased perspective here. So, take my words with a grain of salt but give this some serious thought:

1. I am reasonably confident you are at least a few years away from even starting out as a professional investor. There is nothing wrong with that. Beating the market on a regular basis is too damn difficult. From the looks of it, I see that you have romanticized the idea of running an investment management business or a search fund of sorts. Again - nothing wrong with that. But - you have to take inventory of the reality at hand (what a marvelous way to say reality check!)

Anywho. If you did not go to the right schools, did not work at the right firms, do not have an exceptional investment record with real money, and have not identified your edge as an investor (behavioral, analytical, structural, or information) - you will have a tough time making 25% of that 700k cheque you have the opportunity to see now. Why - because it is tough to find an Analyst gig in HF/PE. It's at least a dozen times more difficult to launch a platform if you are an "outsider."

2. Taking the hybrid route: Anyone who says take the 700k generating book and work on your "personal investments" on the side does not understand how this works. When a new kid inherits a book, she is exposed to dealing with retention issues.

Think about it - 250mm in AUM would mean 150-250 households. These households have worked with a trusted advisor for a long time and have been paying her a hefty fee for all these years. Now that advisor is going away. And this new kid is taking over.

Unless you are exceptional at what you do with them - they will need time to trust you with their money and financial problems. And that time, my friend, would be a test of how well can you retain clients and save them from jumping ship. 

Even if you have made a conservative estimate of payouts and attrition, you will not know the real number till you have met each household at least a few times.

So - if you are thinking that you will get access to that 700k just like that - think again and think hard. 

The Solution

This is not even a real problem. Charlie Munger started as a lawyer, then became a real estate investor, and then got to Berkshire Hathaway. Many other investors started in similar but different trades and much later switched to full-time investing. I can think of Mohnish Pabrai as another investor who joined the game much later. The good part of investing with your own money is - if you are confident in your process, you can do whatever you want. And if that works out, you can use it as a proof of concept to raise funds and actually have an investment management business.

The insurance, retirement, estate, and tax pieces that you are not a big fan of - perceive them as the use-cases for money. You are still managing investments and cash in some way - except, you are doing it with specific products that solve specific problems. Same mindset, different game. They can sound dry at first. But, if you give it enough time and effort - you will get a hang of it. Once you cross that technical barrier, all you have to do is maintain relationships with your clients and you will soon see that 700k cheque coming in. 

In my most candid and empathetic opinion - if this is not a troll post - buy that book and learn the business. A few years from now, if and when you get good at running it, it would be much easier to transition to managing just investments - if that is something you still want to do then.

As always - feel free to discard everything written here. 

 

Thank you very much for this thoughtful and eloquent contribution! It is great to hear from an insider. "The solution" part is very encouraging. I don't expect retention to be much of a problem because I already know some of the clients, and the transition will occur gradually over the next three years over which I will get to know the clients even better and my boss will pass on his goodwill because he really wants me to be the one to take over. He will essentially sell me to them & hopefully I can back up his vote of confidence by knowing my stuff and being a good WM. While there might still be some attrition, the typical book sale contracts have attrition protection that devalues the book and reduces how much you pay to the owner if a certain amount of clients leave within a specified period of time. So if my income reduces due to client attrition within that period, then my cost will reduce as well, so it will kinda even out.

For those parts that I am not interested in (insurance, estate, etc), I will take your advice and try to see them in the context you have given. They are actually not so bad when you are dealing with them in moment, except taxes - taxes suck always lol. I just never wake up hoping to solve someone's estate issues and explain social security rules. But I guess no one likes every part of their job. Thanks again!

 

Don't take this the wrong way, but your post is filled with questions and statements that reflect a lack of knowledge of how the industry works. More importantly, some of these things are things you can learn on your own relatively easily through some digging, which is another red flag to me (people in this biz know how to do research) that you are not cut out to run an investment business focused on "capital appreciation" as you like to call it. (realistically, you are talking about managing an absolute return focused investment pool, which typically gets structured as a hedge fund. Maybe you can open an RIA to do the same and find some clients willing to let you run money on an SMA basis like this... I doubt it though). 

