client relationships

The URL – IRL Connection

© Can Stock Photo / Bialasiewicz

… or, where the virtual world and the real world meet. We often talk about these two places as if we must choose one or the other. The reality is that the two work together in many ways.

Fans in stadiums root for their favorite team IRL (“in real life”), but they may also have a source for instant replays or play-by-play through a browser on their smartphones.

IRL, a grandparent plays with a grandbaby. But that grandparent may also enjoy seeing that baby between visits on social media or a photo-sharing site or some other URL—the address that connects them to a website.

And we see you at 228 Main in beautiful downtown Louisville, B’s Diner, or Round The Bend live and in person. But we’re also reaching you here at 228Main.com, plus social media sites like Facebook, Twitter, and LinkedIn.

In other words, we lead integrated lives that combine the real world and a variety of virtual venues. It is not an either/or deal: we benefit when our lives have a home in both places!

It is worthwhile thinking about the advantages we derive from life in the 21st century. When we started communicating in new media, one client told us they would talk to us every day if they could, being interested in planning and investing. They knew that couldn’t happen. But they were delighted to find what we most wanted to say each day was online, plus in these three-minute essays twice each week.

A key advantage of these virtual venues: they do not require each of us to be available at exactly the same time. Nobody plays “phone tag” on Twitter. We frequently post updates early in the morning, but you can read them at your leisure or even on another day. And each of you may choose how much or how little you want.

That client and I still meet; we still have lunch together. And our real-world conversations start warmer and go deeper and farther than before—because of all we share in the virtual world.

Clients, if you would like to talk about this in any world, email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Peak Experience

© Can Stock Photo / Nejron

You know we are endlessly fascinated by the search for investment bargains, the interplay of human behavior and the markets, and economic cycles. We enjoy talking with you, and collaborating on your plans and planning. But the pinnacle of our work is in a whole different category.

Once, a life-long friend of a close client had not been able to solve the question, “Can I afford to retire?” Mrs. S had raised two children on her own after being widowed at a young age, and was working at a job that had become onerous as she approached retirement age. For two years she had pursued the answer, but could not find it.

She needed to gain the confidence that she could retire. The resources were there, through her lifetime of diligent saving. We were able to explain the meaning of her wealth, how it could help her work toward where she wanted to go, in terms she could understand.

A year and a half after that, she called to ask another question. Would it be possible for her to own a home, or was that a pipe dream? She had spent thirty years in a modest rental duplex. Some time later she began her home search.

These questions, and others like them, are the reason we are in business. Our real work is not about making money. It is about helping clients make decisions that could change their lives.

Mrs. S was never our largest client. She never paid us the highest fees. But the personal satisfaction we felt from our work was vast.

Many will never need that much help. They come to a comfortable understanding of the meaning of their wealth without our context and perspective. We are still very happy to play a role investing their resources, and answering those financial planning questions that do arise.

Clients, if you would like to talk about these things or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

Our Exorbitant Privilege

© Can Stock Photo / yanc

Financial firm founder Barry Ritholz says that the vast majority of people in the investment business spend most of their time chasing new business. Finding clients or trades consumes most days and a lot of nights—it is their main job.

Dialing the phone, putting on seminars, networking, joining boards, sending spam email…there are a lot of ways to meet people.

That Ritholz Wealth Management needs to do none of these things is what he calls “our exorbitant privilege.” We feel the same way.

My vision when I was forty was to find and retain a circle of clients who, if I took care of them, would take care of me. I did NOT want to wake up at sixty, needing to run up and down the highways to find a deal to pay my bills. The vision became reality.

You know our business objective is to strive to grow your buckets, and have them serve you as you need. The interesting paradox is that we have grown since we stopped looking for new business.

We frequently mention how important you are to the process. You saved the money to begin with, you share our philosophy of investing, you do the right thing even when it is difficult to do so. Clients may not be retaining nearly as much money if they routinely sold out in panic or insisted on buying into fads.

Now we have a better way to express our appreciation for you. It is our exorbitant privilege to serve you as we do.

Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Straightforward Pricing

© Can Stock Photo / PixelsAway

We believe the investment results we manage are due in part to your sensible, effective investment behavior. You know we think you, our clients, are the best in the world.

Even though some people panic and sell out at low points, you realize this kind of behavior is optional. Many of you invest more when the market has declined. You and we share the belief that focus on the long term lets us seek to improve our long term results.

Effective the first of the year we revamped the pricing on the investment advisory accounts we manage for you in our capacity as investment advisory representatives of LPL Financial. Our object is to reward you for your role in our results.

So we put in a system of volume discounts based on account value, not original invested capital. And we instituted discounts for your persistency: costs decline after two years, and eight years, and sixteen years.

Here in the third month of the quarter, we are busy reviewing costs. Some of you will see fee reductions for the passage of time or an increase in the value of your household assets. Changes if any will take effect next quarter.

Year by year we strive to improve the quality of our research, the capacity of our trading desk, and the responsiveness of our service to you. These things are not free: our overhead tends to rise over time. But our business has grown and our productivity rises as we figure out better ways to do things.

Here is the schedule. After the eighth and sixteenth year, an additional discount of 0.05% will apply. Clients, if you have any questions about this or anything else, please email us or call.

pricing


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Enduring Value

© Can Stock Photo / EpicStockMedia

We think a lot about how to make things last. It is a key concept for your assets, our relationships, and the securities in which we invest.

But our enterprise here at 228 Main has to endure so we may continue to be of service. We therefore work diligently on its sustainability.

Thinker Morgan Housel wrote about the sources of sustainability in business. Relative to the competition, these attributes provide an enduring competitive advantage:

1. Learn faster.

2. Empathize more with your customers.

3. Communicate more effectively.

4. Be more patient.

These things resonated with us because they represent much of what we strive for. Patience is a prerequisite of successful investing. It is free, but not easy to practice. It also is what lets us be content to work with you at your pace, on your schedule, since we are talking about your money.

You know by now how highly we value effective communication! Listening to you and talking to you in various ways is one of our three core activities. We put a lot of effort into it.

Empathy—understanding what you are going through, where you want to go—is perhaps the key to being able to meet your needs.

We are surprised at how much we are still learning after so many years of experience. In this rapidly changing world, continuous learning is required in order to be able to survive and thrive.

Clients, we are not claiming perfection in any of this. But we are mindful of the things we must do in order to be a reliable partner for you through the years. If you would like to talk about this or anything else, please email us or call.

Win, Win, Win

© Can Stock Photo / kk5hy

Remember ‘win-win thinking?’ This phrase became popular in business a long time ago to describe interactions in which everybody comes out better. Our favorite example is as familiar as the grocery store. The grocer wants your money more than he wants the can of beans. You want the beans more than you want the money. A trade is made; everybody wins.

“Win-Win” is a fair description of how our business works. In our investment advisory accounts offered through LPL Financial, we are compensated by a percentage fee on account value. Our best path to growing revenues is growing account values. When you do better, we do better.

In the old brokerage model, products are sold to investors for a one-time commission. We think of this as the Good Luck plan, because the salesmen get paid up front and can wish you good luck, as they head down the road to find another prospect. They have no skin in the game, so to speak.

This does make sense in some situations. If you know what you want and do not plan on trading it, the one-time commission model probably works well for you. In a brokerage account, after you pay the sales charge you can hold on to your investment without paying ongoing management fees as you would in an advisory account.

However, we are in the business of trying to figure out how to grow your bucket, which often involves many trades over the course of a year. This creates a conflict for us: the more we trade in a brokerage account, the more commission charges add up, which is great for us but not for you. But our advisory accounts do not pay us on commission. When we switched to focus on advisory business, your interests and ours became much more closely aligned: we were free to make trades we believed would help you without worrying about commission costs. Life got simpler for us and better for you, we believe.

