First, people don’t hire us because they think we can beat the market.  A mentor of mine, Burritt Hubbard, once stated that “our job is not to beat the market; it is to outperform the client.” He was right, and the reason we do invest better than our clients can is two-fold; we invest without emotions and we have learned from our past mistakes.  We serve many bright, successful people; however, they usually have learned one lesson over time and it is that they make bad decisions self-managing.  While investing looks easy and the discount brokerage firms provide all the tools to trade on-line in your pajamas, it simply isn’t.   If you haven’t learned that lesson, you haven’t managed money long enough.  This is a very humbling business, and if Millennials fill out surveys suggesting they can manage their own money, it merely shows how naïve they are.   The decisions made during volatile markets, bad news, steepening vix, falling interest rates, and rising earnings are all emotional.  Individuals have one portfolio to make all the expensive mistakes we’ve learned from experience.  All it takes is one bad decision to undermine the savings made of not hiring private investment counsel. 

            Secondly, not all Millennials are the same.  Every client we serve is a little different in their risk tolerance, income needs, thought process and emotional stability.  While it might be easy to take a survey and make asset allocation decisions based upon the results, they are inherently flawed.  A survey taken in the summer of 2007 would result in entirely different conclusions than one taken during the spring of 2008.  Same people, same age, same assets, however very different results; how does that fit into your algorithm?   Just because there is a tool that can blindly offer investment advice to millions easily and quickly does not make it good advice.

            Third, there is no short-cut in life.  When mutual funds became popular in the 1980’s, they were supposed to eliminate the need for financial advisors.  Money magazine became popular and Morningstar became wealthy helping people pick mutual funds.  The lessons learned over time is that it isn’t so easy and investing money based upon past performance is not very smart.  Next came along separate accounts, then annuities, then exchange-traded -funds and only the Wall Street brokerage firms became wealthy.  All of these products have their place in certain niches; most were created to separate investors from their money and to charge a management fee.  The advent of the Robo-Advisor is no different.  Create an easy system for investors to send you their money and charge them a very small fee.  Eventually investors will learn they receive what they pay for-always do.  I went to the site of one of these advisors, was asked a total of five questions, and was given a financial recommendation in 30 seconds.  It is difficult to spend hours listening to the concerns of clients, but you can’t help someone without knowing them.  This is a service business that takes time to deliver; no technology can short-cut this important element of our business.

            Fourth, is the primary reason we are hired to handle the life savings of very smart people.  Trust- something that is only earned over time and cannot be downloaded regardless of the amount of gigabytes your phone can handle.  Investment advice is not placing dollars into the bond and stock markets; it is making good decisions on a cycle of life issues: saving, taxes, borrowing, investing, gifting, withdrawing, etc.  Not unlike the benefit of a good attorney or accountant, when you need to make a financial decision, you want some experience in the room, and it usually will be far more valuable than the price paid.  No doubt some people, regardless of age, might be attracted to paying cheap fees; however, when markets get volatile or difficult choices need to be made, a text is not going to be sufficient. 

Trusting a machine to send your e-mails is a great idea.

Trusting one to help you make complex financial decisions is not.

While very bright people are putting tremendous dollars into building the Robo-Advisor delivery system, it won’t change our business model at all.  These are merely marketing schemes designed with superfluous names. I doubt they’ll garner 5% of the market for managed assets, and it will be fast money, easy in and just as easy out.  These firms need to raise tremendous amounts of assets under management to justify the capital being invested in their ruse.  They all aspire to manage over a billion dollars and then sit back and collect the annual management fees.   A firm in Palo Alto, California connived over $100 million of venture capital to be invested into their firm and they have reached $1 billion in assets under management, partly when considering the capital behind them. Since they charge 25 basis points for management fees, they are grossing a mere $2.5 million.  That isn’t a net return that is gross, which by any math isn’t very good on a $100 million investment. 

I may be traditional, but I am willing to learn from these smart venture investors.  We don’t have a fancy name, but my partners at Carnegie Investment Counsel will continue our 40 year history by growing $1 billion in assets under management the old-fashioned way.

Want to Know More About Our Investment Services?