July 13, 2011


Everyone knows that in the world of financial services there are good clients and not so good ones. That being said the not so good ones can’t be faulted for their place in line. They simply are not open to trusting the advice they hear preferring instead to reach out to friends and family for what is often perceived as unbiased delivery. Well, I’m here to say that sometimes that makes good sense, but most of the time it doesn’t.
Part of the problem is that friends and family are dispensing free advice on managing investments, while the real challenge for me was always in managing expectations. Investments are part science and part discipline, while markets, the real drivers of investment returns, are mostly emotions. Simply put there is an over informed army people who believe that an advisor can fashion a conservative investment portfolio that is wrapped in excitement.
What does that mean? It means that cash, stocks, bonds and mutual funds, while proven vehicles for investors of all economy, don’t have zing. Zing you say? Take options for example, most people believe they are crucial to returns as the premium contains a defined loss against the back drop of a larger gain. If that were true though, why not be a seller of options, take the premium and let the other sucker think the loss is manageable leverage. Because it’s exciting and the savvy advisor that peddles exciting is the advisor in demand, despite the near certainty of disappointment. Investment has become a game of chance where some stupid notion that dynamic positioning can be harnessed while tactical positioning through asset allocation and dynamic “rebalancing” is soooooo yesterday.
This neat trick is easy since friends and family don’t have to measure up to accountability. Not that they don’t have good intent, but whoever one approaches for advices should remember that trust is only the assurance of that intent not of the quality of the advice. Much of the info-gluttonous public believes every shred of information found in a Google search is evidence as long as it’s persuasive and compelling. Fine in the court of law, but in the wide open spaces of commerce no clue is certain in the markets even under the pressure of the judgmental bias that often drives it. A conservative approach to investment starts with risk tolerance. Namely, conservative can mean cautious to one person and a much riskier approach to another and neither has to be exciting. That idea isn’t sexy, but it works.

No comments: