15 TMND : WHO ARE YOUR SUPPLIERS?

 WHO ARE YOUR SUPPLIERS?

How did you hire your household’s financial advisor? Did you list the position in the help-wanted section of your local newspaper? Did you evaluate the stacks of resumes your advertisement generated? Or did you ask your accountant, attorney, or minister to help you find a quality advisor? Many people tell us that such methods are just too much work.

This is unfortunate. The more intellect, time, and energy you spend in hiring a financial advisor, the more likely you will be to find a suitable one. Perhaps you’re not convinced about the need to exert yourself in this task. Look at it another way.

How much time and effort did it take you to find your most recent employment position? What are the chances that you could call General Motors, IBM, or Microsoft and obtain a job today by phone? What theme would you use?

Hi, I’m a red-hot potential employee. I can greatly enhance the productivity of any department in which I’m placed. I’m smart, efficient, positive, personable, well groomed, resourceful, and have empathy for the needs of others. When do you want me to start?

Your chances of being hired by placing a telephone call, especially a cold call, are near zero. Then why do so many people hire their financial advisor after he or she made a cold call to them? Because they are not experienced in hiring employees.

Why aren’t you as wealthy as you should be? It may be because of the way you operate your household. Would a business, especially a very productive one, ever hire a key employee without doing a serious background check and an in-depth interview? No! Yet most people, even those with high incomes, hire financial advisors after obtaining little or no background information about these “employment candidates.” 

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Some high-income people have responded to our views on this topic by stating: “But I’m not hiring an employee—I’m just doing some investing with the fellow who called on me.” Our response to such statements is simple: Operate your household like a productive business. The best businesses hire the best people. They also patronize the best suppliers. Utilizing the best human resources and top suppliers are two major reasons the most productive organizations succeed while others fail. You should view all financial advisors who solicit you as a client merely as applicants. View them as prospective employees or suppliers for your household. Then ask yourself some simple questions: What criteria would a productive personnel manager use in evaluating each of these applicants? Would a skilled purchasing agent and/or a chief financial officer of an organization buy investment information and products from this potential supplier? What criteria, what key pieces of background information, would be used to evaluate potential suppliers?

Before a well-run business would ever hire a financial advisor or a supplier of investment intellect, it would insist on many vital pieces of hard copy, including the following:

◆ Several references

◆ An official college transcript

◆A credit check

◆ A series of personal interviews

◆Completion of a detailed employment application

◆ Documents attesting to the ability of the applicant to perform the duties and tasks required.

Your ability to hire high-grade financial advisors is directly related to your propensity to accumulate wealth. This, in turn, relates to one of the fundamental reasons business owners outpace all other occupational categories in accumulating wealth. Most high-income business owners have more experience in evaluating potential suppliers, employee applicants, and human resources in general than do individuals in other occupational groups. Being in business requires the constant evaluation of such resources.

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THE MARTIN METHOD

Several years ago we had the pleasure of interviewing Mr. Martin, a very astute investor and a self-made millionaire. Mr. Martin participated in a focus group interview we conducted with eight multimillionaires. To be included in the group, respondents had to have a net worth of $5 million or more. Building a net worth of $5 million or more in one generation is quite an accomplishment. But Mr. Martin is rare even within this category, since he never had an earned annualincome (from employment) of more than $75,000! How did Mr. Martin become so wealthy? He is one of the best investors we have ever interviewed. Mr. Martin made his fortune via the stock market. We found him to be extremely bright and well informed about various investments. He is also an excellent judge of investment advisors.

As you may expect, Mr. Martin subscribes to a wide variety of investment-related publications. Several of these sell their mailing lists to brokers. Thousands of financial advisors have access to Mr. Martin’s address and telephone number. Mr. Martin estimates that each week at least three or four brokers attempt to solicit his investment dollars via cold calls. How does Mr. Martin deal with these callers? He instructs his secretary to follow the “Martin Method,” which is used to debrief all callers. What is the “Martin Method”? Here is what he told us during the interview:

I am a businessman who goes out and tests people. Brokers call me a lot. They say, “I have a great deal of experience in Wall Street’s best offerings.... I have a fantastic track record of making money for my clients.”

