Small Accounts and the Problem of Good Advice

Small Accounts and the Problem of Good Advice
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We all want financial advice.  Good advice.  And we want it for free.  That’s why we come to the Aleph Blog, where advice is regularly dispensed, and at no cost.

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Small Accounts and the Problem of Good Advice

But… I can’t be personal, and give you advice that is tailored to your situation.  And in my writing here, much as I try to be highly honest, I am not acting as a fiduciary, even though I still make my writings hold to such a standard.

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Ugh.  Here’s the problem.  Good advice costs money.  Really good advice costs a lot of money, and is worth it, if you have enough money to spread the cost over.

But when you have a small account, you have a problem in getting advice.  There is no way for someone who is fiduciary (like me) to make money addressing your concerns.  That is why I have a high minimum for investing: $100,000.  With that, I can spend time on clients, even helping them with assets from which I make no money.

How can you get advice to those who will not actively seek it?   From those who are commissioned to sell to them.  It may not be the best advice, but it *is* advice.  For the lazy, investment advice is sold not bought.

And so, I give you the following articles, most of which disagree with me:

First, on financial advice, you should always be skeptical, even with me.  There is no one who is truly disinterested who has smarts, and so “ya pays yer money and ya takes yer chances.”  If you don’t pay money, your odds are worse.  I write this as one who only makes money off of assets under management.  Most people are better off hiring a CFP, and getting tax savings.  They might not be great on investing, but they may make up for it by lowering your tax rate.

I’m a CFA, and an old-style  RIA.  I make money by finding undervalued stocks and buying them.  I focus on value.  That is my sole focus.  I am out to beat the  market regularly, and I do it over market cycles.

It is expensive to be  a fiduciary.  It takes time and effort, and there are many who will pay you to push products.  If we require all investment professionals to be fiduciaries, those who are less well off will not be served.

And, as an aside, this is why you should study the economics of any policy question.  It will tell you what will naturally happen.

Much as I want all people to get good investment advice, there are no incentives to make that take place.  If we try to force it by law, then few will get quality advice.  It will go into hiding.

By David Merkel, CFA of Aleph Blog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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