Win-win thinking also led us to introduce longevity discounts to our fee schedule. The longer we are in business with you, the better we understand each other. Longer time horizons and longer relationships are good for you and good for us. Another win-win deal.

It runs deep. From time to time we find that a client is paying for advice which they do not care to follow. This is win-lose, not win-win. We endeavor to get out of these situations as soon as we figure them out.

The biggest advantage of win-win thinking is that all of our energy can be devoted to striving to improve your situation. Relief from worrying about our position is quite liberating. Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs.

Have We Mentioned How Wonderful You Are?

© Can Stock Photo / mikdam

The foundational theory here at 228 Main is people can gain effective perspectives and productive attitudes about investing. It doesn’t matter if you were born that way or were capable of learning, you as a group are special. We believe your behavior is one of the keys to long term investment results.

Consequently, while some colleagues live with frustration as untrained customers fall prey to counterproductive behavior—selling out low, chasing performance, jumping on fads—you and we are appreciated for our mutual faith in each other. No wonder some advisors are looking for an exit strategy, and I’m planning to work to age 92!

You do the difficult things, like going against the crowd, listening to people at the salon or barbershop or café or water cooler, and yet still stay the course. A benefit of my long commute is time to think about the business. I spent a day recently pondering this: how might we make things better for you?

If we change our pricing philosophy to reflect total household assets under our management, including results through the years, we honor your role in creating those results. And if we price new clients a little higher for an initial period, we can offer small discounts for longevity to you longer-term clients. This would better reflect our values.

This presents two issues. One, we tinkered with the schedule over the years, and sometimes failed to update existing clients to the new schedule. Two, our general philosophy has been to use a volume discount based on net invested capital, excluding changes due to investment results. We need to figure out how to implement changes in a way that makes sense to you. We have no intention of chasing anyone down and asking them for more money. Our growth allows us to offer breaks where they have been earned (after all, it is ultimately you to whom we owe that growth!) without needing to claw back money from any clients.

Clients, you have heard us express admiration for the very special group to which you belong. We talk about the mutual benefits of our shared perspectives on investing. We have said in as many ways as we know how that your behavior is large factor in investment outcomes. The one thing we have not done is align the economics of our shop with those noble sentiments.

We are committed to doing so. We will be communicating the results of our work in the near future. If you have any questions about this or any other pertinent topic, email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Working Like a Dog

© Can Stock Photo / mikdam

I am happy as a clam, working like a dog. Where did those sayings come from?

Who knows whether clams are happy or not? “Working like a dog” does not actually seem to be too taxing. (My dog Bailey mainly sleeps, eats, goes on walks and plays—he spends very little time coaching effective investing behavior, his only real job.)

I am obsessed with my work. It gets a lot of my energy but in turn energizes me. My long-held goal of working to age 92 shapes my habits—I can’t work to age 92 unless I live to age 92. This has an impact on what I eat, physical activity, sleep habits, and everything else that bears on health and wellbeing.

This may have a key benefit for clients. At an age when some people are coasting toward retirement, we are striving to build for the decades ahead, focused on the future. Our widely recognized new media presence at http://www.228Main.com and related social media venues are examples of that focus.

Two key things over the past decade have forged our enterprise into what it is today. In the interest of sustainability (working to age 92), Cathy and I adopted a snowbird schedule in 2010—spending parts of the winter in a warmer place. A few years after that, family health issues began to impact my travel schedule.

The snowbirding led to a conscious process of figuring out our most important activities and paring back the extraneous. Talking to you, researching investments, and managing portfolios are those key activities.

The schedule challenges made a necessity of learning to delegate. An entrepreneur cannot build a reliable organization unless she or he is willing to find good people and entrust them with vital aspects of the business. This is difficult for many—but I had no choice.

Together, these factors enabled us to build a focused, effective organization to serve you and other wonderful people. By striving to invest only with those who are a good fit philosophically, we have the same story for everyone. The efficiencies of having everybody on the same page are enormous.

So yes, I am working like a dog. And swimming most days, walking every day, eating healthy, enjoying family (now including grandkids!), appreciating my surroundings, loving Beautiful Downtown Louisville, and of course, grateful to be trusted by you to help with your plans and planning.

