Danford book helps families

Dan Danford started Family Investment Center in 1998 to help families manage existing investments and grow financially independent. The firm currently serves over 150 key client families along with companies, retirement plans, and nonprofit groups. Family Investment Center is a commission-free Registered Investment Advisor stewarding almost $100 million. Danford was interviewed in his St. Joseph office.

Why write a book? Surely there are enough investment books in the marketplace.
True. But there’s a big story not generally told to consumers. I’m still astounded to encounter people who think of investing as a big game of chance. In truth, there’s solid science to investing, and I think it’s time for families to know about it. Instead, it’s often been limited to wealthy people and large foundations.

Why hasn’t this story been told to consumers before now?
It’s a function of the investment distribution system. Smaller investors – the typical family – buy investments through retail stockbrokers, insurance agents, banks, and fund salespeople. These channels focus on selling, and selling doesn’t allow much time for good consumer education.

Still, there’s no shortage of investment information.
Just look at the consumer press, though. I mean really look at the headlines and magazine covers. They simply mirror things that consumers already think. They’re selling buggy whips to horse owners. No one bothers to mention that Henry Ford created the automobile. Many financial salespeople do the exactly same thing.

Surely you’re not comparing yourselves to Henry Ford.
Of course not. We simply report the excellent work of others. Believe it or not, there’s a very large body of research about wealth management. Our book suggests over a dozen titles for further reading. Many, many, many people have contributed to the field and we’re not even part of that development. But I have taught investment classes in the business department at our university and I’ve spent nearly three decades managing money for wealthy people and groups.

Why Million Dollar Management? Many readers don’t have a million dollars.
And many financial professionals don’t manage a million dollars, either. That’s part of the point. Our sub-title is “Simple Lessons to Use Wealth Management Principles for Your Family Investments.” Many of these principles were originally discovered while studying and building large investment portfolios. But they work just fine with smaller accounts, too. That’s the first message of our book – families will enjoy more financial success if they manage resources in the same way as savvy millionaires.

What’s a good example of a difference between millionaires and the rest of us?
Dan Did you know that only one percent of millionaires trade stocks on a daily basis? Another one percent trade on a weekly basis. When Tom Stanley and William Danko wrote The Millionaire Next Door [1996, Longstreet Press] they found that fully 42 percent of interviewed millionaires hadn’t made a single trade in their portfolio during the prior year! Is that what you’d conclude after reading most personal finance magazines? I don’t think so.

Okay, you’ve made that point. Are there other messages in your book?
We think a lot about the morality of money. The notion that money is a responsibility and those of us blessed with having it should exercise sound judgment in its care and maintenance. We highlight some practical and religious family stewardship issues.

You’re beginning to sound like a prudent bank trust officer. How much has prior banking experience influenced your investment thinking?
A lot. I learned some terrific things during fifteen years as a trust officer. The best things we’ve carried over into Family Investment Center.

What’s something important that you learned?
For the typical investment professional, sales skills are critical for success. Brokers making huge money aren’t necessarily those knowing the most about investing or providing the highest return to clients. Instead, these are usually people with strong social skills and a powerful ability to persuade.

You sound as though this isn’t a good thing.
It isn’t necessarily a bad thing. But it can be a bad thing. Remember, this is a sales environment. These people are usually paid by sales commission. An ability to persuade can be a dangerous thing when coupled with high sales commissions.

So you dislike brokers. That’s what you learned?
That’s not right at all! There are some brokers I like a lot and some with very high ethical standards. But I intensely dislike any commission system. It places a salesperson’s need above the client’s. A few good people rise above this structure, but I can’t think of a single argument why sales commissions are good for the consumer. They were designed to help the company.

Yet, it is a salary system which has endured, even prospered, for decades.
Of course it is. These firms used to have a monopoly on market information. You had to use a broker to invest because there wasn’t any other choice. Charles Schwab and the Internet changed all that for the better.

