Don't hire a journalist to coach your team

Wealth management has become a buzzword among retail financial services firms.

The previous post outlined how wealth management -- which we call wealth allocation planning and capital management -- is a critical concept that encompasses investment management as a subset. If capital management is the science of examining your overall wealth allocation and then ensuring that your wealth is working as capital (wealth employed to create more wealth), then investment management is the day-to-day blocking and tackling required to run the capital that is committed to the financial markets.

For some time now, Wall Street has been preaching the need to divorce wealth management from investment management. If you are an investor who has substantial wealth, you will likely be familiar with the "wealth manager" who de-emphasizes his role in investment management so that he can "focus entirely on wealth management." For almost a generation now, those going to work in the retail financial services firms have been taught not to make the day-to-day buy and sell decisions on securities but to farm that process out to professional investment managers. In other words, the official story is that the wealth manager cannot and should not be an investment manager.

But this thesis is critically flawed, because it leaves the critical decisions of wealth allocation planning and management in the hands of someone who by his own admission does not have the time to stay on the pulse of the themes and trends of the business world and the interaction of corporate capital in the markets. Sure, he keeps up with it, and can even provide entertaining color commentary on what is taking place, but he is not on the field battling in the trenches every day.

In other words, would you want Vince Lombardi running your team or the guy who is up in the booth doing commentary? A reporter may know a lot about the game, but the experience of voicing opinions is vastly different than the experience of making the tough calls day-in and day-out.

Beware of the conventional wisdom that you hear in the world of financial management. The prevailing theory that wealth managers should not dirty their hands with the day-to-day discipline of real money management is a Wall Street truism that deserves closer critical examination.


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