From Now On, I Want You To Call Me “El Presidente…”

I was talking to a potential client yesterday about their portfolio.

We’d run the numbers, they were underperforming. They would have been better off in index funds by a mile. They were paying 3% more A YEAR too (when you considered the management fee and mutual fund fees), to underperform.

On top of that, the firm they were using was charging ridiculous fees… a statement fee? A STATEMENT FEE?

1) They get them electronically — how much more low-cost could it be??

2) This is the equivalent of a fancy hotel charging me for towels by the pool…. I know they can do it (and I’ve seen it firsthand) but at $500 a night for a room, don’t you think we could just make the room cost $505 a night & spare me the pool-side signing ceremony, freeing the towel from the shackles of the cabana boy’s laundry basket.

So, here we are — the moment of truth. I showed them everything in black and white, pie charts with pretty colors. How much money they’d save, how much better & more transparent things would be for them. Fiduciary vs. Broker. The whole thing…

Admit it, you’re impressed.

And then they admitted it. They weren’t really thrilled with the attention they were getting, or the performance, or the communication, or the fees… but one thing anchored their love for their current advisor; he was a Senior Vice President, at this big name firm.

I looked frantically around my office for my coffee mug, just so I could do that whole surprised-spitting-the-coffee-out-of-my-mouth bit. What-what-wha??!

The sad truth is– I’ve actually heard it about a dozen times over my twelve years. Statistically probably insignificant, but I know these people aren’t alone. And here’s what I want to do… read this:

Your Advisor’s title… Senior Vice President. Really has nothing to do with their skills as an actual advisor. ZERO. It has to do with how much money they make for the firm. It’s solely based on how much in commissions & fees they generate for the firm. It’s not because their clients are performing in the top 1% in a field of advisors, or the glowing reviews received by all of their clients in some year-end survey. It’s all about the money. Goldman Sachs has 12,000 Vice Presidents. Out of like 30,000 employees. So if the president dies or gets shot… can you imagine how this one goes down?

Now… some math.

To get that SVP (and it’s been a little while since I left) You need to be doing at least $1 million in production (it’s much higher now). But for the sake of the conversation, let’s just say it’s a million.

In 2000 everyone was getting VP, AVP, SVP…because everyone was on a steady diet of selling B-share mutual funds (that paid 5% to the broker) and IPOs. Clients were basically being hosed left & right, but we sure had a lot of Presidents running around. And so the firms flooded with all of this presidential talent upped the production minimums. No other requirements, just the minimum production level.

Now to break that down for you. The average account size at most of these firms is about $500k — you think it’s billions, it’s not. So… to get SVP, all this person has to do is convince about 200 people that they know more than the client and that they’re worth the extra fees and less attention (because after all, they’re busy being SVP).

And that $1 million in production equals about $100 million in assets. The Mega team I left behind was ready to start managing about $1 billion (about 1200 households). It’s basically the same service ratio but think about that… a team of let’s say 6 people… managing 1200 kids in a classroom. High needs kids, demanding kids. Kids who want & need attention, understandably. Imagine the market dropping 600 points again, tomorrow. How proactive will this team be in managing & communicating with those 1200 families? How effective will they be? How much attention could they possibly give to each one of those people?

My wife is a teacher, a really great teacher. When she heard the numbers we were about to service, all she said was “good luck…”

Now, I know titles are supposed to mean something. I’m an Eagle Scout. I’m proud of that title. In Boy Scouts they say any other rank is “used to be” I used to be a tenderfoot, or Star scout… You are always an Eagle Scout. And when I say that, you almost expect to see the American flag billowing in the background, or me tying a knot, or helping some older lady with her groceries… but what if Eagle Scout just meant I blackmailed all of my scout leaders into signing my merit badge cards. Probably wouldn’t mean as much, would it?

So, the next time you hang your hat on that title of your financial advisor — just remember the only requirement is how much they are selling to you. Nothing more.

And, from now on I want you to call me El Presidente.


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2 thoughts on “From Now On, I Want You To Call Me “El Presidente…”

  1. Pingback: Tuesday links: Keynesian investing | Abnormal Returns

  2. Bill Winterberg CFP®

    I can’t believe it, Scott, but then again, I can believe it.

    SVP, AVP, VP… it’s all tied to emotions. Hence “private” wealth management, like it’s an exclusive club with scarce membership opportunities.

    All one needs to get “private” wealth management is a big portfolio and an open spigot for fee revenue.

    It’s nothing like membership at the golf club down the road, where they really only allow 1,000 members or whatever. No more after 1,000. 

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