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  • Poterack Capital Advisory

Are You a Fiduciary For You?

As a Fiduciary Wealth Manager, I am required to act in the best interests of the families we serve.  You may think people make decisions in their own best interests, however my experience leads me to think otherwise.  The Knowledge Gap between retail investors and highly competent Wealth Managers is vast.  Additionally, the financial industry bombards the public with marketing, meaningless designations, and day to day scorekeeping on financial shows.

The results I’ve seen during my career are clear.  It is rare that families are making decisions in their own best interests.  This is largely due to three reasons:

  • Not knowing any better.  This is the Knowledge Gap.

  • Reacting emotionally to sales pitches and lack of awareness regarding their own biases and fears.

  • Focusing on the wrong things.  Being cheap, and believing past performance indicates future performance, can both be very expensive.

Closing the Knowledge Gap may help you avoid many of the pitfalls I see people fall in to.  With more knowledge, or access to more knowledge, you may solve all other reasons for your wealth management being less than optimal.  Objectively, you do not know everything, and nobody does.  Being open to learning and seeking knowledge from others is very likely to improve your confidence and outcomes.  Isn’t this true in any area of life and business?

Candidly, greed is powerful.  It is a powerful word and conjures up negative connotations.  The truth is that we all want more if more is available for the same cost, and this does not have to be a bad thing.  However, greed is emotion and emotion may lead to irrational or illogical decisions that you might regret.  Greed typically exists when people have a “zero sum game” mindset.  This type of mindset is when someone believes one person’s gain is another person’s loss.  This is short-term thinking, incompatible with long-term success.

So, what do I mean by “being cheap is very expensive”?  Think of how you approach most important buying decisions.  It starts with a need or want that you seek to fulfill and leads to your assessing the best options available for your situation.  In other words, you focus entirely on your best interests first!  Before making a final decision, price matters because price always matters.  Nobody likes to pay more than they have to for what they need or want.  Ultimately, we decide to buy what represents the best value, not the cheapest option.  People who make “cheap” the most important reason for choosing what to buy will have plenty of regrets and disappointments to tell you about! 

Example: I tell you I have two options available for purchase, and you only know the following information; Option 1 costs one dollar and Option 2 cost two dollars.  Would you mindlessly buy Option 1?  I expect you would ask questions and research the differences between these two options!  Why might Option 2 be worth twice as much (or more) than Option 1?  Maybe it isn’t and Option #1 is the best value, but you wouldn’t buy it simply because it’s the cheapest.

This brings me to my point.  Many people I meet professionally ask me what fee do we charge shortly after meeting.  My clients have told me that the first question their friends and colleagues ask when my name comes up in conversation is “what are his fees”?  This is an important question, but how in the world could I answer the question accurately before understanding what a family needs, wants or requires?  Imagine asking a physician what her fees are without a diagnosis or recommendation!  Of course this is a part of the Knowledge Gap whereby people do not understand what I do as a Wealth Manager.

Lastly, every written claim of performance ever put out by my industry includes the disclosure “past performance is not indicative (or a predictor) of future performance”.  You are likely very familiar with this well worn statement, yet the second most common question I’m asked is “what is your past performance”?  With the families we serve, no two families have the same strategies and investments.  No two families have the same combination of objectives, values, biases, etc.  Wealth management is not simply picking and selling investments to everyone that will buy.  The Knowledge Gap is in full bloom here as well.

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