“I’m intimidated by my financial adviser, he knows how little I know.” – Daniel Kahneman
The Wall Street Journal recently shared an interesting piece of news about Bill Gross’s new fund with Janus Capital. Investors poured $1.1 billion, an important threshold for attracting institutional clients, into his brand new unconstrained bond fund. That’s a pretty decent haul, but the real scoop here was that more than $700 million of those inflows came from the same Morgan Stanley office in California. And it just so happens that this is the office that one of Gross’s financial advisors works.
The thing I find fascinating about this is not that this money came from Gross himself (something he later admitted and I think is a good sign for investors), but that Bill Gross, the Bond King, has his own financial advisor, from Morgan Stanley no less. Gross is worth a couple billion dollars, so he could have his own family office if he wanted to. But I think it would surprise people to discover that one of the greatest investors of all-time has the need for a financial advisor to help manage his investments.
There are a number of reasons for Gross having a team of financial advisors in place — tax considerations, trust and estate issues, insurance planning and many of the other financial planning complexities that come with having a huge portfolio.
And all of these things makes sense, but there may be a much simpler explanation. Most people, even those that are successful in the world of finance and business, get their own financial advisor to keep themselves out of trouble. Intelligent people understand the benefits of having an independent third party there to make sure they don’t make any huge mistakes.
In fact, this is quite common for people in the industry. Carl Richards of the BAM Alliance, himself a financial advisor, hired his own advisor:
Our family hired a real financial planner and after working with him for just a few months. I’m convinced we would have avoided many of our mistakes had we hired him five years ago. Just having a rule that before making major decisions you will walk some objective third party through your thinking would be a step in the right direction.
I’m sure Richards doesn’t need an advisor to walk him through the many technical aspects of financial planning or investment management, but having an objective outsider is a great way to make better, more informed decisions that aren’t clouded by your own biases and world views.
In his book What Investors Really Want, Meir Statman shared the following story about Oracle CEO Larry Ellison (emphasis mine):
Documents in a trial revealed that Mr. Ellison lives well. His annual “lifestyle” expenses amount to $20 million. A villa in Japan costs $25 million, a new yacht costs $194 million, and preparations for America’s Cup cost $80 million. The documents include emails to Ellison from his financial advisor. One email said, “I know this email may/will depress you. However, I believe it’s my job to address issues you’d prefer not to confront. You told me years ago that it’s OK to raise the “diversification issue” with you quarterly….Well, I’m doing it. View this as a call to arms.
Not everyone needs a financial advisor. But there are many people out there that could benefit from a call to arms on occasion to keep themselves honest. This is true of successful fund managers, financial advisors, corporate CEOs and anyone else that recognizes they’e not infallible when trying to make wise financial choices.
There are plenty of financial issues most people would prefer not to confront. A good advisor should be able to help you confront those issues.