Life is filled with those ah-ha moments. You know them, the moments when the fog lifts and the once mystifying suddenly becomes clear.
Back in the 80’s, when I was an undergraduate electrical engineering student at Worcester Polytechnic Institute, I decided to take advantage of their cooperative education program and work for six months. I figured that this was the best way to see if I really wanted to be an engineer or (as time would prove) my heart and future was elsewhere. The paycheck wasn’t bad either as this education was now on my nickel!
One day, the team I was working with was sitting in a meeting when the conversation suddenly turned from antenna systems to finance. The theme of the conversation was how the current project was going to be presented to the “finance guys”. This conversation went on for quite a while. I couldn’t understand why so much time was being spent on how to talk to a bunch of “bean counters”. After all, this was a piece of a government project we were working on.
After the meeting, I had the opportunity to sit down with the manager of the group. I had to understand why so much time was spent on how to communicate the project to the finance department. His answer was one of those things that have stuck with me to this day. “It is really very simple” he said. “This is only one of hundreds of projects going on and looking for funding. My job is to take a project that may be very complex and abstract and explain it in a way that people who are not engineers can understand.” What a concept! Here is one of the smartest guys I have ever met telling me that the key to success was not trying to dazzle people with your intellect, but rather, being able to communicate on their level. I really wish I could remember his name so that I could give him the credit he deserves.
Fast forward a few years or so. I’ve done a year on Wall Street and now I’m managing the treasury group of a major publishing company. I’ve started my climb up the corporate ladder. I’m sitting in class at the Fordham School of Business working on my MBA. This was the first night of a class we had all waited for. Investment Banking! We were about to learn the secrets to the business universe.
Just then, in walked our “professor” for the class. He was an investment banker from a now-defunct firm. Fifteen minutes late! As we were to learn later that was “part of the show.” He certainly dressed the part wearing a $1,000 suit and a Rolex that looked like the real deal. As he started to talk I realized I was about to either learn something big or be sold a used car!
What happened next seemed like something out of a 1980’s “yuppie” movie. It would however shape my business (and life) philosophy to this day.
He started his lecture with the following: “In the next 10 minutes, I am going to teach you everything you need to know about investment banking”. As you might imagine, we were curious. He went on to say that there was really only one key concept that we had to learn, everything else was just filler.
“Sell the black-box”. That was, in his opinion, the secret to not only investment banking success but business success in general. “Your job”, he told us, “was to take advantage of the fact that everyone wants to be involved in the market. They want to be part of the deal. The more complex you make it, the more they want it. There is no calculus in what we do. Most of it is very straight-forward. What it boils down to is making the client think that you and what you offer is something incredibly technical. Sell them the black-box. The more complex (in theory or perception) the more valuable you have become.”
There it was. That ah-ha moment. I did learn (maybe not) everything I needed to know in that one class. It just wasn’t what he thought!
In my business career I spent many meetings listening to bankers pitch simple strategies with complex names. I would look around the room and chuckle at the amazement on the faces of all my colleagues (MBA’s). They were buying the black-box! Not only did they buy it but they constantly tried to sell it to each other. The business and finance world is full of these people that either try to impress you with their knowledge or baffle you with B.S. The successful people know the key to business/financial success is doing the opposite.
Why do I tell this story? Simple. All too often, financial advisors act like the professor from my investment banking class. They intentionally make things overcomplicated or flashy. They try to “sell the sizzle – not the steak”. As we have all painfully found out over the past decade, our financial future is not a playground. To be successful we must ally ourselves with financial professionals who will be able to thoroughly explain every step of the planning process, so YOU understand it. The advisor must be able to create a plan that will work under many different life scenarios while understanding that each person’s situation is different and no single solution exists that works for all. Before implementation, you should fully understand any product you are purchasing or investment you are making. Mistakes here are costly! At the end of the process you should be aware of how your plan is working at any point, in any market condition, because YOU understand YOUR plan. Also, you must have regular plan reviews with your financial advisor and adjust where and when necessary. If you are not getting this service from your advisor it may be time for a change!
Remember, the smart guy sees the value in making complex things simple. The simple guy turns the straightforward stuff into a black-box in order to add value. Work with an advisor that thinks like an engineer and don’t buy the black-box!
David J. Seibel is founder and Managing Partner of AGS Aurora Financial Services LLC, an independent financial advisory firm in Middletown, New Jersey