When Big Isn't Better
By Greg Fields
Hindenburg, Titanic & Google+. What do these train wreck rollouts bring to mind? Groundbreaking technological achievement OR epic fail with a side of human hubris? Titanic was “unsinkable”; Hindenburg showcased Hitler’s racist ideals of Arian superiority. And Google+? “Facebook killer”, remember? In their time, these colossal chokes were all invincible, implacable and awe-inspiring.
Until they weren’t.
Outsized dimensions appeal to primal human instincts of safety, but history has proven that size guarantees nothing. This is most certainly true of investment advisories. The worst abuses of the 2008 financial crises were perpetrated by the largest firms. Some even traded against their own clients. Why? Because, in finance, scale creates a distinct disconnect between advisor and client. Largeness does not create largess - just the opposite. The vacuum-sealed environment at these massive financial institutions breeds advisors consumed with target trophies, 1pm golf games and day drinking. Who foots the ruinous electric bill for that Titanic-sized neon sign at the top of their skyscraper? It’s the clients, stupid. Worse yet, most of the “majors” are owned by banks – hardly models of client service. A recent survey found only 23%(!) of customers liked their bank. I don’t know about you, but when I got four out of five answers wrong on my French exam, my teacher gave me an “F”.
This is not mere speculation; I actually played for the “bigs”. I started my advising career at the old-school “whiteshoe” wirehouses. In tall glass buildings. With Italian marble-clad lobbies. I trained with the big blue bull. I slung product for a private bank whose initials were (appropriately) phonetic for JyP ‘eM. I wasn’t impressed with their indifferent client service or nosebleedingly-high advisory fees. But I was most disturbed by the conflicts of interest baked into their business model. Unlike an independent advisory like Gerber Kawasaki, broker/dealers are not fiduciaries. In plain English, that means their advisors are not legally required to put client interests ahead of their own. And while I was there, internal attempts to introduce fiduciary standards nearly unleashed a rebellion among their advisors.
The good news is, these broker brontosauruses are doomed to extinction by an incoming asteroid called technology. The internet has leveled the field in terms of access to financial information. The big houses swear their research is par excellence, but I found it to be well below par. Out of a stock “pick list” from the brokerage where I worked, the majority of positions took losses on the year. In 2017. When the S&P returned over 21%. That’s more shipwreck than T-Rex.
As the former founder of a digital startup, I was a little shocked to discover that the inside of these “brand” advisories felt like a Betamax time warp into the Blackberry era. Few advisors there had a grasp of internet search, social media or alternative energy. The question becomes, how can you recommend the stocks of market leaders like Google, Twitter or Tesla if you don’t at least have working knowledge of their underlying technologies? The answer is, you can’t. Gerber Kawasaki is way out in front of the bigs in their leveraging of information and technology. What I discovered at GK is a far more youthful, savvy and personalized advisory truly prepared to lead clients into a successful future. It’s why I made the jump from colossal and clumsy to fast and fit.
My clients are happier too.
Greg Fields is a Financial Advisor of Calif-based Gerber Kawasaki Inc., a SEC-registered investment advisor with approximately $800 million in assets under management. Please seek guidance from an investment advisor before making any investment. All investments involve risk. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable to their situation.