(even in New York), power ties, fine suits
from Barneys, and (especially) a silken
tongue. Sartorial elegance and verbal eloquence are deemed powerful substitutes
for mere evidence.
The novelty-based advisor
This specimen emphasizes what’s new
and unique, the less transparent the
better. They always have the latest and
Black boxes and hedge funds are prominent in this space — because he (again,
rarely she, as is true in most other advisor
categories) is so smart, don’t cha know?
The providence-based advisor
An advisor who lacks convincing evidence
will often claim that the advice he is giving comes straight from God. Sometimes
the claim is implicit, sometimes explicit.
Sometimes the motivator is guilt,
sometimes it alleged brotherhood. But
the results are usually hellish.
The intuitive advisor
Alleged common sense is often more
attractive than real evidence, especially
because good investing is often counter-intuitive. Therefore, this sort of advisor
will go with his gut about stocks, funds,
managers, styles, timing and forecasts.
He will rarely just stand there. He’ll
usually be doing something.
The diffidence-based advisor
Some advisors see a problem and look for
an answer. Others merely see a problem.
The diffident advisor will often do little
or even nothing out of a sense of paralysis or despair.
He will do nothing, because he has
no good evidence-based idea what to
do. This, of course, is most often better
than doing a non-evidenced series of
somethings. But that’s a really low bar.
The self-righteous advisor
This advisor hoses his clients while re-
maining utterly convinced that they are
doing what’s best for them. He’s often
wrong but never in doubt.
No one should be surprised that, in
this instance (as well as others), “what’s
best” is often really, really good for the
advisor. It doesn’t usually work out so
well for the clients.
The nervous advisor
Fear of clients being upset and the potential
consequences thereof are powerful stimuli
for excessive and repeated portfolio changes.
Counterintuitively, this sort of advisor is
often quite afraid of offering reasonable
expectations, because unreasonable expectations are so much more attractive. Plus,
they can be counted on to tell clients and
prospects what they want to hear rather
than what they need to know.
The ideology-based advisor
This sort of advisor is unalterably committed to his market ideology, contrary
facts and evidence notwithstanding. They
know what’s True (with a capital T) and
will stick with that come hell or high water (and beyond).
The publicity based advisor
This category sets out to convince clients of
his bona fides via media appearances, publicity shots and name recognition rather than
real client service. That’s because he had to
become so well known for a reason, right?
As British journalist Robin Powell puts
it, “All too often we base our investment
decisions on industry marketing and advertising or on what we read and hear in
the media” or on something else altogether.
Evidence-based investing is the idea
that no investment advice should be given
unless and until it is adequately supported
by good evidence. Thus, evidence-based
financial advice involves life-long, self-
directed learning and faithfully caring
for client needs.
It requires good information and solutions that are well supported by good (often
academic) research, as well as the demonstrated ability of the proffered solutions to
work in the real world over the long haul
Investing successfully is really hard.
Adding a client component makes it harder
still. Even the best advisors are going to be
wrong far more often than they would like.
If you want to do right by your clients,
keep checking and re-checking your work,
your assumptions and your conclusions.
The evidence demands no less.
Bob Seawright is the chief investment and
information officer for Madison Avenue
Securities in San Diego. He is active on Twitter,
@RPSeawright, and his blog “Above the Market”
can be found at rpseawright.wordpress.com.
The bald fact remains
that all too few in
the financial world
ABOVE THE MARKET