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Two background items to set the stage:

First stage setter – the general perception is a financial advisor’s value lives in their investment acumen.  For some, maybe.  For most, it’s not the case.

That’s not a bad thing and not a knock on anybody. As we said in our last post, the best financial advisors are the ones that spend their time with clients to think and communicate through financial planning issues of all shapes and sizes.  They simplify the complex, shift focus to the things that matter, and facilitate control of the controllables. That’s a demanding job.  The investing component is just that, a component.

To summarize our first stage setter – the value of a financial advisor shouldn’t be positioned as an investment guru with the ability to pick the best stocks, managers, strategies, etc.

Second stage setter – We believe a solid investment approach, that is stuck with, produces better outcomes than the revolving door of chasing the best.  Advisors should strive to be solid and sticky.

Back to the matter at hand – performance chasing

When it comes to finding a third-party investment resource, advisors are bombarded with material now.  Everybody and their mom and then her mom offers models.

Feel free to read any methodology paper and it’s sure to highlight their intellectual capabilities with phrases like this, “meet our team of PHDs” or “built upon Nobel prize winning research”, and without a doubt, they will use fancy words and phrases, “efficient frontier, mean variance optimization, Monte-Carlo simulations, etc”.  It’s all in effort to convince you their HOW is better even though the lifeblood of your client base doesn’t give a crap.

If you want to waste time – go find the best HOW.  No matter your measurement for best (which is an infinite loop itself), your quest will never end.  As soon as you find the best – the best changes.  That’s how it works in the investing world, different styles and approaches to portfolio construction will ebb and flow in and out of favor.

Find what is sufficient, dig in to make sure methodology is sound, gain an understanding, and allocate your time and energy towards the things that truly impact your clients.  If the how is solid, the market will take care of the rest.

Closing

The investment approach is far less important to the financial success of your clients than everything else.  Your allocation of time and energy should reflect that.

Our hope is that we can make a dent to diminish the natural tendency to want to chase the next best thing.  We believe we have designed our investment offering, relationship, and all that comes with it, to produce the margin needed that facilitates “everything else”.

We want to wrap our advisors in an environment of unmatchable service, superior economics, and consistent communication that facilitates an understanding of what matters and what does not at the client level.  We want to re-frame and re-position the portfolio discussion as a part of the meeting, not the meat of the meeting.  We want to pull them out of homing in on the things that cannot be controlled to the things that can. That’s what narrows client’s focus to the important stuff, and levels out the field of accountability.   It’s the creation of this environment that excites us most, our investment piece is just a component.

If you use us, great.  If not, that’s great too – there are plenty of HOWs out there that are more than sufficient. A solid HOW, that’s stuck with, is far better than performance chasing.

Conviction in process, and the understanding required to gain that conviction, directly improves potential outcome.  Do the work now to prevent the drag of ongoing and unending performance chasing.  Keep in mind, simple beats complex.

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Custom models, off the shelf models, and everything in between – that’s what we do day in and day out.  Fortunately, we are busy. We’ve carved out a niche to provide service and economics for advisors exploring how to leverage the efficiency that models potentially bring to their business.  There’s no shortage of advisors looking. This content is relevant for advisors and clients considering hiring a financial advisor.

Some advisors view “models” as a bad word for clients to hear.  “I want to avoid using the word models because my clients want customization” – some form of that sentence is shared quite often.  Is that really what clients want?

Here’s the difference in models and custom portfolios that’s not made enough:

• Model portfolios are thought about.  They are monitored, updated, and discussed consistently.
• “Custom” accounts on the other hand, are on an island. Only looked at a couple hours before meetings to jog the advisor’s memory.

I’m generalizing what I’ve seen, maybe, but not by much.  Here’s why:

The typical financial advisor works with multiple families, at least 50, and sometimes a whole lot more.  Each of those families will have an average of 2 to 3 accounts with the advisor and each of those families will come with a list of planning demands.  Some complex, some simple.

The best financial advisors are the ones that spend their time with clients to think and communicate through financial planning issues of all shapes and sizes.  They simplify the complex, shift focus to the things that matter, and facilitate control of the controllables. That doesn’t get accomplished during one meeting.

To think advisors can customize each account they manage and performing the necessary due diligence on each holding assumes they have the time and resources to do so.  They don’t, it’s why our business exists. If they tell you they are doing both, planning and investment wizardry, I’d think twice before signing that paperwork. Deductive reasoning (a fancy way of saying common sense) tells us otherwise.

Rather than think about what clients don’t want, we think about what they do want.  A trusted advisor and the comfort that their portfolio is being monitored and thought about consistently.  We believe we have built the infrastructure and team to help advisors deliver both.

Thanks for reading and please keep in mind, Simple Beats Complex.

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