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Good Chemistry, Great Outcomes (2Q24 Chairman's Newsletter)

Updated: Apr 25

April 15, 2024

Chris Weil


As many of you know, there are aspects of our business that are unusual for our industry. One of these novelties is reflected in our hiring. Midway through the hiring process we have a serious conversation that we light-heartedly call the “you don’t want to work here” conversation (which, without the whimsy, would translate to “you might not want to work here if the following norms don’t sit well with you”). The conversation goes something like, “You don’t want to work here because we never pay commissions”; “You don’t want to work here because you won’t be allowed to own investments that aren’t offered to our clients”; “You don’t want to work here because we require emotional as well as intellectual intelligence”; “You don’t want to work here because we value collaboration over individual contribution”; “You don’t want to work here because you’ll never have a private office, only a desk on our open platform (the Founder and Chairman doesn’t even have a private office)”; “You don’t want to work here because our growth model is intentional and gradual, not aggressive,” and so on. In the aftermath of this conversation we either have a candidate that says, “You’re right. I don’t want to work here,” or “Profits shared among all the employees? Aligning employee fortunes with those of our clients? A thoughtful and methodical growth model? I do want to work here. This firm is a great match for me.”

 

The “you don’t want to work here” list is the result of years of collective introspection and conversation among our team about who we are and who works best (and happiest) here. It was inevitable that this discipline would make its way to other areas of our business.

 

I am still, from time to time, very much a creature of my early years in the securities business. When I started 61 years ago I had no previous business experience, had no money and knew no one who had money. The consequence? If you wanted to talk to me, I wanted to talk to you. Your age made no difference, your financial position (or lack thereof) made no difference, your level of sophistication made no difference, your temperament made no difference.

 

It took many years, and the unpleasant consequences of managing a business servicing an eclectic client list before I realized that selling myself as all things to all people wasn’t doing anyone any favors. Our team has been working together long enough to know intuitively whether a particular prospective client is a good “fit” for us, and us for them. But as WEIL has evolved, our method has become less intuitive and more intentional. Over time we have unearthed a fairly clear cut understanding of not only how we best serve, but who we best serve. With the encouragement of sympathetic (but firm) colleagues, and knowing from our hiring discipline that a conversation about what one might not like and/or might not get can be very clarifying about what one does like and does want, I (along with the others) started viewing the client relationship through a lens we whimsically refer to as the “You Don’t Want to Work with Us” lens.

Here’s a sampling:

 

“You Don’t Want to Work with Us” if you don't want to be challenged, engaged, and sometimes nagged. We're here to nudge, remind, and push you towards your financial goals. This level of involvement isn't for everyone, especially if you prefer a more hands-off relationship with your advisor.

 

“You Don’t Want to Work with Us” if you want on “order taker.” We collaborate with you to create and maintain a financial plan, not just execute orders. Our role is to provide informed advice and guidance, not simply ratify your decisions. In fact, we might challenge your status quo in a variety of ways.

 

“You Don’t Want to Work with Us” if you don’t want diversification. Our strategy focuses on diversification and long-term growth, steering clear of fleeting trends and speculative investments. If getting rich quick is your objective, our methodical approach might seem too cautious.

 

“You Don’t Want to Work with Us” if you’re more comfortable keeping information close to the vest. To serve you best, we delve deep into your financial life. This may extend to frank conversations with your family (when you’re ready) about your balance sheet and estate plan. To do our job properly, we need to have a complete picture of your “facts and circumstances,” not just your financial position (assets, liabilities, sources and amounts of income, potential inheritances, financial support obligations, insurance, estate planning provisions and so on). It also means understanding your intentions, aspirations, and roadblocks (current and anticipated). We always want to make sure, that at the appropriate time, your heirs are prepared to understand your facts and circumstances. For some people, this kind of “full disclosure” is uncomfortable (to say the least) and they may well object to our “nosiness.” However, it has been our experience, over many decades, that the more we know about client lives the better able we are to contribute to client well-being.

 

“You Don’t Want to Work with Us” if you don’t want to talk about death and taxes: We're here to discuss all aspects of your financial life, including the uncomfortable parts.

 

“You Don’t Want to Work with Us” if our relationship with you is through your gatekeepers. We have found that working with gatekeepers can dilute the message, and occasionally miss the client need altogether. Further, the often highly customized requirements (demands?) of gatekeepers tends to absorb a significant amount of our service capacity. 

 

“You Don’t Want to Work with Us” if you never like hearing “no”: Our eons of experience have taught us that you cannot achieve excellence in the things to which you say “yes”, if you don’t know when to say “no.”

 

“You Don’t Want to Work with Us” if the occasional painful honest conversation is not on your wish list. We prioritize honesty, even when it's hard to hear. Our advice is meant to guide you, even if it means challenging your desires or expectations.

 

“You Don’t Want to Work with Us” if jumping through some security hoops is tedious for you. Accessing your funds involves a meticulous process, ensuring security and accuracy. This diligence is crucial but may feel bureaucratic to those unfamiliar with the very real need for it.

