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Do You Want Efficient or Do You Want Better

Most of the financial advice / wealth management industry is intently focused on how to get more efficient. The path to being more efficient is:


(a) create investment model portfolios (x% in U.S. large cap stocks; y% in high yield bonds; etc.);

(b) relentlessly gather assets and manage them according to those model portfolios;

(c) charge the customer a fee based on a % of assets managed.


This approach scales beautifully as each new dollar of assets managed has very low marginal cost - which means the advisory firm's operating margins go up, which equals efficient. Yes, the industry is willing to throw in some advice on other matters but only in service to being ever more efficient (i.e., managing more assets).


But is this approach better for customers? Maybe for some. If the customer's needs are clustered around a traditional investment portfolio, whereby most of the advice is about a savings plan, investing allocation, portfolio tax efficiency, etc., then sure, this model can serve the customer. Some might say that the ubiquity of the "% of assets managed" fee model is testament to its acceptance and service to customers. Of course, the people making that argument are the same people who benefit most from the status quo.


But the relentless efficiency of asset gathering is certainly not better for all customers. Take our chosen niche, entrepreneurs: how does an entrepreneur benefit from a financial advisor whose primary mission is gathering liquid assets to feed into the machine? Entrepreneur families have a variety of needs, many of which have nothing to do with liquid asset investing. Serving those needs is necessarily inefficient - yes, there are certain common themes across entrepreneur families but there are also uncommon details. Serving those needs is necessarily more labor intensive and more advice intensive. Heavy customization is needed. 


In other words, from the perspective of some customers (like entrepreneurs) a consulting model is the better approach. 


Rather than close doors on the way to being more efficient, we are constantly opening doors on the way to solving problems. We won’t win any prizes for efficiency (and therefore our business won't win any prizes for highest valuation multiple) but we wouldn’t have it any other way.


"That’s a fundamental choice in our work. To close doors on our way to an answer, or to open them on the way to things we never expected. We should choose our path wisely, because each brings its own challenges and rewards."1



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