The Wealth Consigliere

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...

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 ...

“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...