Pearl S. Buck wrote those words in 1954, referring to a conversation with a Chinese communist woman, but they easily apply to the aroma rising from any of the smarter-than-smart folks who led us into financial Armageddon in 2007 and 2008.
In New York, in the '60s and '70s, I was amazed at how advisors would bow and scrape to the cognoscenti -- the high priests of investing. This continued in Tulsa in the '80s, '90s and even in to the 2000s. I hope advisors everywhere are over that. Every advisor who invests customers' money and/or his or her own money has every right -- and a duty -- to ask fund managers, third-party managers and investment annuity providers the hard questions, and the foolish ones, too.
Just because someone acts as if he or she knows the answers, doesn't mean it's true. I'm sure Bernie Madoff got a lot of bowing and scraping, aren't you?
Ask foolish and embarrassing questions? Sure. You are the customer! If you want to be embarrassed, be the former head of Bear Stearns or Lehman. Clearly, they didn't ask nearly enough questions. Did I mention Enron? There's a company smarter-than-smart. No one believed -- except for a few skeptical and hardy souls at the end -- that those smart people at Enron would lead anyone down the garden path. Hindsight is 20/20, but Enron did not pay taxes for years -- if one didn't pay taxes, where was the income? The assumption (probably) was that Enron had enough collective smarts to avoid paying taxes -- apparently examining the company tax returns would have told a different story.
Do the happenings at Enron, Lehman Brothers, Bear Stearns and Mr. Madoff's firms make you feel better about asking questions -- even "stupid" ones?
Me? I like the approach used by the folks at many fund companies today. Instead of trying to wow advisors with arcane formulae and descriptions of black boxes and secret sauce, fund managers and analysts seem to be working hard to communicate openly. The monthly Ivy phone calls are interesting and no one at that firm, including the fund managers, seem to have their noses in the stratosphere. They answer each question that comes along. This air of "we're all in this together" is prevalent at Invesco, Blackrock, First Eagle and Franklin Templeton, among others. American Funds is super at communicating -- even its own angst -- and you probably, like me, are invited to quarterly luncheons or breakfasts to share the latest and greatest wisdom from that company.
I promise that the stink of condescension will return; I see glimpses already. If you detect a whiff, I recommend that you run like hell away from the source. About two years ago, I was invited to Chicago for an investment meeting and thought I would take a side trip to visit a real estate operator with whom my customers and I had invested. When I phoned to ask if I could stop by for an hour or two, the person I spoke with said, approximately, "Oh, gee, I don't think so. Our managers and executives are very busy people. I don't think any of them would have time to visit." The words with you were implied. It is highly unlikely that REIT operator will ever see a nickel from me or my customers again. In fact, the REIT has not heard a word from me or from my customers since that telephone conversation.
I ask stupid questions. For example, when Elliot Spitzer was Attorney General of New York, he fined fund companies for allowing late trading -- in essence, letting some people profit at the expense of others. Immediately after the opening salvos of the Spitzer wars, investment annuity companies -- which had bragged for years about the ease of trading sub-accounts -- interpreted the New York situation in a weird way, and began to forbid customers to trade frequently. Note that Spitzer was carping about late trading, where mutual fund companies gave special deals to "friends," like brokers who provided trading platforms for them at attractive rates. Those brokers got to trade on what they already knew had happened, which is to making money as is fishing is to shooting fish in a barrel. It's like being the character Michael J. Fox played in Back to the Future.
But investment annuity and fund companies interpreted all this New York "stuff" in a way that prevented everyday customers, folks like you and me, from frequent trading. Spitzer & Company was the scapegoat. Every investment annuity company I spoke with blamed new trading restrictions on Elliot Spitzer. Of course, the real answer is that fund and sub-account managers did not want frequent trading, because it's difficult to plan for large liquidity needs on a daily basis.
