Does Your Financial Advisor Think You’re Clueless?

Wealthfront’s CEO Andy Rachleff published a column last week on Forbes.com about how this generation of IPO wealth may help transform the business of money management. It offers a sharp contrast to the attitude that many Wall Street brokers take toward their clients, which was obvious in an article that ran last week in the New York Times (more on that below).

In Hey, Silicon Valley Engineers, Time To Toss Out The Bankers, Andy wrote:

This era’s IPO wealth is being created by young, Web-savvy engineers who have a deep-set aversion to traditional, expensive ways of doing things. They also have a deep understanding of how to use the Web to manage all aspects their lives (and possibly yours – but that’s a side point).

These talented and creative Web engineers gave the word “like” another meaning. They made it possible to get unbiased Man-Blowing-Arrowsreviews on just about anything, and to get tonight’s dinner at a discount.  They have helped revolutionize dating, dining, traveling and shopping, by recognizing what Leonardo da Vinci said – that simplicity is the ultimate sophistication. Their interfaces overlay software that radically lowers prices because it replaces human interaction.

It’s unlikely the new millionaires will be satisfied with the traditional model of wealth management, which is layered with fees and rotten with conflicts of interest.

Andy predicted that Silicon Valley engineers will demand new and better ways of managing money. His views are in sharp contrast to those of many who work for Wall Street firms.

Also last week, The New York Times covered the influx of Wall Street firms into Silicon Valley in the wake of last year’s IPOs and in anticipation of this year’s IPOs. The firms are expanding their offices here, sending employees known as wealth managers on the hunt for new clients.

One of their sales tactics – along with the traditional tickets to ball games and trips to Disney World – are sales pitches that condition tech workers to believe that investment decisions are beyond their abilities.

Here’s what Evelyn Rusli and Ben Protess wrote in In Silicon Valley, the Ripe Scent of New Money.

  • For all their knowledge, the technology executives, many of whom are fresh out of college, are relatively clueless when it comes to estate planning.
  • “Betting the ranch on building a widget for the Facebook platform is very different than managing a long-term nest egg,” said Jay Backstrand, a vice president at JPMorgan Chase’s private bank.
  • Wall Street is more than happy to help — for a fee. Banks charge roughly 1 percent for overseeing a wealthy investor’s portfolio. Though that may not sound like a lot, it adds up when billions of dollars are involved.
  • Financial firms are salivating over the wealth being created.

If you are one of those tech workers being targeted, remember to ask for specifics about how the wealth managers are compensated. Here are a few of our posts that shed light on the way wealth is managed by some Wall Street firms:


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