Changing Names

We are changing our name from BlogOnWealth to:

  The Wealth Consigliere

Why?

Did you get married?  No - I'm already happily married.

Are you moving to Hollywood? No, but I have always wanted to know what Sting's real name was - Gordon Matthew Thomas Sumner.  Now I get it!

Are you going pro?  A name change worked for Ali, not so much for Ron Artest.  Why did he change his name to Metta World Peace?  I will let him explain.  Still don't get it.

We are changing our name because we screwed up and let our GoDaddy domain registration expire!

If you want to continue to read our blog you have three options.

1.) Read the blog on  The Wealth Consigliere Website

2.)  Subscribe by email.  You will receive an email invitation later today or you can subscribe on The Wealth Consigliere Website

3.)  Subscribe by RSS.

Hope you stay with us.

Thank You

JP Morgan and The Whale

The ongoing saga about J.P. Morgan’s multi-billion trading loss involving the “London whale” reminds us of a timeless story – the parable of Jonah and another whale in about 750 B.C.

As the legend goes, Jonah found it difficult to convince people to live the virtuous life, despite being held up as an example.  To pay for his failure, he was tossed out of his boat one day and was swallowed by a whale. After spending three days in the belly of the beast, he repented and promised to try again. The whale then spit him out.

J.P. Morgan’s trading blunder involved a different kind of whale – the so-called London whale. Since then, the London whale’s mammoth trading loss has engulfed an institution previously thought to be exemplary in risk management. The fallout has reignited the debate about proprietary trading, the Volcker Rule and too-big-to-fail.

The modern and ancient storylines are similar, but it’s an open question how J.P. Morgan will re-emerge from the whale.

Were they lucky or good?

Post-crisis, J.P. Morgan found it difficult to live by the Dimon Principle, which is supposed to guard against stupidity born of hubris.

The Dimon Principle and advanced risk management techniques, such as value at risk (VaR), were a key reason J.P. Morgan was one of the most successful in protecting assets during the financial crisis. Unlike the reputation of other bankers, Jamie Dimon’s grew in stature after the crisis because the bank appeared to manage risk so well.

VaR was a core of the bank’s risk management strategy. This technique was supposed to help the bank quantify risk.  In the end, it didn’t work.  The VaR reported to Mr. Dimon showed the trade made by the London whale had a VaR of less than $100 million, not the reported loss of $2 billion that could possibly grow to over $5 billion.

This is not the first time risk management models have failed Wall Street.  The subprime mortgage debacle that triggered the financial crisis is a recent example of a sophisticated model that faltered badly. Mortgage lenders, aided by investment banks and ratings agencies, believed they had cracked the code and were able to properly measure the risk in lending to people previously considered too dodgy for a home loan. We know what happed next.

Is Redemption Next?

To redeem itself, J.P. Morgan has admirably tried to make amends.

Mr. Dimon has owned up to the problem and has admitted that avoidable mistakes were made. He held a conference call to discuss the loss, went on Sunday talk shows, and will testify before Congress.  Those responsible for the loss have resigned or been fired.

The real question is whether J.P. Morgan will renounce proprietary trading – the root cause of the problem.

It’s quite possible it won’t.

There is too much money to be made in proprietary trading. J.P. Morgan, like the rest of Wall Street, relies on “prop trading” to produce huge profits. In fact, big financial institutions still have as strong an incentive as ever to take the unrepentant risk to make up for falling earnings.

Given the pressure to deliver results, it will be interesting to see how J.P. Morgan responds. Until it figures out what to do, the bank will remain trapped inside the whale.

Selling Reality

Would you hire a lawyer or doctor who advertised on TV or a billboard?

Chances are you probably wouldn’t. Conventional wisdom suggests that if they were that good, they wouldn’t need to promote themselves so blatantly. Not to mention it comes across as slick and unprofessional.

So why does Wall Street continue to do just the opposite and advertise everywhere? Because they’re selling a dream that many investors, after the financial crisis, are having trouble believing.

Despite the profit squeeze on Wall Street, firms continue to spend liberally to sell dreams – the dream of Wall Street’s superiority in financial advice and their clubby access to the best investment opportunities.

Back To The Future

What’s a financial advisor to do if his or her firm is a purveyor of grandiose dreams?

