Imagine the following scenario: a prospect walks into my office…we exchange pleasantries. For me that is a hand shake, but for you Italians out there, a double cheek kiss is allowed.
As we start getting to know each other, the prospect makes a statement along the lines of “I really haven’t watched my investments, and I know I need to do a better job of that. I need to know exactly what my holdings are, and how they will respond to a change in the market conditions. I feel as though I have neglected my money, and I want to spend whatever time it would take to pay attention moving forward.”
My response was “In that case, you don’t need me at all. Save your money.”
The look of disbelief was quite comical, and after an uncomfortable five seconds, I decided to expound.
“Mr. Harris, if you plan on becoming an expert and handling your own money, then you do not need me. In fact, you don’t need any financial advisor. It takes a lot of time and effort to manage money well, and you certainly have the mental ability to do it, but unless you plan on quitting your full time job, the time requirement is going to be tough to meet. Now, if you simply need an advisor to explain things as we go so that you are comfortable, that I can do. However, if we begin a partnership, I will be providing advice for a fee….if you ALSO plan on becoming an expert, you will be paying me a fee for nothing. In that case, DON’T HIRE ME. Save your money.”
He got the point as I continued… “I want my clients to understand their plan and their holdings, but to eventually reach a trust level with me that will allow them to spend their precious time on things that matter to THEM. Things like playing golf, seeing grandchildren, traveling, reading, singing karaoke…whatever. I work on managing their money so they don’t have to.”
I have had this conversation 100 times if I have had it once.
Think about it – what other professional service industry do people feel as though they need to know everything in order to proceed? Examples below…
Patient says to DOCTOR: “Mr. M.D., in last month’s medical journal, I saw the additional side effects of antibiotic XYZ. Are you sure you should prescribe that?”
Anyone saying that? Thought not. If the patient goes to a doctor, they have to trust that the DOC has read the journals and that they know better how to cure their disease. If the patient has to attend medical school and learn it all themselves, then DO NOT pay a doctor. Do it yourself (D.I.Y.).
Client says to ATTORNEY: “I would like your opinion. I read 42 different cases about this same topic and there is no precedence for <insert legal issue here>.”
Would you do that? NO. Let the lawyer do the law stuff, and if you want to read those case logs, then save yourself the $400/hour. D.I.Y.
Client to ACCOUNTANT: “IRS code $#FRE-FFDU says that if a taxpayer files a joint tax return, there is no need to blah blah blah….I am going to do it anyway. Will you sign my return for me?”
Getting the point?
If you are shelling out the dollars and STILL have to become an expert in the particular field, then save your cash and fire the expert. You are paying for nothing.
If, instead, you are paying the Attorney to take care of your legal battles, the Doctor to watch after your health, and your CPA to handle all things IRS…and you are out sailing or starting a new business, then God Bless You! You, ma’am, are getting what you paid for…free time.
I covered the professional jobs I could think of above, but this same concept applies for any service. My wife and I had this conversation about 6 months ago.
Her: “The yard looks horrible.”
Me: “I know.”
Her: “We are paying $100 per month.”
Her: “You don’t care about this?”
Me: “Not really. I care about watching the Yankee game.”
Me: “Because I trust Thomas and he has been in the lawn business for a long time. He is aerating, overseeding, fertilizing, mowing, edging, etc…and is doing a better job than I could do.”
Her: “But we are paying $100 per month for nothing.”
Me: “No we aren’t. He mows the lawn once a week. It used to take me 3 hours each weekend to mow, weed-eat, edge, etc. It is worth $25 per week to spend that extra 3 hours with you and the babies. That is only $8 per hour, and it is worth that to me to be inside an air conditioned house instead of outside in 99 degree heat.”
Her: “But you don’t spend that extra 3 hours with us.”
Me: “What was that honey? A-Rod just hit a 450 foot rocket over the left-center field wall!”
I am essentially paying so that I do not HAVE to do something. I wouldn’t be watching the game if I were outside mowing.
I want that to be every investor’s mindset. Find a worthy advisor, pay them, and forget about the details. Check your monthly statement. Call if you have a question. Leave the minutia up to us. You will have more free time and you will be happier. So will we.
If instead, you need to be the engineer and learn every single detail (expense ratio, P/E, nickel-dime fee, standard deviation, up capture….yada yada yada), then do it all yourself and save the 1.5% annually. You won’t perform as well more than likely, but at least you will have wasted hundreds of hours and have nobody else to blame but yourself.
DON’T HIRE ME…but don’t say I didn’t warn you.