I spent the first 10 years of my career working in institutional asset management.
I learned a lot in that space.
The last 10 years have been in the power management channel. This still includes a few non-profit organizations, but also includes individuals, families, company pension plans and customers of the family office.
Here are 10 things I learned in my 10 years of working in Wealth Management:
1. Alpha is overestimated. Outperance was the only thing people about in the institutional investment world. I understand why intelligent people have the desire to surpass the market, but an obsession with Alfa can be harmful to your investment plan.
It leads to unnecessary risks, more portfolio changes and a short -term mindset. Moreover, there is the fact that beating the market is difficult!
The only benchmark that really matters is this: are you on your way to achieve your goals?
2. Trust is important. A product is tangible. You can look at it, feel and know when it is ready and ready to use.
Services are intangible. You will not experience service before you undertake to pay for it. Financial services are not an end product, but a continuous process.
That is why trust is such an important part for financial advisers and their customers.
It doesn’t matter how smart you are or how good your sales skills are if you can’t get the trust of people.
3. Process in everything is the key. Being process -oriented means that you diagnose a problem before you offer a solution, make rules to guide your actions and sometimes understand that the results are outside your control.
But you need processes to survive an unknowable future.
Process in financial planning. Process in portfolio management. Process in customer communication.
You need to know when you have to deviate on the way and apply course corrections.
But it is impossible to survive in the markets or the asset management company if you are not highly dependent on a well -thought -out process.
4. Philosophy must be universal. Strategy must be personal. Everyone in an asset management company has to row the same direction to make things run smoothly. You need everyone on the same page when it comes to the umbrella philosophy for investments, financial plans and customer experience. No rogue agents.
But the individual strategy for every customer must be personalized if it starts working. Everyone has different circumstances, needs and desires and you have to build them in the plan.
The customer always has more buy-in when the extensive plan is tailored to their specific situation.
5. There are many good retail investors. In the past there was a stigma connected to mom and pop -retail investors.
They are the stupid money. They are the loser on the poker table. They buy high and sell low.
Is that still the case with some investors? Certainly and it will always be.
But nowadays there are so many more good do -the self -investors than ever before. I know because I have seen thousands of different portfolios and track records.
Not everyone is looking for a financial adviser because their behavior is a disaster. There are many people who have built wealth in the right way that just need more expertise in financial planning, want to outsource because their time is valuable or must ensure that their family is cared for if something happened to them.
6. Many people need help to spend money. Over the years I have written and spoke enough about this idea.
Americans are consumers in heart and soul. I never expected that so many people would have trouble spending their savings, but this is a real psychological obstacle.
It is difficult to save 30-40 years of saving and to build your ability to spend it and see it decrease.
Financial advisers can offer their customers a valuable service by helping them to give their money more confidence.
7. There are no rival financial consultancy firms. There were thousands of advisers at our future evidence event last week. None of them behaved as competitors.
Instead, people created bonds with their colleagues, shared best practices and tried to help each other to improve their business prospects and customer toolkit.
It is a cooperation industry without natural rivals. Some companies are better for certain types of customers than others. Some customers want different things. Some companies want to grow, while others are happy where they are.
One of the neat things of the financial advice space is that there are all different types of companies and business models, and they all have their own race.
8. Communication is a form of risk management. There are many forms of risk management. Diversity. Assets allocation. Hedging. Options. Position format. Stop-Loss orders. Trend-seven. Re -balance. Asset liability matching.
I could continue.
One of the best risk management tools in the asset management industry is communication.
The best financial advisers understand their customers. They know with which they should be proactive during unpleasant market environments.
Communicating what you do, when you do it and why you do it, can be one of the most useful ways to manage the risk on behalf of a customer.
9. Wealth is always in the eye of the viewer. I spoke with people with tens of millions of dollars who don’t feel rich. I spoke with people with much less money that cannot believe how happy they are to have enough money to retire.
For some people, $ 5 million can be life -changing money and not nearly enough for others.
No number really ensures that you feel rich. It all depends on your expectations and surroundings.
Your burn speed and proximity to other rich people often have a much greater impact on your feelings about wealth than some figures on a spreadsheet.
10. Simplicity wins. Complexity is easier to sell, but the more complex a financial plan or portfolio becomes, the harder it is for customers to stick to it. Simple strategies, when clearly defined and explained, work better in the long term.
But simple is more difficult than complex.
You have to fight to keep things easy, because your natural tendencies make you susceptible to stories and stories. Simplicity is more of a psychological exercise, while complexity is more about trying to outsmart the competition.
Complex problems such as the markets or financial plans do not require complex solutions.
Charlie Munger once said: “Simplicity has a way to improve performance by enabling us to better understand what we do.”
This applies to both financial advisers and customers.
Michael and I talked about a few things we have learned by building an asset management company at our living animal spirits of Future Proof in Huntington Beach this week:
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20 lessons from 20 years to manage money
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