Many Wall Street advisors are adjusting their practice to protect their clients from their firm – surreal as that may seem.  In addition, advisors should also follow the tried-and-true model of exceptional doctors and lawyers: Spend time developing a practice with a reputation for personal excellence.  The business will follow.

Doctors know there’s no substitute for a good bedside manner and the competent application of medicine. Likewise, every world-class attorney builds a business based on expert knowledge of the law and equally expert skill in networking for clients.

Many financial advisors would do well to follow that model. One reason the independent wealth management business is growing so rapidly – largely without advertising – is that advisors provide independent advice and don’t need to peddle “dreamy” products.  Clients are genuinely happy with them, and word-of-mouth referrals are resulting in a steady source of new business, just like they do for doctors and lawyers.

The good news is that it’s never been easier or more cost effective for advisors to let people know about their unique expertise. Social media provides a terrific communication platform that can reach a large audience without a Super Bowl-like ad budget.

Better still, social media gives your clients the opportunity to express their appreciation of your work so others can see. Nothing is more powerful than client testimonials that go viral online.

Getting Back to the Basics

The financial crisis and the heavy hand of Dodd-Frank are prompting many Wall Street firms to revert to their original business model of being a corporate advisor, not a product manufacturer.  It’s also putting the focus back on clients and what’s good for them.

That’s where we all need to return. Wealth advisors need to get back to the business of having a real relationship with their clients based on a foundation of realistic advice.

All would do better if the focus were on selling reality, not a mirage with a snappy jingle.

Like My "Business"

As a financial advisor, is it worth having a Facebook page?

After much deliberation, I’m convinced the answer is yes. But not for the reasons you may think.

If you believe you’re going to get a bunch of new clients from Facebook, then it probably isn’t worth your investment of time. High net worth investors aren’t going to fall in love with you because of your Facebook page. Wealth management is a relationship business that still requires direct, human interaction.

But if you want to remain relevant or not be disqualified with two key audiences – GenYers and Baby Boomers – Facebook should be part of your brand and marketing strategy.

My Tahoe Focus Group

An example best expresses why Facebook is so powerful and useful.

Last weekend, I was on a ski trip with my 14-year-old daughter and three of her friends. Facebook was the sixth person in the room at all times.

When a Facebook friend request came to any one of the girls’ iPhones, they would shriek with delight. When a Facebook message came from one of their friends, the same. After sharing the message with each other, the girls would talk among themselves to come up with the “best” response. They were having great fun.

After listening to this for two days, I asked: “Have you ever gotten a date from Facebook?” They all responded in unison: “NOOOOOO!” “Then why do you care?” I asked. They all responded in unison again. “We want to know what everyone is doing and thinking. "

This is the perfect analogy for financial advisors considering a Facebook presence.

Just like Facebook isn’t going to get you dates, it probably won’t bring you new clients immediately. Getting new clients is still an old school process. You will need to personally contact people and engage them over an extended period of time to earn their trust.

However, your clients and prospects will appreciate seeing what you’re thinking or writing, or what events you’re planning via Facebook posts. That’s worth a lot in terms of visibility and connecting with people. Marketing today is as much about what you believe as it is what you do.

Moreover, the right idea or event can go viral on Facebook, which is exactly what you want.

Another example is illustrative.

Bad Viral/Good Viral

One of a parent’s worst nightmares is the raging party that takes place at your unsupervised home after your kid posts an invite on Facebook. Within minutes, 25 to 1000 revelers could show up at your doorstep while you’re away for a “quiet” weekend. Hot ideas populate quickly across Facebook.

Now apply that concept to your wealth management practice. If you have a compelling blog post, white paper, educational event or video, that information can spread virally to your entire network of friends and then their friends.

845 Million People Can’t Be Entirely Wrong

Still not convinced?

What’s the fastest growing demographic on Facebook? Answer: Baby Boomers. They’re getting onto Facebook to check out what their kids and grandkids are doing. This graying age cohort, along with GenYers, account for a good chunk of today’s wealth management marketplace.

Advantage Independents

The Facebook advantage accrues only to independent advisors. Wirehouses and big banks largely prohibit a financial advisor having a social media presence. For independents, Facebook is yet another way to differentiate your practice.

So upon further consideration, I “like” Facebook. We hope you will too and ask you to check out Sanctuary’s Facebook page and “like” us.

