Originally published 11/04/2022
Intro from Mark: I am thrilled the day has come where Scott and I have the opportunity to work together, and that the firm can once again accept new clients. This is an idea we have kicked around for years but the timing was never quite right, until now.
Scott and I first met in 2011, and since then we have been exchanging texts and emails nearly everyday regarding financial planning and investment strategy. Whether it’s a 6 am text debating why the momentum premium has worked in every country except Japan, or a midnight email to discuss qualified charitable distributions on inherited IRAs.
Over the last 10+ years I have met a very large number of financial advisors, and none of them share Scott’s passion for the research. He is a great addition to the firm. Below is Scott’s story, please give it a read and welcome him to the firm (scott@meredithwealth.com).
It’s hard to believe that it has been over a decade since I first met Mark in the lobby at TheBANK of Edwardsville. It was our first day as “Junior Financial Consultants” within the bank’s wealth management department. The 2008 / 09 financial crisis had just passed, and I finally landed my first full time job within the wealth management industry. The one positive from the start: I could always tell clients I had been through a “bear market” from day one as an advisor.
Over the following year, Mark and I would get to know each other but eventually go our separate ways. Now, after more than a decade we are finally teaming up again. I would like to share my journey over those 10 years and touch on the key lessons I learned that led me back to my hometown and a good friend.
My experience within the industry has ranged from working at one of the largest private banks in the world with over 280,000 team members to working at a firm with all of 6. The clients I have worked with have ranged from young & old and from those just starting out on their financial journey to families with hundreds of millions of dollars in net worth. I have had a direct seat at the table and experienced what works, what doesn’t and how clients can best be served by their advisor.
If your advisor is justifying their fee via their ability to outperform the market, good luck. There is ample evidence that most money managers, let alone financial advisors underperform a simple index over time. The good news, most people reading anything on Mark’s website have already figured this out; the bad news, Mark’s website has slightly less traffic than www.barrons.com or Yahoo! Finance.
I’ve witnessed countless Investment Committees try and adjust their models given recent market movements and economic news. They’re chasing after something that doesn’t exist, The Perfect Portfolio. This effort would be better spent updating forward-looking assumptions within their planning software so that their clients’ financial plans have the most accurate forecasts. (For example: Think pre-2022; both US stocks and bonds were expensive and had lower forward-looking returns, when those prices would compress was anyone’s guess but by adjusting expected returns lower, you improved the accuracy of your long-term financial projections.)
Drastically changing your portfolio’s allocation based on what the market is doing today is relinquishing control from your hands to the market’s. To quote David Booth (Founder & Chairman of Dimensional Fund Advisors), “The most important thing about an investment philosophy is that you have one you can stick with.”
If an advisor meets with their client once or twice a year and simply reviews how their portfolio did, they’re an investment advisor and not a financial planner. Don’t get me wrong; as a Chartered Financial Analyst (CFA), I recognize the importance of investment returns to a client’s overall financial plan; however, this is but a small piece of the puzzle that will allow clients to find long-term financial success. Advisors who solely focus on investments are missing the mark and underserving their clients.
To justify their fees, I have witnessed many advisors make promises for services and advice that the team isn’t qualified to execute on. One example was valuing a car collection for an UHNW client. Now I am a car guy, but I must recognize my limitations on being able to provide advice on this matter. A true professional recognizes the limits of their expertise and is comfortable with letting the client know that they can’t help and need to outsource.
Aaron Franklin runs arguably the most famous BBQ restaurant in the US, Franklin’s BBQ in Austin, TX. Many people wonder why doesn’t he open more stores and really take advantage of his fame? Aaron’s response is classic, “By simply reminding myself that I don’t want to. We work way to hard at this one place to keep it…almost as good as it can be.” In a way, I have always admired Mark for remaining small and resisting the urge to expand and scale to provide an illusion of sophistication and complexity. Know what you’re good at and focus intensely on that craft. Mark has always been honest with clients in recognizing his limits and knowing when to bring in an outside professional to assist his clients when necessary.
Financial planning software has experienced incredible advancements over the recent years. The reality is that solo and small advisory firms now have the same tools at their fingertips that multi-billion-dollar firms have. Technological advancement is all around is in our daily lives and the financial planning industry is no different. Surprisingly, smaller firms can adopt newer technology easier than their larger counterparts given less overhead for training, licensing, and data migration challenges.
Once you hire an employee, you are trapped in a world where you need to grow at all costs to retain those employees. Not all businesses scale well and from my experience, financial planning is a very personal one-on-one venture between advisor and client. This ties in with the teamwork structure I noted above, once an advisor starts adding team members, they begin to add complexity to their lives and not service to their clients. This added complexity also usually requires higher fees to compensate the team. Instead of focusing on what advisors need to add to their business, perhaps they should focus on what they should remove to provide better service to their clients.
Over the years, I’ve often heard Mark simply state, “If it isn’t a value add for the end client, do we really need to pursue it?” When you remove the complexities, you can begin to focus on the core of your business which in our case is serving you, the client.
I’ve lived in Austin, TX for 6 years and there is a saying in Texas that if you want to start a fight in Texas, simply start discussing politics, religion, or BBQ. Well, if you want to start a fight in the advisory community, simply start a discussion around what fee structure is best.
First, I don’t feel that any fee structure is wrong, but some are more sensible than others for clients. As a business owner, you can charge whatever you wish for your services or product if customers are willing to pay. Financial advice is arguably an impossible service to value as it has both a tangible and intangible value to the client and their family. I also recognize that as practitioners, we also need to earn a reputable living to support our own financial needs and family goals.
So, what should a financial advisor cost? My honest answer is that I have no idea, but I do trust the free-market system to guide us. There is a saying, “What you don’t know, doesn’t hurt you.” Unfortunately, when it comes to financial advice, what clients don’t know will often hurt them. Most investors simply don’t realize that there is an alternative to the standard assets under management (AUM) fee model. I’ve struggled to justify the AUM model for 3 reasons:
There is a saying in the fitness industry that you can’t outwork a bad diet. The same goes for financial planning in that there is no plan so great that it can’t be ruined by too high a fee.
Summary
Tiger Woods once commented that you can learn something from every golf shot, especially the bad ones. Learning what works and perhaps more importantly, what doesn’t work has allowed me to grow as a professional in this field.
Above all else, getting to work with and learn from a friend who has honestly served his clients from day one.
Disclaimer: You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.
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