Tuesday, November 26, 2013

What's Your Time Worth?


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-of-view on DIY money management: She believes Wall Street has become too sophisticated for even the above-average DIYer. Given the recent chicanery in the financial markets, she’s convinced she needs someone who understands the game as the big hitters do. “I’m playing to win. I need an All-Pro team on my side.”


What To Outsource?
Outsourcing is a straightforward equation for successful businesses: Do you build it or buy?  Which core competencies need to be in-house?  And, which can be provided by third parties?

The same can be applied to our personal lives.

The benefit of outsourcing is that it saves you time and adds outside expertise – whether you’re an individual or a business.

The big mistake is assuming we can be terrific at everything. As much as we’d like to think so, it is unrealistic to believe we’re omnipotent and have unlimited time. Smart people pay good people to complement their skill sets and save time.

What Makes Me Happy?
A lot of research has examined the source of happiness. After we get above a certain level of wealth, research shows that more money doesn't make us happier. More time does. Time to spend with people we love and do the things we want to do.

If you want to pursue your passions, isn't spending some money to hire a helper an effective way to preserve your precious time – whether it’s cooking or running errands? Or other messy tasks that complicate your day?

Personal outsourcing can be a tough concept for people in the middle of wealth accumulation. It feels a bit pretentious. But the alternative is not so good, either. If you wait until you reach your magic number, you could be too late.

How Many Hours Left?
If you die at 80, you will have lived 31,025 days. At 50, you have already lived 18,250 days. That means you have only 306,600 hours left – or 12,755 days.


We all can make better decisions if we honestly answer what our time is worth, especially when choosing service providers. The process requires humility, but the results are guaranteed to be enlightening.

Friday, October 25, 2013

The Elephant In The Room

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?

Like the corporate maxim that no one was ever fired for buying IBM, institutional portfolio managers know they can insulate themselves from criticism if they follow the advice of the brand name consultants. To use a non-technical term, this is “CYA” in the classic sense.

The Implications for Wealth Advisors
Many independent wealth advisors have designed their firms to emulate the institutional consulting model because it makes them look smart.

Wealth advisors also rely on investment consultants such as Fortigent, Envestnet, the major custodians, or they have their own  internal research group for money manager selection. Advisors then follow those recommendations to implement  their clients’ investment plan.

With empirical proof that due diligence by third parties is flawed, the real question is whether wealth advisors should continue to embrace that model for their clients.

In fact, the investment consultant model may still work in a board-dominated, institutional investment world, but for wealth advisors responsible for the welfare and asset preservation of individuals and their families, it probably doesn't.

Perhaps, then, it’s time for advisors to recognize that picking money managers that beat the market is next to impossible – and adjust their business model accordingly.

A Different Focus
Rather than spend the time on selecting money managers, maybe a wealth advisor’s effort is better deployed on the other things that are also important to clients: Financial planning, tax strategy, asset allocation, behavioral support and wealth transfer, as well as exceptional service.

In fact, the Oxford researchers noted that “soft factors,” such as the quality of service, asset liability modelling and “handholding” during difficult markets, were important to institutional money managers too.


Eat Your Own Cooking
For wealth advisors, there’s a virtue in accepting the reality that it’s practically impossible to consistently pick money managers who will beat the market.  

Most wealth managers have come to that realization personally and invest their own assets in passive strategies sprinkled with a few hedge funds or private investments where the managers truly eat their own cooking.

Which leads to the next key issue. How authentic can you be to your clients if you’re managing your money using a different strategy than you are recommending?

It’s a very slippery slope to recommend one strategy for your clients, and follow another with your own money.  You too need to eat your own cooking.

At the end of the day, wealth advisory firms need to make sure they can deliver on their firm’s value proposition, but MOST importantly they need to believe it!

Thursday, September 26, 2013

Better Late Than Never

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.

But they did some good work.

First was a crackdown on the incentives for Wall Street’s highest-paid professionals. It was long overdue. Wall Street’s incentives were completely misaligned. The compensation for risk-taking and questionable deals produced too much bad behavior.

Then came the SEC’s recent proposal to force firms to disclose the pay differential between the CEO and the median compensation for employees. Back in the 1970s, the differential was 25 to 1. According to a recent story in The New York Times, the ratio today is 350 to 1 or 1000 to 1, depending on whose numbers you believe. Public disclosure of this ratio will pressure boards to manage the optics.

