Comments (123)

Dec 23, 2016

Did you inherit a book? If not how did you grow it?

Dec 23, 2016

not yet, but I will. the way we structured the practice was that I needed to prove that I could bring in new clients to the firm, and then I would become an equity partner (this has happened already). once older partners retire, I will then be comped on their legacy clients as well as mine, the benefit they get is I buy them out of their shares, and their clients get a smooth transition. it's truly a win-win.

I grew the book by cold calling and specializing. also I think many FAs are too lackadaisical with their investment process, so the fact that we have some discipline around it helps a lot (one of our main portfolios has an individual stock sleeve managed by me and a senior partner, which has performed quite well, keeps costs down, and is unique enough to get a good amount of attention). combine investment discipline with holistic planning and a big team, you're doing something that's not abundant.

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Dec 23, 2016

Coming from the CRE side. How often do developers approach your HNW and UHNW clients about investing? I know that "country club money" is popular here in the South, but just wanted to see if I could find any actual evidence.

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Dec 23, 2016

I'm sure it happens, but most of our clients aren't country club types, they're 1st generation wealthy and aren't connected with the old money network around here. sorry this wasn't helpful but it's just not applicable to us.

anecdotally, the one client I'm thinking of who is old money does have a lot of ties to developers, mostly because of his land holdings. as far as investing, however, that's all driven by the network, and my firm has sufficient alternative investment opportunities that unless a client only wants to invest locally, they can get something similar through us.

    • 1
Dec 23, 2016

Is there a particular job you wish you'd had during your career, even if for a short time, that you never did?

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Dec 23, 2016

not going to lie, several years ago when my practice was in the very beginning I contemplated other career paths. I looked at getting a MBA to rebrand myself because I went to a nontarget and didn't major in finance. ultimately, my fate kinda decided itself when business started coming in, so aside from occasionally fantasizing about managing money at brandes or PIMCO in order to be by the beach, I haven't looked back,

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Dec 23, 2016

This is a question aimed towards you as an individual, how did you become the level headed/wise person that you are today? Does it come from going through a lot and learning from those experiences or do you read a lot?

Dec 23, 2016

thank you! I think the best way to learn is by doing, and we're all marked by our experiences. I have an incessant thirst for knowledge so I think that's helped me absorb stuff over the years. I have read a lot, and that will make you smart, but in a different way than just going through life.

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Dec 26, 2016

What were the books that you found most helpful books in regards to your knowledge of finance and life advice and why?

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Dec 23, 2016

Where does your profile picture come from?

What aspect of family time are you trying to be distracted from?

How is my grammar? Drop me a note with any errors you see!

    • 1
Dec 23, 2016

it's socrates from bill & ted's excellent adventure

political conversations mostly, I'm the only conservative in the bunch

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Dec 26, 2016

I believe it's pronounced So-Crates...I took greek in high school.

Also San Dimas High School Football Rules!

Dec 23, 2016

I swear to god I knew that picture looked familiar but couldn't place it until now. Nice choice

Jan 9, 2017

"political conversations mostly, I'm the only conservative in the bunch"

is your family not from the south? nothing worse than heavily opinionated ignorance. especially when they disagree with you

Dec 23, 2016

Thanks for doing this Bro!

Curious about what you see across your retired clients. Like, do the guys who retire at 50 (or younger) end up super bored or with a drinking problem, or do they seem to make the most of their early retirement years? Do you take an active role advising your clients when it makes sense to retire? Is there such a thing as a threshold annual budget to live well in your retirement years or does this just vary too much from person to person?

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Dec 23, 2016

will answer in reverse order.

most people in my area live very well on 6-10k/month after tax, occasionally we'll run into someone with expensive habits like boating and hunting, but that amount is pretty standard around here (remember, tier 2 city in the south). it varies depending upon the person's hobbies, but not as much as you might think. I imagine this figure is higher in places like NYC & LA and lower in places like Aiken SC (hidden jewel of the south btw).

I take a very active role in advising my clients when to retire, we'll be very blunt with someone if we think they should work longer than they want to and tell them why we think that. depends on a lot of things, but someone's spending need is a huge factor in determining when someone can afford to retire.

I think the perception of retirement is broken. it was sorta mutually agreed upon when SSA came to be, and solidified when LBJ created medicare in the 60s. retirement was thought of like this: you work up until you have 5-10 years left to live, take your pension & social security, then die. the system was very solvent, because people were allowed to die and therefore most people had overfunded retirements. now, as you well know, people are living into their 80s and 90s pretty consistently, and still wanting to retire in their 60s. this is not a financial problem for multimillionaires, but it's sowing the seeds for what I believe will be the worst financial crisis in modern history. you will have millions and millions of people woefully underprepared to retire but still choosing to leave the workforce and demanding the government pay them for life (which if modern medicine continues to advance, will be at least 20-30 years after they retire).

that was a bit of a tangent, but what I see with our clients is restless retiree syndrome. many people can afford to retire at 50 (e.g. you're worth 5mm and only need to spend 10k/mo, very sustainable withdrawal rate), but tend to stay busy long after that. even though we have golf weather year round, people that have been financially successful have the types of personalities where they can't sit still for long. most people will do their bucket list items in early retirement, then end up working again, either at a non profit, another company but at a slower pace, change industries completely (biotech to working at a guitar shop) or starting their own business. I rarely see people remain in the career that made them wealthy forever (aside from business owners).

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Dec 23, 2016

Solid response, as always-- thanks! What you said about the retirement concept being broken makes a ton of sense to me... I just don't know how you step away from income visibility when you could potentially have 30 years left to budget for. I'm sure it is not as complicated as that if you have a sufficient nut, but it just seems daunting. That said, no way I could do what I'm currently doing into my late 60s or 70s...

