Anatomy of a conference call: the video
This brings back memories (nightmares) from when I worked at a bank.
Just say no to conference calls.
Frisco Financial Planning LLC
Investment portfolio design with a Christian worldview
Filed undermy practice
But what if something happens to you?
I occasionally get the question: "but what if something happens to you?"
Meaning, if I die or become incapacitated, where will my clients turn for help?
This question is often planted by brokers to imply that because they are employed by a big firm, their clients have a built-in succession plan (brokerage firms stand ready with a replacement, but a "court-appointed" broker typically isn't the type that is sought after).
So, here's the answer: If I die or become incapacitated, you'll have to find a new financial planner. Just like if your doctor dies, you'll have to find a new doctor. Or, if your attorney dies, you'll have to find a new attorney.
A better question to ask yourself is: "if my broker bails to another firm, do I want to be in the middle of a signing bonus quarrel while each party's attorneys squabble over who I belong to?"
If you are my client, you don't belong to me. You've trusted me with the privilege of working hard on your behalf. You are free to leave any time and I hope that the quality of my work acknowledges that I don't take you for granted.
Alas, if you must have a backup plan, here it is:
"Now it is required that those who have been given a trust must prove faithful."
-- 1 Corinthians 4:2
For more on the "big v. solo" issue, read these related posts:
Small is the new big. Solo is the new small and The power of one.
Small is the new big. Solo is the new small and The power of one.
Why the broker fiduciary battle ultimately won't matter
A quiet battle has been going on recently regarding the "broker exemption" to the rule requiring investment advisers to adhere to a fiduciary standard of care with their clients.
The Investment adviser act, a more than sixty-year old piece of legislation, requires registered investment advisers to give advice that is "solely in the best interest of their clients."
Broker-dealer firms are exempted from this requirement and are instead subject to a "suitability" standard of care (ie, unless an investment is ultimately deemed "unsuitable," the broker has fulfilled his legal role, even if, for example, the investment lines his pockets more than another, perhaps, more suitable investment).
A grassroots effort has emerged within several of the financial planning community's trade organizations to lobby legislation that would "level the playing field," eliminating the broker exemption and requiring all financial practitioners to adhere to a fiduciary standard. If I haven't just lost you to a fit of narcolepsy, you can read more in this article.
While I support and applaud the effort, l don't believe legislation is required to bring about the desired change to the industry.
Why?
Because the change is happening now and is inevitable, with or without legislation. The solution is not a fiduciary standard of care. Who defines what is "solely in the best interest of a client" anyway?
If you asked ten different financial practitioners, you would probably get ten different answers, in the same way that ten different cardiac specialists might diagnose and treat a heart patient's condition in ten different ways.
The real issue is that financial institutions manufacture, distribute, and recommend investment products to the public in an environment of "information asymmetry." This is not unlike the day long ago when many doctors both wrote and filled prescriptions.
A fiduciary standard won't change the fact that a gross conflict of interest exists when an entity serves as both the producer and recommender/endorser of a product, particularly when that product is one that is complicated and misunderstood by most lay people.
But here's the good news:
- An alternative exists, namely independent, fee-only investment advisers operating solely in the realm of financial advice, away from the product manufacturing side of the industry.
- There is an increasing supply of advisers who operate this way as more and more practitioners become disgusted with the industry and start their own practices.
- There is an increasing demand for these advisers as consumers look for and find the alternative that serves solely their interests.
- The internet allows both parties to leverage technology and spread the word "virally," causing the new financial order to spread quickly.
Now the bad news:
If you are a financial institution, you need to quickly decide whether you want to be the doctor (advice-giver), the pharmaceutical company (product manufacturer), or the pharmacist (distributor) in this equation and act accordingly (and quickly). Because the day that you can egregiously "serve" the public in more than one of these roles is disappearing fast.
The power of one
Hire the smallest organization that can effectively deliver the product or service you require.
To safely and cost-effectively fly across the country, a commercial airline is required.
You need a pilot, some mechanics, baggage handlers, and flight attendants to pull it off.
To create and implement an investment and financial plan, you need one person (chosen carefully).
As an organization adds people, it adds complexity, communication challenges, scheduling issues, differences of opinion, layers of bureaucracy and overhead,
and lack of accountability. You "institutionalize" the organization (a fancy term for "de-personalizing;" good for the organization, bad for the client).
"I don't go to meetings. I don't write memos. I don't have staff. I don't commute.
The goal is to strip away anything that looks productive but doesn't involve shipping [delivering the service to the client]""How many handshakes do you need to introduce three people? Three. Four people need twice as many, six. And five people? Ten.
Coordinating teams of people becomes exponentially more difficult as the group gets larger. And for important projects in an organization
with something to lose, the group pushes to get larger."-- Seth Godin from Linchpin: Are You Indispensable?
Small is the new big. Solo is the new small.
Big financial institutions have planted an idea in many people's heads that bigger is better.
In fact, the word "institution" is defined as "an established organization or corporation," implying stability and permanence.
So, let's take a step back and examine exactly what you are paying for when you engage a financial adviser.
Financial products (mutual funds, insurance policies, annuities, stocks, bonds, mortgages) are commodities.
There is no shortage of excellent financial "tools" available to help solve most financial problems.
Many of the best products can be had at very low cost (in some cases, this is exactly what makes them the best).
Technology now exists that allows you to easily, accurately, and cost-effectively execute a sound investment strategy.
So what's left? What's worth paying for?
Examining history, however, leads us to conclude that large financial institutions are anything but stable or permanent.
So, let's take a step back and examine exactly what you are paying for when you engage a financial adviser.
Financial products (mutual funds, insurance policies, annuities, stocks, bonds, mortgages) are commodities.
There is no shortage of excellent financial "tools" available to help solve most financial problems.
Many of the best products can be had at very low cost (in some cases, this is exactly what makes them the best).
Technology now exists that allows you to easily, accurately, and cost-effectively execute a sound investment strategy.
So what's left? What's worth paying for?
Intellectual capital.
The worldview, experience, education, and insight of a particular person. Not people, not company, not institution.Objectivity.
A business model and fee structure that (to the greatest degree possible) eliminates partiality and conflict of interest. Efficiency.
A low overhead, low bureaucracy environment that strips away as much wasted time, energy, effort, and cost as possible while delivering simple, effective strategies.
So are big companies bad? Not necessarily. But small and especially solo financial advisers (who are also independent and fee-only) offer investors a unique opportunity to leave behind a bureaucratic, cumbersome, and short-term, profit-fixated business model in favor of a nimble, independent, long-term focus.
Why I take pictures of my clients
I ask everyone I meet with to email me a digital picture of their family. If they don't oblige, I politely ask them to let me take their picture. Strange?
First consider the nature of my work: as a solo investment adviser and financial planner, my work is memory-intensive, requiring me to analyze and remember financial details about many different people. I keep good notes but it's amazing the power that a picture has in bringing details of past conversations back to life.
Second, If I'm not careful, I can easily forget that the cases I'm working on are connected to real people.
Three of whom have cancer (one recently diagnosed, another battling it after several years, another in remission) and one with Parkinson's. One couple is going through a divorce and another looking at the possibility. Two widows are coping with grief and life on their own.
Two young couples are celebrating the birth of children, one small business owner is creating a better life for himself, his family, and his employees. Several corporate and non-profit executives are leading huge enterprises. These are just a few examples.
These people and many more need my best work and my prayers. Pictures help me do that.
So here's a picture of me and my family. Don't be surprised if I ask you for one.