Wall Street’s Hotte$t Commodity
The latest rule to remake Wall Street is FINRA’s proposal requiring retail brokers to disclose the amount of their recruiting packages to all of their clients when they change firms. This idea has been bouncing around for as long as I can remember, and I have a strong point-of-view on the topic. (See “FINRA Saves The Three-Day Weekend,” August 2013, Wealth Consigliere)

Recruiting high-end stockbrokers has always been an arms race. Just like any arms-race, there is no winner. Disclosure of multi-million dollar recruiting packages will fundamentally change the recruiting game.  Time will tell if this change is for the better.

What Took Everyone So Long?
It took a disaster like the financial crisis to overhaul Wall Street for one simple reason. Money talks. Wall Street’s lobby is unbelievably strong. In fact, Wall Street didn’t really support these changes; it just decided not to fight them.

The bottom line is this: FINRA and the SEC got it right. It’s not often you can say that about regulators, but they did. All of us will be the beneficiaries. The trust that was destroyed will have an opportunity to come back.



We believe that you can’t legislate morality, but some new commandments can’t hurt.

Wednesday, August 28, 2013

Lessons Learned On My Summer Vacation


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 beautiful Atlantic all around me.

Addicted To the Action

Heading off the grid is actually more difficult than you think.  A recent McKinsey study shows just how addicted we are to our smart phones and email.

§         The average knowledge worker spends more than 25% of the day writing and responding to email. (yep)

§         80% continue to work and respond to email after they leave the office. (I do that too)

§        59% check email before they go to bed. (bad idea)

§        I was horrified to read that 38% check email during dinner (guilty!).

The Virtues of Going Dark

Being unplugged forced me to slow down and think. That was very valuable, and it is a time-tested tactic.

Bill Gates used to take two “Think Weeks” each year and go to an isolated cabin or resort to contemplate. Peter Drucker in his classic book, The Effective Executive, emphasized that the differentiator between successful and unsuccessful executives is their ability to slow down and think.
Once I was unplugged, ideas big and small – about life, business and family – came to me one after another. Without the daily urgency to react to the digital firehose, my mind and heart wandered to the places it needed to go.

That was pleasant enough.  Equally as refreshing was the reminder that the world didn’t stop when I turned off my phone. My stocks and investments were still there. So was my company.

It’s not just adults who learn on their summer vacation, either. Children love slowing down. The kids I teach at Sunday school all come back aglow from summer camp.

It’s not surprising why they do: No homework, no parental or BFF drama, no shuffling from one activity to another. Just the freedom to do as you please.



Note to self: You don’t have to take a vacation to turn off your phone.

Thursday, July 25, 2013

FINRA Saves Three-Day Weekend


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 wont be required by FINRA.

Brokers and Holidays
When brokers do move, its 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 brokers clients.  With a skeletal crew, the firm's retention plan will have to wait until people return from the long weekend.  Even a few days makes a difference in getting clients to follow the breakaway advisor.

Why Should We Care?
Recruiting checks are one way, albeit flawed in our view, to monetize the hard work of brokers.  (See our white paper on the topic.) Before recruiting checks, brokers were like baseball players prior to free agency they were captives of their firms.
           

St. Louis Cardinal legend Curt Flood ushered in economic freedom for baseball players when courts ruled with him that players are not the property of owners and could sell their services to whomever they like for the maximum price.

Recruiting checks, in essence, are the equivalent of free agency.  We believe elite brokers are like Hall-of-Famers theyre worth the large sums of money they command.

A Mixed Bag
However, there are a number of drawbacks with the checks, and they start with the motivation of the broker. Big checks are often the primary reason many move, but you wouldnt know it from the altruistic emails sent to clients that say, were moving to serve you better.

Really? For that matter, have you ever seen a client email disclosing the brokers recruiting check?

This lack of transparency reminded me of my friend who received the exact same email from two brokers at different firms explaining their reasons for leaving to go to the other broker's firm.

In fact, FINRA believes brokers are leaving for the money. We agree with FINRA that he checks are not in the best interests of clients.

But we also question their value to brokers.  The loan forgiveness at nine years is too long.  The punitive performance incentives mean that many brokers will never receive the full amount advertised.  Whats more, it distracts from the bigger prize: Brokers can often make more money and serve their clients better by starting their own firm.

