How to Smell a Rat by Kenneth L. Fisher

Author:Kenneth L. Fisher
Language: eng
Format: epub, mobi
Publisher: John Wiley & Sons, Ltd.
Published: 2010-05-10T16:00:00+00:00

Showy Show-Offs

We recently hosted an educational seminar for local clients. Because I own several buildings in San Mateo, California, in which my firm operates, we used our seminar room to keep costs down—in my view, something in my clients’ best interests.

We also had tours for clients who wanted to see the buildings and operations. Before the tour, one particular client seemed upset—bristled by something undetermined but obviously annoying to him. But the 2008-2009 market was brutal, so our tour guides logically enough guessed that was the gut issue. As the tour progressed, clients saw our trading operation, where the client services people operate, etc. There’s no marble, no granite. It’s a nice enough vanilla concrete and glass building, but probably not what most envision when they think about money managers. All open architecture, no one has an office but me—but few begrudge the CEO a door to close. (And it’s sliding glass, so they can still see me and I see them.) My employees sit trading-floor style—literally elbow to elbow—because it encourages transparency, but also it’s efficient, hence low cost, which keeps fees competitive for clients. Buildings, leases—these things cost money—and in financial advisory, firm costs ultimately are paid for by clients—not quite but almost directly. Why have wasted space when we can make do with less?

By the end of the tour, this client’s entire attitude changed 100 percent—he was smiling, seemed relieved. When asked what was behind his transformation, he said he came expecting to see granite, marble, mahogany, and posh private offices. But seeing how we operate made him feel better.That client understood—a fancy office looks nice, but it doesn’t make a money manager or financial adviser any better. Warren Buffett has always operated out of modest quarters in Omaha. John Templeton operated out of a lime-green office above a small police station in the Bahamas. Where they are and how fancy their offices are don’t matter and don’t guarantee your money manager is more competent than anyone else. But the con artist will always go for the fancy office because most investors don’t think the way our client did as he toured our facilities. Fancy’s not necessarily a negating feature, but it is a red flag.

Showy displays—like a fancy office—that don’t accomplish anything for anyone could be a sign a manager isn’t as efficient with client fees as he could be, or otherwise has his priorities potentially out of whack.That’s not a crime; that’s just less optimal for you. If it’s over the top, then it could be suspicious. Maybe flashy displays seem harmless. And they can be! A posh office is by no means a sign of embezzlement. But if managers go out of their way to aggrandize themselves and make a point of that in their marketing and sales, ask, “Are they gilding the lily with my fees, and why? What are they trying to prove? What is it they want me to think about them?”

In a truly perverse sense, I’d be a lot more

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