ScaleWhale: The Scaling – Part 2 {This time it’s Personal}

For the full effect, My earlier post (Scale: Wall Street Can’t part.1).  It didn’t get as much traffic as normal– Ironically, I thought it was one of my better pieces, explaining my absolute obsession with Scaling business on Wall Street. And so, if, when you think of scaling, you are picturing me climbing a wall or weighing myself, bounce on over and read that post first.

So– if scale is so important, does that mean every one of Wall Street’s clients should become a soulless clone for the sake of scale? with no real customization or individuality?– No. But if people want truly customized advice, that does create limitations on the advisor and firm, because you can’t scale customized advice, even with whiz bang technology. That level of advice takes a real relationship, grounded in trust, and constant contact, once a week for some. The truth is, for truly customized attention & advice, the bandwidth is about 100 clients max per advisor, with support.

Today, the average successful Wall Street advisor has something like…2 or 3 times that– the mega teams, even more (real data anyone?). Educated assumptions aside– once you introduce “customized” on-going advice– it’s a different world. And once you move to this level of service, I’ll argue all day that I’d rather be in a boutique than a walmart. Of course, I’m biased in my own point of view. But it’s the same problem with scale for hedge funds; think about it. What happens to most hedge funds when they get too big?… they start to lag in performance. It’s the same for advice, except the commodity is human capital.

Personally, I know there’s a ton of money to be made in the walmart approach, so don’t get me wrong– but I still think Wall Street loses that game. It’s all about models on that level– a predictable model portfolio that someone can click a mouse to see and check on; combined with a trustworthy, FRIENDLY Q&A helpdesk. That’s the future of finance, that’s what my kids will be using. Schwab and Fidelity are the closest to that vision.

Today, Wall Street is just too out of touch to compete in that new world. And, they’re too big to provide boutique service. Ripe for disruption.

Now, the biggest slap I felt when I left Wall Street, was dealing with my Frankenstein portfolio of a practice.

8 years, 2 partnerships, mixed in with clients from 20 other advisors who left or blew up over the years that i’d “inherited” or Bob Sugar’d (ht: TRB)– Let’s just say, it was a potpourri of portfolios. And I was the norm.

Now, in the retail advice world, discretionary authority is not the norm.  So, I had to call a client every time I wanted to make a trade. This is called a non-discretionary relationship for you non-professionals.  And in hindsight, the level of communication was a good thing. Client’s like to know what’s going on. But that’s not the point of why the firms don’t grant trading discretion to their advisors.

A firm as big as the one I worked for (13,000-15,000 advisors) could never imagine letting that many monkeys free to do what they want with their client’s money.  Could you imagine?!! Trust me, there would be no shakespeare.  And so, I, like everyone else in the firm, built my business under this non-discretionary framework.

As a result, my business was a nightmare to manage.  If I wanted to put on a trade of size for the portfolios I managed, it could take a month to get in touch with everyone.  With managed money, if I wanted them to change managers, even worse– paperwork and new spec sheets to show… 6 months to schedule all the meetings. No scale. None.

And when I left in 2008, I got my first lesson in the clustertruck it was.

Try monitoring millions of dollars that is all over the map. 30 different funds, 20 different managers, 50 different stocks and god knows how many bonds… Not happening. And my practice was tame compared to most by then, I’d started embracing index funds in 2007– even still, 2008 i was in the bunker at DEFCON 4.  And, I was actually armed with technology I never even had at the big firms (thank you Black Diamond!!). I could at least now see the Frankenstein i had to wrestle.

Honestly, your advisor has no real clue what their entire practice asset allocation looks like or the amount of risk they are sitting on in their practice. Sure one on one they are pretty good with you, but for their whole practice, that’s a different story.

I know people at all the major firms– the people I talk to drool when I show them the tools we have. Thank god I sold smartly and early in 2008. It saved my career frankly. But it was not because I had some process in place or some cohesive structure, it was just dumb horse sense to sell, sell, sell.

So, then I got smart.

And that was my first lesson: make sure every idea or trade is scalable across my practice. And, make sure to have discretionary authority, so it doesn’t take 3 months to move money.

Today, when an advisor asks me about going independent–it’s those two things (and a ton of others I’ll share in other posts) that I know Wall Street is watching.  They know they’re vulnerable; and now you do too.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer. is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to and affiliated sites.

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