How?
Now anyone wanting information can find it. The Internet combined with 24-hour news coverage has virtually eliminated any information advantage, so that reason for using a broker has diminished. And, thanks to Charles Schwab, you don’t have to use a high-priced intermediary anymore to place stock or bond trades. Today, full-service brokerage firms look like dinosaurs. Banks aren’t much better. I’ve got a glass jar in my office that is full of matchbooks from now-extinct local banks. Why do you think they’re merging like mad and trying so hard to enter other financial businesses? Consumers simply don’t understand competitive pressures taking place in the financial services industry.

If not traditional brokerage firms or banks, then what? What is the future for consumer investment services?
Well, I can’t be sure. We believe that “commission-free” investment services are a clear improvement. Commission-free professionals earn fees directly from clients and avoid commission-based investments. Working directly for the client frees them to make quality recommendations without real or perceived conflicts of interest.

That sounds much better. Why isn’t it the industry benchmark today?
It is growing quickly and some major firms are trying to transition to fees. One sad truth is that client fees are often less lucrative for the professional. Fees can be a great tool for both the client and professional, but you’ve got to have some volume to earn a living. Many brokers, insurance agents, bank investment officers, and fund salespeople can’t gather enough investment assets to survive. So, they stick with more rewarding commissioned products.

What about you? Your firm has used this fee-only model since inception. Does it work?
It works great. We are truly independent – not related to any bank, brokerage firm, or insurance company ¬ and revenues come directly from providing client service. We please clients or we die. Just like my grandfather’s grocery store back in the 1930s. Having said that, though, it hasn’t always been easy. Things change very slowly in the Midwest and we compete against some very talented traditional marketers. And, of course, over half of our existence has been during the worst bear markets ever. But, we’ve built enough volume to survive and we’re gaining a reputation that allowed us to grow during a pretty tough period. All things considered, it been a pretty good run. No complaints at all from me.

To purchase the book, click here.

Magic words for business: Crush It!, a book worth reading

By Dan Danford, CRSP
Family Investment Center

This book was recommended by Dodie Jacobi, a respected business consultant in Kansas City. She suggested that it offers great insight into the social media environment, and is an easy read, too. If you own or work in a smaller business those are magic words: helpful and easy. I bought Crush It! that same day. I read it the next weekend.

I agreed to “lead” a discussion on this book blog because Dodie was right. Gary Vaynerchuk is a compelling character. His story is unique and wonderful. He used social media and other resources to crash one of the most exclusive parties in the business world – the wine industry. His fresh approach, enthusiasm, sincerity, and (yes) charisma allowed him to jump multiple rungs of the success ladder. That’s what any of us want, right?

And his story is not just about marketing, either. I know my way around marketing, and another marketing book isn’t necessary for my personal library. Gary’s approach blends both life and business lessons, along with a bit of Zig Ziglar or Dale Carnegie. Why Now Is The Time To Cash In On Your Passion is the book’s sub-title and Vaynerchuk clearly thinks that’s the important theme for success.

His three simple rules appear on the book’s second page:

• Love your family.
• Work superhard.
• Live your passion.

Now, the business implication is that social media and networks create the perfect opportunity to live your passion. Whether it is wine, motorcycles, or personal finance (to randomly select a few!), there is a community of like-minded people seeking expert commentary. And, since you are passionate about it, you can find an audience. Eventually, that audience can be lucrative enough to pay your bills.

Chapter Two’s lesson is that our personal uniqueness is an asset. I really enjoyed this chapter because Gary talks us through his personal story. In some ways, it’s the perfect American tale, from immigration at three years old, to eventual status as “Social Media Sommelier” (ABC News) and Wayne’s World Wine Aficionado (nightline). Like most success chronicles, it’s a great story and it makes fun read.

