Saturday, December 22, 2012

2012 - A Surprising Year


“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.

Another warning sign was the abnormally high allocation of Facebook shares to retail brokers and their clients. For a hot IPO, retail brokers typically get nothing. Or, if they do, their percentage is in the low single digits. For the Facebook IPO, many retail brokers got 50% or more of their indicated interest. There was much more stock available to retail investors than usual because institutional investors were reducing their orders. Many were scared off by the downward revenue revisions, only shared with institutional investors just before the IPO. Last week Morgan Stanley was fined for this preferential treatment.


Morgan Stanley’s acquisition of Smith Barney 

Morgan Stanley’s purchase of the remaining part of Smith Barney's wealth management group had significant unintended consequences. (See our September blog, Mexican Standoff.)

The combination of a higher capital outlay for Smith Barney and tepid 2012 financial results from investment banking forced Morgan Stanley to tighten its belt. That came at the expense of needed technology investments to bring both firms together.  The botched integration angered brokers and clients, and it lead to defections of both.  The disaffection with Morgan Stanley may continue in 2013 because the firm’s technology problems are still not resolved.

Three years from now, this transaction may be viewed as genius. For now, it’s anything but.


Luminous transaction

The Luminous sale to First Republic was the defining wealth management deal in recent memory. 

The transaction validated the potential for former Wall Street financial advisors committed to unconflicted, independent wealth management to experience spectacular growth and value creation.  (See our November blog, Same As It Ever Was?)

After breaking away from Merrill in 2008, Luminous grew assets under management from $1.7 billion to $5.5 billion. In November, it agreed to be acquired by First Republic for $200 million.  If elite advisors ignored the advantages of breaking away before, they aren’t now. Everyone in a corner office is talking about Luminous.

In our view, these three events should be viewed as a call-to-action to advisors and clients still working with a Wall Street firm.  As 2012 demonstrated, there’s clearly a better way.

Tuesday, November 20, 2012

Same As It Ever Was?



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 management firm was just too small to matter to a megabank.  When you factor in the typical internal politics in any big organization, the challenge was too great to overcome.


Fast forward to Luminous.  This is a team of rock stars.  When they broke away from Merrill in 2008, they were the firm's  largest, fee-only team.  Upon exiting Merrill, the partners had numerous opportunities to grab very large recruiting checks by going to another Wall Street firm, but they turned them all down.

Why? Because they did not want to be subjected to the same constraints that were hindering their business at Merrill.

Their instincts proved stunningly correct. In the four years since they left Merrill, Luminous grew from $1.7 billion to $5.5 billion at the time of their sale.

Luminous achieved this breath-taking feat by combining two highly effective strategies 1) They adopted the best growth practices from Wall Street 2) They were very disciplined in executing their  independent, business model.

In the process, they reconfirmed the breakaway value proposition: Highly attractive after tax compensation and complete control over your own destiny.



The Instagram of Wealth Management

For those familiar with Facebook, this transaction for First Republic reminds us of Facebook’s purchase of social media darling Instagram in April, just before its IPO.

Facebook recognized that their users couldn’t easily take and share pictures – a highly valued feature in social media.  Facebook addressed its suboptimal photo interface by buying Instagram’s technology for $1 billion, a price considered rich by many.

Along the same lines, First Republic bank realized it wasn’t as successful in wealth management as it would have liked. It has an incredible brand that provides high-end mortgage solutions, and has been seeking to expand its wealth management capabilities for many years.

The difference between the Luminous deal and other misguided wealth management acquisitions is that First Republic is small enough and nimble enough to make it work.  Luminous is truly integral to First Republic’s long-term wealth management strategy. Moreover, the bank has the organizational commitment and discipline to make the most of this blockbuster deal.

And, regardless of the "actual" sales price of $125 million to $200 million, the deal came with a very nice kicker – a treasure trove of leads that would even make the Glengarry Glen Ross sales team happy.



You know, this just might work.

Tuesday, October 30, 2012

Do They Measure Up?