So, the stock market -- as a result of Spitzer -- became more restrictive and less free. One could make a point that frequent traders hurt customers that are in a fund or investment annuity for the long haul -- people who are not likely to get out of a certain fund or sub-account. And there is truth to that, but then one has to define free market and trading, the whole idea being that one should be able to buy and sell anything at any time. If it's tough for fund and sub-account managers, so be it. Can you only sell your old clunker once every three months? If you sell it before the time you are allowed to sell it, do you have to pay a penalty? Why does the SEC permit trading restrictions in an open and free market? Is the SEC working for consumers, or is it working for fund and sub-account managers? Investment annuity companies used to shout to the heavens how easy it was to trade, up until people started trading actively. (I will agree that some people can make good money by timing investments inside an investment annuity; however, they do take on risk -- they are not always right about the timing -- and isn't that the whole point, the business of making money with risk?)
Today, many seem to be afraid to ask hard questions, and when people don't ask hard questions, some freedom is lost. And when those questions are not answered, some freedom is lost. Harry Markopolis tried to get officials to listen to him for years about Madoff. You have to hand it to Harry, though. He's not afraid to ask questions.
Watch out for people with their noses up in the air, okay? And ask questions, lots of them.
This information is intended for financial professionals only, not the general public. This is not a solicitation to buy or sell any specific security. Mr. Hoe may have positions in the securities or other investments discussed. Evaluation copies of software and review copies of books are sometimes furnished by publishers without charge; however Mr. Hoe only reviews books and programs he feels will of value to LIS readers and avoids writing about books and programs he feels would be of little interest.
Broker's Bookcase
Exceptional Service, Exceptional Profit -- the Secrets of Building a Five-Star Customer Service Organization, by Lenoardo Inghilleri and Micah Solomon (Amacom, 2010).
These folks know their stuff. The information about how to handle customer complaints alone is worth the price of the book. The authors ask, "Who should handle customer complaints?" The answer? Everyone. The whole section on customer complaints is top-notch.
How about this? The way to build excellence and create loyal customers is to deliver anticipatory service. That's right. We need to figure out what customers need and want in advance.
You can probably find or order this book at your local bookseller; if not, contact The American Management Association at (877) 566-9441.
The New Experts -- Win Today's Newly Empowered Customers at Their 4 Decisive Moments, by Robert H. Bloom (Greenleaf, 2010).
I've long wondered about GM and Saturn. It seems to me that GM built a fantastic brand -- with customers loyal enough to drive their Saturns to an annual picnic in Tennessee -- and then killed it deader than dead. Rumor has it that the managers of the then-bigger Chevy, Pontiac, Oldsmobile, GMC and Cadillac divisions were so jealous of Saturn that they bad-mouthed Saturn to the board and CEO at every opportunity. Well, in this excellent book, you'll learn about four significant customer moments and how they affected Saturn. You will learn about those customer moments in many companies.
Years ago I learned to walk my customers from my office to their cars after visits. I don't see other reps doing it, but I do it anyway. It's hard when the weather's bad, but I figure if people are willing to come see me on a bad weather day or a good one, the least I can do is escort them to their cars. It's a way I have of showing my customers how much I appreciate them.
The book's announcement says, "An unprecedented transformation has occurred. For the first time ever, Internet-empowered customers -- aka the 'New Experts' -- are in control. They are armed with three lethal weapons -- instant access to information about all products and services, immense choice in every consumer and industrial category, and real-time price comparison on now-ubiquitous, apps-loaded mobile devices. These 'New Experts' no longer care where or from whom they buy."
This book is a hummer. Robert Bloom is the former CEO and chairman of Publicis Worldwide, part of a $4.6 billion global marketing service company. He knows his stuff.
Richard Hoe, ChFC, CLU, AEP, has been an investment professional for 40 years, and is a registered
representative and investment advisor representative. He is a member of the adjunct faculty at the California Institute of Finance, a graduate school at California Lutheran University. Readers may e-mail Richard Hoe at richardhoe@richardhoe.com.
