Questions to Ask a Wealth Manager: David Swensen's Test

The questions worth asking a wealth manager come down to three: how the manager is paid and by whom, what a particular household can actually reach through them that it could not reach alone, and what evidence would prove their advice wrong. An advisor who answers all three plainly has earned a second meeting. One who answers none of them is selling rather than advising.

Those three tests come from an unlikely source. David Swensen ran Yale's endowment for more than three decades,² from 1985 until his death in 2021,¹ and did more than anyone to turn the hiring of outside investment managers into a discipline — his Pioneering Portfolio Management¹ is still the text institutions learn it from. Then he wrote a second book, Unconventional Success⁴, aimed at individual investors, and told most of them not to attempt it. Not because picking managers is impossible, but because doing it well requires access to the best of them, the leverage to negotiate terms, and the time to investigate people rather than pitch decks. Most households have none of the three. His counsel to them was to keep costs low, own broad markets, and be wary of anyone whose income depends on persuading them otherwise.

Founders who have just exited sit in the gap between those two books: courted like Yale, rarely staffed like Yale. The questions below translate Swensen's method for that seat.

How exactly are you paid — and what would you earn if we did nothing for a year?

A good answer is a number and a mechanism, offered without a pause: a percentage of assets, a flat retainer, an hourly rate, or a stated combination, plus a plain account of anything the firm receives from fund companies or for placing a product. The follow-up is the real test. If the household simply held cash for twelve months, an honest fiduciary — someone under a legal obligation to put the client's interest first — can say "roughly the same" or "less, and here is why."

A weak answer talks about value rather than price, calls a fee "competitive" without naming it, or requires a second document to decode.

Swensen argued throughout his career that how a manager is paid predicts behaviour better than any stated philosophy. A firm paid to gather assets will gather assets; a firm paid to transact will transact. Owners who spent years buying from vendors already know to ask how the other side makes money.

What funds and what terms does a household of this size actually get?

A good answer is concrete about this capital, not about the firm's largest relationships. It names which funds are open and which are closed, which fee schedule applies at this size, where the family sits in the queue, and what tax and entity coordination the firm handles that a single household cannot do well alone. It can also say, without embarrassment, what is not on offer.

A weak answer is "institutional access" or "our platform," or the names of famous endowments with no word on whether this family receives anything resembling their terms. Name-dropping is not access.

This is close to the whole of Swensen's argument. Yale negotiated as a sophisticated, long-horizon client with real bargaining power on the other side of the table — something like an even match. A household sold the story of that negotiation, on retail terms, is not in it.

When would you tell a family like this one not to hire an active manager at all?

A good manager can answer this without flinching. It sounds like a description of the client who should own broad, low-cost funds and pay specialists for tax and estate work — followed by an honest reckoning of whether this family is that client. Swensen's later framing put the divide not between individuals and institutions but between investors equipped to make high-quality active decisions and those who are not, with few in either camp and little middle ground.

A weak answer always finds a reason to hire. Complexity gets presented as sophistication, and "this is what families at this level do" is a sales sentence rather than a test.

The difference matters because everything an advisor offers carries a cost, and that cost is only justified where the advisor supplies something genuinely missing. For much of a liquid portfolio, Swensen's verdict was that broad, low-cost ownership does the job — and a good manager says so unprompted.

What do you own yourself, and how does it differ from what you would have us own?

A good answer is specific and slightly awkward: the manager's own money sits in the same funds, or a simpler version of the same approach, and any differences are explained by age, liquidity needs, or tax position. Some advisors will offer to show a statement. That is a very good sign.

A weak answer is that the manager's situation is "different" in ways that never quite get named, or that compliance forbids saying.

Yale's edge, in Swensen's telling, came from backing people with their own capital and reputation beside the endowment's; he ranked character and alignment ahead of cleverness. A manager who recommends what they would not hold is asking a client to carry a risk they have personally declined.

When did advice you gave cost your firm money?

A good answer is a story with a client in it: the recommendation to pay down debt instead of investing, to hold an inherited position for tax reasons, to keep a business rather than sell it, to leave assets at another firm. Fees or a sale were lost, and the advisor says so without heroics.

A weak answer is a blank, or a sacrifice that was purely hypothetical.

Swensen looked for managers willing to close a fund and turn capital away — evidence they cared more about doing the work well than about growing. The household equivalent is an advisor with a record of recommending against their own interest. Anyone can claim to be a fiduciary; the claim is only tested when it costs something.

Who picks the underlying funds, and how does one get fired?

A good answer describes a process with people and reasons in it: who does the research, which managers have been dropped in recent years, and why. The best reasons are rarely a bad stretch — a key person leaving, a strategy drifting from what was promised, a fund grown too large to do what it once did.

A weak answer is a page of logos, or "we monitor continuously." That monitoring is the service being purchased; if it cannot be described, it may not exist in the form implied.

Swensen's work on selecting managers weighted people and consistency of process far above a single disappointing year, and treated firing after a bad stretch as usually the expensive move. An advisor who cannot articulate a firing discipline is likely to practise the reverse.

What would have to happen for this plan to be wrong?

A good answer names conditions: a market environment, a change in the family's circumstances, an assumption about spending, inflation, or taxes that could fail. It says what the manager would do then, and how the household would know. Good plans are falsifiable — they state what they depend on.

A weak answer is that the portfolio is "positioned for all environments," which is a way of saying it cannot be judged. Every week produces confident market notes from firms that also sell securities; they are a useful sample of how authoritative unfalsifiable advice sounds once it is well dressed. A view that cannot be wrong cannot be right either. Swensen's own allocation work was full of explicit assumptions precisely so that they could be argued with.

Used well, this is a filter rather than an interrogation. Owners in this position can spread the seven questions across the first two meetings and simply note which answers came back specific and which came back smooth. The advisor comfortable being tested is the one worth further consideration; the one who wants to walk the owner across the street unasked is the one Swensen's second book was written to warn about.