Your Name Here
When my favorite hockey team of my youth, the New York Islanders, moved into their new arena a couple of years ago, my college friend Jim was eager to attend. “This place is awesome!” he reported to me some 3,000 miles away. I believed him. I was a hockey player and a fan long before I was a financial advisor or even an investor. The kid in me still lights up at the prospect of a beautiful new rink. Then he told me the name of this new building: UBS Arena. That gave me pause: Would I want my financial provider’s name on the side of an arena?
One of the most meaningful terms in the financial industry is fiduciary. The Consumer Financial Protection Bureau defines a fiduciary as “someone who manages money or property for someone else. When you’re named a fiduciary and accept the role, you must – by law – manage the person’s money and property for their benefit, not yours.” Wikipedia describes it this way: “A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties.” Acting as a steward of other people’s hard-earned money rather than a salesperson of a firm becomes harder when the gravitational pull of financial incentive becomes greater. The financial industry is characterized by a staggering quantity of money, and sadly, a correspondingly tremendous gravitational pull on its members’ behavior.
For some scale, consider this: the dollar value of all trades in financial markets in the US alone per day in December 2022 was $1.02 trillion. (That’s just the value of shares traded on a given day.) The US stock market’s total value in 2023, according to the Securities Industry and Financial Markets Association, is approximately $44 trillion. That’s $44,000,000,000. The global stock market’s overall value is approximately $107 trillion. When we add in the value of the global bond market of approximately $133 trillion, we can begin to appreciate the potential influence of money on what might otherwise be good behavior.
When I was first exploring careers in finance several decades ago, I interviewed with a firm whose clients’ investments consisted solely of the company’s own mutual funds. “Advisors” (=salespeople, in this case) had no choice but to steer the money which clients entrusted to them into proprietary funds, as they’re called. These fund routinely pad in a substantial profit margin for the firm. Over my years in the profession, I’ve become familiar with more than a few firms who pay their “advisors” a greater fee to funnel clients’ money into the firms’ own investments even when other funds may have been available which were lower in cost, more diversified, more tax-friendly, and/or otherwise objectively more suitable. It is independence from such untoward influences, among other principles, which led us to form our own firm. We sell no one’s products; we are limited by no one’s “approved list of funds;” we are offered no incentives from anyone. We answer to no one beside our clients, the regulatory authorities, each other, and our God. We are paid by no one but our clients, transparently and simply. We act on our clients’ behalf - as if we gathered all that we’ve learned from our decades of investing and advising and started from scratch to build a process and a service which we would choose as clients. And that’s in fact what we did.
I’m also familiar enough with capitalism to understand that marketing is a wise part of (almost) every firm’s budget. Companies and political candidates learned long ago that name recognition is a powerful tool for gaining consumers’ or voters’ comfort and trust, and is therefore very helpful in selling products or candidates. As professional sports have become larger and larger businesses, franchises have sought new revenue streams to attract and retain top players in order to be competitive. Selling stadium naming rights is one such example. All manner of large corporations have joined the game: phone companies, banks, brewers, insurers, energy companies, software firms, and so on. Do I find that inherently distasteful? No. Do I wish to see my cellphone provider’s name overhead as a walk into a ballpark? Not particularly, as I’d rather not feel that I am paying a little extra on my monthly bill to help them add new customers; but it’s not especially troubling. It is specifically upon hearing a financial provider’s name paired with a stadium which to my ears sounds like a needle being dragged across a record. Being as familiar as we are with the often-opaque world of financial management, the corners which can be cut in practicing it, and the self-serving financial incentives to do so, I find myself gently cringing.
At an estimated $1 billion price tag, the Islanders’ new arena is hardly a “barn” in hockey parlance. At a reported cost of $350 million over 20 years for the naming rights, according to CNBC, UBS will have to generate no small amount of net profit to overcome this cost hurdle which they’ve created for themselves. I have no doubt that they will. If I were a client of theirs, it should give me pause to ponder: where is that revenue going to come from? How much of it am I contributing? Are decisions being made about my money being made solely for my benefit rather than for the firm’s? In the complex world of money management, how would I even know?
It’s in that opacity of the investment management and financial advisory environments which makes me wary of participating firms spending large amounts of money. By contrast, with my cell phone contract I’m able to comparison shop providers and plans quite easily with a few clicks of a mouse. I can readily see what I am getting for a certain price. Such comparative measurement is entirely more difficult when shopping for financial guidance. Being an insider makes me hyper-aware of potential conflicts of interest. Sound financial guidance is worth a great deal. Understanding the difference between high cost and high value would be much harder to ascertain without the perspective which our experience has afforded us.
Just as the political candidate whose name is plastered across the news is not necessarily the finest person for the job, perhaps the less we hear about our financial firm, the better.