Elite brokers deserve to be well compensated, but we think recruiting checks have serious drawbacks for everyone.   The FINRA rule, if implemented, might actually force brokers to not leave for the recruiting check. A positive in our opinion for brokers and their clients.



Sometimes we need to be forced to eat our vegetables.

Thursday, June 27, 2013

21st Century Skills


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 21st 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 21st century skills to the following:



1.      Resilience
2.      Self-awareness
3.      Risk-taking
4.      Creativity
5.      Discernment
6.      Collaboration

Applying these essential skills is just as important for our kids as it is for professionals in the wealth management business.

Good Kids And Wealth Advisors

Resilience is critical not only for our kids, but as investors. Rebounding from failure or multiple attempts at success is the real world. It’s also character building.

Self-awareness is imperative because we need to be aware of how we impact others. This virtue seems to be lacking in younger people today. For advisors, understanding how your behavior and actions affect others is vital.

Risk-taking is what helps you get ahead. If you or your kids don’t take risk, you won’t succeed. After the financial crisis, people were too risk averse. You have to take thoughtful risk to advance.

Creativity is necessary for keeping an open mind about your portfolio. The markets are constantly changing. The creative mind sees opportunities where others don’t.


Discernment helps avoid disaster. For clients, discernment means the ability to judge your advisor. For advisors, it’s the ability to judge money managers and investment opportunities . A lack of discernment is the reason a fool and his money are soon parted.

Collaboration produces the most successful kind of wealth advisory relationships. An investor needs an advisor as a sounding board – and vice versa. If you collaborate with your advisor, you have a partner that can help you manage the risk in today’s financial markets.


These skills help will help our children live their dreams. Why shouldn't we take the same approach with our money?

Friday, May 24, 2013

Scale This



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 management runs counter to the conventional wisdom in financial services.

The six largest international banking companies, all of which have large wealth management units, control 50% of the industry’s revenue according to a recent special report from The Economist

Size matters in international banking because it translates into efficiency and lower costs. The banking giants have grown enormously, powered in part by cheap funding and supported by the predictable fees from their wealth management businesses.

However, the benefit of the wealth management business providing financial support many have run it course. As banks get bigger and bigger, wealth management’s contribution diminishes.

While the institutional asset management business and trading businesses will continue to consolidate because they do benefit from scale, the business of serving individual clients with $5 million or $10 million won’t.  That’s a good development for everyone involved – clients and advisors.

Why Bigger is Not Better

There are two reasons why scalability doesn’t work in serving high-end clients.

First, high-end wealth management requires truly customized solutions. Every person or family has slightly different or even wildly different objectives and circumstances.  Clients don’t all want the same thing. That’s different from a scale business like international banking or manufacturing.  With either one, big investments in infrastructure support higher volume, which in turn drives greater profitability.

Second, wealth advisory is capacity constrained on two levels – staffing and client load.  Wealthy clients have complex needs that demand experienced, skilled practitioners who are in short supply.  The wealthy often require multiple complex services ranging from investment management to family governance – often all at once.  Very few advisors can make the grade.  The largest wealth management firms have attempted to meet the advisor talent shortage by writing hefty recruiting checks because the current staff at Wall Street firms simply can’t meet the sophisticated needs of these highly prized individual clients.

In addition, a competent wealth manager should be able to handle a maximum of 25 to 40 clients with assets of $5 million or more. More than that, all parties suffer. Wealth management is personal. It’s not simply business. An advisor plays a disproportionately large role in the life of a high net worth client.  An advisor is central to a client’s lifestyle, and it’s normal to keep tabs on the person helping finance all the fun.

A successful client relationship also requires ongoing trust. That requires more time and personal attention.  Given the mistrust created by the financial crisis, an advisor needs to continually earn a client’s trust. That, too, takes time; there are only 24 hours in a day and no shortcuts.

How Much Is Enough?

For independent advisors, a lack of scalability isn’t necessarily bad.

Compared to wirehouse advisors, independents who service $250 million or more in fee-paying assets will keep significantly more of their revenue. They’ll make a very comfortable living, sleep better and enjoy work more.  Advisors will reap the psychic rewards of seeing people succeed.

