Incentives Matter

We’ve had a Toyota RAV4 for over eight years now. It’s been great because it’s reliable and can hold a ton of stuff with the seats down. However, every once in a while we receive a recall notice from Toyota, because while it’s great, it’s not perfect.

The last time we received such a notice it was related to the rear seatbelts being improperly anchored. I went to the dealer service facility and almost as soon as I arrived, a couple of mechanics started slapping devices resembling Denver boots on each of the four wheels. An Indy 500 pit crew couldn’t have done it much faster.

I asked: “What are those for?” They said: “Oh, we’re checking to see whether your wheels are properly aligned.” I suppressed my inclination to point out that I was a) there for a recall relating to my rear seatbelts, b) was not interested in having them do an alignment, since it was sure to be overpriced. Luckily, the wheels were aligned properly so I didn’t have to deal with it.

I was annoyed at the Toyota dealer because they went looking for a problem in order to sell me a service I would not normally buy from them. They were successful in this once, back when we had a minivan. Fool me once…

The personal finance industry is rife with the same kind of practices. Most brokerages have a history of treating individuals as customers, not clients. As with the Toyota dealer, they continually try to sell overpriced products and services to customers. They are concerned about transactions, not relationships.

I worked at a couple of large sell side institutions in my career, firms that followed the brokerage model. Sometimes it involved pushing the overpriced inventory of deals that weren’t selling. At other times it involved concealing pricing information or packaging derivatives to sell individual investors expensive products that weren’t good for their wealth. These things never sat well with me.

Most of my Wall Street career was spent on the buyside, managing funds as a fiduciary, someone for whom the interest of their client is paramount. I have always been more comfortable being aligned with my clients. That is why I’m a fee-only financial advisor.

I sell no products. I receive no commissions. I manage a chunk of my own money the same way that I manage money for my clients. These things keep me aligned with my clients. If they do well, I do well, period.

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