With few guarantees in the investment world, here’s one: Avoid companies growing their client base through acquisitions. It’s happening all the time, thanks to consolidation within the industry. But bigger isn’t better, especially when it comes to knowing your customers. Legendary investor and Vanguard founder Jack Bogle spoke about this when he was alive, and I’ve never forgotten it.
What Bogle was referring to was the relationship between an investor and an advisor. But that sacred bond was muddled when a bigger company acquired a smaller one simply by writing a big check.
Bogle understood that you can’t buy trust. He understood the give-and-take that happens between a prospective client during the process of becoming a client. That is sacred ground—a two-way street, where the prospective client is listened to and understood. Only then will a prospective client have enough trust to become a client.
When a bigger firm buys a client relationship, it may gain a client, but it knows nothing about the relationship. And that’s not fair to the client who’s being bought with no say in the matter. It’s where a lot of problems can begin.
But that’s the trend today as big companies buy smaller ones, as is the case with Charles Schwab buying TD Ameritrade. How many relationships will fall through the cracks?
Bogle hated this. He hated seeing these big advisors growing through acquisition. He didn’t care how much money was being paid per new client to grow the almighty “Assets Under Management.” How does that help you, the customer?
When your advisor is retained as an agent for the new owner, the mothership—located in Timbuktu—he’s operating in a whole new environment with, most likely, a new set of metrics. Again, all this is aimed at helping the bigger firm get even bigger.
Action Line: Jack Bogle understood why bigger was not better. It was just bigger, and the ones paying the price were the clients. Make sure you do business with a firm that understands this.
E.J. Smith - Your Survival Guy
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