Can Investors Learn A Few Things From A Country Song?
Those of you who know me well know that I am from Alabama and that I still have some Southern boy in me.
Those of you who know a little country music may also recognize that the title of this post is based on a Zac Brown Band song, Chicken Fried.
The part of the song that inspired me to write this piece is:
“Well, it’s funny how it’s the little things in life that mean the most
Not where you live, the car you drive, or the price tag on your clothes
There’s no dollar sign on a piece of mind; this I’ve come to know”
It goes with the following chorus about what he thinks really matters most in life:
“A little bit of chicken friend
Cold beer on a Friday night
A pair of jeans that fit just right
And the radio up
Well, I love to see the sun rise
See the love in my woman’s eyes
Feel the touch of a precious child
And know a mother’s love”
Beyond my fondness for country music, why is a wealth management guy quoting Zac Brown?
Well, if you stay with me on this, I promise to try to tie it all together in the end.
I originally posted a version of this a few years ago after a turbulent time in the market. I probably don’t have to remind many readers that the market has recently created more emotional stories.
Market drops are more Normal than many headlines suggest, but understandably some investors have been concerned.
Based on my past experience, how are some investment product managers and sales professionals likely feeling?
Giddy.
As I have written about before, Wall Street likes nothing more than a little fear and is off to the races marketing the latest impressively presented strategies designed to “protect” investors. I am getting multiple emails a day from investment firms and asset managers selling low volatility funds and down-side protection strategies. Some are even being sold based on impressive hypothetical returns (yes, I was smiling when I typed “hypothetical”).
I am not suggesting that some of these types of presentations aren’t worth considering.
What I am saying, however, is that our industry can make things too complex and does not give investors enough information about how things might or might not work, especially when they are needed the most.
As an example, think back to the 2008-2009 financial crisis. Many models and strategies got correlated at the wrong time – again (more on this can be found here from some good people that I’ve had a cold beer with).
Getting back to Zac, my hope is that this will spark a few thoughts about what’s really important.
When I founded my firm, Fiduciary Wealth Partners, I spent a lot of time asking questions about what adds the most value.
During conversations with many individuals and investment professionals, I was routinely reminded of a comment from a long-time client. It went something like this:
“Preston, I hired you to help my family develop and implement an investment plan. I am very happy with the management of our investments, but do you know what I have come to realize that we really pay you for?”
“Transparency, Simplicity and Peace of Mind®”
The line stuck with me so much that I registered it as a trademark to convey the value that we hope clients appreciate the most.
In a recent piece, Keep a Steady Hand on the Tiller, I re-posted a few bullet points for investors to consider that I hoped would add value.
This time, I’m posting re-posting the following bullets points for Wall Street to consider.
Don’t Make Investing A Competitive Sport
- Each client is different and has unique goals
- Winning in investing is about specific goals, not relative performance as compared to someone else who might have different objectives or appetite for risk
Don’t Sell Crystal Balls or Be A Sheep
- As we all know, but don’t want to admit, Wall Street predictions are often wrong
- Resist the urge to run with the herd and sell what has been hot in the past or whatever is being currently promoted as the next great New New Thing
Don’t Avoid Conversations About The Bad or Ugly
- Fully disclose the Good, the Bad and the Ugly
- If clients understand the pros and cons of a strategy before implementing it, they will be less likely to change course at the wrong time when the going gets rough, which it will from time to time
Don’t Forget Taxes
- Remember, a large portion of the returns of some so-called alternative strategies can come back to clients in the form of short-term capital gains
- If your client is in the highest tax bracket, please adjust your return projections down by approximately 50% before making your pitch
Don’t Underestimate the Advantage of Liquidity
- Individual clients are not endowments and generally have periodic liquidity needs for large purchases, gifts, and regular income
- Place a premium on liquid investments
Don’t Sell Anything That You Don’t Fully Understand
- No additional comments really needed
As you can sense, I am little skeptical about some of Wall Street’s claims and implied ability to consistently find investment alpha or forecast what will protect investors during a market drop.
Some outliers exist and investment professionals have a responsibility to keep an eye out for unique opportunities.
Rather than simply selling relative performance and relative risk metrics, however, how about spending more time listening to what clients want to achieve, and implementing strategies that are designed based on their goals, not our models or products?
Related to this, many know that I’m a big fan of index funds and ETFs, but as I wrote in a piece titled What’s In A Name, if investing in an active strategy or working with a higher-priced brand makes a client feel more comfortable and will allow him or her to stick to a plan more easily then, regardless of the relative performance versus an index, these might be the correct choices.
I believe that if the industry spent more time focusing on transparency and translating complexity into simple terms that clients can easily understand, investors would benefit by being more comfortable with their investments, which in turn would increase the likelihood that they’ll stick to long-term plans during good times and bad (what many studies show is the key to long-term investing success).
I think it would also strengthen relationships, provide peace of mind and hopefully allow all to enjoy:
“A little bit of chicken friend
Cold beer on a Friday night
A pair of jeans that fit just right
And the radio up
Well, I love to see the sun rise
See the love in my woman’s eyes
Feel the touch of a precious child
And know a mother’s love”
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My original post on this was published by IRIS in 2016.