Everyone is Different (and Better!): Part 2

Flexibility and convenience.  As professionals, we place huge emphasis on flexibility.  The ability to respond to change is everything.  Most of the absolute worst financial disasters I’ve ever seen took place at some crucial moment when change exploded into crisis. 

For clients, we seek many conveniences.  There should be a friendly local face, 24/7 Internet, checking, recognized debit cards, ability to electronically transfer funds, access to international services, wide choice of investments, and freedom to trade whatever and whenever they want.  Most people won’t use a third of these services, but they should have them anyway.  Who knows what tomorrow will bring? 

There’s no reason to scrimp.  Most national firms have the ability to provide all of these services at nominal (or no) cost to clients.  This is the age of technology and every client should demand flexibility and convenience. 
 

Investment and financial expertise.  Where to start?  Expertise is a relative concept.  The investment world is so broad and client needs so diverse that no single measure of expertise defines the term.

Take bonds, for example.  Most people assume that bonds are a pretty boring investment subject.  They make up the “stable” portion of many portfolios (“more stable” is more appropriate) and government bonds are an investment of choice among wealthy senior citizens.  But it’s not really that simple.

There are thousands of bond options – literally safe as a two-year government bond, or risky as a ten-year junk bond.  Nearly every city issues municipal bonds (tax-free) and a number of government agencies (“quasi-government”) issue bonds, too.  Municipal bonds are either General Obligation or Revenue bonds.  There are blue chip and high yield (“junk”) corporate bonds.  Some are insured, others not.  In fact, there are often both insured and un-insured bonds in the very same offering

What’s the point?  The investment world is filled with specialists, people who are “experts” in some aspect of the investment world (bonds, for example).  This is necessary expertise in a global sense (someone has to know about everything).  The important question for clients, though, is one of pure relevance.  Who offers expertise in areas of importance to their situation?

Most people – even those with a million dollars – don’t need to know the intricate details of bond pricing or stock valuations.  They don’t need to know about Lou Rukeyser’s Elves or Mario Gabelli’s economic outlook.  They might know Alan Greenspan if they bumped into him at the dry cleaners (not likely), but they probably haven’t a clue what the Federal Reserve Bank does or why it makes a difference.

They don’t generally need to know the details of Modern Portfolio Theory (MPT), but they do need to know that investment diversification reduces risk and increases long-term performance (the essence of MPT).  The do need to know how to get the best deal on mortgage interest rates or financing a car.  They do need to know that an allocation of investment savings to common stocks is a good hedge against inflation (someone should have taught this gem to our grandparents).

Even with a million dollars to invest, the right expertise is far more important than the truckload of credentials.  Many national firms tout investment celebrities (Peter Lynch at Fidelity is a great example), but how exactly do they serve common people?  That’s the important question.


Excerpt taken from Million Dollar Management: Simple Lessons to Use Wealth Management Principles for Your Family Investments by Dan Danford (with Gary Myers), 2002