It’s Your Money, Not Ours: Why We Turned Down Industry Advice

By David Geller   |   August 2, 2017

Wealth managers financial advisors portfolio

We often say our industry is broken, and a recent meeting with industry insiders offered a stark example: the financial services industry’s attitude toward “outflows.”

Outflows is the industry’s term for losing assets under management (AUM), and they transpire in one of two ways:

  1. Clients leave the firm and take their portfolio with them.
  2. Clients withdraw money from their portfolio.

Financial services firms generally take a dim view of outflows because it affects their bottom line. When clients withdraw money from their portfolios, it lowers the firm’s AUM and reduces advisor income. When it comes to outflows, we think traditional wealth managers have confused their clients’ best interests with their own.

We think that’s dead wrong.

Of course, if I were feeling generous and being completely honest, I’d point out that traditional advisors might discourage outflows for other reasons:

  • Withdrawals shrink portfolios. In this case, advisors may care more about portfolio value (the bigger, the better) than their clients’ best interests—which is improper; or maybe
  • They’re unsure how much their clients can afford to spend. Those advisors are either incompetent or have insufficient faith in their models—either of which is bad.
Our opinion: The only appropriate reason for an advisor to discourage outflows is if the withdrawal would not be in their clients’ best interests.

WE REJECT OUR INDUSTRY’S ATTITUDE TOWARD OUTFLOWS

We regularly meet with experts from our custodians (the companies that hold our clients’ money) to discuss how JOYN compares to its competitors and to share ideas about operational efficiency and growing our AUM.

Outflows were the first topic the experts brought up—specifically, the second kind (clients who withdraw money from their portfolios, not clients who leave the firm). They told us we had a problem: JOYN’s outflows were essentially DOUBLE the industry average. Naturally, they were eager to share ideas about how we could lower our client withdrawals.

My response: “Thanks, but we’re not interested.”

The experts looked surprised. “No, no, you don’t understand,” they insisted. “We can help you figure out how to hold on to more client funds by having your clients pull out less money.”

”Actually, YOU don’t understand,” I replied, then explained why.

Financial advisors are fiduciaries who have a duty to put their clients’ interests first. Never in my 25 years of practice has any client ever told me they wanted to grow their portfolio so we could earn more fees. They’re not interested—nor should they be!

We believe that keeping client outflows to a minimum – encouraging clients to withdraw LESS just so we could earn MORE – would violate our duty to put our clients’ interests ahead of our own. Of course, we also know it’s our duty to speak up if excessive spending would put a client at risk. The point being is that clients’ best interests must come first.

The experts and I didn’t manage to see eye to eye that day, but we agreed to skip their presentation on outflows. And I realized that our meeting highlighted a big difference between Behavioral Wealth Management and traditional wealth management. But that’s only part of the story.

SPENDING CAN BE SCARY

People assign all sorts of meaning to money. Many people view their money as a sign of success, security, freedom, even a way to keep score. But those definitions confound the purpose of money.

For example: If we believe money represents security or freedom, then spending money (or heaven forbid, losing some) makes us feel less secure or free. Yet, logically, we know that argument isn’t true. For instance, if you spent $3,500 on a security system, you’d be more secure, not less.

Humans don’t make financial decisions with perfect logic. When we have strong beliefs that money represents things like security and success, we’re likely to hoard our money instead of using it to make our lives better.

And that’s a shame—because that’s what it’s for.

We understand that our clients earn, grow and protect their wealth so they can USE it to build meaningful, joyful lives – not so they can point proudly to big numbers in their ever-growing portfolios.

OUTFLOWS: A MATTER OF PERSPECTIVE

JOYN looks at outflows from the clients’ perspective. If the purpose of wealth is to build a better life, then the duty of a wealth manager should be to help clients use their wealth to do just that. That’s how we see our role, and that philosophy is baked into our Behavioral Wealth Management discipline.

The industry views outflows from the advisors’ perspective. To them, keeping outflows to a minimum is a symbol of success because withdrawals decrease client portfolios as well as firm assets and income. Client desires don’t factor into the equation.

That’s one of the many reasons we say the industry is broken.

IT’S YOUR MONEY – ENJOY IT

Money is a tool to help you fulfill your wishes, goals and dreams. So you—not your advisor—should be the one who decides how and when to spend your money.

Want to use your money for the trip of a lifetime? Give a large donation to a charity that’s close to your heart? Pay for your grandchildren’s college?

Chances are we’ll say what other advisors might not: GO AHEAD. As long as your financial decisions align with your life goals and don’t expose you and your family to undue risk, there’s no reason to hold back. It’s your money. ENJOY IT.

David Geller

About the Author

CEO David Geller co-founded the firm in 1991 and led the creation of Behavioral Wealth Management. Recognized on numerous prestigious "top financial advisor" lists, David is an in-demand speaker for professional groups and JOYN workshops. His writings have appeared in The New York Times, The Wall Street Journal and The Huffington Post.

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