At dinner Friday night at a crowded Bella Piatti restaurant in Birmingham, the most striking part of the evening was the honesty of our server.

When ordering appetizers, our server was very clear which items he recommended and a few to avoid. He provided advice and was helpful. When he returned with the appetizers, they were all wonderful and we were pleased with his guidance.

After a while, it was time to order our entrees. Again, when asked about certain dishes, his verbal and facial responses made it clear what his recommendations were. We had quickly developed trust in him. His clear recommendations were so much more helpful than the usual “everything is good” reply. He guided us in the right direction, as all 5 people at the table enjoyed their main courses.

As the evening continued to desserts, he again advised us which items were very good and which are not his preferences. Being a huge fan of cannoli’s, I disregarded his advice against getting the “deconstructed cannoli.” When it arrived, we enjoyed it (shared amongst the group), but he was right. It was good, but not great.

During the evening and on the way home, we discussed how much we appreciated his recommendations and advice. One person asked why he was so forthright, much more so than at most restaurant experiences. My thought was that the more we enjoyed our meal, the more likely we are to return. Every business desires repeat business and he was doing his part to ensure this.

As Billy Joel’s song “Honesty” says…

     “Honesty is such a lonely word
      Everyone is so untrue
      Honesty is hardly ever heard
      And mostly what I need from you”

As a financial advisor, we are morally and legally obligated to act in our clients’ best interest. This is not the standard for all investment advisors and brokers. We are very transparent about how we are paid. We are fee-only financial advisors. We do not get paid commissions from any of the investments that we recommend. Unlike brokers at major financial institutions, where fees may be hidden or not fully disclosed, we are open and honest about our fee schedule.

The server of our delicious meal gave us the best opportunity to have a great experience at the restaurant. Our interests as a wealth management firm are fully aligned with our clients so they have the best opportunity to have a positive long term investment experience.

At our firm, our fees are based on what we manage for a client, not on what fund or product we sell (as we do not sell anything). If your investments increase, we both do better. If your investments decline, we both feel the pain. Doesn’t that make sense?

Isn’t honesty and clarity the best way to build a relationship and do business?

A Philosophy You Can Stick With

“The important thing about a philosophy is that you have one you can stick with.” David Booth, founder and chairman of Dimensional Fund Advisors (DFA).

Prior to founding this firm in 2003 after the tech bubble crash, I spent many years researching how best to provide investment advice. How would we be different? How could we provide a better experience for our future clients than they were experiencing with their existing financial advisors or by investing on their own.

I read extensively. I went to conferences. I read more. And more. I attended my second AICPA Personal Financial Planning conference, in Philadelphia. I went from exhibitor to exhibitor and talked to many firms. And then, it happened. I got the book that would change my business life. It was my “aha” moment.

On the Friday afternoon train ride after the conference ended, I started reading “The Only Guide to a Winning Investment Strategy You’ll Ever Need,” by Larry Swedroe of The BAMAlliance . I could not put it down. I didn’t want to put it down. And I didn’t. I read it that night and throughout the weekend. I had found an investment philosophy that we could stick to. Over a decade later, I believe in it more every day.

Most people view investing and the stock market in some form of trying to make accurate predictions or forecasts. They think:

  • Is Ford a good buy now? Great, then I’ll buy it. But what if it isn’t a good time? How do you know?
  • Is it safe to invest now, since the economy seems to be recovering? Great, in which case I’m going to move $XXX,XXX from cash into stocks. But what if the market has already made a big move? How do you know the right time?
  • A few years ago everyone thought Apple was a great company and could do no wrong. The stock price was soaring. Onwards to $700 per share, until suddenly things changed and now it trades in the $400s. How? Shouldn’t someone have been able to predict this?

We take a different approach. One that is rational, understandable and consistent.

  • We do not have a crystal ball. We don’t make forecasts and readily accept that we cannot see the future (just like Warren Buffet). Doesn’t this make sense?
  • We don’t believe that active mutual fund managers can consistently beat their respective benchmarks over a long term period. And even if they could, can they be identified well in advance, and consistently? We don’t think so.
  • We believe in using mutual funds with very low costs. Focus on what you can control.
  • We believe in holding mutual funds that each own a group of stocks (say US small value or International Value) that most of the time will outperform actively managed mutual funds (where the manager is trying to predict which are the best stocks to own). And there is significant data to support this.
  • We spend a lot of time talking with our clients. We educate our clients about our philosophy. We want them to realize there will be bad markets, as they occur every 3-5 years, on average.  We hope our clients can then be mentally prepared to handle bad down market periods.
  • We emphasize international investments and owning small company and value company stocks. Why? Because they provide better diversification and greater expected (and historical) returns than just owning US large company stocks (which is what most people own).

Having a philosophy that we believe in passionately enables us to be more disciplined and help our clients to adhere to their financial plan. We are fee- only financial advisors. This enables us to be independent and always act in our clients’ best interest.

There is much more to our philosophy, but I will save that for future blog posts or personal conversations.

We hope that sticking with our philosophy helps our clients to feel comfortable and secure. If that allows them to sleep well…isn’t that important?

And even though we are responsible for millions of dollars of our clients’ money, because we have a solid philosophy we believe in and stick to, we also sleep well at night. And that is comforting also.