How should we evaluate money managers and business leaders? Or for that matter, a presidential candidate?

One way is ask these three key questions:

  1. Have they developed a well-defined strategy?

  1. Do they have the gravitas to consistently make tough decisions?

  1. 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-guessing that will follow.

A great investor must be willing to make the difficult or contrarian call because their investment discipline dictates it. If the investor abandons that discipline, it’s easy to lose focus and conviction. Without that, they become under-performing roadkill.

As for communication, the great money managers know it is almost as important as the strategy itself, particularly in times of crisis. The best managers never hide when the sky is falling. At a minimum, a meltdown is an opportunity to remind everyone of their strategy. At best, the world-class money managers recognize that communication is an ongoing opportunity to educate the marketplace and ultimately expand their influence and/or client base.

Business Leaders

For an investor, the fundamentals of an investment strategy shouldn't change regularly. For the business leader, it may be just the opposite. Marketplace forces demand rapid and regular adjustments.

As a result, decision-making is doubly difficult. The business leader needs to: 1) Make hiring and firing decisions to continually source the talent to meet their evolving business needs, and 2) Have the fortitude to modify the product or service whenever necessary (Apple Maps). 

It’s a constant threat – innovate or die – but there’s no choice. Just look at all of the companies the world has passed by or are in the process of being passed by: Gateway, Yahoo, Kodak, Blackberry, Best Buy, among others.

When it comes to communication, the business leader needs to be an unabashed marketer. Unlike the renowned investor, who may deliberately take a lower key approach, the business leader must be the most ardent and articulate champion of the brand. Would you buy a product or work for a CEO that wasn't willing to extol its virtues to everyone?

Presidential Candidate

Which leads us to presidential candidates. We’re days away from an historic election.  

As we go to the polls, shouldn't we hold the candidates to the same standards: What is their clear strategy? Can they make the gut-wrenching decisions to advance the country? Can they move public opinion to get something done for the common good?

These are all important questions to ask when deciding - do my money managers, the companies providing me with valuable products and services or my presidential candidate measure up?

Please vote!

Sunday, September 30, 2012

Sound Bites


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 more time.

In fact, most people default to System 1 thinking because it "just feels right" and requires less effort, even though it may lead to faulty decisions. We need to use System 2 to make good decisions.

Financial Service’s Swing State

Applying Kahneman’s perspective to politics – and wealth management – it turns out many wealthy investors are the financial services industry’s swing state voters. The huge advertising budgets that produce “feel good” claims like “we always put the interests of our clients first” are the mirror image of political attack ads. 


As a practical matter, many wealthy investors don’t subject the selection of a wealth advisor to as much intellectual rigor as they should. Bombarded by all sorts of emotionally charged messages and recommendations from friends and family, investors often fail to make a rational decision.

So how should investors wired for System 1 thinking proceed? In two ways.

First, they should slow down and plan on spending enough time to understand an advisor’s perspective. Investors may need a half-dozen meetings to have their questions answered by their prospective advisor. They also have to spend enough time to determine whether the advisor is trustworthy. If a firm won’t spend the time with an investor during the courtship phase, the decision should be obvious.

Second, investors need to determine if their prospective advisor is committed to sharing information. Does the firm publish its point-of-view in white papers, blogs and other research? Do you understand the firm’s values? Does their stated behavior match their actual behavior as you are getting to know each other? By reading everything a firm makes available publicly, investors can unearth important clues about how they will be treated as a client.

An Educated Voter
The most informed voters, like the smartest investors, do their homework. They don’t believe attack ads alleging that President Obama was born outside the U.S., or that Mitt Romney doesn’t care about 47% of Americans.

So with just six weeks left before the election, we want to offer a radical proposal: Take time to seek another perspective. 

If you’re a dedicated FOX News viewer or The Wall Street Journal reader, tune in to MSNBC or check out The New York Times. Spend some time reading the platforms of both major parties. (Republican and Democrat)

Likewise, do the same before choosing a wealth manager and consider an independent advisor. Chances are independent advisors won’t have any soundbite advertising. But they are more likely to spend enough time with you and provide lots of opportunities to understand who they really are. Here is a recent list of the Top Independent Advisors ranked by assets.

