Wednesday, April 05, 2006

I think I'm in the wrong business.

I'm retired from the Air Force, and I now fly a desk at the Pentagon as a contractor (a "Beltway Bandit," if you will). I like to think I'm very good at what I do, and that my customer thinks that I'm worth what I'm being paid. But I've found a potential new job that sounds pretty good...

As we march steadfastly forward into upper middle age, Agnes and I are working with a Financial Advisor to try to ensure that we don't spend our golden years eating leftover dog food and living in a tent made of Hefty trash bags. Our Financial Advisor is, as far as I can tell, a very knowledgeable and competent lady whom I trust as much as I can trust anyone who holds our future livelihood in her hands. But there's one thing about her - in fact, about everyone in the financial management community - that bothers me. It's summed up in two words: "No guarantees."

When you talk with anyone offering advice in financial management, the first thing they tell you (after how much their services will cost) is that they offer no guarantees that the advice they give you will actually result in long-term benefit to you. Every e-mail I receive from our advisor ends with this statement in capital letters: "NOT NCUA/NCUSIF INSURED, NOT A DEPOSIT, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, NO CREDIT UNION GUARANTEE, MAY LOSE VALUE."

Now I ask you, in what other business can you charge a hefty fee for your services, and then step boldly back and tell your customer that you guarantee nothing? Would you hire a roofer to fix your house if he didn't guarantee his work? If I told my customer that I didn't stand behind the advice I gave based on the analysis I did, would he continue to pay me my handsome salary? How confident are you in an auto mechanic who charges $95 per hour to fix your car, but won't guarantee his work?

I've gently (well, actually, not so gently) told this to our Financial Advisor, who isn't in the least impressed. She reminds me, and I understand, that I'm paying for professional advice on a topic in which I have absolutely no competence and need plenty of help. But my point, on which I stand, is that I have no problem with paying for expert advice. That's why my customer pays me. What I object to is the absolute refusal at every opportunity, orally and in writing, to guarantee performance in exchange for those fees.

Okay, I understand that markets are volatile. I understand that my Financial Advisor has no control over the political-religious fanatic who blows up something on the other side of the world, sending investors into hysterics and the markets into the toilet. But I'm not paying for perfect, crystal-ball knowledge. I'm paying for a person who can translate hundreds of linear feet of financial statements from Old Church Slavonic to plain English. I'm paying for a person who can interpret the historical record and make reasoned, professional judgements on what I should do with the few dollars I have to invest. I'm paying for sound advice on my future, which is of no small interest to me.

Call me naive, but I think that a person willing to hang out his or her shingle as a Financial Advisor or investment consultant should be willing to guarantee a minimum level of performance as measured in return on investment.

Have a good day. And don't bother checking your portfolio if someone else manages it for you, because they won't guarantee its performance, anyhow.


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