In an article targeted specifically at financial advisors, Maks Financial Services relates that clients, and especially the children of clients, get excited by individual stocks like Apple (NASDAQ:AAPL) or Ferrari (OTC:RACE), but think nothing of liquidating shares in a mutual fund or ETF.
So despite the diversification or cost-basis advantages of a good fund (or revenue benefits to the advisor of a pricey fund), Maks takes a behavioral perspective, relating that his experience indicates that the best financial plans end up as paperweights on clients' desk. So he recommends an approach that should warm the hearts of SA's individual-stock-loving community. I quote:
"It would be extremely difficult to argue that having your money in a diversified asset allocation mutual fund or ETF is not the 'right' strategy... but is it the most effective - both for your practice in the business building sense, and for the goal of getting the client to buy into the idea of investing?"
You can read this practitioner's real-life examples by clicking here. His primary thesis is that investors will ultimately do better when their advisors focus on being effective more than on being "right" in terms of using the optimal investments.
That notion put me in mind of an interview I once had with a Harvard University professor whose main research topic was in the area of leadership. The professor made a distinction that seems consistent with what Maks argues. To wit: If a problem is merely technical, then so too is the solution. You can go on SA and get lots of great investment solutions. But when you are the problem, then leadership is needed to help you, the investor, understand how to more effectively conduct yourself.
It occurs to me that this is essentially what Eric Nelson and other advisors on the site have been arguing in the comments thread in the past week, to a largely skeptical DIY crowd. That impression is certainly strengthened when Maks Financial Services comes along and tells us that flesh-and-blood clients need to be on board with their portfolios more than having "the best" portfolio.
So what do you think? Please share your thoughts in the comments section.
Meanwhile, we've got some truly outstanding analysis for advisors on SA today:
- Kevin Wilson relates his studies at the school of hard knocks - forward to all your clients with high-school- or college-age kids.
- Must read: Lance Roberts' deep dive into the housing market non-recovery paints a vivid portrait of today's economic realities.
- Allianz Global Investors' Kristina Hooper mourns housing economist Chip Case (of Case-Shiller fame), and shares some of her housing insights.
- Interesting thoughts from J. David Stein on the "largest macro imbalance in world history," i.e., China.
- Cristiano Bellavitis looks to profit from junk bonds - by shorting them.