Chapter Three is – in many ways – the essence of this book. “Developing your personal brand is key to monetizing your passion online.” In the author’s case, that meant offering truthful information about wines in easy-to-understand terms. If you’ve ever browsed a wine store or bought a traditional book about wine, you understand how refreshing that is! You also understand why Gary Vaynerchuk has become so successful.

The point is that almost everyone has similar opportunity. We all care about different things and we all bring unique perspective to them. And we all have the ability to communicate that perspective in a variety of ways. We can write, talk, act, speak, or even create original art to share our message. And, if we are passionate enough and work hard enough, we can prosper because of it.

We'd love to have your thoughts on this great book. We've started a second blog for dicussion of business-related books, called Beyond the Bookshelf, and you can find it here. Please click on the link and comment there (same post content) if you'd like to tell us what you think about Crush It!

Here are a few questions for consideration:

1. Think about a successful person you know. In a few words, what is his or her passion?

2. How about Bill Gates or Warren Buffett? Again, in a few words, what separates them from others in their field? Describe their personal brands.

3. How does the Steve Jobs personal brand differ from Bill Gates?

4. If you achieved international success as a businessperson, how might people describe your personal brand?

Don't listen to anyone who tries to predict market

On Mondays, we answer a question from a reader. If you have a question, please post it in the comments section.

QUESTION: What financial commentator do you like? Who do you think gives good advice?

ANSWER FROM DAN DANFORD: Well, I'd ignore any commentator who professes to predict the markets. There is little evidence that short-term markets are predictable, and those boneheads on television are entertainers, not advisors. Longer-term markets are more predictable, but few viewers care about a five-year prediction! Our website lists a number of terrific books and resources, but Jon Clements' new book "The Little Book of Main Street Money" is a great start. Also, as I've noted before, good spending habits are likely more important in building wealth than investment skills. For more on that, visit my review of Tom Stanley's new book "Stop Acting Rich" Simple answer? Boring works best. Focus on healthy habits and you'll prosper.

Stop Acting Rich: The Paradox Of This Book

By Dan Danford

Review of Stop Acting Rich: And Start Living Like A Real Millionaire.

I’m a big fan of Tom Stanley’s research and books. I first encountered Stanley at a trust conference many years ago, and I’ve read and recommended his books to dozens of clients and prospects. His insights are helpful and entertaining.

His newest book, Stop Acting Rich: And Start Living Like A Real Millionaire, reveals the differences between what we say and what we do. He chronicles the spending patterns of genuinely rich people, and the lifestyles they enjoy. It’s interesting, because there are two groups of people with serious money; the glittering rich (think Donald Trump or Bill Gates) and the millionaires next door. And, as you’d guess, they consume differently.

Spending by the glittering rich, well, glitters. These are the few folks with so much money that spending really doesn’t matter. They own multiple cars, multiple timepieces, and they tend to entertain lavishly. We all know who they are and they set a remarkable standard for living.

Other rich people are remarkable for differing reasons. As Stanley has recorded previously, they stand out for their modesty and good sense. These millionaires drive Toyotas, wear Seiko watches, and surround themselves with value-oriented merchandise. We know who these neighbors are, too, but we probably don’t realize how financially successful they truly are. They set a different kind of standard.

Here’s the paradox of this book. Almost everyone else (and that’s a huge chunk of our society) dwells in yet another culture. This is the culture of false wealth. Where looking rich is more important than being rich. It’s the world of luxury goods sold to high-income buyers. But, sadly, that spending pattern yields no genuine wealth. The simple act of buying those goods, by itself, is financially counterproductive.

These are residents of mini-mansion neighborhoods. And owners of luxury automobiles and Rolex watches. They send their children to private schools and belong to expensive country clubs. They buy Brooks Brothers suits and shop at exclusive department stores. They are glittering rich wannabes, and they spend most of their income on a prestige lifestyle. There’s nothing left for saving.