I am the Wealth Consigliere, and I approve this message.

Wednesday, August 22, 2012

Beating The Summer Doldrums



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 in a New York Times blog, or 2) We can take advantage of a precious resource of which there is never enough – free time.

Time To Think
Peter Drucker, the father of modern management and the person who coined the term “knowledge worker,” realized in 1960 that time was one of the most important elements in successful decision-making.

In The Effective Executive, Drucker wrote that the best decisions flow from sufficient time to analyze an issue from every angle.  The most effective decisions are the ones in which we carefully weigh the pros and cons. Instinctive decisions, as we are accustomed to making on the fly in the heat of the business day, are often the worst.

The challenge in the digital era is that deliberation can take weeks, months or even years. That seems almost impossible to manage in the frenetic world of business today.

Carpe Diem
With Prof. Drucker in mind and a little more time than usual on our hands, we offer a simple plan for rolling back the summer blahs and the anxiety that often goes with them.

§  Take time to really think through an opportunity or problem. Whether it's your job, your portfolio or your life, invest the time to fully examine it. Come back to it on a number of occasions between now and Labor Day – or even beyond.  You don’t necessarily need to make a decision right away, but time spent now can help prevent a poor emotional decision in the future.

§  Find time for the people you’ve been putting off. You know who they are: A co-worker, high school friend or distant family member, get them on the calendar today. Not seeing them feeds your anxiety. You’ll feel better if you do the right thing.

§  Treat yourself to the luxury of more education.  It’s easier than ever to access the brightest minds on the planet. Through iTunesU or Coursera, you can take university classes on every imaginable subject online in two weeks or less.  Quite often, diving into a field completely unrelated to work can trigger insights that can be applied at work.  The good news is that you don’t even have to try hard to connect the dots. Your active mind will do it for you.

We spend a lot of time at year-end looking at our New Year resolutions, but why not take this lull in the action to do a mid-year refresh?

Summer doldrums don’t have to be brutal. We just have to make an affirmative choice to do something about them.

Tuesday, July 31, 2012

An Old-Fashioned Mexican Standoff



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 had an opportunity to counter. It came in with a price of $9 billion for 14% of the firm. 
I’m sure the investment bankers who devised this tortured process predicted a Mexican Standoff when they came up with this “resolution” plan.  The sheriff who will resolve it will be a third-party that determines a fair value for Smith Barney.


What is Smith Barney Worth?
There are two ways to value a retail brokerage.  One is based on a percentage of total client assets. The other is a multiple of normalized earnings. 
David Trone, a highly regarded research analyst at JMP Securities in San Francisco, arrived at a $24 billion valuation using both methodologies on Feb. 22, 2012.  The math is straightforward: 1.5% of $1.65 trillion of client assets, or 15 times normalized earnings of $1.6 billion, equals $24 billion. 
Looks like Citi’s valuation is closer to the true market value than Morgan Stanley’s.
The price resolution is particularly important for Morgan Stanley, which is facing intense pressure from shareholders. The firm has stated publically that wealth management is a key part of CEO James Gorman’s strategy to revitalize earnings. 

Why Advisors Should Care?
If Citi is correct and the value is close to $24 billion, Morgan Stanley will have to make significant expense reductions.  If Morgan Stanley’s $9 billion figure is correct, the expense reductions will be out of the brokers’ pocketbook.
Either way, there will be ramifications for everyone. The two most immediate impacts are that advisor recruiting checks are likely to shrink, and the client experience is likely to suffer.
To increase profits, it’s likely that Morgan Stanley will implement plans to increase margins.  Historically, firms have manufactured complicated investment “solutions” to increase margins. But as the financial crisis showed, those “solutions” don’t necessarily result in higher investment performance for clients.
Additionally, Morgan Stanley is likely to pare back technology investments, since there could be less capital available after the deal.