That will make us very happyJ.

The Best Buy Effect

It’s not easy being Best Buy these days.

Price competition is intense, and pressure is coming from all directions. Online competitors, without costly overhead, are selling the same products cheaper. Tech-savvy consumers are comparison shopping right on the showroom floor, using mobile phones and the RedLaser app to scan for the best price. Instantly, a consumer can get a list of better deals on a flat screen TV or Blu-ray player from online retailers and even nearby stores.

Wealth advisors are facing the same challenges from online “firms” like Wealthfront and from other advisors who are willing to cut their fees to win business.

The Opportunity in Solving Problems

But all is not lost for advisors or retailers if they heed the lesson from one of Best Buy’s more successful innovations: The Geek Squad.

The Geek Squad delivers what most low-priced product sellers don’t: Expertise to make everything work together. Anyone who has ever tried to create a home theater knows the frustration. Integrating sophisticated pieces of consumer electronics has almost become rocket science. Best Buy is keeping clients happy and loyal by providing a service that makes it easy to buy and then enjoy cool products.

Financial advisors have the same opportunity to attract and retain clients if they take the responsibility to simplify the many complex financial products and design a program that works.

In fact, anyone can open a discount brokerage account, do some online research and start buying investment products. However, buying and selling products doesn’t equate to comprehensive wealth management. There’s much more to this discipline than most recognize initially.

Watch Out For Cheap

An advisor who provides real value need not fear the cheap advice that can be obtained online or through cut-rate competitors.

Cheap online advice is nothing more than a computer algorithm. More often than not, human strategy trumps most computer driven decisions (Kasparov Wins). Only an experienced human advisor can provide that strategy and then recommend how to put together the complex investment solutions that meet each client’s needs. When you’re talking about your life savings and financial independence, what would you prefer, a cheap computer automated solution or a unique personalized plan?

Put another way, it might seem like a good idea to buy the bargain-priced flat screen TV and then read the directions to mount and connect the components. You can’t really appreciate the Geek Squad until the whole project has gone terribly awry. It’s one thing to mess up your home theater; it’s another when it’s your financial security.

That’s the good news for advisors. By providing understandable solutions, personalized service and delivering wise counsel – an advisor’s value proposition is as compelling as ever.

Do You Love Me Just For My Money?

Large Wall Street firms have tossed independent advisors yet another great opportunity.

Recently, management at many of the wirehouses informed their financial advisors that they wouldn’t get paid on accounts with a balance of less than $250,000. These clients are being shipped off to a call center because, in so many words, they can’t be profitably serviced by a “full service” financial advisor.

This decision is a frank admission that the cost structure at big firms is still too high. Large firms in the Dodd-Frank era are feeling the squeeze. The result is predictable: Wall Street again put self-preservation ahead of advisors and clients.

Is that any way to treat people, let alone someone who may become a worthy client one day? The opposite is also true: Aren’t these big firms really saying that if you have enough money, we will love you?

Short-Term Thinking

This bloodless view of the world is not particularly nice, nor is it necessarily good business practice.

The fact is not everyone is born a 1 percenter. Clients with smaller accounts often grow into much larger ones. Here in Northern California, engineers and many entrepreneurs are just one IPO away from fabulous wealth.

The problem with packing smaller accounts off to a Siberian call center is that you never know who becomes the next Mark Zuckerberg. If clients are mistreated before they hit the home run, there’s virtually no chance they’ll ever come back.

Opportunity For Independents

The good news is that a large firm’s cast-offs can be good business for independent advisors. Because independents have far less overhead, they have lower costs and can incubate smaller clients profitably. The key is having the right business model.

There’s another opportunity, too, for independents: The freedom to run a business as advisors see fit.

Most accomplished advisors don’t want corporate bureaucrats dictating how they serve clients or operate their business. A large firm’s management decisions are particularly irritating because they not only deprive advisors of income, but also create the embarrassment of having to tell clients that the firm believes they’re no longer worth the time.

Wealth management can’t be all about the money. Just like in any relationship, if someone happens to have money, that’s fine. But that’s not the reason you love someone.

As an independent advisor, you don’t have to be all about the money. One of the greatest advantages of being independent is the freedom to do the right thing by your business and your conscience. That always feels good.