Let’s begin with a question for you, “Before the 1700s, which members of society do you think had the shortest lives?” By members, I mean the poorest, the middle class, affluent, and the richest. I tested this question with many, and the most common response was, “Obviously the poorest and the middle class. Others had better access to health care and comfort.”

What did you answer?

Morgan Housel in his post, ‘A Few Little Ideas and Short Stories’ wrote, “The historian T H Hollingsworth once published an analysis of life expectancy of the British peerage, and it showed this really peculiar trend. Before the 1700s, the richest members of society had among the shortest lives. The richest people lived meaningfully shorter lives than the overall population.

How could that possibly be? 

The best explanation was that the rich were the only ones who could afford all the quack medicines and sham doctors who peddled hope but actually just increased your odds of being poisoned.” 

The same is true for the richest investors today.

Let’s start with an uncomfortable truth. The richest people often believe they are special. And to some extent, they are. But that belief opens the door for something dangerous: being taken for a ride.

Throughout history, the wealthiest members of society have been targets for those looking to sell them on “exclusive” and “complex” products. These products are marketed as something ordinary investors cannot access. They promise higher returns, tax efficiency, or some magic formula. The reality? They’re often the modern version of quack medicine.

The Rich Are Not Immune to Bad Advice

The rich were the only ones who could afford to pay for experimental treatments (and it’s still true today with all the weight loss drugs that are sold). And many of those treatments, touted by sham doctors, made things worse. The wealthy trusted that, because they were paying more, they were getting something better. Often, they were just paying for poison.

Fast forward to today. Wealthy investors still face a similar problem. They have access to a sea of exclusive financial products. But exclusivity doesn’t always mean better. It often just means more complex, more opaque, and more expensive.

The Complexity Trap

The investment world loves complexity. And who better to market complexity to than the wealthiest investors?

You’ve seen it before: private equity, hedge funds, exotic derivatives, and structured products. These offerings promise to be tailored for the rich. They seem sophisticated.

They sound advanced. They appeal to the ego.

But behind the curtain, many of these products deliver subpar returns. Worse, they’re difficult to understand, making it hard for even smart investors to know what they’re getting into. Complexity creates confusion, and confusion is the friend of high fees.

Ask yourself: Are these products truly designed to benefit the investor, or are they crafted to generate profits for the firms that create them? Too often, it’s the latter.

A Case in Point: Hedge Funds

Hedge funds are marketed as the pinnacle of investing. They’re exclusive, complex, and often available only to those with significant wealth. The allure is hard to resist.

But how have hedge funds performed over the last decade? Not as well as advertised. Studies show that many hedge funds underperform simple mutual funds. Yet, they charge exorbitant fees—sometimes as high as 2% of assets under management and 20% of profits.

So, why do the rich continue to invest in them? It’s the myth of exclusivity. Hedge funds are sold as the ticket to returns that others can’t achieve. They play into the idea that the wealthy deserve something special, something others can’t access. But the returns don’t justify the complexity or the cost.

I recently heard a Venture Capitalist on a podcast saying the following – “I was looking at Cambridge Associates data, you know, they send out their quarterly thing, and I was looking back to 2015, the top quartile, the best 25% of venture firms from the 2015 vintage have not returned their investors all their money. We’re nine years in, the top quartile has not given their investors their money back.

So yeah, if you think about the 2021 vintage, I think a fund that just returns the capital will be in the top 25% of the funds. I think returning your LP’s (people who invest in a VC fund are called Limited Partners) money on almost any timeframe will be top quartile (top 25%). So, in that sense, probably 70, I would guess 75% of the funds raised in 2020, 2021 won’t return money.

So, I think there’s LP’s that are probably making a lot of decisions that are not specifically related to financial performance. So, you have a market where a lot of the participants are not making rational financial decisions. One of the most irrational is not allocating based on performance, but allocating based on not getting fired.