Technology Quagmire?
In fact, that technology conversion for Smith Barney clients has already been difficult.
A senior manager at the firm recently told a Morgan Stanley branch office that the firm is well aware that its integration of  the Smith Barney platform into Morgan Stanley was not perfect, but had to be done.
One Smith Barney advisor recently summed up the experience thus far: “It feels like I’ve switched firms, but without the recruiting check.”
What happens next in Wall Street’s latest valuation drama remains to be seen for both clients and advisors.
That is, of course, unless Smith Barney advisors or their clients decide to break away and realize the certain technology upgrade and other benefits of working with an independent firm.

Thursday, July 12, 2012

Higgs boson and the LIBOR Scandal


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, insiders gamed a system believed to be based on fixed rules and the integrity of the financial services industry – supposedly the stewards of a vital public trust.

The LIBOR culprits, like those on Wall Street before them, failed us in two ways.

First, the perpetrators placed their selfish interests above everyone else’s, while purporting to follow the rules.  They secretly cheated, and in the process, they dealt another serious blow to the credibility of the global financial system. This further destruction of trust is regrettable.

Second, this scandal highlights that the financial services industry has learned little from past scandals.  These so-called financial wizards still believe they possess the magic to deliver market-beating returns.

In short, they remain convinced that they are masters of the financial universe – more capable investors and traders than anyone else. In fact, that turns out to be a lie too.


It’s interesting to note that one of the most successful investors of our time, Jim Simons of Renaissance Technology, has achieved superior performance by adhering to an investing methodology that would have made the Higgs boson scientists proud.

The Fundamental Laws of Wealth Management
At a time like this, it useful to recall the fundamental laws of wealth management – the laws we have always known to be true and effective in advising clients.

They are: 1) A Primary focus on financial planning; 2) Tax minimization 3.) Keeping fees reasonable or even low 4.) Diversification.

These principles have always served advisers and clients well in good times and bad.  On the other hand, advisors risk losing the trust of clients when they promise outlier performance using exotic products and strategies, which often tend to disappoint.


So if the scientific method and the laws of the universe are good enough for scientists, shouldn’t the fundamental laws of investing be good enough for participants in financial services?

The bottom line is that the financial services industry has squandered the trust of investors. The only way to reclaim it is to follow the things we know to be true.

Monday, June 25, 2012

Summer Camp

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.) No one defines and lives happiness better than Garry Marshall, creator of Happy Days. His book, co-authored by his daughter, My Happy Days in Hollywood is a page turner.

2.) Clayton Christensen has written a follow-up to his classic, The Innovator's Dilemma entitled, How Will You Measure Your Life? He applies successful business practices to your personal life. He wrote the book to address one of the top questions he receives from his students at Harvard.

3.)  Daniel Pink's Drive is a book that I continue to reference in my career. If you enjoyed Outliers and haven't read Drive, you should.

Books I plan to read:

  Younger Next Year by Henry S. Lodge MD and Chris Crowley. This turning 50 thing has caught my attention. 


My business partner says Thinking Fast and Slow is the best book he has read in the past five years.


 Fifty Shades of Grey by E L James. Admit it, you are curious, too, about why this book remains on the top of the best seller list.

Have a magical summer.

Tuesday, May 29, 2012

JP Morgan and The Whale


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 from the whale.



Were they lucky or good?

Post-crisis, J.P. Morgan found it difficult to live by the Dimon Principle, which is supposed to guard against stupidity born of hubris.

The Dimon Principle and advanced risk management techniques, such as value at risk (VaR), were a key reason J.P. Morgan was one of the most successful in protecting assets during the financial crisis. Unlike the reputation of other bankers, Jamie Dimon’s grew in stature after the crisis because the bank appeared to manage risk so well.

VaR was a core of the bank’s risk management strategy. This technique was supposed to help the bank quantify risk.  In the end, it didn’t work.  The VaR reported to Mr. Dimon showed the trade made by the London whale had a VaR of less than $100 million, not the reported loss of $2 billion that could possibly grow to over $5 billion.

