Tomcats and brokers
For a lot of years now, more than a handful of people would have given their eyeteeth to be Tiger Woods, the greatest golfer the world has ever known. He had a beautiful wife, two great kids, a strong father figure, now deceased, perhaps a billion dollars in net worth, a squeaky-clean image, and a No. 1 ranking in the golf world.
Who’d want to be him now? Sure, some people would still trade places with him. But they’d be taking on a world of disillusionment.
Maybe it’s a sign of the times. Disillusionment seems to reign these days when it comes to investors and their feelings toward financial advisers. I noticed that since I started on this topic several weeks back, two other contributors in the financial press have taken up the cause, talking about the mistrust investors have these days about the people that charge them fees for advice that doesn’t ever seem to work out.
My colleague Larry MacDonald profiled several academic studies that showed, among other adverse findings, that clients who bought mutual funds through a broker achieved lower risk-adjusted returns, even before distribution costs were factored in, than investors who purchased funds directly.
And Dan Richards, a fixture in the Canadian investment industry and now a faculty member in the MBA program at the Rotman School at the University of Toronto, also chimed in. He wrote recently that “the erosion of trust in the investment industry among Canadians is a cause for concern. This drop in trust has come through loud and clear in my conversations with investors over the last year.”
I came about my respect for financial advisers honestly. For many years I trained these people, face to face in the classroom, as they worked their way through the Canadian Securities Course. They came from all walks of life, and were sponsored by all kinds of firms from investment dealers to banks to credit unions, mutual fund distributors, insurance companies and financial planning outfits.
But almost to a person they seemed genuine in their interest to learn about the market, and in serving their clients honestly and ethically. There were exceptions, of course, as there are in any industry. But the vast majority of them seemed to really care about the clients they either had or were going to have.
But then, it seems, something happens to them. Perhaps it’s the dog-eat-dog competition they face to meet commission targets. The sales side of the industry is very Darwinian in that respect.
We in the industry have known for years, based on regular surveys, that the No. 1 way to retain clients and get new ones is to develop a relationship with them. Investment performance, by contrast, ranks fourth.
So if an adviser has a choice between going to a client’s funeral, or calling a client to wish their daughter a happy birthday, or analyzing a bunch of stocks to find the best one, what are they going to do?
They’re going to the funeral, or they’re going to make that call. I’ve never known a client’s funeral to move the market, and I’ve never known a birthday to cause a stock to go up. But that’s what they do. Investment performance takes a back seat.
The reality of the industry today is that if your investment performance is good but your client relationships are bad, you’re likely to soon be out of the business. On the other hand, if you can sell but you can’t manage money, well, you’re likely to get tenure.
It’s sad, but that’s the way it is. And as a result, investors today are as disillusioned with their financial advisers as sports fans are with Tiger Woods.
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