The Rumplestiltskinator

This is a another guest article by Jim Stark. Jim Stark is a pseudonym for a practicing Canadian financial advisor. The article is written to financial advisors, but we both thought that readers of this blog would appreciate it.

Take it away Jim…

The Rumplestiltskinator

Sometimes, advisors make audacious promises that no reasonable person would make. I know an advisor who got a call from a fellow who was referred to him who said he was retired and wanted to know if he could get him 10% a year – forever. The advisor told him candidly that he could not. The referred guy apologized for wasting the advisor’s time and continued in his search for an advisor who could. My sense in hearing this story was twofold. My first impression was that the first advisor who promised the guy 10% annually would land the $400,000 account. The second was that the guy looking for an advisor wouldn’t have to make too many calls before finding someone who would make such a promise.

I’ve decided to fight back. Telling the truth can be bad for business, so I’ve built a contraption I call the Rumplestiltskinator. Simply bring in a few bails of hay and I’ll turn it into gold for you. Just one bail yields 13 or 14 bars of bullion. My fee is one bullion bar per bail. Beats the tar out of 10% a year, that’s for sure. Please don’t ask to see my machine – it is proprietary technology. I don’t want anyone else stealing it…. and oh! – the accounts I’ll be landing!

Image: FreeDigitalPhotos.net

I’m also getting a bunch of reasonable investors together to launch a class action lawsuit against advisors who make wild promises that they can’t substantiate like the ones who promise 10% a year. I’ve built a better mousetrap and I’m going to destroy all comers with it. I simply can’t decide on what my next step ought to be.

Should I try to corner the world’s hay market or should I get a patent for my contraption so that everyone who ever uses it would have to pay me to do so? I’ve got a buddy who says that either of the two options above would be a rational response for someone in my situation and that what I’m doing now is just foolishness. Helping a few dozen measly families manage their life savings is small potatoes, he says. Apparently, I should either buy up all the hay in the world- even if I have to bid up the price substantially (take that, Hunt brothers!) or else apply for a global patent to protect my intellectual property rights immediately.

It seems there are economic theories that suggest that, in order to become fabulously wealthy and successful, a rational person with whizbang technology like mine would do either one or the other, but never neither. In applying this principle to my advisors, I would expect them to either be managing billions of dollars for their deliriously satisfied clients or to have written the definitive text about how anyone can beat the market herself. The advisors who purport to have “proprietary frameworks for superior security and/ or mutual fund analysis and selection” strike me a being Rumplestiltskinator-inventor wannabes.

I suspect the advisors who claim to provide consistently superior performance for their clients are probably overstating their value proposition a wee bit. As such, would all those people who claim that they can and do reliably beat the market for their clients put kindly forward an audited third party verification of their process done by a reputable expert? These sorts of advisors should either demonstrate the superiority of their method or immediately cease and desist from making such outlandish, baseless, unsubstantiated claims in the first place.

While I wait for those advisors who make such claims to do either one or the other, I’d like to forewarn them that they’ll soon be losing many of their best accounts to the Rumplestiltskinator. After all, my only slightly less plausible sales pitch easily trumps theirs… and we all know there are clients out there who will believe almost anything.

Thanks Jimbo! ‘Til next week…

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 4 comments
  • […] The Rumplestiltskinator : WhereDoesAllMyMoneyGo.com […]
    Sorry, forgot to add great post! Can’t wait to see your next post!

  • Anonymous

    Hi Preet,
    In response to your “I suspect the advisors who claim to provide consistently superior performance for their clients are probably overstating their value proposition a wee bit. As such, would all those people who claim that they can and do reliably beat the market for their clients put kindly forward an audited third party verification of their process done by a reputable expert?” , can I suggest you check out Cougar Global Investments (www.cougarglobal.com). Here is a firm that consistently beats the index and is audited by a third party.
    Would like to hear your comments on them.

  • Preet

    @Anonymous – First, I have to clarify that the statement was made by Jim Stark (pseudonym for a practicing financial advisor), I’ll ask him to provide his response to your comment as well, however I just spent a few minutes on Cougar’s website so I’ll chime in as well.

    I like that Cougar has a focus on asset allocation and exposure to those asset classes through ETFs, but beyond that, I did not see any performance reporting. Essentially it looks to me that they are using low cost access to markets, but are engaged in market timing. There are pros and cons to this, and from what I have seen all studies and research indicate that past performance is no indicator of future performance. If they have beaten their weighted average benchmarks since 1993 there is very little in the way of analysis that can be done to suggest such performance can continue. Someone has to be better than average, just as someone has to be below average. Further, superior performance can only be adjudicated post-hoc.

    Their other main portfolio solution seems to be a suite of sub-advisors. There is nothing new or notable about this solution, it is fairly ubiquitous.

    Perhaps you are a client of theirs? Or an advisor who uses them as an SMA? Or work for them? In any case, if you could send me the audited performance reports I’d be happy to take a closer look.

    For now, I have nothing negative to say about them, but nothing I’ve seen changes my mind about where I stand on the active-passive discussion (which, I should point out, I have not really made public and no one has asked. I presume most think I just recommend blind indexing for everyone, but that is not my stance.)

    Thanks for your comment and for reading the blog!

    Preet

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