The big venture firms are going to do pretty poor numbers, but actually they’re catering to an LP (investor) class that’s scared of getting fired or is happy with lower returns.”

I will take a slight detour to explain vintage and getting fired concepts.

1. In venture capital (VC) lingo, vintage refers to the year in which a venture fund was established and began making investments. It’s similar to how wine vintage refers to the year the wine was produced. For investors, a fund’s vintage year is significant because it marks the economic and market conditions that existed when the fund started deploying capital.
2. No one ever gets fired for hiring McKinsey. The phrase “No one ever gets fired for hiring McKinsey“ refers to a mindset in business, particularly among executives and decision-makers, where hiring a well-established and prestigious consulting firm like McKinsey is seen as a “safe” choice. The idea behind this saying is that McKinsey, as a globally renowned consulting firm, has a reputation for providing high-quality, expert advice. So, even if the results of the consulting engagement aren’t perfect, the decision to hire such a reputable firm is unlikely to be questioned or criticized.

In essence, the phrase reflects a kind of risk aversion. Hiring a firm like McKinsey protects the decision-maker from blame or scrutiny, because they can argue that they brought in the “best” or “most respected” experts available. It implies that the reputation of McKinsey acts as a shield, and it’s easier to justify the decision to stakeholders, even if the outcomes are not ideal.

This phrase can also hint at a certain inertia in corporate decision-making, where established names and big brands are chosen over newer or less-known alternatives, simply because of the perceived safety of a well-known reputation.

This is what happens when it comes to investing too.

Exclusive Doesn’t Mean Effective

The pursuit of exclusivity often results in paying higher fees for strategies that fail to outperform. Wealthy investors can be drawn into a false sense of security, thinking that because they’re paying for something exclusive, it must deliver better results.

The Role of Financial Salespeople in the Wealthy Trap

It’s not just the products. Many advisors to the wealthy play into the same narrative. They tell their clients they need specialized, complex strategies. They over-engineer solutions because it feels more valuable.

Think about it: If a financial professional told a wealthy client, “Let’s keep it simple,” that might not feel like it justifies the advisor’s fee or compensation. But simplicity often leads to better outcomes.

The richest investors can afford to pay for complexity. But they often don’t realize that complexity can dilute returns and increase risk. The best financial professionals know that managing wealth isn’t about creating the most complicated plan. It’s about creating the most effective one.

The Emotional Need for Special Treatment

So, why do the rich fall into the trap of complex products? Ego is part of it. Wealth creates an expectation of special treatment. It creates a belief that you should have access to something others can’t.

There’s also fear. When you have significant wealth, the stakes feel higher. Wealthy investors worry more about losing what they have. Complex products promise safety, risk management, or returns that feel necessary to protect the fortune.

The truth is, most of the time, the simple products—diversified mutual funds, straightforward asset allocation, and a disciplined approach—work just fine. But they don’t feel special.

A Better Way Forward

The lesson for wealthy investors is clear: Don’t fall for the trap of exclusivity. Just because a product is available only to the rich doesn’t mean it’s better. In fact, it might be worse.

Start by asking the right questions. Is this product designed to help me achieve my goals, or is it designed to make money for the person selling it? Can I understand how it works? What are the fees, and are they justified by the potential returns?

At the same time, wealthy investors should work with financial professionals who value simplicity (remember simple does not mean easy). Not everything needs to be complicated. Look for someone who can explain your strategy clearly and who doesn’t push you into products you don’t understand.

Wealth Doesn’t Require Complexity

In the end, wealth doesn’t require complexity. It requires discipline, patience, and a focus on long-term goals. The richest investors are often those who resist the temptation to chase after shiny, complex products and stick to strategies that have stood the test of time.

Remember: just because you can afford something exclusive doesn’t mean it’s the right choice for you. Most of the time, the best solution is the simplest one.

Let the lesson of history guide us. The richest people in the past paid for the privilege by being poisoned. Today, wealthy investors should be wary of paying for the privilege by owning complex products that don’t serve their best interests.