The depressing truth is this book won’t change much. Most of us would rather look rich than be rich. We like those luxury goods and that luxury lifestyle, even if we can’t afford them. We can see how sensible living might bring stability and success. We know Tom’s right, but we don’t want to live in sensible neighborhoods or drive sensible cars or wear sensible clothes.

That’s the paradox of Stop Acting Rich. We don’t want to.

Want to buy it? Purchase it from your local bookstore or from Amazon by clicking here.

Investing is no game

By Dan Danford

I can understand the allure of chess. It’s pure intellectual challenge; just you and an opponent, focused on making the right moves and winning the ultimate battle. Every move by your opponent creates a new challenge. You adjust or you lose.

Investing offers similar challenges. Every day important variables change. The economy. World tensions. The management of companies you own. Competition. Technology. Everything changes.

So it’s not too surprising that so many people enjoy the challenge of investing. Like chess, it’s a game. It’s a game that tests your intellect, your instincts, your ability to think and act quickly.

But it’s not really a game. Results matter. Will your children go to college? Your grandchildren? Will you retire in comfort? Will you outlive your savings? Will there be anything left to pass along to chosen family members or charity? Truthfully, investing is a very serious business.

And you need to treat it that way to succeed. Although it’s nearly impossible to beat the market on a consistent basis, there are time-proven ways to invest for success. Follow these, and you’ll likely achieve your financial objectives. Ignore them at your peril.

Learn the rules. Ric Edelman wrote a bestseller called The New Rules of Money (1998, HarperCollins) and I recommend it highly. Most investment basics can be gathered rather quickly. Be wary of materials created by the marketing department of some investment firm; they were designed to sell, not to educate (the same for sponsored seminars). To learn, visit a library or take a college personal finance class.

Know your tools. Stocks, bonds, and mutual funds are basic building blocks, although there are thousands of variations of each. You can’t make good decisions if you don’t understand the options. You can’t understand the options until you spend time learning them. Believe me, you don’t really know today’s tools if the last time you looked was during the Reagan Administration.

Monitor the surroundings. Investing isn’t done in isolation. It’s not enough to read Money magazine or glance through The Wall Street Journal. You have to follow national and international news, too. You’ll need a smattering of economics, political science, and sociology.

You’ll also need a lot of humility. Truthfully, the future is difficult to predict and that makes investing problematic, though not impossible. Even professionals face frequent failure. Today’s talking head on CNBC is destined for obscurity tomorrow.

Be realistic about your ability. Behavioral scientists tell us that over-confidence is a major problem for investors. Test after test shows that people think they are better than they actually are. This same faulty belief leads investors to trade too much, guess wildly about the future, and see trends where none exist.

When it comes to ability, many of us choose the wrong game entirely. Our chief talent lies in earning money, not investing it. Energy devoted to career enhancement or more education often brings substantially more success than investment activity. Put energy where potential results are greatest.

Seek quality help. Investing is complex. There are thousands of options and important variables change every single day. On top of that, most of us have a huge emotional response regarding money. Almost everyone could benefit from a trusted, knowledgeable advisor.

Adjust. Family and goals change over time. So does the world of investing. It’s amazing the number of people still using investment ideas taught by a trusted teacher or friend three or more decades ago. What did Grandpa teach you about 401(k) plans, index mutual funds, or Internet trading? It’s probably time to make some helpful adjustments.

Focus on your goals. This may be the hardest part of investing today. Our world is full of noise. Twenty-four hour market news. Dozens of talking heads offering “helpful” advice. It’s all very distracting and it’s all very unnecessary.

Market noise is a short-term distraction, while investment success is a long-term process. Identify goals. Seek strategies and products likely to meet them. Make adjustments when something dramatic changes or if something better comes along. Seek quality professional help along the way.

Investing is not a game. But you can come out feeling like you’ve won if you follow the rules.

Book review: Mainstreet Money

By Dan Danford

In a sense, Jonathan Clements’ new book was painful to read. Clements was the long-time personal finance columnist for the Wall Street Journal, and he has a real knack for explaining investment stuff. He wrote nearly 1,000 columns for the Journal and he’s forgotten more about personal finance than many brokers ever knew.

