The Wealth Consigliere

“Life can only be understood backwards, but must be lived forwards.” Danish philosopher Soren Kierkegaard This bit of wisdom was particularly true in 2012 if we look at three events whose significance is obvious now, but not for the reasons they seemed at the time. Facebook's IPO  Facebook’s IPO in May was one of the most hyped public offerings ever. It was also a bust. In retrospect, many red flags were ignored. The first indication of trouble was the pre-IPO bubble in Facebook shares. Retail investors confused their affinity for Facebook and social media with unbiased investment analysis.  For example, many euphoric traders loaded up on Facebook shares before the IPO through SharesPost and SecondMarket hoping to outsmart the "established" IPO marketing process and purchase shares below the assumed IPO price.  They thought Facebook was a sure thing.  Many are still hurting; Facebook’s stock remains well below its IPO price. An...

Now that the dust has settled on the Luminous sale , it’s worth wading through all of the hype and surprising professional jealously to analyze the merits of the transaction. When you consider the poor track record of banks making wealth management acquisitions, it would be too easy to conclude that another dumb bank has just bought another wealth advisory firm built by "smart" Wall Street pros. In the late 1980s, Bank of America bought Charles Schwab & Co. and then sold it back to the founder for pennies on the dollar.  In 2000, State Street made the same mistake.  It bought Bel Air Investment Advisors and sold it back to the founders, again for pennies on the dollar. This Time May Be Different Why didn’t those investments succeed? Previous transactions failed because the acquired firm was not a strategic fit. Equally as important, the bank wasn’t fully committed to integrating the firm into its macro business plan.  The new wealth man...

How should we evaluate money managers and business leaders? Or for that matter, a presidential candidate? One way is ask these three key questions: Have they developed a well-defined strategy? Do they have the gravitas to consistently make tough decisions? Are they highly effective communicators? If we look at all three – money managers, business leaders and presidential candidates – there are some compelling similarities and noteworthy differences. The Great Money Manager When we analyze the standout money manager, we typically see a coherent and careful strategy. That strategy may or may not be complicated, but it is always well-defined. Equally as important, the great money manager doesn't materially deviate from their strategy. That requires a steely ability to make difficult decisions. For example, if a manager sells while the herd is charging after the market, courage is necessary to weather the inevitable second-...

What do presidential elections and wealth management campaigns have in common? Both want you to make a very important decision based on a soundbite. Most people will tell you they’re too smart to fall for soundbite advertising, but even the brightest among us can have our judgment subverted by soundbites that are simplistic and emotional. Soundbites work because they are designed not to appeal to our rational brain. In his best-selling book, Thinking, Fast and Slow , Daniel Kahneman, winner of the 2002 Nobel Prize in Economic Sciences, noted that most of our decisions are based on snap judgments in the unconscious part of our brain. That is the gray matter we relied on when we used to roam the savannah and lived in small colonies. "System 1" thinking, as Kahneman states, is intuitive, rapid and emotional. It operates almost like instinct. "System 2" thinking, he notes, demands more analysis and work.  By nature, this type of thinking takes mor...

The last two weeks of summer can be brutal. At work, there is a tendency to drift into automatic pilot until after Labor Day, which begins a hectic sprint to the end of the year. At home, bored kids desperately need to go back to school so they will quit playing Xbox.  As adults, it’s becoming all too easy to spend too much time channel surfing, Internet surfing or both, now that summer is just about played out. If you’re an investor or advisor, the stock market is in a similar state. Last Friday’s trading range on the Dow was the narrowest in 5½ years and the 3-point range on the S&P was the narrowest in 7½  years.  Investors are in the summer doldrums as many have gone to cash because of the Euro-crisis, the impending fiscal cliff, the Presidential election, or the usual fears of an October meltdown. At a time like this, we have two clear choices:  1) We can worry about what is going to happen next, like the Anxious Idiot recently wrote...