Dec 23, 2016

When are you coming to NYC for some drinks?

Dec 23, 2016

hah! I come up a few times a year usually for conferences. I'm usually relegated to my hotel and seeing friends, but I would love to do a WSO meetup next time I'm uup there. the trouble is it's difficult to extend your stay when it's not on your dime

    • 1
Dec 23, 2016

What color ties do you wear, if you wear any?

Dec 23, 2016

everything but pink, and I wear a suit & tie every single day

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Dec 23, 2016

When you imagine the PWM office of the future, are people wearing VR headsets or skin tight, silver Lycra bodysuits?

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Dec 23, 2016

with the body fat % of some of my coworkers, I would not want lycra bodysuits. plus, some of the assistants are easy on the eyes so firms would have to start allocating more to legal teams for all of the sexual harassment suits, it'd be a mess.

I have no idea what the future holds, but I imagine the industry will shrink, ROA will come down (as will comp), and it will become more difficult to differentiate your services with technological advances and the movement from active to passive.

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Dec 23, 2016

First off congrats on getting 500 million in AUM! That is pretty impressive for anyone let alone someone who I assume is in their late 20s-early 30s.

What would you say your typical work week is like in hours? I know a lot of FAs who are only in the office 2-3 days a week.

Do you think anyone can become a FA? Because I think that it's a pretty hard job to be successful in but this forum shits on everything that isn't buyside or ibd.

Dec 23, 2016

I should clarify 500mm is our team AUM. I am compensated on a portion of that, not the whole thing.

depends, I used to do 7-7 regularly but not so much any more. a normal week outside of summer I'll work 40-50 hours plus a few hours at night and over the weekend, depending on workload. moreso than just hours, it depends on what you do with your time. I can get everything done before 5pm, plus since it's a relationship business, I don't mind taking calls on my mobile at night. I would rather do this than not be able to work out and cook my wife dinner most nights. lifestyle is great, but you have to produce, or you're out the door.

anyone can likely get hired into a FA training program, less than 5% will succeed long term. it's like starting a business without the startup capital, and unfortunately most of this forum overlooks how lucrative customer facing roles are (sales) so PWM and other careers like it are looked down upon. I don't want to act like my shit doesn't stink by saying the business is impossible and I'm special because I'm still here, I don't believe that. I'm fortunate and have great partners, we make each other better. I think that if your personality fits, you can succeed as a FA, unfortunately most people coming in don't know what they're getting into, so it's not for lack of skill, but just not a good fit.

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Dec 23, 2016

Agreed. TBH I think PWM at GS or similar roles would be awesome for me since it isn't as "thrown into the fire" as being a FA at your local UBS. Very hard for a 22-24 year old to bring in 8-10 million AUM the first year.

Dec 25, 2016
thebrofessor:

anyone can likely get hired into a FA training program, less than 5% will succeed long term. it's like starting a business without the startup capital, and unfortunately most of this forum overlooks how lucrative customer facing roles are (sales) so PWM and other careers like it are looked down upon. I don't want to act like my shit doesn't stink by saying the business is impossible and I'm special because I'm still here, I don't believe that. I'm fortunate and have great partners, we make each other better. I think that if your personality fits, you can succeed as a FA, unfortunately most people coming in don't know what they're getting into, so it's not for lack of skill, but just not a good fit.

I think people look down on careers in sales because the bottom 70% of the profession are complete tools and the top 1% live like kings.

As someone who works in sales (enterprise software, not finance) and hates it, curious to know: what do you think the ideal personality type is?

Dec 23, 2016

What are your views on climate change?

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Just kidding.

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Dec 23, 2016

hah! thanks for the support over the years

    • 1
Dec 23, 2016

I'll go with a hard hitting question to start:

Are you more of a tits man or an ass man?

    • 3
Dec 23, 2016

I don't think he is an Assistant manager, I bet he IS the manager

How is my grammar? Drop me a note with any errors you see!

Dec 23, 2016

assistant TO the regional manager

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Best Response
Dec 23, 2016

tits are like a sportscar, nice to look at, but not practical and tend to fall apart quickly without some cosmetic work. booty is like a truck. practical, bigger the better, reliable, and just so much fun to climb into and ride.

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Dec 23, 2016
thebrofessor:

tits are like a sportscar, nice to look at, but not practical and tend to fall apart quickly without some cosmetic work. booty is like a truck. practical, bigger the better, reliable, and just so much fun to climb into and ride.

Good answer. 'Yes', would have been another one.

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Dec 27, 2016

+SB. Going to take a wild guess that your gf isn't white. @DickFuld also likes the blacks.

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    • 1
Dec 23, 2016

Boys like tits, men like ass.

But I also don't discriminate

    • 1
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Dec 23, 2016

I'm a dual American and (Latin America country) citizen and speak fluent Spanish and English. In my early 20's but eventually (maybe late 20's early 30's) want to settle down in Miami. Have a buddy who through networking is an analyst at a $1.5 billion family office in Miami specializing in latin american clients and only about 14 people work there. If I currently work 80-90 hours a week in the LatAm group of a bank what is my best move to a succesful transition to a Private Banking/PWM shop in Miami? Currently just have some relationships with South American corporations and governments, but no UHNW individuals. I would love to one day start my own shop and be like The Rock in HBO's Ballers lol. Is working at an independent multi family firm better than working for one of the large firms?

Dec 23, 2016

never worked at a family office and actually turned down an opportunity to run one. I like where I am, but there's plenty of ways to make money in this business, and I don't think there's anything inherently wrong with smaller firms. I like being able to focus on the parts of the job I enjoy: selling, investing, and servicing clients. I would not want to deal with small firm bullshit like paying a light bill, so I'm biased.

    • 1
Dec 27, 2016

I would not want to deal with small firm bullshit like paying a light bill, so I'm biased.

