Corona Virus and Modern Financial Industry

State College, PA – They say that imitation is the sincerest form of flattery. As I look back at 20 years in the business, I see a fingerprint on the national scale that was created by a small group of independent advisers. This group of advisers decided they wanted to educate the public about the simplicity of investing. They wanted to bring an academic approach to a complex and opinion laden industry. They wanted to actually make an attempt at creating peace of mind for the American investor in the area of finance. No short order!

We have been very successful. In fact, so much that the megadon companies (large brokerage firms) started to see a dent in their market share. Many independent RIAs (Registered Independent Advisors) brought systems and processes to the table that have developed client trust and relationships by educating. Because of the success, many of these independent firms have been selling out to the megadons. Mergers and acquisitions are at an all-time high in our industry. We now see, 15-20 years later, the industry has been reverse engineering independent advisor’s business models for several years and are continuing to ramp up. 

Context: On the surface….we see flowery verbiage, warm fuzzy pictures, attractive advisors in fancy offices, and psychologically designed commercials that imply they have all the answers.

However, underneath, you see college graduates with MBA’s in board rooms focused on squeezing out profit centers within the company, focused on perpetuating a transactional model for revenue. Many of these folks have never sat at a kitchen table or desk with a client that was stressed and worried whether they would have enough money to live their life with some sense of security. They have never stuck a stake in the ground while looking at someone in the eye, believing that they’re doing everything they possibly can to enhance the life of their client. A heartbeat not just a number on an Excel spreadsheet. They believe computers can actually replace people, that the human condition can be summed up with some logic and cool graphics.

Education leads to clarity, clarity is vital in order to reach a level of confidence, and confidence is essential and required to obtain peace of mind. We all want validation! I submit to you that’s not flowery, rather concise and factual, applied to any aspect of our lives. So now we have a situation today for the smaller firms. If they have not been gobbled up by the megadons then they are forced once again to innovate and be creative, to again fix the problems that the industry is creating.

The biggest problem……is also the biggest advantages in today’s modern financial landscape. Technology! The very technology that is used to give us the news and instantaneous world events that allows us to be and feel informed. This technology is often the demise of life’s wealth by not understanding the basics of investing while having access to our life savings. Do returns come from the market or from the money managers?

All too often the reality of this abundance of information clouds our judgment, gives us a sense of control, as well access to the market to make impulse decisions. Information overload happens rapidly in stressful situations. I would submit to you “the human condition” stresses rapidly when it comes to our health and our finances. The fight or flight DNA we all possess causes us to solve the problem, whatever it may be. In hindsight, when the stress subsides, most often we have regret over these seemingly sound decisions at the time.

The coronavirus as an example: When we look at the virus, let’s compare it to the flu. We’re not fearful of the flu, we’ve all probably had the flu at one point or another. The reality is the flu kills tens of thousands of people every year. At this point the coronavirus stats have incredible numbers of people recovering, very encouraging. The infection rate is high, but compared to what? Scientists and doctors don’t have enough data to get any type of comparison as to which is worse. In reality we’ve seen this many times before with Ebola, the bird flu, SARS, etc. Looking at the situation rationally, one cannot find any reasonable data or commonsense reason to be concerned about this virus enough to justify the massive volatility we’ve had in the market recently. What does explain it, however, is the technology that is now being used. Mega computers with sophisticated algorithms that track the market movement, as well as the news in an attempt to beat the market. These computers unfortunately do not have discernment which we know of course is “a human condition”. I find the perplexing reality in the new understanding of the modern financial landscape is the irony that humans panic, machines do not, but the machines are creating more volatility than humans ever imagined.

Will humans ever be replaced by artificial intelligence in the area of finances? I submit to you, “it will never happen”, the human condition will not allow it. The megadons still do not get it. As a result, many of us out of the box thinking, client centric, independent advisors have financial security. This is because clients have achieved a level of peace and understanding. As one of the old-time actors, Jackie Gleason, was famous for saying, “Oh how sweet it is”!

Many of us don’t need an iMac, we need an “Investor Coach”, a person who understands our goals and objectives, that can educate us about our options. A human that can help us apply discernment and discipline when uncertainty floods the financial landscape.