How much is Smith Barney worth, and why should advisors and their clients care? If Smith Barney-parent Citigroup and acquirer Morgan Stanley can’t reconcile a roughly $15 billion disagreement about price, advisors and their clients are likely to experience the fallout in the form of smaller recruiting checks and/or a less satisfying client experience. A Strategic Business, Convoluted Valuation Process It’s ironic that the retail brokerage made famous by commercials from the curmudgeonly John Houseman, “Smith Barney – they make money the old-fashioned way,” is caught up in an old-fashioned valuation dispute that may have significant adverse consequences. The price that Morgan Stanley will pay for 14% of Smith Barney will be established by what can only be described as a byzantine process.  The first step was for Citigroup to declare a selling price for Smith Barney. The Citi number came in at $24 billion for 14% of the brokerage.  Morgan Stanley then...

The two big news events of the past week – the discovery of the Higgs boson and the mushrooming LIBOR scandal – can be difficult to comprehend. But both can teach us something timeless about effective problem-solving and establishing trust. Higgs boson, often described as the “God” particle, was revealed after researchers spent decades searching for this elusive secret to the universe. When the Higgs boson announcement was made last week, two teams independently verified the results. This amazing discovery was the product of the scientific method . The intellectual rigor of this investigation by the world’s brightest minds confirmed what was true for billions of years. Thankfully the laws of the universe were the final arbiter of truth not the SEC, FINRA or the FSA. Fudging The Rules For Gain Now compare that problem-solving approach to the recent modus operandi in the financial services industry around setting the LIBOR rate. In the LIBOR scandal, insider...

Summer camp can be magical. I was reminded of this when I took my daughter to camp yesterday. She was so excited, and it reminded me of how much I loved camp when I was her age. How can I regain that magic? Like any business problem, there are three ways we can regain the magic:  1.) Family/Friends:  It's summer. Your kids don't have school, and in August, all of Europe and most of the US is on vacation. No excuses. Plan something away from your office with your family and friends. Shut down your phone/iPad too. The world will not stop, and the depressing stories will remain the same.    2.) Music: Summer songs warm your heart! Please listen to my favorite summer song . Feel better?   3.) Books: I know we are all sick of reading about the Euro crisis and the US election. Use your free time to read some good books. I have a few that I have already read, and some that are on my list to read this summer that you might want to check out. 1.)...

The ongoing saga about J.P. Morgan’s  multi-billion trading loss  involving the “London whale” reminds me of a timeless story – the parable of Jonah and another whale in about 750 B.C. As the legend goes, Jonah found it difficult to convince people to live the virtuous life, despite being held up as an example.  To pay for his failure, he was tossed out of his boat one day and was swallowed by a whale. After spending three days in the belly of the beast, he repented and promised to try again. The whale then spit him out. J.P. Morgan’s trading blunder involved a different kind of whale – the so-called London whale. Since then, the London whale’s mammoth trading loss has engulfed an institution previously thought to be exemplary in risk management. The fallout has reignited the debate about proprietary trading, the Volcker Rule and too-big-to-fail. The modern and ancient storylines are similar, but it’s an open question how J.P. Morgan will re-emerge fr...

Large Wall Street firms have tossed independent advisors yet another great opportunity.  Recently, management at many of the wirehouses informed their financial advisors that they wouldn’t get paid on accounts with a balance of less than $250,000. These clients are being shipped off to a call center because, in so many words, they can’t be profitably serviced by a “full service” financial advisor.  This decision is a frank admission that the cost structure at big firms is still too high. Large firms in the Dodd-Frank era are feeling the squeeze. The result is predictable: Wall Street again put self-preservation ahead of advisors and clients.  Is that any way to treat people, let alone someone who may become a worthy client one day? The opposite is also true: Aren’t these big firms really saying that if you have enough money, we will love you? Short-Term Thinking This bloodless view of the world is not particularly nice, nor is it necessarily good business prac...

  It’s not easy being Best Buy these days. Price competition is intense, and pressure is coming from all directions. Online competitors, without costly overhead, are selling the same products cheaper. Tech-savvy consumers are comparison shopping right on the showroom floor, using mobile phones and the  RedLaser app  to scan for the best price. Instantly, a consumer can get a list of better deals on a flat screen TV or Blu-ray player from online retailers and even nearby stores. Wealth advisors are facing the same challenges from online “firms” like  Wealthfront  and from other advisors who are willing to cut their fees to win business. The Opportunity in Solving Problems But all is not lost for advisors or retailers if they heed the lesson from one of Best Buy’s more successful innovations:  The Geek Squad . The Geek Squad delivers what most low-priced product sellers don’t: Expertise to make everything work together. Anyone who has ever tr...