John Lefferts' Blog

Tuesday, June 22, 2010

The New Carnac of Financial Services?

Legendary nighttime talk show host Johnny Carson had an act back in the day known as “Carnac the Magnificent” where he mocked fortune tellers with jokes about how he could foretell the future. He would start by placing a “hermetically sealed” envelope up to his head and before opening it, like magic he was able to recite the answer to the question. They were at times funny but usually so stupid the audience wouldn’t laugh but groan at the slapstick styled jokes. Then after the audience would push back, he would come up with a one lined curse.

Carnac: “Until he gets caught” then opens the envelope with the question “How long does a congressman serve?” Carnac: “What does an alligator get on welfare?” Answer: “Gatorade” Then the audience groaned and he would curse them-“May a love-starved fruit-fly molest your sister's nectarines” or “May a weird holy man with a rash play with your face” Like I said, they were real groaners...but funny.

Joking or not, attempting to predict the future is a business pastime. From economists to consultants to bloggers like me, it’s simply tough to resist. After all, if one were able to really consistently predict the future with accuracy, they’d be successful beyond all dreams. And while an analyst may successfully predict the next bull market run or economist predict the next recession, over time, they’ll get it wrong more times than right.

Whenever the business endures change, it seems to bring out the prognosticators. Just over a decade ago in 1999, Mark Hurley, then with Undiscovered Managers, wrote a white paper that created a stir in the financial business. Keep in mind the environment in 1999 was one where Glass Steagal was being repealed, anything that had “.com” in its name was a sure bet and most economists were saying how “this time it’s different” believing the economic expansion would never end. Hurley back then predicted unprecedented consolidation in the financial services/advisory business to be dominated by handful of giant mega-firms with the scale, technology and support the smaller competitors could not afford to provide (ie-multiple Citigroup/Travelers/Smith-Barney styled giants). At the time, it seemed like he had set out the vision for the future of the business and I recall reciting the findings in speeches and seminars to support my bias towards the large firm I worked for at the time. But as often happens, no one can predict the future with complete accuracy. I was in Hurley’s office last year to get his take on where the business was headed (he’s a freak‘in brilliant guy) and I asked him what he would change if he re-wrote the paper today. His ego, admittedly large, wouldn’t let him say he got it wrong. While he didn’t get it entirely wrong, not all has panned out as predicted. But you have to respect someone who has the cajones and respect of peers to put out such a paper so widely followed.

This last month, another white paper has surfaced written by Bob Veres, a financial advisory/planning industry journalist. Like Hurley, Veres is also a gifted visionary in the business. I’ve been a subscriber to his newsletter “Inside Information” since the mid-90’s and while I don’t always agree with his point of view, I always find them thoughtful and well written. His white paper “The Future of the Financial Advisory Business:Opportunities, Challenges and Trends in the Second Decade of the 21st Century” is extremely thoughtful and does an outstanding job outlining where we’ve been and where the future of the business is headed (you can access the paper on his web site link above). Veres takes it in a different direction than Hurley correctly identifying that being a giant actually has disadvantages in the form of legacy costs, technology and systems. He envisions financial planning and advisory professional firms developing on a national basis like large national law firms with partners in every major city. Sign me up!

Like I did with Hurley just a decade ago, I also find Bob’s vision one that I can see and believe. And again, like Hurley, more than likely, he won’t get it all right. But he does lay out a future vision for the business as we slog through the middle of an unprecedented period of time searching for the new normal. And I am careful not to say “This time it’s different”.

“May the bluebird of happiness make a nest in your navel”


Friday, June 11, 2010

Those who can...please teach!

There's an old adage that those who grew up in the trenches of entrepreneurial business often say... "Those who can't...teach". It was a reference to those who tried but never achieved any real business success, and left the risky and uncomfortable trenches for the perceptively cushy role of a consultant, trainer, or some position with a salary safety net and out of the line of fire. Clearly the saying was rooted in a bravado one must have to succeed in a high risk-high reward business environment. And just like many observations, this one too is often proven incorrect as there are quite a few people without successful "in the trenches" business experience who have done quite well. But, not so much to discredit the idea that having real life business experience often is an advantage over solely academic experience. Recent observations cause me to think that the saying should rather be said, "Those who teach...can't"

Events over the past couple years through the financial crisis, health care reform and now the financial services re-regulation being marked up this month have created a bright line divide between the public sector and the private sector. ..between the academics and the entrepreneurs...between government and business. Every time I hear Obama ridicule and ostracize business and business leaders, while some of it is deserved, it causes me to wonder if he and his administration really understand what they are throwing barbs at. Obama, while a great orator and politician, has never been exposed to life in the business trenches. Nor has 90% of his administration who are driving the agenda in DC. It doesn't make them bad people. They simply see the world differently than those who know what it's like to be an entrepreneur with a mindset of waking up unemployed every day. The solutions to problems from an academic public sector mentality will differ greatly from a entrepreneurial private sector minded person. This also plays out in finance where the economic academics always seem to overlook the fact that human behavior is a key driver in almost every economic outcome. Our academic leaders ascribe to a Keynesian public sector solution while those of us who have real life experience understand the power of the human element and a free market system. These differences have always been around, it just seems like the economic turmoil has exposed the glaring differences all the more. Needless to say, I'm a free market kind of guy.

I have tremendous respect for teachers. A real challenge we have nationally is a lack of high quality teachers. But, it's when the academics step over the line to both teach and run business through public sector driven solutions that gives me fits. We don't need any more government programs, handouts and overlapping regulation. We need more small business growth that has historically created 80% of new jobs. The recent political wave of free market candidates, particularly in California, are encouraging. November elections can't come soon enough. It's time for those who teach!