The people who succeed today (please ignore the cases of boomers who started decades ago...) are ones who have honed their chops when it comes to investing. You don't seem like a quant or a global macro guy, nor credit, distressed, etc.... so I will assume fundamental equities. To be successful here, it requires an obsession with the markets and stocks, and a thorough understanding of corporate finance and valuation. It really doesn't seem like you are that person - maybe I am wrong, but it sounds like your experience is primarily on WM duties and less on actual analysis of companies. This is the reason why many people start out in investment banking (thorough understanding of corporate finance and valuation), and then move to HFs. To hone your chops, you need to work somewhere....anywhere that really focuses on real investment analysis, and not just pitching life insurance and throwing some mutual funds in an allocation. 

The investment business has been massively institutionalized in the last 2 decades, and because of a lot of different reasons (Yale endowment model is a big one), most managers win allocations for very specific reasons. To win an allocation from investors, you need to be providing a very specific service - remember this is a business and like all businesses it is competitive and you need to look at what you can offer vs. the rest of the market. Your service usually needs to fulfill a specific mandate and investors like to see a track record of success here. There are tons and tons of super successful and highly pedigreed portfolio managers from multi manager HFs and senior analysts from Tiger Cubs who have tried to launch an "investment business" and ultimately failed. These are people with decades of experience and track records of success, pitching a very specific service, yet still failed to find traction to live off their fees (or couldn't put up performance numbers, or couldn't raise more, etc.). 

You remind me of myself in highschool when I found out some HF managers made +$100mn in a year. Yea, it sounds cool, but there is a lot more to it than just opening up shop. If you told me: "hey I have an opportunity to run a WM biz for 700k a year, but I also am a super passionate investor, run my own PA and have been compounding at xx% a year, with a sharpe of xx" .... well I probably would've given you the same response, but I also would've believed that you are somewhat on the track to starting an investment business because you actual know a thing or two about investing and have a real passion for it beyond "controlling things?".

For the moment, it honestly sounds like you just think it will be cool to run one, which is fine, but you really need to evaluate what 1) your strengths and abilities are 2) what your passion is 3) how the investment industry really works today. Then you will discover that if you want to do investing, you will probably need to go to business school or just send a million stock pitches to small hedge funds and then work your way up and then still... the probability of success is very low. Cheers
 

 

I run a very successful WM practice and have been an advisor for about 17 years. Here is my input:

1) You are quoting a yearly income but I didn't see anything on the business model or client type. This is absolutely critical because a book of business with 50 UHNW clients is night and day different than a book with 1200 affluent clients. Private client business is night and day different than corporate or institutional clients. Your service model, your support staff, your core competencies need to match the book of business. If not, you will lose most of your clients.

2) How will the transition of the business work? How are you paying for it? No FA in their right mind would transfer a multi million dollar producing practice to someone without years of experience unless they receive full payment on the front end.

3) Do you understand the wealth management model? If you don't advise on other areas you mentioned (insurance, etc.), your clients will go to someone who will.

The advisory business has been good to me and it is a great business. That said, it is a demanding business and the garbage you read about making millions while working 20 hours a week is total BS. You can make decent money with less effort once established but any million dollar plus producing practice requires a lot of attention. If you don't provide top quality service and advice your clients will seek someone like me who can.

Regarding the investment fund model....sounds good and is highly scalable. The problem is that you need to raise capital which will be almost impossible without a track record. What is your strategy? What is your competitive advantage? Is your process repeatable? Can you provide true alpha or are you just repackaging risk? Why would someone like myself ever think about sending over my client's money? Huge money to be made if you are successful but the likelihood of success is very low.

My advice- do the WM gig and learn everything you can about investing. Get your CFA charter,  run discretionary money and scale the business. If you decide later you want to do the fund thing simply sell the WM practice for a higher multiple and go for it. That said, take the opportunity in front of you now.

 

Yep agree. This is the right take.