This. This. THIS.

Dec 24, 2016

How did you portray yourself to be taken seriously over the phone when you cold-called potential clients as a young twenty-something year old?

Dec 23, 2016

confidence is key. if you think you'll be perceived as immature, you will come off that way. not going to lie, my first few months of calling I was petrified. over time that wanes, and you just get used to it. this gradual hardening gives you confidence and kinda reinforces itself. you act confident, you win business, leading to more confidence and selling better, which leads to more business, etc etc etc

    • 4
Dec 24, 2016

Thanks a lot for the reply. That definitely makes sense.

Did they ever question your credentials in the field? (i.e. why give their business to you when they could go with a more experienced advisor who is 30-40 years old and has been in the field longer?

Also, what area of the U.S. is your clientele based? As in, did you target primarily clients in the South vs. maybe West Coast or the East Coast?

Dec 24, 2016

How much did you donate to Hillary Clinton?

Dec 23, 2016

I know this is a joke, but unfortunately since political contributions are public record I've decided against doing them ever. I would hate for a prospect to google me and see I gave money to Jimmy McMillan and then decide not to work with me

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Dec 24, 2016

Smart thinking. Ditto.

Dec 25, 2016

Good thinking.

"Republicans buy shoes, too." Michael Jordan

Dec 24, 2016

As a guy that's in investing, I fantasize about becoming a FA one day. I've interned for two advisories over the years (one at ML and another boutique) and I have to say I'm jealous of the lifestyle and comp once your book is set up above a certain threshold.

My q is: do you see the advisory model changing in the future given the tech advancement? Since the newly minted millennial millionaires should be more savvy would they be ok paying the % under management/advisory?

Dec 23, 2016

Are these different than the FA roles that aggressively try to recruit undergraduates where you start by selling car insurance and then move up?

How is my grammar? Drop me a note with any errors you see!

Dec 23, 2016

do not start being a broker for an insurance company, period. also, I strongly advise against becoming a FA until you're at least 25.

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Dec 23, 2016

doesn't shock me at all, many successful FAs are former buy siders.

it will absolutely change, and I don't think it's a bad thing. I don't know how compensation will change, or if instead of changing structurally it will just come down (we're seeing a bit of this already). for example, in the 90s when wrap accounts came en vogue, brokers could charge 3% per year and clients would happily pay it (mostly because equity managers were delivering high teens, low 20s returns net of fees). nowadays, I would get laughed out of the room if I wanted to charge someone 3%. back then, advisors would just allocate assets based upon firm recommendations, charge an asset based fee, and went on their merry way. clients made money, advisors made money, everyone was happy.

here's the deal: my fee is very easily quantified and I do think our practice helps clients be better off than they otherwise would be financially if left to their own devices. does this mean I outperform the S&P? no, but it does mean I outperform something totally impossible to quantify, and that is what financial decisions they would make if they were DIY. part of this is performance, but a big part of it is behavioral.

what tech advancements will do is eliminate asset allocators from the business. unless someone is dealing with more complex issues, working holistically with a family, and actually adding value, they will not survive. betterment and wealthfront revolutionized the industry by providing people with asset allocation advice based upon the same questionnaires you see at top firms, undercutting on fees, and using low cost funds to be the investment vehicle. personal capital is okay for very basic financial planning, and I think is fine for people just getting started or without a lot of assets. I think my generation will somewhat come around to the advisory model, because when the next bear market comes and people see their accounts get cut in half over the course of a year or two, they're going to want advice.

what worries me today is recency bias. the advisory business is under fire now because we're well paid and many advisors don't add value, a fact which is magnified by the markets of the past 7 years (US equity & fixed income leadership). if the next 30 years look like the previous 7, everyone should just buy SPY & AGG/TLT and never pay any fees, but I, as well as most advisors know that we really earn our fee during bad markets. I think eventually my generation (I'm an older millenial, but still lumped in with that term) will become advisory clients, but advisors will have to continuously innovate and adapt to remain competitive (a fact which has always been the case).

all of that being said, my area of the country doesn't mint any millenial millionaires, so take what I have with a grain of salt.

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Dec 24, 2016

Awesome. Thank you for the response! I mostly agree but will digest it some more and come back w follow ups.

Another q: how do you handle specific issues regarding taxes and laws? Do u have a network of lawyers and family accountants you work with? I feel like I'm at an age and situation where I should be maximizing the $ I'm earning and minimizing taxes but not sure how to go about it...

Dec 25, 2016

Unrelated, but as this is the holiday season, what is the best Christmas movie, in your humble opinion.

Dec 23, 2016

either elf or jingle all the way. I'm also a sucker for the old cartoon ones like charlie brown, rudolph, grinch, etc.

Dec 25, 2016
Frieds:

Unrelated, but as this is the holiday season, what is the best Christmas movie, in your humble opinion.

Die Hard is the only correct answer.

Dec 24, 2016

Bros before hos?

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Apr 26, 2017

Says the bro with no hos

Dec 26, 2016

Entering an enterprise software sales role when undergrad ends.

Any advice?
Books you'd recommend for becoming good at sales?

I realize that books will never be enough; real world experience is required.

Dec 23, 2016

Zig ziglar, Paul j Meyer, dale carnegie, Steven covey are all good. Get an assortment

Dec 26, 2016

How rich should I be before I produce a porno with myself in it?

Dec 23, 2016

Rich enough to never give a fuck about your future reputation

Dec 26, 2016

Solid AMA - had to google what FA was, felt a bit foolish when I saw it meant Financial Advisor ;)

    • 1
Dec 23, 2016

When I first joined, I had to google AMA. Sometimes I really hate acronyms

Dec 26, 2016

You are a font of knowledge when it comes to investing. How did you gain this knowledge?

