I was sitting in the beautiful atrium of her home, overlooking a seemingly endless view of the Pacific Ocean, in one of the most exclusive zip codes in Los Angeles.
She called me because she hadn’t seemed “to make any money in the last two years” and “I don’t really communicate with my advisor that much”. She went on to say that each time she asked questions about her money she never really felt like she was getting a straight answer. Her golfing buddy recommended that she call me. And now, here we were.
After the usual pleasantries one might expect during such a meeting, I asked to see a performance report for her portfolio. She didn’t have one. She could tell that I thought it odd & quickly said, “Well, my advisor is very nice & I see her once a year… she brings out some reports then.” “My advisor is a Vice President on Investments too…”
“Oh, good — can I see one of the performance reports?”
“Well, no. She usually takes them back to the office with her, for my file…”
Then she handed me her statement… it was tame, only 68 pages. It was totally comprehensive, and completely unusable to my new friend. As a matter of fact, she was still tabulating things by hand on ledger paper because she couldn’t understand what the statement was actually saying. She couldn’t find the fee she was paying her “advisor” for her fee-based accounts, she had no idea how much in commissions she’d paid in her other accounts thus far. Ultimately, she was tired of playing the cat & mouse game of finding answers.
I thumbed through it… over 75 positions. There were in-state Municipal Bonds in her IRA (for which, conceivably, the advisor made a nice commission). A nice chunk in C-share mutual funds. The advisor was shorting Treasuries in the same account she was long bonds. The advisor was also trading options. Oh– there were Structured Products too, and why am I not surprised? It was a menagerie of everything that is wrong with our business. Oh, maybe I forgot to mention… this woman already did the math and knows that she only needs this multi-million dollar portfolio to kick off 3.5% a year in income, and she’d “like it to appreciate slowly over time without taking a ton of risk. Is that reasonable?”
Each page deeper I was into the statement, she could see the color draining from my face. I told her, “this is way too complicated for what you ‘need’.”
“Well, my advisor is VERY sophisticated…”
All I could tell her was the truth… “It’s too early for me to say with certainty, but I’m pretty sure I could accomplish what you want & need with about 12 index funds, adding to a handful of blue-chips you already own, and some bonds.”
She smiled & handed me the statements, “I’m very much looking forward to seeing what your full analysis will show me…”