On the other hand, if money is the overriding motivation, which it used to be for many who ventured into the business, that’s a mistake.  With that attitude, an advisor is ultimately destined for a grim crossroad: Me vs. them.  Do I take more for myself at the expense of my clients? The big firms have already sold out. Proprietary products and scale are a clear expression of, “It’s us before them.”

All of which raises one more philosophical question: How much is enough? If an advisor is living well and truly making a difference in the lives of others, isn’t that more than enough?  In the go-go days of Wall Street, wealth management was a ticket to riches. Those days are gone.

Independent wealth management is a mindset game NOT a numbers game.

Wednesday, April 24, 2013

Finding the next Tom Brady


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 the tests. But the graduate of Serra High School in San Mateo is one of the best quarterbacks to ever play the game. Now in his 14th season, Brady has played in five Super Bowls and won three of them. Ask nine out of 10 NFL diehards about the best draft pick ever, and Brady will be right up there.


The Legendary Gil Brandt
How do you find the next Tom Brady?  Gil Brandt, the GM for the Dallas Cowboys from 1960 to 1988, was a master.


He chose one of the greatest quarterbacks ever, Hall-of-Famer Roger Staubach – not in the sixth round but in the 10th round! His first choice in the NFL draft was lineman Bob Lilly, another Hall-of-Famer. Gil’s got street cred on the topic.

Gil succeeded largely without the benefit of computers and a team of statisticians pouring over data. He did it the old fashioned-way. He would get to know the player, talk to the player’s parents, travel to the town where a player lived and ask locals what they thought of him.


Character Matters
Insights about a person’s character are especially important when you consider a wealth manager. At the end of the day, as Gil Brandt knew, character matters – a lot. It’s what sets people apart.

The good news is that it’s never been easier to evaluate someone. A client can learn about a financial advisor in just a few minutes: Do a Google search, check out an advisor’s LinkedIn profile, read their blog or follow them on Twitter.

After the research, it’s critical to ask for at least several meetings before making a choice. If an advisor won’t spend time with you while you are a prospect, imagine how you will be treated when you are client.

And ask for references. A friend of mine, a great wealth advisor, has a very unique approach to providing references to prospective clients: He offers up as many clients as the prospect would like to speak to.

If you match the information found online with face-to-face meetings, you can make a reasonable assessment of character.  


With due diligence there’s a better chance of spotting people with character flaws, like former San Diego draft bust  Ryan Leaf. Once considered a true talent, Leaf’s life has unfortunately unraveled and is now facing a number of criminal charges.

While there are no guarantees you’re going to choose a wealth advisor that performs like Tom Brady or Roger Staubach, you’re going to increase your chances of success if you spend the time focusing on their character not just their past performance.

Wednesday, March 27, 2013

We Need Another Rooney Rule


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 21st 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 7th 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, Wall Street has always been a good ole’ boys’ club. The financial crisis exposed the dangers of insular thinking and greed.

The financial meltdown was in large measure the result of compensation schemes that motivated Wall Street to take outsized risks with firm capital. 

Compensation got out of hand because there was an asymmetry between pay and performance. When Wall Street took big risks and it worked, the payday was huge. When big risk failed, taxpayers in the U.S., Iceland and elsewhere picked up the tab.


Enter Tough Love
Did Wall Street know this compensation problem existed? Yes. Did it do anything about it? No. 

This issue needs to be addressed, and it’s already happening.

The first salvo was fired in the European Union. In early March, European Parliament and member states capped bonuses at no more than the annual salary for bankers working in the EU and for those working for European-based banks worldwide.

This week, voters in Switzerland overwhelmingly backed an initiative to give shareholders of Swiss-listed companies control over executive pay. The law limits severance packages, side contracts, and rewards for buying or selling company divisions.

Ironically, 100 years ago, J.P Morgan himself said that the CEO should never make more than 20 times the lowest paid employee!

All Eyes on FINRA
Recently, the spotlight has shifted to wealth advisors in the U.S.

FINRA has proposed a new rule requiring that wealth advisors fully disclose to clients the large recruiting check they receive when changing firms. The rule hasn’t been passed yet, but the comment period for this new statute ended two weeks ago. Surprisingly, two of the largest brokerage firms have already come out in support of the rule.  If it does pass, the prospect of taking a recruiting check is likely to be far less appealing for many advisors.

