Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Almost every advisor says they want to be “different.”
The “why we’re different” tab on a website is typically a checklist of the legal requirements governing all RIAs (putting the interest of the clients first, disclosing conflicts, etc.)
There are ways to be different, but few advisors are willing to adopt them.
A one-fund portfolio
Several years ago, I was asked to address graduating business students at the University of California at Berkeley. These students were interested in how they should invest, starting with their first paycheck.
Here’s what I told them:
In 40-50 years, long after I’m gone, I want you to remember the advice I’m about to give you. If you follow it, you should enjoy financial security and a comfortable retirement. I’m not suggesting you couldn’t earn higher returns with another strategy, but the one I’m about to give you is easy to understand and even easier to implement. It has the added the benefit of being one you can stick to, through all the ups and downs of the market.
For all your investments, both in your retirement and after-tax accounts (assuming it’s available in your retirement accounts; if it isn’t, find the option closest to it), you will only invest in one fund. That fund will either be a Vanguard Target Retirement Fund with the date closest to the project date of your retirement in its name, or the Vanguard LifeStrategy Moderate Growth Fund.
Deposit 15%-20% of your gross earnings in the fund you select every time you get paid. Don’t touch it unless you have no other choice.
Don’t watch the financial news.
Don’t deviate from this plan.
You’ll be fine.
Can investing really be this simple?
Simplicity and success
I interviewed Ben Felix, the portfolio manager at PWL Capital in Ottawa. His firm has more than $3 billion under management. A significant percentage of the assets he manages are in single-asset allocation funds managed by Dimensional Fund Advisors.
Ben ticked off the following benefits of this approach:
1. It reduces the time spent on portfolio implementation, allowing advisors to focus on things like client well-being, tax planning, and financial planning.
2. It takes advisor and client discretion out of portfolio rebalancing. This is especially valuable at times like March 2020 where daily volatility makes rebalancing a moving target.
3. Seeing returns for a single-asset allocation fund reduces tracking error regret on the underlying asset classes.
4. Clients appreciate the simplicity. Some have commented that this is the first time they ever understood their statements.
While this approach isn’t suitable for some clients, many clients would find it attractive.
Do you want to be different?
Consider a one-fund investment approach.
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How to Relate to Anyone
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I provide support without charging a fee to several widows. I have referred them to several very competent advisors.
The clients have a common lament:
They don’t understand the computer-generated reports they receive.
Do all your clients have the same level of financial sophistication?
Of course not.
Then why do you send them reports using the same format?
I asked my clients what they wanted to see in their reports. Here’s what they told me:
How much money do I have?
Since inception, am I up or down?
At my present spending rate, when will I run out of money?
How much do I pay my advisor in fees (expressed in dollars and not as a percent of assets)?
I asked an advisor if he would prepare a report with just that information on it and suggested he elicit from her the information she would like to see on future reports.
He told me he would do so “just this one time”, but not in the future because “it’s just not practical for me to customize reports for every client.”
He clearly doesn’t want to be different.
Dan trains executives and employees in the lessons based on the research on his latest book, Ask: How to Relate to Anyone. His online course, Ask: Increase Your Sales. Deepen Your Relationships, is now available.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