Clients, if you would like to discuss this or any other topic, please email us or call.

Related reading:
1. About challenges making us stronger: https://228main.com/2016/12/12/kiln-fired-personalities
2. About focus: https://228main.com/2017/10/02/focus-people
3. About the investment philosophy we share: https://228main.com/2016/05/25/niche-market-of-the-mind


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

I Was Wrong, and I Apologize

© Can Stock Photo / TanawatPontchour

Thirty-some years since I first became registered to work with securities, we have been doing business with some people for decades. Some of those, I knew before that—friends, people I admire. I disappointed at least one of those recently. I hate that it happened and I am sorry.

This essay is an attempt to minimize the chance of this happening again. Let me explain.

For many years, my practice included aspects that were like a debating society. I would propose the purchase or sale of an investment to a client, we would discuss it back and forth, and the client would make a decision to take action, or not. This is the old brokerage model of investing.

In recent years, there has been a lot less time for debate as more and more people have engaged me to manage investments as their fiduciary advisor. (This is in my capacity as an investment advisor representative of LPL Financial, a registered investment advisor.) The advisors of Leibman Financial Services collectively serve more than 200 accounts with over $50 million assets through LPL Financial, and the majority of our time needs to be devoted there.

The issue is that these investment advisory accounts hold us to a higher standard. We have all the obligations of the old brokerage arrangements, plus we are obligated to put your best interests first, monitor the investments and your situation over time, and manage everything to stay in line with your investment objective. We manage these accounts without prior debate before we take action to pursue your best interests.

The error I made was assuming a client was not suitable for the investment advisory arrangement. I did not think he would give me discretion to manage his account without debate. But I failed to do him the honor of describing it to him, and letting him make the decision. He was disappointed that he had not heard about the alternative sooner, when the subject came up. I had met our legal obligations, but not the higher standard to which we hold ourselves.

If you are a client with products at an insurance company or investment company outside of LPL, or pay commissions on brokerage transactions inside an LPL Financial account, our relationship is on the brokerage account model. There is nothing wrong with it if those products and that relationship addresses your needs. We are always happy to discuss your holdings and your situation—email us, or call.

If you wonder whether an advisory account might be right for you, please email us, or call. We want you to know the situation, and make an informed decision about the kind of relationship you would like to have going forward. We also need to assess whether we have a good fit with you philosophically—a requirement.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

What We Learned from You

© Can Stock Photo / ScantyNebula

One of the privileges of working with you is the opportunity to get to know your life stories. Over the decades, we’ve met a lot of people and heard many stories. We learned a lot about about productive financial habits and instincts from you, our clients.

We have noticed that people who are successful in retirement have some habits that helped them get there. These factors do not guarantee success, of course, but there seems to be a strong correlation. Here are three habits that seem to be key:

1. For all or most of their working careers, they invested regularly—every month, every payday. 401(k) plans, automatic deposits to Roth or other accounts…these put wealth-building on autopilot.

2. They spent less than they made. One client told us, it isn’t how much you make, it is how much you keep. We all know people who make good money and spend all of it–and others who manage to save on modest incomes.

3. They adapted to unexpected surprises without impairing their long term financial planning. Having an emergency fund, realizing that life has uncertainties…these are key to getting back on track through all kinds of times.

The three habits go a long way towards building financial security. In addition to those, some clients were apparently born with helpful investment instincts:

A. A native sense of confidence that the country works through its problems, that economic slowdowns give way to recovery sooner or later. Those who believe that seem to have an easier time waiting for markets to rebound.

B. An aversion to needing to do what everybody else is doing. Fads (or stampedes, as we call them) can be a dangerous way to invest.

We got done at the university a very long time ago. Thanks to you, however, we are always learning. One of the gratifying aspects of our work is the opportunity to pay it forward—to deliver the good news to the next generation. Clients, please email us or call if you would like to discuss this or any other topic.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.