Dec 23, 2016

Managing money taught me more than any book ever did. That being said, I've read a ton of books

    • 1
Dec 23, 2016

If I recall correctly, you have previously (briefly) commented on the favourable synergy between hard STEM skills and sales skills. Indeed, many of your previous posts have also indirectly touched on this. Although the superficial advantages are obvious, I was wondering if you'd be kind enough to elaborate on this and give a more in-depth analysis?

You have also previously recommended books on social dynamics and sales. However, from what I saw, your answers were very general ("Anything by zig ziglar ..."). Would you also be so kind as to give specific book recommendations (of the most effective books)?

Dec 23, 2016

hey man, happy to help. regarding books, I'll try to distill it to the top non-investing books that have helped me in sales

  1. how to win friends and influence people, dale carnegie
  2. unlocking your legacy, paul j meyer
  3. how I raised myself from failure to success in selling, frank bettger
  4. see you at the top, zig ziglar
  5. winner's circle 4 & 5, rj shook
  6. million dollar financial advisor, david mullen
  7. clients for life, jagdish sheth
  8. your client's story, mitch anthony
  9. 7 habits of highly effective people, steven covey

regarding the hard stem skills and sales skills, this is shaped by my clientele. as you may or may not know about the south, several companies have large operations here or are even headquartered here. many clients of mine started their careers as entry level engineers in various industries. as I've built my practice, a common thread I've noticed is the most highly compensated individuals are either customer facing engineers or sales guys.

customer facing engineers in my experience are in product development and will spend a lot of time being an engineer, but they also need to interact with clients and be able to effectively communicate. a sales guy without a stem background may not be able to do much more than close the deal, negotiate with management, etc., but after the fact, if a client is receiving customized solutions designed by engineers, there will almost always be some post sale follow up.

there is a lot to be said about someone who is an expert in something as intellectually difficult as chemical engineering, software design, pharmaceutical development, etc., and who can communicate effectively with potential customers/investors. I think one of the biggest marks of intelligence is being able to take complex concepts and distill them down into very simple terms.

not sure if this answered the question, but feel free to follow up.

    • 2
Dec 23, 2016
thebrofessor:

hey man, happy to help. regarding books, I'll try to distill it to the top non-investing books that have helped me in sales

  1. how to win friends and influence people, dale carnegie
  2. unlocking your legacy, paul j meyer
  3. how I raised myself from failure to success in selling, frank bettger
  4. see you at the top, zig ziglar
  5. winner's circle 4 & 5, rj shook
  6. million dollar financial advisor, david mullen
  7. clients for life, jagdish sheth
  8. your client's story, mitch anthony
  9. 7 habits of highly effective people, steven covey

regarding the hard stem skills and sales skills, this is shaped by my clientele. as you may or may not know about the south, several companies have large operations here or are even headquartered here. many clients of mine started their careers as entry level engineers in various industries. as I've built my practice, a common thread I've noticed is the most highly compensated individuals are either customer facing engineers or sales guys.

customer facing engineers in my experience are in product development and will spend a lot of time being an engineer, but they also need to interact with clients and be able to effectively communicate. a sales guy without a stem background may not be able to do much more than close the deal, negotiate with management, etc., but after the fact, if a client is receiving customized solutions designed by engineers, there will almost always be some post sale follow up.

there is a lot to be said about someone who is an expert in something as intellectually difficult as chemical engineering, software design, pharmaceutical development, etc., and who can communicate effectively with potential customers/investors. I think one of the biggest marks of intelligence is being able to take complex concepts and distill them down into very simple terms.

not sure if this answered the question, but feel free to follow up.

That's exactly what I was looking for.

Thank you for being so gracious with your time over the years. The advice you've passed on to younger individuals, such has myself, has been outstanding.

    • 1
Dec 26, 2016

Have you seen people become FAs later on in their careers, maybe at 40-50 years old, and be successful? I've heard people say that it can sometimes be better to move into an FA role later after establishing yourself in the industry so I am wondering your thoughts on this.

Dec 23, 2016

the upside is you likely have a network you can call on, the downside is I've seen plenty of people enter at this age and rely too heavily on that network. plus, regardless of if you're 55 or 25, if you're just starting out, you have no credibility in the eyes of potential clients. there's no formula for success, I've seen plenty of older guys kill it as rookies and fall flat on their faces, just like I've seen the same for younger folks.

Dec 27, 2016

Where have you sourced most of your clients? Have you seen success from cold calling?

Dec 23, 2016

The internet is a wonderful place, LinkedIn especially. Imagine you were trying to find everyone successful In a certain industry in a city close by, its really not that complicated.

And yes, cold calling has been successful for me, but it's not a high hit rate. If my close rate per call were a major league batting average, I'd be lucky to be a ball boy

Dec 27, 2016

Thanks for helping us out Bro. As you know, I'm just starting out so I'll focus on the beginning stages.

What three things do you wish you knew when you started out? Is there a service you use for getting qualified prospects? Best advice for cold calling?

Dec 23, 2016

I wish I knew how hard it was going to be. I thought I knew, I had no idea.

I wish I knew what an emotional roller coaster these past years were going to be. I'm glad I did it, I never want to do it again.

And, I wish I knew the bull market would've continued longer

As I said above, the internet is a wonderful thing, plenty of databases out there.

As for cold calling, Marty shafiroff has a good book out there from the 80s and 90s, nothing has really changed from the old days

    • 1
Dec 27, 2016

Thanks for doing this.

I started working in a large investment management office a few months ago now, and whilst I'm enjoying the work I'm unsure as to whether or not I'm going to find myself pigeon-holed in a few years time.

Our office is structured such that there are teams of relationship managers who interact with clients and then a central team (on which I work) that manages the money on a discretionary basis. Some relationship managers run a small number of 'advisory' portfolio, but the vast majority (~90%) is ran by my team.

