Our Exorbitant Privilege



“How do you guys have time to manage money, between tweeting and writing and tv and radio?” 


This question comes along surprisingly often. (I would argue it is precisely backwards). It fundamentally misunderstands the composition of an RIA portfolio and what a financial planning firms should be focused on. It imagines a daily grind where advisors are coming into the office to trade as they track the latest news flow that might affect any given stock holding in the their clients’ accounts.

Only, not so much. That overly romanticized notion is 1990s relic, an outdated fantasy that existed for a brief moment, then disappeared.

Here is a simple truth: The vast majority of people in the asset management industry spend most of their time chasing new business. They need clients and assets and, if they are transactional, trades. To get them, they spend most of their day and a lot of their nights in that pursuit.

It is not part of the job, it is their job.

Some cold call relentlessly, making 1,000+ dials per day to find 10 warm “prospects,” one of whom might open an account. Some turn the process into an assembly line, sponsoring young aspirants for the Series 7, and teaching them to “Smile & Dial.” Golf becomes work, as do philanthropic events or fund-raising dinners. They send spam emails, make attention grabbing forecasts, clamor for attention with unsubstantiated claims. They go to oh so many networking events to hand out 1000+ business cards per week; they spend time on boards they don’t care about, or they pretend to be interested in volunteering at this or that charity that just-so-happens to be filled with wealthy folk.

No, thank you. 

Our Exorbitant Privilege is that we do none of thatI have previously addressed what our value proposition iswhy I write, and why we do what we do, Today, I want to take a few moments to explain what our exorbitant privilege is, and how we use it for what I believe is the better good.

The phrase “exorbitant privilege” was originally coined in the 1960s by Valéry Giscard d’Estaing, then the French Minister of Finance. He was referring to the massive benefits imbuing to the United States for having the U.S. dollar as the world’s reserve currency. Barry Eichengreen, Professor of Economics and Political Science at the University of California Berkeley, summarized it thusly: “It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one.” Commodities are priced in dollars; trade exchange takes place in dollars; current account deficits are priced that way too. Enormous benefits accrue to the USA because of it.

Our exorbitant privilege is that we do not spend our time operating the way the rest of the industry does. We do not make sales calls because there are no salespeople in our firm. Come into our office, and you will not see or hear a television blasting out the “market moving news” aka noise of FinTV. Ask anyone who has swung by our new digs on Bryant Park to confirm just how very “un-financy” our vibe is.

This is a luxury. It allows us to slow down, to think, to operate deliberately. Our ensemble practice does not suffer from the haste that afflicts so many firms in their pursuit of new business. The ironic twist here is that the less we chase business, the better we become at our actual jobs — and the more business comes our way. Managing the financial lives of our clients, helping them to understand the world as it truly is so as to best invest their assets for their needs — that’s not what we manage to squeeze in here or there, that is what we do.

The alternative to the “traditional” models of brokerage or investment management is that we are able to spend our time in a productive, thoughtful way. Imagine what your day would look like if “client acquisition” — the actual job of so much of finance — was not how you spent your day. Think about how valuable your time is, and how opulent it is to use it more productively.

If you reclaimed the 24 hours each day that we all have, what results is you would be able to:

-Spend time dissecting the news flow, explaining what truly matters to your clients and what is merely noise; we started doing this individually long before the firm was formed;

-Learn all you could about the best way to manage client assets; figure out ways to create portfolios that satisfy investors’ needs and goals with the least amount of risk;

-Consider all of the ways that investors sabotage themselves, spend lots of time and effort trying to educate investors and clients on how to avoid that fate. Create a financial incentive for investors to reduce their own fees as a reward for smart investor behavior.

-Use this knowledge to educate clients and readers at large so they all become better investors; Teach them what is signal and what is noise;

-Advocate on behalf of investors for legislation and regulations that protects their interests — not ours — be it Fiduciary rules, or fee limits on qualified accounts or regulations that protects them from avarice all too common on this field;

-Use our understanding of regular market dislocations to create a rules-based, trend-following tactical portfolio that can act as an emotional release valve for clients when that eventuality occurs. The goal: prevent clients from market-timing with the bulk of their portfolio assets;

-Be Thought Leaders in the media: on financial television, radio, and in print, pushing the industry towards transparency and truthfulness;

-Think about better ways to manage a start up firm, including making employees stakeholders, soliciting feedback from them, and from all our partners;

-Sit down with the world’s greatest investors and business people, learn what the secrets of their success have been, and share them with anyone willing to listen;

-Write books that are informative, education and enlightening about issues that matter to investors;

-Think about all of the internal data the firm generates: how clients come to us, to what our portfolios look like, the cross section of each advisors’ client demographics, etc. Figure out ways to use this data to make us more efficient, make clients more satisfied, develop our employees professional development;

-Be responsive to clients who are interested in socially responsibly investing, good governance, pay and hiring equality, and other related areas.

And so much more. Start with that short list of what our exorbitant privilege affords us, and imagine what else can be done with it.

This privilege has allowed us to move the needle, to impact the debate, to change the narrative. It has allowed us to alter the way investors think about: their own behavior, how Wall Street operates, the financial crisis, what good portfolio construction is, and the significance of indexing. Learning from mistakes, what alpha is, the appeal (or not) of alternatives, how much politics impacts (or not) equities, about trade, regulation, inflation, housing, and more.

The employees, partners, stakeholder and clients of Ritholtz Wealth Management have afforded us this privilege to spend our time very differently from the way much of finance does. We have been doing this not only since the firm launched 5 years ago, but the history of each of the principals of RWM for many years before that.

I do not take for granted what this privilege has afforded us to do, and so I do not want to waste the opportunity presented.

We are all, every person on this planet, the same in one regard: Everybody gets only 24 hours per day. How do you want to use your 24 hours? How should your financial advisor be using theirs?


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