 

“You Don’t Want to Work with Us” if you want us to always be your highest performing investment manager. This issue has come up many times in my long career. It usually takes the form of a statement such as, “I expect to earn 15% every year on my investments,” at which time we would provide our standard (but not brief) response:

 

“No one can predict the future. If an investment advisor nods sagely when you tell him or her what you expect and otherwise remains silent, they are probably catering rather than advising,

 

When you say ”earn” you mean an annual total return from all sources of 15%. “Total return” is a slippery concept. Generally, when talking about stocks and bonds, it means changes in account value over time (usually from the first business day of the year to the last of a calendar year) resulting from these sources: income (dividends, interest, royalties), long term and short term capital gains realized and unrealized, long term and short term capital losses realized and unrealized and costs of management. From year to year, assuming no change in the account asset allocation, only income and costs of management remain relatively constant (always assuming no changes in interest rates, no bond defaults, no dividend increases or decreases). In a typical balanced portfolio (say 70% stocks, 30% bonds) the income component of total return is, at least in today’s world, somewhere around 3%. So to achieve your 15% total return means the account must rely on net capital gains each year of somewhere around 12%. That’s not the mark we’re trying to hit.

 

Sometimes the response is something like, “I accept your comments but I am not going to have anything like a balanced portfolio. I intend to own a concentrated portfolio of market leaders and expect to consistently outperform the more diversified and ‘conventional’ accounts.” At which time, we would point out that this approach violates a fundamental law of nature. Risk tightly correlates with reward. Diversification equals risk mitigation; concentration equals risk enhancement. This is particularly true for portfolios concentrated in “market leaders” which are, almost by definition, high priced by conventional valuation metrics. The valuation of market leaders, with few exceptions, is driven primarily by investor demand (“I want to own it because everyone else wants to own it”) and, to a lesser extent, by expected earnings growth over the long term at which time the rich price paid today will be justified. But things can and will go wrong over the long term, and some number of today’s market leaders will disappoint with a corresponding severe price decline (sometimes recoverable, often not). Of course, if the higher risk opportunity involves many people doing the same thing (buying lottery tickets, seeking gold in the Klondike, buying crypto, gambling in Las Vegas) there will be some who actually win. Over the long term these winners are small but large enough, especially if well promoted, to keep hope alive.”

 

There is nothing wrong with seeking, at some considerable level of risk, to build wealth. But betting everything on red is reckless. We suggest our clients consider a more thoughtful strategy. We work together to develop a strategy of “bifurcation,” one which contemplates the long term development of asset accumulation and allocation, the base of which consists of a diversified portfolio of good quality merchandise (stocks, bonds, mutual funds, ETF’s, real estate where appropriate) on top of which may be layered a selection of higher risk, higher reward potential assets. We work together to decide where money goes, in what amounts and when. (If we are talking to a business owner or partner, then it’s a strategy of “trifurcation.”)

  

Moving along.

 

“You Don’t Want to Work with Us” if you don’t believe that good chemistry is a necessary factor in a business relationship. Good chemistry can be resident anywhere and everywhere, without regard to any particular life situation. We find good chemistry with people of any age, any gender, in any financial condition (assuming they meet our fee and/or account size minimums), any ethnicity, of any political or religious persuasion and, for that matter, who live anywhere. What we hope for are clients who manifest in their own lives the qualities that make for good chemistry with us (and, it goes without saying, make for good chemistry with others in their lives). We also want clients to consider us a good chemistry match for them. In considering us for an advisory relationship, we hope prospective clients regard us as qualified not just in terms of the givens (honesty, fair dealing, competence) but in terms of the more subtle “ingredients” that make up an environment characterized by good chemistry.

 

Finally, (and obviously) "You Don’t Want to Work with Us” if we can’t bring you value. Our decades of experience tells us that we generally have something to bring to the table, whatever the client’s circumstances. Even in cases where a person’s life is straightforward and uncomplicated, people are happy when we’re here to be a sounding board, mind the store, look over their shoulder and/or give them peace of mind. But if when we meet, you determine we can’t earn our keep, we would expect you to take a pass (with which we would agree).

 

Even with all these people who “Don’t Want to Work with Us” we have an infinitely large universe of prospective clients. How to access them? We don’t do seminars, we don’t send mailers, we don’t make phone calls to strangers, we don’t have a traditional sales force. In fact, unlike many of our peers who have dedicated sales forces, our new business arises almost exclusively from referrals and add-on business from existing clients.

 

We are very happy with the way in which our business has evolved. Instead of operating under the dreaded transactional model, which often turns clients into commodities and advisors into order takers, we enjoy mutually beneficial client relationships that are both broad and deep.

 

Chris Weil



This communication may contain privileged and confidential information; people other than the addressee should not review, distribute or duplicate it without permission. Nothing in this communication constitutes a solicitation by us for the purchase or sale of any securities. We do not accept account orders or instructions by e-mail, and will not be responsible for carrying out e-mailed orders or instructions. We provide reports as an accommodation to help you monitor your investment activity; securities pricing may not reflect reliable values. In the event of a discrepancy, the information in your confirmations of daily activity and monthly statement of account shall govern. While the information in this communication comes from sources believed to be reliable as of today, we make no representation as to its accuracy and completeness and provide no assurances as to future returns or performance. We may own positions in securities mentioned in this communication. Investing involves risks, including the possible loss of the principal amount invested. There can be no assurance that recommended investments will be successful in meeting their objectives. Investment in mutual funds is also subject to market risk, investment style risk, investment adviser risk, market sector risk, equity securities risk, and portfolio turnover risks. More information about these risks and other risks can be found in the fund prospectus. You may obtain a prospectus for CWC's mutual funds by calling us toll-free at 888.550.9266 or visiting www.cweil.com. The prospectus should be read carefully before investing. CWC's mutual funds are distributed by Arbor Court Capital, LLC, Member FINRA/SIPC. Nothing herein should be construed as legal or tax advice. You should consult an attorney or tax professional regarding your specific legal or tax situation. Christopher Weil & Company, Inc. may be contacted at 800.355.9345 or info@cweil.com.


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