Alignment of Interest
Do you know what’s in your financial advisor’s investment portfolio? What if he has moved into cash, trying to time the market, while encouraging you to remain fully invested through the cycle? What if he’s investing in venture capital start-ups while keeping your portfolio allocated to a few core mutual funds?
I realize not all investments are appropriate for all portfolios, but I aim to be transparent about my investment portfolio with clients. I believe this creates an alignment of interest. I only recommend investments that I hold in my own portfolio. Now we may own them in different proportions based on our financial goals and different risk tolerances. But I’m focused on finding people with a similar investment philosophy, who think about investing in the same way, as I believe an advisor-client relationship with this foundation is one that will last, and produce exceptional returns, over the long run. And for each asset class, I’m looking for the very best investments for my own portfolio and sharing those recommendations with all my clients. Owning the same things, being exposed to the same risks, and sharing in the same returns provides the ultimate alignment of interest.
This is one of the things I liked best about my prior career in private equity: the large amount of capital contributed by employees to each fund and each deal. It assured that we were fully aligned with our investors. When they made money, we made money. And when they didn’t, we didn’t either. Everyone is a principal, an owner. As one moves up the ranks in private equity, the amount that can be earned from investments fairly quickly outpaces salary and bonus. I believe this provides the proper incentive to seek excellent investment opportunities, improve the evaluation process, and hone one’s investment judgment. I find this principal investing experience to be particularly helpful to me in my role as a financial advisor counseling clients on their investment portfolios.