Research shows fund managers from poorer backgrounds outperformed those from richer backgrounds.

Here’s the question you need to ask yourself.  When you invest your money with private banks, investment or fund managers, stockbrokers, IFAs, wealth manager’s….what do you expect?

What do you want to achieve?  Do you want them to make as much money for you as possible within your risk appetite? Alternatively, do you just want them to be nice to you? Be polite? Do you want them to be posh with an old-fashioned public school accent?

Here is some research to think about.  Does family background influence success?

According to the Financial Times, A 2016 study found that family background has an influence on a fund manager’s success. The paper, co-written by Oleg Chuprinin, found that fund managers from poorer backgrounds outperformed those from richer backgrounds.  Of the mutual fund managers examined, those from the bottom fifth of households in terms of wealth outperformed managers from the top fifth by more than 1 per cent a year.  Mr Chuprinin says it is harder for people from less affluent backgrounds to break into the industry.

“They face much higher barriers — only the most skilled and determined get the job. The psychology [behind their success] is that of motivation,” he says. “They have to be motivated and demonstrate tangible skills to get over the barriers [to entry]. They have to excel at every stage.”

The study did not find a big difference in attitude to risk between richer and poorer fund managers. Instead, those from less affluent backgrounds were better at picking stocks at the right time.  Here’s the study to know more.

You may say, what’s 1%? That’s nothing. Think again.

If the 1% was the metric of outperformance, then 1% over time is massive. If you invest £100,000 over 30 years, and you benefit from 6% rather than 5% each year, after 30 years you have £142,000 more money.  You maybe prepared to sacrifice £142,000 by dealing with someone from a richer background.

What if you invested £1m? Then you would be better off by £1.42m.  Perhaps even £1.42 would pay your inheritance tax leaving your family with significantly more assets?

Small margins do make massive differences over time. So as an investor, how do you select the people you delegate your money to?  What do you look for? What analysis have you carried out? Did you make the decision without proper thought? And be honest with yourself. It’s your money. It’s your future. It’s your family’s future.

Unfortunately, many investors make their decisions based on marketing as its hard to get to the facts, even when they believe the marketing does not influence their decision which sadly, often leads to poor investment outcomes.

By starting to ask more questions about how you delegate your money to others, you increase the chances of better investment outcomes.  Want to know what questions to ask and what answers you should expect, talk to The Wealth Coach. One final tip, rather than looking for ways to confirm you’ve made the right decision, (its called “confirmation bias”) try to be contrarian and look for reasons why you are wrong.