During my recent visit to a men's clothing store to buy a suit, a particularly attentive sales clerk seemed to struggle between allowing me the privacy I needed to sort out my preferences and approaching to repeat her offers of assistance.
The young woman opined that one suit in particular (and, as it happens, the most expensive one I was considering) greatly enhanced my appearance. I thanked her for the compliment and went on comparing the suits and prices.
At long last, I selected one that I thought fit well and was more affordable than many of the others.
My young friend, who just minutes before was wowed by what a top-of-the-line coat could do for my middle-age-ravaged appearance, gravely intoned: "You mean you're not going to take the Michael Kors with the peak lapel?"
It would be hard for me to fully convey just how profoundly this woman's faith in me appeared to have shattered. Previously, she had been an inexhaustible fount of courtesy, warm smiles and kindly if unwanted advice. But her disappointed eyes and curled lip said it all: My undiscerning and miserly choices quashed what was to be a relationship of mutual respect.
Trust, respect and admiration are fragile — and can be wrecked as easily in a financial advisory relationship as in a clothing store. The good news is that there's a lot that financial advisors can do to create robust relationships — by disregarding faddish business thinking and instead embracing wisdom that has stood the test of time.
Sales tensions
We have all encountered experiences similar to my clothing store visit. With trepidation do I enter a bank to perform a quick chore. I want to get in and out, but I know the clerk's very job depends on trying to cross-sell me financial services.
"I see you don't have a regular bank account with us," her computer prompts her to say.
"Correct. I'm just here to pay my mortgage," I try to say politely, aware that my parking meter will soon expire while endeavoring to guard my patience from the same fate.
You get the idea. The business world we live in is a quantitative one — now more than ever. We are constantly playing chess with an algorithm that knows how we stack up against some sort of "relationship" potential.
While C-suite execs — in clothing chains and even more so in financial services companies — salivate over harnessing ever more "sophisticated" analytics programs to squeeze customers, today's quantitative business world represents a degradation from past practices.
I still remember going to the bank as a kid and seeing the same teller year after year. Bankers knew their customers, knew their families, and the warmth and respect was usually genuine and mutual.
Somewhere along the line the corporate culture took a seriously wrong turn, perhaps with the wholehearted embrace in the 1990s of the creed of "shareholder value maximization" (SVM), a business philosophy that holds that the manager's principal, or even sole, focus is to maximize return.
Though it became dogma at B-school and well ensconced in Fortune 500 corporations, independent thinkers have warned of its dangers.
Former GE CEO Jack Welch famously called SVM "the dumbest idea in the world." And Johnson & Johnson still clings to its pre-SVM mission statement articulated in its 1943 IPO which reads in pertinent part:
"We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products … Our final responsibility is to our stockholders … When we operate according to these principles, the stockholders should realize a fair return."
Between its first and final responsibilities, the health products company included employees, local communities and the world community before it got to shareholders. As GMO's James Montier has noted, J&J's old-fashioned customer-comes-first philosophy has been nothing but a blessing to shareholders, who have done significantly better over the past 40-plus years than shareholders in IBM, a peer company that made a big deal of its embrace of SVM.
Beyond individual companies, not a few market watchers have noted that SVM played a role in triggering the global financial crisis. That is because executive compensation that is tied to stock prices incentivize executives to reach for the quick profits available to those who would dial-up short-term risk at the expense of long-term returns.
If the grasp of SVM has already reached clothing store sales clerks and nearly undid the global economy, you can be sure its money-grubbing observance is firmly entrenched at brokerage firms.
Wall Street woes
Time was when broker-dealer pressure on advisors was mainly confined to production targets. Firms also pushed advisors to "strengthen" the cozy relationships with product providers. And the nastier firms used advisors to pimp their proprietary products.
In today's SVM era, it's no longer just product but "product mix" with which firms bludgeon their advisors.
Your firm has extraordinary lending resources. Have you heard that one lately?
One wirehouse advisor in the Midwest told me his firm's head of national sales publicly lamented that his advisors weren't lending as much as FAs at the other wires.
When the advisor later had the exec's ear, he asked him privately why he thought that was the case.
The candid response is either a sign of things to come, or a sign of the times already, depending just how "advanced" your own firm is.
"Management at those firms are much more aggressive about getting in front of the FAs and telling them this is what you have to do," he told the advisor.
