May 13, 2025

Wealth Matters: An Investment Firm, Evercore, Offers Clients Honest Returns

Sure, the 12 percent returns of Bernard L. Madoff proved ephemeral and the financial crisis lowered investors’ expectations. But 3 percent? Maybe less? That certainly seems to be a meager return, particularly given the stock market’s fast start this year.

Yet this was the pitch I heard when I met Jeff Maurer, chief executive of Evercore Wealth Management, and John Apruzzese, Evercore’s chief investment officer. They formed the firm four years ago with several former executives from U.S. Trust. I joked with them that offering such measly returns did not seem to be a good way to win new business.

“We don’t win every client we pitch,” Mr. Apruzzese said.

It turns out, though, that these low returns do not come from poorly performing investments. The firm is simply being honest. That 3 percent return includes projections on performance of many types of investments but also assumptions on tax rates, inflation and fees — both theirs and those of the outside managers they use.

“One of our key principles was transparency on fees, which has hurt us,” Mr. Maurer said. “Another was how we talked about what could happen in a downturn, which has also hurt us.”

Mr. Maurer said his firm preferred to say that there was a chance your portfolio could go down 25 percent, instead of trying to attach a probability to its happening. Saying there was a 1 percent chance, he said, was misleading because the chance of a market collapse like the one in 2008 was small. But it happened nonetheless.

Fees, of course, are a constant source of friction in investing. If you are the type of person who believes it is impossible to get better than the market rate of return, then you probably believe that the lowest-fee index fund or exchange-traded fund is the way to go. On the other hand, if you are the type of person who believes that managers can get returns higher than the market average, you may be willing to pay higher fees, calculating that the net return will be better or at least the swings in the investments’ value will be less volatile.

What piqued my interest was that Mr. Maurer and Mr. Apruzzese made a point of disclosing all the charges, even the ones investors would not see. With that knowledge, investors could understand what those fees were doing to their portfolios’ returns.

So I asked to come back and play a prospective client to see how they revealed the fees. For the record, I was not assessing the quality of their advice or their offerings but how they presented likely returns, warts and all.

Evercore manages $4.7 billion and has an average account size of $10 million, so the firm serves a rarefied niche. Most of its clients also have the bulk of their wealth in taxable accounts and not in tax-deferred retirement accounts, where the money is taxed only when it is taken out.

But regardless of their wealth, all investors would benefit from asking their advisers to subtract not just their management fees, as most already do, but the fees in the investments themselves. Investors would also benefit if their advisers factored in inflation and any probable taxes. At the very least, this would give a sense of the real return and help investors be more realistic in their planning.

For the purpose of the meeting, Mr. Maurer and Mr. Apruzzese created a fictional me who resembled a typical 40-year-old client of theirs. The fictional me began his career at a top-tier consulting firm and is now an executive at a financial firm. He earns $500,000 a year with a $500,000 bonus. He has company stock worth $1.5 million with a lot of embedded capital gains and he inherited $4 million in 2010. He has a $500,000 mortgage on a $2 million house. His goal is to retire at age 60.

Mr. Maurer said this typical client would probably arrive with over half of his $10 million portfolio in cash and municipal bonds and another 20 percent in retirement accounts. Only about 10 percent would be invested in equities other than the company stock.

Mr. Apruzzese walked me through the six baskets the firm uses for thinking about how money is invested: cash, defensive assets (municipal and taxable bonds), credit strategies (high-yield bonds, mortgage-backed securities), diversified market strategies (commodities, foreign bonds, liquid alternative investments), growth assets (stocks) and illiquid alternatives (private equity, venture capital).

This was a fairly standard approach. Advisers generally aim to divide up a portfolio in ways that investors can understand, regardless of their level of financial sophistication. Another popular way is to put money into fictional buckets for specific needs, like current expenses or charity.

For me, the firm presented three investment options — capital preservation, balanced and capital appreciation, which could be translated as conservative, moderate and aggressive portfolios. Mixing the six baskets together for each objective generated pretax, after-fee returns of 6.1 percent, 7 percent and 8.2 percent a year, with maximum losses of 15 percent, 25 percent and 35 percent, respectively. The projections were for the next decade.

I selected the balanced portfolio, and Mr. Apruzzese showed me how taxes reduced the solid 7 percent return to 5 percent, by factoring in long- and short-term capital gains at the highest federal rates. Inflation of 2 percent knocked it down to 3 percent. (The capital preservation portfolio fell to 2.3 percent, while the capital appreciation portfolio ended up at 3.9 percent.)

Article source: http://www.nytimes.com/2013/05/18/your-money/an-investment-firm-evercore-offers-clients-honest-returns.html?partner=rss&emc=rss