Tuesday, May 17, 2016

A Tale of Two Women

Therefore all things whatsoever ye would that men should do to you, do ye even so to them; for this is the law and the prophets.
Jesus of Nazareth

The Golden Rule, or the law of reciprocity not only sums up the law and prophets on the subject of human interaction, but it is also the bedrock of ethical capitalism. If you want to have more money, learn how to become a greater blessing to your neighbor. Whether you are a crooked billionaire hedge fund manager or an impoverished disability cheat, the way of the skimmer or the scammer will not ultimately lead you to the blessings of God.

There is another dimension to this teaching. Often you don’t know the person on the other end of the deal. He might be a leg breaker for the mob. Do you think it would be a good idea to try and scam one of Tony Soprano’s associates? You also don’t know what the future might hold. The poor helpless person of today might well be your boss tomorrow. The fact is—you just don’t know.

About the time I turned 50, I decided to start learning about investments. My CPA at the time, may her name be blessed, recommended I open a Roth IRA with some of my refund money. When I asked if she knew any brokers, she recommended a certain woman. I contacted this person and she sold me shares in a mutual fund. They did badly. The next year I bought some more shares in the same fund. It hadn’t been a good year for stocks. Even back then I understood the value of patience. Shortly afterwards, I was far enough up the learning curve to discover that she sold me shares in something that was listed as one of the 50 worst mutual funds sold in America. It was loaded with high sales commissions, management fees, and even execrable 12B-1 fees. It was a very good product for the salesperson, but a very bad product for the investor. By the way, if anyone attempts to sell you anything with a 12B-1 fee, run away. They are not your friend.

I told my CPA about my experience. She was genuinely upset and apologetic. I doubt that she ever recommended that woman to any other customer. This woman earned a sales commission on a few thousand dollars from a novice investor. As a result, I decided that if I was going to lose my money, I wasn’t going to pay anyone to lose it for me. I decided that mutual funds and the people who sold them were to be avoided and went on to learn the basics of value investing. I also learned that low cost index funds, such as those offered by Vanguard, are just fine for the small time investor. They aren’t sold by commission saleswomen, their management fees are triflingly small, and you will never pay a 12B-1 fee.

If she had considered my long term interests rather than her short term gain, it might have been different story. Today, I might have been quite happy to pay her the traditional 1% per year to manage my money. Today, the amount of my money under her supervision would be a whole lot more than a few thousand dollars. A lot has changed over the course of the last 15 years. Instead, after a few years she left the business.

I wonder why?

During the depths of our family emergency, I ended up interacting with a total of 14 banks. The very best bank employee I met during this difficult period of my life was a young woman working as a low level banker in the local office of a well know bank. She was one of those people who had a private fish bowl office but she was not the branch manager.

Although she was young, she already knew the three secrets of customer service.

Never say, “I don’t know,” unless you add, “But I will find out and get back to you by close of business on Thursday.”

Never say, “It’s not my job,” unless you add, “But I will find out who does this and I will get back to you by close of business on Thursday.”

Never say, “But we’ve always done it this way,” unless you add, “But I can work around this problem by changing X.”

She was an enormous help. I had her pegged as someone who was going places. After a few months, the company sent her off to get her brokerage licenses. Then she was promoted to a “private banker,” a position where she was assigned to work with around 200 high net worth individuals with complex financial issues. I have recently learned that she has received another promotion, the second in about two years. She is going to manage pension money in the brokerage side of the house.

When I met her, I was a random stranger with a lot of unusual time consuming problems, but she treated me like I was her most important client. I expect I was not the only customer who received this kind of treatment. It is obvious that I wasn’t the only one evaluating her performance, important people in high places were also watching her. Who knows? Perhaps we will see her photograph on the cover of a business magazine someday.

You just never know who you are dealing with or who they might become. Play it safe. Choose to live by the Golden Rule and let the chips fall where they may. Carl Icahn began his career as a financial manager by offering his clients a higher level of service for less money than was customary at that time. In addition, over time he also proved to be a more competent financial advisor than his competition. He found a way to become a greater blessing to his clients. The rest, as they say, is history.

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