I realise that things are a bit different over in the US, but in your experience, might I be better finding a way onto the client facing side of the office?

Dec 23, 2016

Absolutely. Clients pay the bills, and if you bring in clients you make rain

Dec 27, 2016

Thanks for doing this. SB'd.

My question is about attitude. How do you deal with disappointments? As in, when things don't go the way you expected to, or when the ideal scenario didn't play out, how do you keep yourself composed? Doesn't have to be career-related but also personal and social disappointments. How do you remain positive, composed and ready to face the future.

Dec 23, 2016

I learned a long time ago that worrying and pouting is not productive. It's not healthy to keep your emotions bottled up but aside from blowing off steam occasionally, I approach everything in life like this:

Can I do something about it? If yes, DO IT. If no, fuggedaboudit. This simple decision tree has helped immensely.

I also have a great life, and I think people on this forum forget to count their blessings. Not forgetting to be grateful will help your outlook on life

    • 1
Dec 27, 2016

Thanks for taking the time to do an AMA!

What's your opinion on robo-advisor? Where do you see it going in both the short-term and long-term?

Consumption smoothing is retarded. If you stay in this game for a handful of years, money will be the least of your worries. Live it up, because this is the one time in your life where you might actually have time to spare.

Dec 23, 2016

as I alluded to earlier, for years there were brokers who did nothing more than give clients a diversified portfolio based on MPT, efficient frontier, all that garbage. roboadvisors will replace these brokers, so I see them expanding. I think robo & DOL (more on that in the next guy's reply) as well as demographics will decrease the amount of financial advisors by over 50% over the next 10 years. robo will take a lot of this money, as will vanguard, personal capital, and other stripped down offerings. reason being, most people don't need an expert. most people's finances aren't complicated.

aside from the behavioral part, if you simply save a high % of your income, live well below your means, work a long time, and dollar cost average into global equities during your working years, you'll be fine. many people don't have the means to need a complicated estate plan, insurance issues, liability issues, tax issues, concentrated positions, etc., and so those individuals who have relied on a broker for years will leave and go somewhere else (likely a robo). those clients will likely be fine to pay less but also be a less important client.

long term, we'll see. robos came about as a result of a long bull market where most managers underperformed, technology advanced, and distrust of the financial industry was high. I would be willing to bet people of means leave robos when the next bear market hits (I said earlier recency bias is huge), because no one needs advice if you can get 7-10% compounded from SPY. robos also need to adapt more to customers. locking people out of the market during volatility (like in august 2015 from china and june 2016 from brexit) is a recipe for disaster. people need access to their money, and while selling during a down market is almost never recommended, robos need to understand it's not their money, it's clients' money, and you don't get carte blanche to do whatever you want just because someone pays you 25bps.

tldr: robos aren't leaving, but they can peacefully exist with a more specialized, educated population of advisors

    • 5
Dec 27, 2016

Wow, I'm current doing research on robo advisors myself and I was unaware of the lockouts that occurred during those times. Google gives very few results regarding the incident.

Thanks for your reply and your continued contribution to this forum!

Consumption smoothing is retarded. If you stay in this game for a handful of years, money will be the least of your worries. Live it up, because this is the one time in your life where you might actually have time to spare.

Dec 27, 2016

Not sure if it may have been asked already, but how do you see the DOL rule impacting your clients/book? Do you have a lot of retirement accounts or mainly younger money?

Dec 23, 2016

great question. I'll do a cursory overview and then dive into the implications.

for those who don't know, the gummint is getting into your finances now too, via the fiduciary rule/standard. it was started by the department of labor, so for brevity's sake I'll just say DOL herein instead of typing out DOL fiduciary standard. in simple terms, a fiduciary is a practitioner who puts your interests before his own, discloses conflicts of interest, and so on.

what this means is if I recommend something to a client/potential client, I need to be transparent with you about what's in it for me, why I think it advantages you, and disclose any conflicts of interest. when I mention wrap accounts, the broker is acting as a fiduciary there, so for situations like this, the new regulation doesn't change anything.

aside from managed money however, brokers are not held to that standard, simply a suitability standard, which means regardless of conflicts of interest, all I have to be able to do to defend myself in court is to say that an investment was suitable. this lead to a term called YTB (yield to broker) and many brokers would push products because of sales incentives and bigger commissions, regardless of whether or not it's the best choice.

the govt saw this happening and wondered how they can regulate it. they targeted retirement accounts, because under ERISA (created tax deferred accounts), the govt can regulate that.

it won't affect me much, most of our business is fiduciary already, but it will cause many bad apples to leave the business, which should be a net positive for consumers, however I believe there are many folks out there who work with fine advisors (maybe not as comprehensive as us) but have small accounts and literally just need to park assets with their local edward jones guy and get advice maybe 2x a year. for those people, paying a 1% annual fee makes no sense, but because they're no trouble, the broker keeps them. these individuals will suffer, because either their costs will go up or they will have to move to a completely self directed platform where the advice is questionable at best.

    • 4
Dec 23, 2016

Fuck DOL....

that is all

    • 1
Dec 31, 2016

Thanks for doing this. Interesting stuff.

What is the net worth of your average client?

At what point is it advisable to place your money with a PWM company?

How many hours per week do you spend "wining and dining" clients?

Dec 23, 2016

Avg net worth is between 2-5mm

When you want to, no set time. Some millionaires won't ever do it, some people want help as early as they cross 6 figures in assets

It depends on the week, not as often as you might think, face time is important, but it's not always dining at fancy restaurants

Jan 6, 2017

Simple question: How do you decide how to invest in something? do you build out an efficient frontier model? CAPM, CAL etc... what exactly goes on in your head when you are thinking about investing.