I am also a financial advisor, in my early 30s, and in the process of buying out two partners (7 figure/yr book of business) and am well adjusted to the stress of client retention, post buyout.

I understand where OP is coming from and as someone who also wishes they only focused on investing all day… and I also ponder what it would be like to start a hedge fund or permanent capital vehicle all the time.

That said, you can scratch the itch with your own custom discretionary portfolios for clients. If you’re so great that you deserve to have a fund or separate investment vehicle, you can pivot down the line and some of those clients you retained may end up being initial seed capital.

Most likely you’ll end up scratching the itch and just work on growing the WM business as it’s a great lifestyle and return in time.

 

Yep agree. This is the right take.

I am also a financial advisor, in my early 30s, and in the process of buying out two partners (7 figure/yr book of business) and am well adjusted to the stress of client retention, post buyout.

I understand where OP is coming from and as someone who also wishes they only focused on investing all day… and I also ponder what it would be like to start a hedge fund or permanent capital vehicle all the time.

That said, you can scratch the itch with your own custom discretionary portfolios for clients. If you’re so great that you deserve to have a fund or separate investment vehicle, you can pivot down the line and some of those clients you retained may end up being initial seed capital.

Most likely you’ll end up scratching the itch and just work on growing the WM business as it’s a great lifestyle and return in time.

 

Yep agree. This is the right take.

I am also a financial advisor, in my early 30s, and in the process of buying out two partners (7 figure/yr book of business) and am well adjusted to the stress of client retention, post buyout.

I understand where OP is coming from and as someone who also wishes they only focused on investing all day… and I also ponder what it would be like to start a hedge fund or permanent capital vehicle all the time.

That said, you can scratch the itch with your own custom discretionary portfolios for clients. If you’re so great that you deserve to have a fund or separate investment vehicle, you can pivot down the line and some of those clients you retained may end up being initial seed capital.

Most likely you’ll end up scratching the itch and just work on growing the WM business as it’s a great lifestyle and return in time.

 

Hi 413dude,

The skillset and experience in Wealth Management is very different than those in the Asset Management industry, which often requires you to have in-depth security selection, portfolio construction, and investment/markets knowdlege. Wealth Management and financial advising is more of a sales job that requires more high-level financial and investment knowledge. Financial advisors only advise on people's wealth and sell them investment products. The actual investment decisions are outsourced to portfolio managers and hedge fund managers. If AM is the field you would want to get into, then you are better off starting earlier, as WM and AM are two very different career paths. Getting your CFA would be a good bet and learning to invest in your own personal portfolio is a great way to immerse yourself in the markets. Vast majority of investment roles in the AM industry are going to test your market and real investment knowledge during the interviews and being able to show them your investing knowledge through real-world experiences is going to help you pass those interviews. The CFA will only help get your foot in the door.

If you need any additional help or advice, just reach out.

Hopefully, this helps!

Your fellow monkey

 

In short I just don’t work for others easy livings like a enslaved social worker.

I used to be empathetic with sympathy a lot until I see many tend to make ESG as their rights… without any attempt to lifting their competitiveness.

If anyone is appreciative to allocate fundings for me because of “any accessibility issues to communicate directly”, I appreciate that.

This is different for the event when someone was doing the same without any accessibility to reach out to me, the intention is different and I just acknowledge it.

Anyway I am just confused about all sort of protocols , perhaps I am just not fit enough to be be independent.

Anyway, I still follow my way, to keep money away from personal relationship, friend and family at all costs. Focus personal works for earnings.

Career professional identity: drive $

Personal social identity: drive unconditional love and care

I don’t ask for your personal life a lot at work, and I don’t simply ask for your works in personal life.

If I like grandpa or any seniors, I shall create the environment where the freedom for genuine engagement without worrying any money that may stress you out. Because this is how to treat seniors or grandpa people as a relationship.

Can you imagine we did vote a 91 y/o grandpa to be our prime minister before at here? I did not vote simply because the way we like them are in different way…

Hope it makes clear with this message…

 

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