Over the weekend I read Michael Lewis’s “The Big Short”. It’s his recap of the Sub-prime mortgage meltdown that profiled a few individuals who profited greatly by betting against the mortgages they considered most likely to fail. Of course, it takes a classic good versus evil stance to make the book an interesting read. At the same time if the melt down hadn’t happened in the way it did there would be another book with a different cast of characters.
I find myself looking beyond the characters to the actual structure of the entities involved and can’t help but believe that the structure of the organizations involved were more of the problem than the greed of the individuals involved.

Information: It became clear to me very early on that the communication up and down the levels was not effective in the large, multi-national investment banks. It reminded me of the parable of the 20 blind people taken to an elephant, and asked what they thought it was based on them using their hands to see. Of course, they had 20 different answers depending on what part of the elephant they “explored’. They had no perspective of the big picture.
The independent investment firms had a very clear picture of what was going on since they did not need to rely on someone else’s translation of what the situation was. They were able to access vast quantities of research easily due to their independent status. More importantly, their clients had better information since they had the ability to communicate directly with the decision makers.

Product Vs. Process: Since the marketplace for financial products is so broad, much energy is put into every product line and evaluating each product line and it’s profitability. The focus of the large investment firm was always on the mass appeal of the offering and how much they could sell versus whether or not the product was good for clients. Profit was the overwhelming motive. The individual bonus and the next quarter’s earnings clearly won the day, and the incentive programs put in place provided a very attractive inducement to benefit the firms and individuals involved.

I received a very different picture from the independent firms. Yes, they had a profit motive personally, but they also clearly knew that they had clients to please in the process. They had brought them to the dance and they clearly wanted them to benefit. I think this is due to the direct relationship with the advisor and the end client.

Structure: In summary, the story is the classic “David and Goliath” story of small versus big and good versus evil. Some are concerned about the independent firms resources. Don’t the big firms hire all the “best and brightest” and have hundreds if not thousands of people? Yes, they do! Yet, as pointed out in the book this put the independent firms at no disadvantage.

The White Oaks experience is similar to the ones of small firms outlined in the book. Information can and is found from these firms themselves and from independent sources. Every firm had the same access, but how the structures, incentives and processes were used is what made the difference. Personally, I would not have put into place a strategy of extreme win or lose propositions. In our process high payoff strategies are used, but judiciously to not put our client’s money at risk.

I do have a strong bias towards independent, fee-only, advisory firms. Firms that know their bread is buttered by how well they take care of their clients.

The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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Investment advisory services provided by White Oaks Wealth Advisors, Inc. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.