The Wealth Consigliere

My late grandfather, who was born in 1910, loved to reminisce about the good old days. “When I was your age,” he would say, “I used to walk to school with all of my brothers. Didn’t matter what the weather was.  While we were trudging along, in sometimes freezing conditions, we always had a good time horsing around.” We clearly got the point: The good old days seemed so much better. We all knew they were much harder, too. Today, people don’t walk anywhere. In fact, those fortunate enough to work in Silicon Valley ride in air-conditioned buses, with Wifi and lattes available for all. No three-mile walk in the snow for them. American Heros TV journalist Tom Brokaw defined my grandfather’s cohorts as The Greatest Generation . Their greatness was the result of their worth ethic, their thrift and humility, and the incredible bond they formed in their personal relationships. This generation survived the Great Depression and World War II; very few compl...

The recent news cycle has been dominated by two very different stories that fascinate us: Facebook’s eye-popping, $19 billion deal for WhatsApp and the Obama administration’s growing concern about income inequality. How can these seemingly disparate points-of-view reconcile each other? Through the Pareto Efficiency Criteria , a well-respected economic theory about optimal economic growth. A Rising Tide The Pareto Efficiency Criteria states that as long as economic growth happens without hurting others, it’s good for an economy. In the San Francisco Bay Area, in particular, this concept is a hot topic. The explosion of IPO-driven wealth largely from tech entrepreneurs is creating an economic boom in the region. Some, though, argue there’s a downside. Prices for everything are higher. No doubt, there’s some truth to that, but there’s also the undeniable fact that when money is flowing, people spend more – a lot more. That does help everyone. To cont...

It’s rankings season, and we’re not dreaming of March Madness just around the corner and our chance to win a billion dollars . We’re talking about the wealth management industry’s plethora of benchmarks: Barron’s Top 1000 Advisors, InvestmentNews’ Top RIAs, Financial-Planning’s Top 50 Fee-Only Advisors. The list goes on. Since Wall Street’s instinct is that bigger is better, there’s glamor for both individual advisors and RIAs for topping these lists. But do the rankings really matter? After a career on Wall Street and now working with successful independent advisors, I see three points-of-view: 1) Rankings do matter; they reinforce the clients choice to hire an advisory firm; 2) Rankings are a distraction and don’t reveal anything meaningful; 3) Both points-of-view are valid. You can argue both sides of the argument. Why Rankings Matter With money mangers, it’s easy: Measure them by risk adjusted performance. For wealth managers, there is nothing so clear-...

The history of disintermediation has been very painful for industries and professionals of all kinds. Most never see the dislocation coming. In the information age, we’re savvy enough to realize that continual innovation will change the way we do our job. Counter-Intuitive As we set our goals for 2014, here’s a counter-intuitive idea to consider: Start disintermediating yourself now.  The Internet will render obsolete at least part of your value proposition over the next 10 to 15 years. The Three Stages of Disintermediation In the spirit of seeing around the corner, here’s the arc of distintermediation. Stage 1 is when early adopters embrace a new technology, product and service. These individuals are enamored with technology and how it creates opportunities to be better, smarter and faster. These people are early adopters by choice. Stage 2 is when a disruptive idea gains widespread awareness. Like all tech-inspired upheaval, establishment players r...

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. ...