This is not the first time risk management models have failed Wall Street.  The subprime mortgage debacle that triggered the financial crisis is a recent example of a sophisticated model that faltered badly. Mortgage lenders, aided by investment banks and ratings agencies, believed they had cracked the code and were able to properly measure the risk in lending to people previously considered too dodgy for a home loan. We know what happed next.



Is Redemption Next?

To redeem itself, J.P. Morgan has admirably tried to make amends.

Mr. Dimon has owned up to the problem and has admitted that avoidable mistakes were made. He held a conference call to discuss the loss, went on Sunday talk shows, and will testify before Congress.  Those responsible for the loss have resigned or been fired.

The real question is whether J.P. Morgan will renounce proprietary trading – the root cause of the problem.

It’s quite possible it won’t.

There is too much money to be made in proprietary trading. J.P. Morgan, like the rest of Wall Street, relies on “prop trading” to produce huge profits. In fact, big financial institutions still have as strong an incentive as ever to take the unrepentant risk to make up for falling earnings.

Given the pressure to deliver results, it will be interesting to see how J.P. Morgan responds. Until it figures out what to do, the bank will remain trapped inside the whale.

Sunday, May 27, 2012

Do You Just Love Me For My $?


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 practice.
The fact is not everyone is born a 1 percenter. Clients with smaller accounts often grow into much larger ones. Here in Northern California, engineers and many entrepreneurs are just one IPO away from fabulous wealth.
The problem with packing smaller accounts off to a Siberian call center is that you never know who becomes the next Mark Zuckerberg. If clients are mistreated before they hit the home run, there’s virtually no chance they’ll ever come back.

Opportunity For Independents
The good news is that a large firm’s cast-offs can be good business for independent advisors. Because independents have far less overhead, they have lower costs and can incubate smaller clients profitably. The key is having the right business model.
There’s another opportunity, too, for independents: The freedom to run a business as advisors see fit.
Most accomplished advisors don’t want corporate bureaucrats dictating how they serve clients or operate their business. A large firm’s management decisions are particularly irritating because they not only deprive advisors of income, but also create the embarrassment of having to tell clients that the firm believes they’re no longer worth the time.
Wealth management can’t be all about the money. Just like in any relationship, if someone happens to have money, that’s fine. But that’s not the reason you love someone.
As an independent advisor, you don’t have to be all about the money. One of the greatest advantages of being independent is the freedom to do the right thing by your business and your conscience. That always feels good.

The Best Buy Effect


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 tried to create a home theater knows the frustration. Integrating sophisticated pieces of consumer electronics has almost become rocket science. Best Buy is keeping clients happy and loyal by providing a service that makes it easy to buy and then enjoy cool products.
Financial advisors have the same opportunity to attract and retain clients if they take the responsibility to simplify the many complex financial products and design a program that works.
In fact, anyone can open a discount brokerage account, do some online research and start buying investment products. However, buying and selling products doesn’t equate to comprehensive wealth management. There’s much more to this discipline than most recognize initially.

Watch Out For Cheap
An advisor who provides real value need not fear the cheap advice that can be obtained online or through cut-rate competitors.
Cheap online advice is nothing more than a computer algorithm. More often than not, human strategy trumps most computer driven decisions (Kasparov Wins). Only an experienced human advisor can provide that strategy and then recommend how to put together the complex investment solutions that meet each client’s needs. When you’re talking about your life savings and financial independence, what would you prefer, a cheap computer automated solution or a unique personalized plan?
Put another way, it might seem like a good idea to buy the bargain-priced flat screen TV and then read the directions to mount and connect the components. You can’t really appreciate the Geek Squad until the whole project has gone terribly awry. It’s one thing to mess up your home theater; it’s another when it’s your financial security.
That’s the good news for advisors. By providing understandable solutions, personalized service and delivering wise counsel – an advisor’s value proposition is as compelling as ever.