By Gary Brooks, CFP®
The new Masters in Business podcast series hosted by Barry Ritholtz on Bloomberg Radio is off to an impressive start with compelling guests and interesting conversations.
The August 9 edition featured Jack Brennan, Chairman Emeritus of Vanguard Group.
Brennan provided some interesting insight. Some of it unexpected. Consider …
- Brennan said: “If you’re an adrenaline junkie there is no better place to be than in the investment business.” I tend to consider “adrenaline junkie” as synonymous with fast-twitch decisions and more risky behavior than I prefer in my investment portfolio. I think what Brennan meant is that it can be a thrill to research markets and opportunities and have your decisions supported with gains over time.
- Regarding high frequency trading, Brennan said: “The idea that the market is rigged is just plain wrong. Markets aren’t perfect but excess profitability attracts capital and more capital drives down margins and that’s what’s happening in the high frequency markets. Retail investors have received big advantages from high frequency trading through the reduced cost of trading.”
As a financial advisor, however, what most caught my attention was how loudly Brennan beat the drum for the value of financial advice. Vanguard has a strong reputation as a haven for the do-it-yourself investor. This has developed for many reasons and those same reasons apply to professional investment management. The accounts we managed for clients often feature Vanguard holdings also.
Brennan touched on the value of an advisor several times, starting at about the 18-minute mark of the podcast. He began by considering people just like himself, those amid the Baby Boom Generation with more than 10,000 people per day turning 65.
“People get to 60 or 65 and now the game changes,” Brennan said. “You don’t have time to make up for mistakes. And you can’t out-earn mistakes. It’s why I’m so bullish on financial advice. With hopefully 30 year time horizons as consumers of that that money (in retirement), they need positioning, they need guidance, they need people to provide them with that. If this is your pot to last until you die. You need somebody to help you.”
He continued the idea: “You can go on WebMD all you want but if you have a serious issue, you go to the doctor.”
Just as the knowledge and ability of doctors continues to advance, Brennan sees similar improvement in the profession of financial advice.
“The price of advice has come down. The skills and tools the advisors have are so much better than they were 10 years ago. Trusted advisors at a fair price are a powerful combination in my view. People ignore getting advice in retirement at their peril.”
Peril, exposure to danger, becomes more prevalent for many self-directed investors when they respond to the crisis du jour and attempt to navigate entry and exit from portions of the global investment universe.
“Staying the course is hard when the noise is telling you to do something different,” Brennan said. “That is where a trusted advisor is very important. If you have an advisor who is going to charge you 50-100 basis points (0.5-1.0%) for the advice, they can make that 50-100 back in tax strategies, in rebalancing, so you can – in a low-cost investment portfolio – get the advice for free.”