In a nutshell: your money to manage, but more likely to keep.


An example. Not the only one by a mile.

Last week I received a welcome message from an old colleague whom I enjoyed working with in the earlier part of this century. Now employed by a major financial group in the role of client manager in their wealth management division, my friend tells me he would like to talk to me about two unhappy clients. He did not give many details, but we nevertheless penciled-in to meet this week in Milano. I encouraged him to take a look at my website for general information and a review of my approach to the business, all things we had spoken about in the past.

Earlier this week I wrote an email of confirmation to my friend. He responded saying he could no longer meet since “abbiamo una intera giornata di corso su un prodottino di quelli che piacerebbero ad un ‘controllore dei costi’ quale tu sei!” This loosely translates into “I’m tied-up all day in a training session on one of those little products much appreciated by a ‘cost-control freak’ such as yourself!” What potential benefits such ‘little product’ may deliver to its buyers was not specified; only that it would not please people concerned with certain of its structural aspects.

In the past, my friend and I shared many thoughts on how to manage money, on what works and what doesn’t, on client transparency and fairness issues and many other facets of the profession. We pretty much agreed on most items. After his note, I made the following three considerations:

  • People change; I have changed; our responses to opportunities change with time, circumstances and knowledge; my friend had changed.
  • His current job is with one of three Italian institutions (that I’m aware of) which are being questioned by the market watchdog CONSOB for charging monthly performance fees with monthly resets (= no high-water mark) for outperforming cash (for all asset classes). Tell me who your friends are and… ?
  • If he thought I could be useful to some clients, but did not like the approach of a ‘cost-control freak’, what does that say about [a] the cost structure of his employer, [b] the real nature of the solution he was after, and [c] the overall ethical standard of his approach?

All this should be serious food for serious thinking. Really, I want to make two things clear: I am a cost-control freak, because costs rob investors of the power of compounding; I’m not against properly disclosed, adequately explained, and reasonably priced financial products of any kind (though I will admit to a bias towards reasonableness of the underlying idea and the process). Unfortunately, these requirements are often missing, in certain countries more often than in others. Costs, while perhaps not the single most important element, are definitely an indication of many things that are wrong with a lot of clever financial products out there.

I fully expect my friend to ‘unsubscribe’ after he reads this post.

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