The Little Book of Mainstreet Money, 21 Simple Truths that Help Real People Make Real Money is an excellent book. I recommend it highly to anyone who needs a basic finance guide, or those who want a refresher course. In Clements’s usual style, it’s easy to read, understandable, and helpful. I’ll add this to our website’s recommended reading list.

Clements once famously noted that there are only seven real stories in personal finance, and he cites them in his introduction. I won’t list them all here, but one is “simplicity is a great financial virtue.” I agree with his other six, too, but as a practicing advisor, this one stands out as genuine wisdom. There are few absolutes in economics or finance, but that comes pretty close!

It tracks that his 21 Simple Truths follow this theme. He tackles everything from portfolio construction to the merits of saving. Each chapter illuminates a different topic, and offers explanations, ideas, and suggestions, all in that comfortable and engaging style he’s known for.

I especially like his 10th chapter, where he offers ten reasons why it’s so tough to beat the market. This is heresy in many hallowed halls of Wall Street, but he does a nice job of explaining why so many smart people abandoned that game. “The harder you try to beat the market, the more likely you are to fail, thanks to the investment costs involved.”

Why, then, was my reading painful? Another simple truth is that every thinking adult should already know much of this stuff. Seriously, folks, this isn’t nuclear physics and these truths aren’t obscure. These are the pots and pans of personal finance and every home should already have a basic collection. It just hurts to acknowledge (again) that – as a people – we’re rich in things, but poor in basic money knowledge.

People should already know the merits of diversification. They should already know that every investment (every single one) has risks. They should know that tax deferral is smart and that today’s retirement can last many decades. If they don’t, then this little book makes those powerful and productive points. And, in many ways, Clements makes them and others better than anyone else could. He has a gift.

I like Jon Clements and I recommend his book highly. I just wish that it wasn’t necessary.

Lessons on the job, part 5

Editor's note: This week on Twitter, we're giving out tips on securing summer jobs for teens and college students. You can find us on Twitter @family_finances. Contribute your own thoughts on this in comments or in a separate e-mail to robynsekula@sbcglobal.net.

By Dan Danford

Three hours. As a teen, I spent three hard hours shoveling twelve inches of snow from Mrs. Townsend’s lengthy driveway. Finally finished, I requested $15 for the work. She gave me $10, explaining that’s what someone with a plow offered to charge. That day, I learned a painful economic lesson about the value of labor.

I just read a superb book. It should be required reading for every college student. Written by Harry Beckwith, it is called Selling the Invisible. The focus is on customer service. Two illustrations caught my attention and helped refine Mrs. Townsend’s lesson from my youth: value is determined by the quality of output, not the quantity of input.

Beckwith’s illustrations:

Three whacks. A squeaky floor provides the first lesson. The homeowner made several unsuccessful attempts to quiet the noise. A helpful neighbor recommended a local craftsman, known for quality work. The craftsman walked in, slowly paced the room, drew a hammer and nail and – with three swift whacks – solved the problem forever. Later, he submitted a bill for $45. But, the itemization provides great insight:

Hammering $ 2.00
Knowing where to hammer $43.00

Three minutes. The great painter Picasso made a related point. He was recognized one day sketching a street scene in a small café. An impressed tourist asked him to make a quick drawing of her, offering to pay an appropriate fee. The artist picked up a different tablet, penciled a brief drawing, and passed it – an original Picasso -- to the woman. “That’ll be $5,000.00,” he told her. Surprised, the woman reminded him that it took just three minutes. “No,” he explained, “It took me all my life.”

No one cares how hard we work. No one cares how many college degrees or years of experience we have. No one cares if we once made a touchdown or hit a gamewinning home run. In business, value is determined daily by the service we provide to customers. People – all of us – seek solutions and results. That’s what matters.