The Wealth Consigliere

Simple questions can be deceptive, but they also can be enlightening. When it comes to personal happiness and financial freedom, I've found an introspective approach to be helpful when considering these important questions: No. 1: Who’s going to manage your money? No. 2: What services should others perform for you? No. 3: What makes you happy? Managing Money: DIY or Professional? The first and possibly most important decision in money management is deciding whether you’re going to do it yourself – or engage an advisor.   The Do-It-Yourself (DIY) approach begs the question, What is my time really worth?   Could I pick the best money managers and succeed as a wealth advisor? Perhaps. But is that what you’d like to do? Or are good at? And, what is the trade-off? If you calculate what your time is worth versus paying a fee to someone, you can approach the issue of cost from a more holistic perspective. A friend of mind had another point-o...

This September, a landmark research study of institutional investment consultants was released that continues to have big implications for both institutional and  retail investors. Three University of Oxford professors found that investment consultant recommendations really aren’t making the grade. Over a 13-year period, consultant recommendations under-performed passive investment strategies by 80 to 100 basis points. It’s not easy to write-off this research. The academics studied the performance of the top investment consultants who control 82% of the institutional market. These institutional pension funds and endowments manage trillions of dollars in assets. The Smoking Gun The study confirmed what everyone always suspected, namely that investment consultants don't consistently find money managers who beat the market. Equally as damning, though, is that the research found institutional investors happily followed their bad advice. The question is why? ...

Painful as it was, the financial crisis was actually beneficial in one key aspect: It created an opportunity for the financial services industry to clean up the excesses no one would address when times were good. Say what you want about Congress and regulators, but FINRA and the SEC have gotten many changes right. Their edicts with regard to CEO pay, broker disclosure of recruiting checks and out-of-whack incentives for Wall Street professionals will eventually benefit investors and advisors. That’s not to say all of the post-crisis legislation was beneficial. BASEL III is too restrictive. Dodd-Frank , a few exceptions not withstanding, has become a 14,000-page monstrosity. The Upside For Everyone After we stepped back from the financial abyss, the regulators were focused on preventing another meltdown of epic proportions. Since the consensus opinion was that Wall Street and Congress were equally responsible for the mess, there was much to doubt as they got started. ...

Summer vacation causes us to slow down and do things we don’t have time for normally. Banks require all of their employees who have involvement with customer accounts to take two consecutive weeks off each year from a  regulatory and a risk management standpoint. Many progressive companies urge their people to take time off to recharge. Research shows that it actually takes two weeks to form a habit, so for those who want to make a change for the better, two weeks should do the trick. A Digital Native Unplugs My two-week vacation to Europe taught me a lot. I needed the first week to just unwind and slow down. The real benefits of my holiday didn't start until week two.  The impact of that second week will be long-lasting. In week two, I was on a cruise ship off the northern coast of Spain. The boat had no mobile phone access and limited Internet availability. So, I was left without my iPhone and had nothing but time to bounce my thoughts off the beau...

On July 11, FINRA announced it would postpone a decision requiring brokers to disclose to their clients the amount of their recruiting checks. The decision is a huge relief for Wall Street brokers who have been agonizing whether to move before the ruling. This decision could cause brokers who are on the fence to leave their firms sooner rather than later since forced disclosure of their sizable recruiting checks won ’ t be required by FINRA. Brokers and Holidays When brokers do move, it ’ s likely to be on a three-day weekend, such as Labor Day, July 4, Memorial Day or President's Day. Extended weekends are the jumping off point of choice for breakaway brokers because they provide the least amount of friction in the transition. On a three-day weekend, the boss is usually gone. So are many of the remaining brokers who will reach out to the departing broker ’ s clients.   With a skeletal crew, the firm's retention plan will have to wait until people re...

One of the most challenging parts of a wealth advisor’s job is assessing the risk tolerance and setting realistic portfolio goals for clients. Both naturally change over market cycles and a client’s life, but effectively managing this challenge can feel like asking for permission to look into a person’s soul for the real answers.  Some firms try to accomplish this by using a questionnaire, but the best advisors take a more nuanced approach. It is art NOT a science. Back To School I was attending a school board meeting recently when the discussion turned to the 21 st century skills we want to teach our kids. Many schools around the country are have similar discussions. During our meeting, it hit me that the list of skills we outlined required us all to look into our souls and define what we really wanted for our kids other than an acceptance letter to Harvard. After much back and forth, the group boiled down the key 21 st century skills to the following: ...

Editor's Note: This post from the Wealth Consigliere appeared May 23 in Financial Advisor IQ, a Financial Times publication. http://www.financialadvisoriq.com/c/523711/58481 Scalability is a proven business strategy across many industries, but is it right for high-end wealth management? Evidence suggests that it isn’t – and probably never will be. The recent defections of advisors from RIA aggregators and large Wall Street firms are more fresh proof that scalability doesn’t work in high-end wealth management.   It’s also a teaching moment for advisors trying to figure out how to run their business.  If you think scale is the road to success, it will likely be a dead end.  The scalable, widget-making model for individual wealth management won’t serve clients well, nor advisors seeking more personal satisfaction and control of what they offer their clients. Counter To Conventional Wisdom The lack of scalability in individual wealth managemen...

Like others in financial services, I’m fond of using sports analogies to make a difficult point. While watching the 1st round of the 2013 NFL Draft, I thought it would be instructive to see what we could learn about selecting a financial advisor by watching how pro football General Managers select their next franchise player. In trying to identify future Hall-of-Famers, GMs typically use two methods. One approach relies on analytics like the Wonderlic Test , a measure of intelligence that assesses learning and problem-solving capabilities. The other defaults to the Scouting Combine , which evaluates the prospect’s physical assets – height, arm length, weight and hands. Both use a scoring system that helps football executives evaluate talent. Yet, for the all emphasis on objective analysis, neither approach is fail-safe. In fact, it may not be the best way to find a star like quarterback Tom Brady . Brady was picked in the sixth round and scored poorly on many of t...

People hate being told what to do, but sometimes tough love is the only way. Consider pro football, one of the most bare-knuckled games around. It took a hammer like the Rooney Rule to pry open the clubby world of wealthy team owners and bring them into the 21 st century. Named after Dan Rooney of the Pittsburgh Steelers, the Rooney Rule mandated that at least one minority candidate be interviewed for any head coaching job. The reason: From 1921 to 2003, only seven minorities served as head coaches for the mostly white team owners.  Even my friend’s 7 th grade son knows this “ just ain’t right ”. The Rooney Rule went into effect in 2003, and since then, 13 minority coaches have been hired. There’s an open debate whether more needs to be done to promote minority hiring in the NFL. We’ll leave that for others to discuss, but the point is not lost on us that the financial services industry could use its own Rooney Rule. Country Club Living Like team owners...

I was at a wealth management event last week when I bumped into one of the industry’s thought leaders. We were chatting, and he said he gets asked a lot about Sanctuary. My ears picked up, so I asked him what he said about us. Answer: “Sanctuary is the periodontist for wealth advisors.”   WHAT? It wasn’t quite the answer I was expecting. Nor a serious contender for our new marketing tag line. The periodontist, he said, is the person who breaks the bad news that your gums are on fire and you’re going to need surgery. Unfortunately, he said, most ignore that advice unless they’re bleeding or their teeth are falling out. The inclination is to deal with it later. Yet, as soon as the doctor’s warning turns into a full-fledged dental crisis, the first person you call is the periodontist.  That specialist is the only one who can fix the problem. Sanctuary, he said, plays the same role for advisors. Many Wall Street advisors rea...