No Such Thing as a Free Lunch
Some thoughts on Free Lunch for Investors
Would you like to be invited to a private resort for a financial planning seminar?
How about a five star restaurant for a luxury dinner and to hear the latest about the economy?
Round of golf with the lead investment manager?
How about a mingling session with a wine and cheese tasting and a chat about tax efficient investments?
If you are a large institutional investor or pension fund fiduciary, how does a limo ride and box seats at the big game sound?
Well, we have great news for you. There are many other firms who would be happy to oblige. We'd recommend starting with the main taxpayer bailout bonus recipients such as Merrill Lynch, Wells Fargo, JP Morgan Chase, AIG, Citigroup and Bank of America.
On the other hand, that might not be for you.
As the Nobel Prize winning economist, Milton Freidman famously said "There is no such thing as a free lunch."
Investors in major metropolitan areas can now fill their schedule with a
never-ending series of meaningless dazzle.
At Atlantic Financial we'd much rather focus on advising clients with a
sound investment strategy than trying to impress them with insubstantial
Clients who make decisions by the quality of the meal are only slightly better off than those who select a bank based on a giveaway for a microwave or toaster oven.
For years, Wall Street has insulted investors with meaningless dazzle (and the investors have rewarded it). At both the retail and institutional level, high end meals and sponsorships have increasingly replaced substance. The primary metric of success in the investment industry has been one's ability to sell, not quality or performance.
For decades, hard working executives have been duped in to high fee and inefficient investment vehicles by slick presentations. Retirees have selected fixed income investments based on the charm of a bank manager or the toaster oven he handed over. Even the largest most sophisticated institutional investors have fallen for the adages claiming that they should get to know their money managers and become their pals, placing relationship above quantifiable data.
While attending conferences with fellow investment professionals, we have the opportunity to hear from our competition.
Actual quotes heard from others in the investment business:
Sales and marketing expert: "You can build client loyalty with wine and cheese meetings."
Hedge Fund: "We bought a large array of computer servers and encased them in glass, it looks very impressive to the clients."
Boutique Investment Firm: "We discovered that by partnering with high end jewelry and fashion shops in our community we can attract more investors."
Wealth management group of major investment firm: "We print the proposals on high quality paper and then bind them in leather folders, investors see a colorful pie chart in a leather folder and you are halfway to the sale."
Consulting division of a very large firm:
"The pension managers love a free junket, we fly them out to Vegas or Florida for our meetings."
Recently for example, Citigroup purchased Shae's Stadium and renamed it
Presumably the name recognition and box seating is designed to attract investors.
What has been the result? Lawsuits and bailouts followed by more lawsuits and bailouts for major firms, the rise of Bernie Madoff and an army of mini-Madoff and an increasing shift in wealth from the investor to those who are supposed to help them coupled with a decrease in quality by the so-called helpers.
While substance has eroded, quality has as well.
An army of product pushers wrap stocks within ETFs, ETFs within funds and funds within funds-of-funds, often these are sold by a third party marketer who is in turn selected by a consultant.
Investors could be as much as five levels removed from their capital and the people who invest it.
No wonder Wall Street feels the need to dupe the public with a free lunch.
Investors deserve better.
We don't have all the answers but we can work to hold ourselves to a higher standard.
Just as patients should not seek or trust a medical doctor who builds his
clientele with steak dinners, fancy leather-bound proposals and PowerPoint
presentations detailing his medical treatment proposals, investors might be
wise to seek quality over fluff.
At Atlantic Financial we are not here to be your friend, your golf buddy and attend your children's parties.
We are not here to tell you what you want to hear or to place end results ahead of procedure.
What we are here to do is work as hard as possible to understand the
changing face of the global economy, what it means to you and to help you
with your investment goals.
We are not always right and we don't have all the answers, but all else being equal we think clients are better off skipping the free lunch.
We are not a fit for investors who want to have someone tell them what they want to hear.
If it sounds like we might be a fit for your, contact us today.