Our question is, will the proposed rule just hurt advisors' bottom line or will it protect the firms from continuing to make poor financial decisions?

Bottom Line
The Wealth Consigliere is not an advocate of government intervention, but a Rooney Rule in financial services is long overdue. The elephant in the room is compensation and it needs to be addressed.

Sometimes we just need someone to say, “This just ain’t right.”

Friday, March 1, 2013

Listen to your Periodontist



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 realize someday they will need to leave their firm. It’s a festering worry about their future, but things aren't quite bad enough right now to opt for independence.

But then a merger comes (bacterial plaque). Or the payout goes down (tooth ache). Or your company forces you to offer products you don’t believe in (lost molar). Or the technology platform blows up and drives away your clients (root canal).

My friend was correct. Sanctuary is like the periodontist for elite advisors. Many of these advisors know they should be doing something, but are instead standing pat. The recent story in InvestmentNews about the dearth of breakaway advisors is Exhibit A.

Are you a Periodontist?

While Sanctuary-as-periodontist is an apt analogy, the same idea holds true for wealth advisors and clients.

A responsible wealth advisor looks at a client’s portfolio and suggests that a risky portfolio needs to be addressed. The client responds by saying, “My portfolio was up 15% last year. Why should we change?” Then nothing happens until there is a traumatic market event.

In fact, most investors still haven’t gotten back into the market because the financial crisis was so painful. The result is that many are afraid, but that could be just as disastrous if they miss the next rally.

Listen to Your “Periodontist”

There are a lot of well-meaning advisors we don’t listen to in our lives. The list includes our spouse, parents or friends. The lesson learned after we've ignored good advice is that we should have listened. Distraction or hubris is usually the culprit.

The moral of the story: Listen to your “periodonist” before your teeth fall out!

Sunday, January 27, 2013

Don't do as I say


Niels Bohr, winner of the Nobel prize in physics and shrewd observer of the human condition, once said: “Prediction is very difficult, especially if it's about the future.

And when the forecasts are made by the investment pundits, that’s doubly true.

The fact is many places we turn for insight about the future are wrong.  The irony is that most people – whether advisor or investor – instinctively know not to trust the soothsayers on CNBC commercials  or the fulminating blogger listing the 10 hottest stocks of 2013.

Yet we listen anyway, discounting what they say almost automatically.  Then in a quiet moment, their perspective delivered with the Super Bowl-like confidence starts whispering:

“You should seriously consider my firm’s top 10 ideas for 2013.”

The more famous the prognosticator, the more likely it will stick in your head.


World Domination – No Problem
A recent study by two UK professors confirmed just how wrong the experts can be when it comes to investing.

Their survey of U.S. fund managers concluded that “excessive levels of overconfidence interfere with sound investment decision-making and thereby diminish future investment returns.” The headline in the Financial Times said it all:Beware the dangers of overinflated egos.

Since you’re probably as sick as we are of reading predictions for 2013 from the cocksure, the Wealth Consigliere simply won’t go there.

In our view, there are two types of blogs – those that make predictions and those that stick to the facts.   We’ll stay firmly in the second camp.

Nobody knows what will happen in the financial markets or anywhere else for that matter. That’s true, whether you’re managing wealth yourself or for your clients.





Death & Taxes
However, one thing we do know with absolutely certainty in 2013:  Taxes are going up. Way up.

Federal incomes taxes are rising. Capital gains and dividend tax rates are reaching skyward. If you live in California, state taxes are at escape velocity.  All of these increases are fact.

Depending on your income bracket, that can translate into real money and could have a much larger impact on your net worth than a prognosticator’s  “top picks”.  Tax planning is not as sexy as "picking stocks" but in 2013 it can be much more satsifying.


Seek Advice
What should you do?

We’re not advocating Phil Mickelson’s move out of the California to protest the Golden State’s accelerating tax burden. But we do advocate spending time with your advisors – your wealth manager as well as your accountant, tax attorney or estate planner.

If ever there was a time to structure wealth appropriately for tax purposes, it’s now. With a slew of taxes hitting at once, one of the smartest moves you can make is managing your tax liability. Finding an advisor who is knowledgable on the new tax law is a better use of your time than looking for an advsior that can select the best investments for 2013.


There is an old adage that those who can’t do - teach. We’d like to add to that: People that can’t invest - make predictions.