Thank you in advance

Jan 6, 2017

Simple question: How do you decide how to invest in something? do you build out an efficient frontier model? CAPM, CAL etc... what exactly goes on in your head when you are thinking about investing. ?

Dec 23, 2016

very complicated process

first you need to keep in mind I don't run a hedge fund, so nearly all of our clients are broadly diversified globally and across asset classes. regarding how we outsource, I'll explain that here

stock side: want high active share managers with long term track records. these are the guys that make you really happy to own them when they beat the market by 10% in a given year but make you want to pull your hair out when they're down 5% while the market's up 10%. over time, these guys will more than earn their fee. only use mutual funds here on occasion.

bond side: with the current state of things, you can't expect much in the way of return, so for bonds, you just want your manager to not fuck things up. we're slightly shorter duration than the AGG, and have some exposure to more esoteric parts of the bond market. but on the whole, our clients just expect their bonds to hold their value and maybe earn a point or two net of fees, and we hope about the same.

other: regarding hedge funds, private equity, private credit, it really depends. aside from hedge funds that are perennially open or something like blackstone tac opps which comes online every year, it depends on the story. there have been some interesting funds come our way over the past couple of years (see my thread about private credit here: http://www.wallstreetoasis.com/forums/alternative-...), but our firm is pretty good at initial screening so what our due dili is significantly watered down. I'm not flying out to meet managers at Oaktree or going to Stuytown to see if blackstone is really doing what they say they're doing, we're investigating at arm's length, seeing if it makes sense for our clientele, asking a lot of questions, and then selling it.

as to the proportions of the above, totally depends on the client. I have 40 year old clients with over 60% of their money in munis, I have 70 year old clients that won't ever be anything but 100% stocks, it truly just depends.

I bet what you were curious about the strategy I run, which is a US biased large cap stock portfolio. what I'm about to say will go counter to a lot of smarter people than me on this forum, and may get me some MS. I don't really care, it's performed well with less vol than any applicable index, and clients like it.

I think modelling is garbage. that was hyperbole, but now that I have your attention, let me elaborate. management of any given company is usually compelled to manage analysts expectations and be conservative (unless they're sloppy like Enron, but there are ways to see if the numbers don't add up), so every analyst putting together a model is basically getting a recipe from blue apron but just using different proportions of salt, pepper & olive oil to yield essentially the same thing (there's a reason why there's little deviation in the IBES numbers). firms create base, bull & bear cases to cover their tracks, but basically what they're saying is "we expect/don't expect management to do what they say they're going to do, here's why and here's a bunch of relatively arbitrary numbers that make our DCF work." also, take a look at how forward earnings get adjusted down the closer you get to the reporting date, it makes things look cheaper than they actually are. not to say sell side analysts are bad, just that their firms always have a bullish bias, and their jobs depend on predicting the unpredictable.

if I were a hedge fund with very high return targets and controls on timing and volume of inflows/outflows, I could be more particular with return targets, but we don't have that luxury. we have people working, always adding money, people retired, always spending money, and then the occasional lumpy stuff, like rollovers when someone changes jobs, gets a big bonus, or gets a big stock vesting, and I can't very well say "well our DCFs have this portfolio getting about 2% less IRR than we're comfortable with so we're going to hold cash indefinitely," that doesn't fly. this is not to say that we are perennial buyers, just that the names we hold are more of the "great company at a fair price" type names, rather than something a hedge fund might buy only at a certain price.

now to get to the specifics. we do not do any of the stuff you mentioned, I think it's important to learn, but in practice it's useless. if I'm looking at a stock, say ABC, I want a value creator that can generate double digit returns for shareholders over a full market cycle, ideally with a dividend and ideally with less volatility than the market. there are a lot of things we look for, but valuation is paramount, also important is the business model (does it make sense and are they a market leader), shareholder friendliness, safety (balance sheet, accounting red flags, etc), and growth prospects. it's not as simple as just screening for PE below X, EPS CAGR above Y, current ratio of 2, and so on; just like it's not as complicated as building out a DCF which is a regurgitation of a 10k with some assumptions (aka guesses) about growth. it's somewhere in between.

our conservatism and unwillingness to take a lot of risk has probably held down returns, but it's also avoided us getting into any blow ups (stock down over 30%).

hope this helps, and feel free to disagree with me about modelling, but I think most of that stuff is inside baseball, and experience has taught me that our way of managing money works.

TLDR: no CAPM, CAL, efficient frontier, only slightly more complicated than a monkey throwing darts

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Jan 6, 2017

Do you think all FAs should have CFPs. Is a CFA worth getting if you're closely aligned to the portfolio but also manage relationships with clients? If you had to pick one, which one would you pursue first?

Dec 23, 2016

what I'm about to write goes against conventional wisdom, and may even be seen as hypocritical.

CFP is overhyped, overused, and mostly a waste of time. that being said, I'll be getting it next year (mostly to be able to check the box). the CFP is a good way for potential clients to filter out experts versus non experts, because ceteris paribus, those with designations have dedicated more time to study than those without.

that being said, there are a lot of idiots with the CFP, and the program is such that it doesn't allow for any creativity or customization based upon a specific investor. CFP is great for people who want to work with non millionaires, or the "mass affluent," but for higher net worth investors, it's no guarantee you'll get good help.

however, CFP has done a great job at marketing the designation and virtually every publication says you must work with a CFP, so potential clients ask about it. I'm getting mine purely for the reason that people ask, and it puts them at ease, even though I doubt I'll learn a tremendous amount.

regarding CFA, I'll be finishing mine before I turn 35. passed level 1 in my early 20s, then client demands became more important than level 2. I think investment discipline is lackadaisical in this business, so CFA answers some of that. plus, with higher net worth investors, they prefer CFA over CFP, and I aim to work with creme de la creme clients, not mass affluent.

so short answer: both useless in isolation, depends on your clientele, philosophy, etc. both are great programs, but don't get them just to get them.

