As I write this column, I have just returned from the opening night dinner at the Barron’s Top Independent Advisors Summit in Orlando. I was privileged to be a keynote speaker during the conference. Looking around the room after speaking to attendees, including many clients and principals from all of the major custodians, there was one trait that advisory firm attendees appeared to have in common: the desire to share their experiences, both the good and the bad, with other industry leaders. This sharing serves to confirm that although a diverse community, most advisors have had common experiences. These experiences are not isolated to this year’s “industry leaders.” Rather, having had the privilege to work with advisors for more than 25 years, I have come to learn that these experiences are consistently applicable to all advisory firms who were this year’s leaders, last year’s leaders, next year’s prospective leaders, and all other firms that aspire to be a recognized leader in the future, no matter how or by whom they are recognized.
Most advisors started with a few clients. Most never thought they would be managing a business, just other people’s money. Most advisors have never had any formal business training, and most have been successful despite not being very good business men or women.
Most advisors realize that no one manager is right all the time—not even close—and that being honest is just as important as being right. You can always be honest, but you can never always be right.
Furthermore, no matter what the Kool-Aid sellers will tell you, no questionnaire can fully measure an investor’s true risk tolerance. No investor truly knows his or her emotional tolerance for market volatility or ability to withstand losses until his or her portfolio suffers a material decline.