Is Wealth Holding Back Your Portfolio Manager?

A key goal of the investment management industry is maintaining the ability to pass on wealth from one generation to the next. While that may be the job of a portfolio manager, new research suggests getting a head start in life from a wealthy family may actually be hurting the portfolio manager professionally. A study done by University of Michigan finance professor Deni Sosyura found that portfolio managers coming from families in the bottom quintile of income, gain more than 3% a year in superior returns over those whose families were in the top quintile. In a slow growth era with low interest rates, that is a significant difference.

But why is that? The research posits a few explanations. For example, when financial planning, advisors that had a more difficult upbringing are more likely to be able to see the whole picture of the issues affecting clients (including those little expenses that can get overlooked). If you grew up with less resources than your peers, you’re more likely to look for any edge to help you get ahead, as opposed to becoming comfortable and complacent with what you have. Lastly, and we here at Trivest might emphasize this most, the importance of perspective. When you’ve had to deal with hardships growing up, your much better able to deal with the inevitable ups and downs of the markets.

Of course, this doesn’t mean that financial advisors with fortunate upbringings cannot be successful (far from it). But it is still very interesting none the less. Next time you have a chat with your advisor, make sure to ask them, “what did your parents do?”

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