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Jan 9, 2017

Thanks for doing this, thebrofessor.

What criteria should we use when searching for a financial advisor? How do you go about making sure the individual as your best interests at heart?

Dec 23, 2016

this is a regurgitation of what I put in my 2014 AMA

First things first, brokercheck. Just google the guy's name with the phrase "brokercheck" afterwards and you'll find his record on FINRA. This will include years of experience, licenses, prior firms, etc. Things to look out for are disclosure events, but those are not a red flag always. FINRA is obligated to report every customer complaint, even if it was determined the broker was not at fault, so read through their report.

If they've gotten some complaints, ask about them. If they've moved firms a bunch, ask about that. Anyone who's been at Smith Barney their entire career will have tons and tons of firm names, even if they've never actually moved, but you won't know unless you ask.

Ok, now a list of stuff to ask, there's no right or wrong answer, your gut will be a good guide. If you have specific questions, ask them in the comments.

Ask about their investment philosophy: are they value, growth, technician, what?

Ask how they invest their own money: will they invest in the same things they're recommending for you? If not, why?

Ask about their services: in my opinion, every good broker has a clearly articulated description of their service offering to clients

Ask about their typical client: net worth, age, goals, etc.: will you be a top tier client or a bottom of the barrel person who gets no attention?

Ask about succession planning: if they're similar in age to you, who takes over after they retire?

How much does it cost? Why? What's the value I'm getting with this fee?

in addition to this, I would ask how the Fiduciary Rule is affecting them. if they were already acting as a fiduciary, this is a good sign and they'll have some comments. if they sound like they're mostly complaining, that's generally not a good sign.

    • 4
Jan 12, 2017

Very intrigued by your career progression. I currently work at the same MS/ML/UBS in the Southeast but would consider myself at least a few years behind you ('14 undergrad).

Curious at how you approached the conversation of transitioning from support to sales? Our team moved over a year ago from the firm that shut its doors on the PB/PWM division. So went from having a firm predestined "path" / training program to little structure and much more team dependent.

Would love to take it off line at some point but suspect others would benefit from the answer as well.

Dec 23, 2016

I think my thoughts on this would help other monkeys trying to further their careers. I'll keep specifics light to conceal identity.

I think the first thing you have to figure out is what you want your career to look like. does the thought of interacting with clients terrify you? or, do you want to be more of a sales/relationship guy? even if you're not enamored with the idea, are you willing to roll the dice and take a chance? my point here is don't approach this kinda conversation just because you want more money, do it because you want something more out of your career

I also think a thirst for knowledge is important. do you come to work and simply count the hours until quittin time? or, do you ask for projects/think of projects that could add value to the team? do you ask meaningful questions and legitimately try to make a difference? or, do you just do what's asked of you? I don't think it's necessary to go over the top all of the time, but here's the difference between good admin and bad admin. good admin realize that clients pay the bills, and without client revenue, they'd be jobless, so they think of things from the client's perspective: "how can we keep clients engaged and doing more business with us?" this is a good thing. bad admin think of things like a compliance officer might: "this is the way it has to be done, I'm hired to do these certain tasks and I don't see a need to do more than that or deviate from the way I've done things forever." I doubt you're in the latter category, but just food for thought.

this process will take years. also, at your annual review meetings with your superiors, ask them where they see you in the future, and offer your thoughts on where you see yourself and gauge their reaction. if they're resistant, then that's good in the sense it tells you to look elsewhere to move up (diagonal move). if they seem open to it, flesh it out, ask specifics, and see where the conversation goes. when teams are formed with junior/senior people, in PWM, in other businesses, and I'd imagine it's this way in boutique shops as well, the senior person already has a great income and great client base, but what they don't have is a long runway ahead of them. the junior wants a career but also someone to help them get started winning business. the senior needs a succession plan, and probably needs some fresh ideas to continue to grow the business.

communication is key. what I did was get the heisman from one group I wanted to work with but then they got the blessing of my current group, which was fragmented at best when I joined up with them. basically what they wanted was to have a junior partner who could otherwise succeed on their own but wanted to team up. the worst thing for a senior guy to do is take on someone who brings nothing to the table. too often I see juniors wanting to get revenue and profit sharing from an established team without bringing anything of value. even if they're not bringing in new clients, are they helping close business? are they improving processes to cut down on costs? improving investment performance to add revenue that way? there has to be a help-me-help-you to any effective team. eventually we settled on the arrangement and years later it's working out well, though not without some bumps in the road.

if I had to keep the list in bullet points, it'd be this:

  1. know what you want
  2. make sure personalities mesh with any potential business partners
  3. communication, communication, communication
  4. don't just focus on money. if it's a good business, money will come
  5. it's a dynamic thing, you won't have everything worked out on day one. but if you work with good people with similar values to you, it will work out well
    • 4
Jan 27, 2017

I just saw that you put AXA on your least respected companies list. As a favor to a close friend, I agreed to accept an intro/meeting with a guy from Matauro/AXA. Not sure how the two are connected. Would like to hear your feedback on either/both if you have any.

Dec 23, 2016

don't know anything about matauro, but my experience with axa was that they make you pay for your licenses, don't give you a big runway to build your business, and try to get you to sell whole life & annuities to teachers.

selling high cost, low return products to low income overworked individuals isn't my idea of a good career. as far as I'm concerned, the only legitimate firms are those with open architecture and well established training programs.

Jan 27, 2017

Sorry I wasn't clear on where I was looking for feedback. Meeting with one of the partners to potentially engage them as advisors. I don't have an FA yet.

Apr 25, 2017

Hey, thebrofessor, I see you on here a lot, you always provide great commentary. I know I'm late to the game, but thank you for your contributions.