I always say: “Do you have some good investment ideas for me —really good?” He says, “Absolutely, especially if you’re willing to make trades in your portfolio. I only handle accounts with a minimum of $200,000.”

Then I tell him, “So you’re really good. Well, I'll tell you what. Send me a copy of your personal income tax returns from the last few years and a list of what you have had in your own portfolio for the past three years. If you made more money than I did from investments, I'll invest with you. Here’s my address.”

When they say, “We can’t show that to you,” I tell them, “You are likely to be full of baloney.” 

This is my strategy for checking people out. It works. I check them all out this way. I mean it very honestly.

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Perhaps you’re asking yourself how Mr. Martin finds time to evaluate all those stacks of credentials he receives from cold callers. During the many years Mr. Martin has been an active investor, he has received countless telephone solicitations. How many of these solicitors “applied for the job” as financial advisor to the Martin household by submitting their credentials? Zero! Not one of the dozens of cold callers submitted his income and wealth appreciation data to Mr. Martin.

According to Mr. Martin, “If these guys were really good, they would not spend all their time calling me.” Well, fair enough, Mr. Martin. But not everyone in America has your investment intellect, income, and net worth. Many people would be better off financially if they used the services of a financial advisor, even one who cold called them, for the simple reason that most financial advisors are significantly more knowledgeable about investing than the average high-income UAW. ( Under Accumulator of Wealth  )

How one comes into contact with one’s financial advisor is a correlate of wealth appreciation. How did Mr. Martin come into contact with his? Like the majority of PAWs, he used interpersonal communication. Early in his career he asked his accountant for a referral to a quality financial advisor. The accountant provided the names of several such advisors. Mr. Martin also asked for referrals from those of the accountant’s clients whose investments always seemed to do well. Mr. Martin has patronized several financial advisors since first being introduced via his accountant. He also relies on others for investment advice, including his attorney and CPA.

Mr. Martin always felt his financial advisors were credible sources of investment wisdom because all were endorsed by his CPA and/or his CPA’s most successful investors. Also, Mr. Martin reasoned quite correctly that these financial advisors would treat him as a special client. And, indeed, they went out of their way to provide him with good advice and timely forecasts. Why? To do otherwise would jeopardize their relationships with their referral network. What would Mr. Martin do if his advisors provided him with poor service and low- quality advice? He would complain to the CPA who endorsed these people. The CPA would not enjoy losing Mr. Martin as a client and would likely cast these advisors out of his referral network. No financial advisor would enjoy being fired in this way. Even better-grade advisors seem to tum up their level of service for members of important referral networks.

What is to be learned from this case scenario?  Choose a financial advisor who is endorsed by an enlightened accountant and/or his clients with investment portfolios that in the long run outpace the market. If you don’t have an accountant, hire one.

Another correlate of wealth accumulation is employment of a CPA, not just to do taxes but also to provide various kinds of investment advice. To find a high-quality accountant, ask friends or associates who fit the PAW profile. You may wish to call the accounting department at your state’s university. Speak with several accounting faculty. Ask them for the names of their former students who have established track records in helping clients make enlightened financial decisions. Another method is to call the local offices of national accounting firms, which are often very selective in their hiring. Even large firms have many smaller accounting/financial planning clients. We selected our CPAs based on two criteria. First, the CPAs were recommended by professors of accounting. Second, the CPAs were initially hired out of college by major accounting firms and later started their own successful accounting firms. We find that many of the very best CPAs and financial planners follow this career path.

Some CPAs are better than others at helping clients accumulate wealth. Interview several. Choose the one who has the highest concentration of PAWS as clients. You may have to explain the concept to them.

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