I have now spent nearly 11 years at a prominent trust company managing the affairs of the nation’s wealthy. At many levels, I would describe this experience to newcomers as similar to being an exceedingly well-compensated golf caddy. In golf, caddies are tasked with steering their players around unfamiliar terrain, diagnosing risks, providing advice that makes them as successful as possible – and, of course, limiting the damage when disaster inevitably strikes. Wealth management and the investment strategies it entails are no different. As in the world of golf, caddies get to go to nice places, mingle with successful people and advise them on how to grow and protect their hard-won success. Nevertheless, you’re still always “the guy behind the guy” – never the guy actually swinging the clubs. So when push comes to shove, no matter how entertaining you (and the job) might be, the relationship starts and ends there. Ineffective money managers are 100% as disposable as ineffective caddies. The second you start believing you’re the star, it’s time either to become a player or get off the course . . . [Keep reading below – TRUST ME]
At its core, successful wealth management requires productively merging the needs, expectations and aspirations of three unique parties: the client, the adviser and the adviser’s firm.
Clients, almost by definition, are moving targets. Cash flow requirements, investment goals, tax consequences, emotional and family considerations all change over time – sometimes even over night. Proactively diagnosing and fixing such issues is a 24/7 job in which transparent adviser-client communication is indispensible. In that respect, golf is much easier: as long a caddie helps get their player’s ball in the hole 18 times in as few strokes as possible, win or lose, everyone has had an enjoyable day. If a client starts losing their wealth, however, their financial caddy often risks immediate unemployment – or worse. Not only is wealth management complex, it’s unquestionable one of the highest stakes “games” in existence.
In contrast, the needs and objectives of a financial management firm are relatively simple. Successful firms strive to accumulate as many revenue-generating clients as their architecture can support, service them as efficiently (i.e., with as few resources as possible), while always maintaining sufficient dignity, transparency and sophistication to prevent a mass exodus. Here too, golf offers an instructive analogy. Consider that business-oriented golf courses always aim to cycle as many players on and off the course as possible in tandem with selling lunches, cocktails, polo shirts, clubs and lessons. That’s just the nature of the beast. Wealth management companies, although radically different when it comes to corporate culture and strategy, nevertheless share remarkably similar business models.
Like their clients, an adviser’s various roles are significantly more nuanced – albeit in different ways. From a professional responsibility perspective, the adviser needs to show progress in assisting the client meet their stated and unstated goals. On top of that, as noted earlier, the adviser is not doing this out of charity. He or she needs to continuously prove the value of their services. Despite presumed improvements in technology and disclosure standards, this is actually more complex now than it used to be. In golf terms, caddies have to communicate constantly about yardages, greens, and technique in order to demonstrate their relevance. If they fail in these endeavors (essentially the ability to possess total situational awareness about a particular course and its players) they should rightfully expect only the smallest of tips. To understand the chief concerns facing advisers, just substitute the foregoing golf lingo for terms like “yield,” “after-tax returns” and “balanced portfolio management.” The point, however, is that the volume of information expected – and the speed at which it moves – have both grown exponentially. And clients demand all of it, all of the time.
There is also an added dynamic further complicating matters. The adviser generally has to constantly be acquiring new clients in order to help their firm’s underlying business model. In essence, you serve two masters. The resulting balancing-act requires the dexterity to be both a technician and a salesman simultaneously. And that’s a whole lot harder than it might sound.
First, the sales and support cycles are long and tedious. One must “tickle the feet” of the newly wealthy, reach out to the dissatisfied and constantly be ready to provide clear and convincing evidence that your fees are justifiable. It’s a courtship that begins (and then usually ends) with an unambiguous up or down vote. Second, once a client does choose to work with you, there is the process of introducing them into the administrative side of your firm (also known as the on-boarding process). Invariably, as in any business, there will always be certain issues that simply cannot be fully addressed, key personnel who unexpectedly disappear and an incessant series of challenging discussions about the future. For the adviser and client alike, one’s choice of firm can make or break relationships.
After my own 11 years navigating wealth management’s fairways, roughs and greens, certain truths have gradually become self-evident. I’m reminded in particular of something a former boss, Murray Stoltz, once told me that may sound trite but, over time, has hit home again and again: “You have to stand for something.” Standing for something in the competitive wealth business is a difficult task – one that is constantly evolving as investment fads, corporate cultures and organizations dramatically change and occasionally vanish entirely. In that type of environment, anyone without a clearly defined set of principles will never be the type of long-term thinker capable of holding onto their clients.
Therefore, whether you are a seasoned hedge fund manager, a professional in the private wealth space, someone interested in learning a bit more about investments generally or even just curious about an industry different than your own, I hope the various financial ruminations included on this blog will offer valuable food for thought. And, as always, I welcome discussion, disagreement, commentary and – within bounds – even a well-deserved insult or two.