Anyway, in your opinion how/where does a good advisor add value? I hear the term value proposition being thrown around so much in the industry, but then every advisor I talk with continues on and on about asset allocation...Asset allocation is important, don't get me wrong, but I would think there is more value add elsewhere? Whether you see that being client psychology, long term planning, tax strategy, etc. I'm just curious?

I know there are advisors who outperform other advisors from a return/allocation perspective, but at some point there's got to be more to it, right?

Anyway, mid 20s, I started out as an accountant and passed my CFP test recently due to a slight need in my accounting job. I'm really considering the longterm options of both fields and really trying to find a sweet spot in the financial services industry where I can utilize both skill sets. Even though I get the FA environment, I've seen so much backlash against FA's and it seems worrisome...but there's haters everywhere I suppose...I'm sure you could find clients who will claim their advisors saved their financial lives as well.

Dec 23, 2016

advisors add value in 3 ways: behavioral, expertise, and access.

in reverse order...

access: I have access to things that you cannot get elsewhere, like particular hedge funds and PE funds, among others. I will say this is probably the least important benefit, but it's still there. you can't get into RenTech or Millenium through eTrade or Vanguard...

expertise: this depends. a huge value add is preventing mistakes or making sure people take care of things they weren't aware of. it could be setting up a retirement plan for a business owner that saves them 6 figures in tax dollars per year, it could be helping develop an estate plan that ensures their values are preserved and the money's not wasted in taxes or by non blood relatives (2nd marriages, in laws, etc), it could be if you're an executive trying to create liquidity, what's the best way to structure that without spooking shareholders, running afoul of insider rules, and minimizing your risk. this is impossible to quantify, because it's different for everyone.

behavioral: as I've said before, my goal is to outperform what you would've done if left to your own devices. for people in the building years, it may be keeping them invested when they're trying to find reasons to hold 50% cash. for people in early retirement, it may be keeping them comfortable with 60% equity exposure even though their dad or golf buddy says the market's going to crash and jim cramer says pull out.

a big part of why people come to us is they realize they've fucked up. successful investors don't look for advisors unless they feel like they're missing something. yeah, while I'm confident I can pick a better basket of US stocks, net of fees it may or may not be worth it long term. maybe they stayed in cash since 2009 because they were afraid the world was ending, maybe they're invested too aggressively going into their retirement years and don't understand sequence of returns risk, maybe they're underdiversified (like a target date fund that's basically S&P + int/long bonds), maybe they're paying too much in fees (using expensive mutual funds when an ETF, cheaper fund, or SMA will do), there's lots of silly things we see investors do.

see my signature: "The investor's chief problem - and even his worst enemy - is likely to be himself." - Benjamin Graham

if you can protect someone from themselves, you can do well for them.

unfortunately, most advisors aren't good. at best, they're unpolished, not experts, and merely asset allocators. at worst, they're harmful and looking for more commissions and don't care about people's financial future.

hope this helps.

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Apr 25, 2017

First off, thank you for the detailed response. Even though I am yet an advisor, I believe I suffer from something a well known advisor dubbed the FA imposter syndrome. Not to say I am an expert, far from that point, but as you pointed out, there are a lot of so-so unpolished advisors out there, and I have to remind myself that's just a part of the profession unfortunately (as it is in other professions as well). That fact doesn't mean I will become an imposter myself.

In relation to expertise, I think this is the biggest point for me. I fall prey to my social network bubble, which is mostly mid 20s, who for better or worse are doing well if they're just maxing their 401k. It's important to remember that eventually, some of these kids will develop real financial problems that need to be solved as they grow their wealth and start new ventures and such. I suppose I'll have the chance to dive into real planning soon once I join and shadow an established advisory team.

Very true on behavior - it's easy for the critics to talk the talk at this point in history, but that doesn't mean they will be correct tomorrow, and being very wrong tomorrow can be grave in this business.

Thanks again man. Cheers to your business.

Apr 26, 2017

Thanks so much for sharing your insights; been reading your posts for a long time, and I'm a huge fan. So for new analysts just entering the HF route looking to one day be a PM/Partner in an investment role (lofty goal, but no one who ever got there just settled haha), what type of investments/strategies do you see the most opportunity in for the next 2-3 decades? Small cap equities, distressed debt, fundamentals value in general, etc.? Especially emerging markets/international equities. Do you see a large amount of opportunity here coming up within the next decade or so?

Also one more question, what type of investment vehicles do you see as holding the most opportunity for new analysts? HF (with all the myriad strategies), LO, REIT/REPE, etc.?

Dec 23, 2016

I've said it before, I'll say it again: credit.

you can work for a BDC, at a distressed shop like York, at a place like PIMCO, etc.

also assuming we don't have another LTCM/GFC, quant strategies will be good, but you need specialized knowledge there.

I still think there will be value in stock picking, but that industry is going to get gutted. large cap value funds are a dime a dozen. the industry will probably shrink by 50% not in terms of assets, but in terms of companies. this means less analyst jobs. overseas is fine, always will be opportunity there.

small cap will have opportunity, but one thing that holds those guys away from the big bucks is depth of market. you could never have a small cap fund as big as a big bond fund or quant fund that uses derivatives, you'd be 100% of the volume of the stocks you trade in, not good. you can def add alpha because the nature of the space is that the companies are undertraded, underfollowed, etc., so there's more opportunities for outperformance.

don't know a lot about real estate, would imagine there's always opportunity there. and regarding hedge versus long-only, don't discriminate on business structure, just find what interests you and go with the best opportunity.

as an example, I'd much rather work as a credit analyst for TCW and get to work at 4am to deal with LA traffic than work in NYC at a $2bn hedge fund just because it's a hedge fund.

    • 3
Apr 26, 2017

Do you have a twitter feed?

...

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