Learning, Connections and Dinner

I read a lot. I consume information from many sources (newspapers and books, both in print and electronic, as well as via Twitter). I have always been this way, just the sources and methods have changed. Since I was a teenager working at my local public library, I have read the Wall Street Journal every business day.

An essay I read on Monday has stuck in my head. David Butler of  Dimensional Fund Advisors wrote about the “Currents of Success” that flow through great financial advisor firms. He wrote that one aspect of successful financial advisor firms is “intellectual curiosity.” He wrote that “building a great firm requires genuine intellectual curiosity and openness to new ideas…”

Which leads me to dinner last night. I attended an event sponsored by Lynne Golodner, of Your People, LLC a Southfield Michigan public relations, marketing and business development firm. I joined a group of 10 other business owners and Lynne, to share thoughts and ideas about our businesses and learn from her.

The food was delicious (glad I finally got to go to Cafe Via in Birmingham). The conversation was good. Interesting. Thought provoking. Questions were direct and challenging, but in a respectful manner.

As I drove home, my mind connected the DFA essay and the dinner together. Why had I attended? To learn more, as I always learn more by attending a conference, seminar or hearing a speaker. For the same reason that I traveled to Florida to spend a day with Bob Burg and many other speakers in May, 2012. For the reason I spent 3 days with  Michael Port in 2011 outside of Philadelphia. Why I spent years working with John Bowen and I now participate in the Strategic Coach program. For the same reason I participate in a peer group phone call with my BAMAlliance financial advisor colleagues nationally, every two weeks and attend many BAMAlliance seminars throughout the year.

Attending events or programs like these can be expensive, both in time and money. But if viewed as an investment, as a way to grow, to learn and improve, and possibly to build new relationships, then the investment is almost always worthwhile. There is always more to learn to better serve and advise my clients, as well as to grow intellectually.

Each time I attend an event or conference, there are new ideas to implement, things to change and new people that I’ve met. The challenge is to implement and develop the personal connections. The challenge is to prioritize to adopt new habits. Lynne challenged us to blog more. Share our ideas. Write in a more personal manner. I know if I blog more there will be benefits.

Will I blog more regularly in the future? If I do, then the evening with Lynne will be even more worthwhile.

Detroit Bankruptcy and Important Lessons

The bankruptcy filing by the City of Detroit is the culmination of decades of decline. As a wealth management firm based in suburban Detroit, with clients in metro Detroit and nationwide, we hope this difficult step is the beginning of a process that will have long term benefits. What can be learned from it?


For the retirees of the City, the future of their retirement benefits is now unknown. These benefits will be subject to litigation and the outcome of the bankruptcy process. As I’m not an attorney, I can’t provide a legal opinion. From a financial standpoint, as these are segregated pension assets, it would be reasonable for future benefits to be actuarially recalculated based on the existing assets, not practically eliminated. However, that is far from what may occur. (See my disclosure below)

Nationally, the pension benefit issue could have dramatic implications. If the bankruptcy courts determine that these pension benefits can be drastically reduced, it could set a wide-ranging precedent for other municipalities throughout the country. Thus, this is a major legal issue.

A national problem

This should be a wake-up call for voters/citizens and leaders of other organizations (the Federal government, state governments and other municipalities, companies and non-profits that provide retirement and health care benefits). Many entities of all types have huge unfunded pension obligations and are not taking steps to reduce them. They continue to kick these liabilities down the road. Leaders from Washington to local governments need to be realistic about their investment assumptions and figure out how to balance their budgets. For more on this topic, see the excellent article, “Detroit, tip of pension liability iceberg” by the Guardian’s financial journalist Heidi Moore.

This is an urgent need. Politicians can no longer put off resolving tough issues. We as citizens need to realize that if we are not going to pay more in taxes, then our governments must reduce the benefits and services that we receive. Washington needs to take steps such as addressing social security benefits (reducing them for the wealthiest Americans?). Congress has to find a way to make logical but difficult political decisions. The pain of these choices must be shared. It is time to close post offices in many remote areas and reduce Saturday mail delivery. We cannot continue to have our cake and eat it too.

Small actions today can result in pay significant long term benefits. Change can be difficult and unwanted, but change can also eventually be good. If these issues are not addressed, there will be future crises and bankruptcies like the City of Detroit’s, in other parts of the country.

Municipal bond investors

The action by Detroit may have negative ramifications for municipal bonds throughout the entire State of Michigan, and possibly beyond. The lesson: muni bond investors should invest in a much more diversified manner, not just primarily in one state. All too often, residents of one state concentrate their muni bond holdings in their state of residence, for the state tax exemption.

We have recommended to our clients to invest in municipal bonds across the country, so they are diversified by states and localities, not just in their state of residence. Detroit’s bankruptcy shows that municipal bankruptcies are possible, and depending on how the courts handle the pension liability issue, the risk of other bankruptcies may be more likely in the future.

As with so many aspects of investing, diversification is vital. Broadly diversifying a portfolio of municipal bonds across states is even more important now. Will investors review their portfolio and make the needed changes?

Disclosure: My stepfather is a City of Detroit retiree and recipient of Detroit pension benefits.