Larry Fink, “Advisor of the Year?”
Outside of Wall Street, many folks may not know who Larry Fink is. Fink is the Chairman & CEO of BlackRock, Inc., the world’s largest money management firm with $4.6 trillion in asset under management. He has led the firm since its inception three decades ago, and like many successful money managers, he’s known for speaking his mind regardless of what the consensus thinking may be.
So why are we nominating (tongue-in-cheek) Fink for “Advisor of The Year?” Because his latest move speaks volumes about managing money, whether we’re talking about a corporate balance sheet or one’s personal portfolio.
On February 1st, Fink sent a letter to 500 CEOs pleading for less focus on short-term, quarterly earnings management and more emphasis on longer-term, strategic plans that deliver significant gains in shareholder value. “Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”
Fink, along with J.P. Morgan’s Jamie Dimon, Berkshire Hathaway’s Warren Buffet, and other financial titans reportedly met to discuss further plans for leading the charge in reversing
short-termism. These thought leaders are changing the conversation with the ultimate goal of changing the behavior of corporate executives and investors alike.
The parallels to wealth management are undeniable. Over the years, the financial advisory industry has increasingly delivered more sophisticated products to individual investors, many of which provide a true value. However, the resulting focus on short term performance of one’s portfolio is to the detriment of the client. The advisory industry created this problem, and the advisory industry must lead the way out.
Much like Fink’s message to those 500 CEOs, there are industry thought leaders trying to save wealthy individuals from themselves and the risks of getting caught up in the short term. Examples are many, but in my opinion include thought leaders such as Nick Murray, Deena Katz, Ashvind Chhabra, Bob Veres, Scott Welch, Steve Lockshin, Joe Duran, and Charlotte Beyer, to name a few.
But individual investors play a role, too, and the most important thing an individual should remember is the importance of linking everything back to one’s financial plan. The performance of the portfolio funds the goals of the plan, regardless of what they may be. Be wary of trusted advisors that emphasize near term results, or fail to address your long term plan.
Much like Fink’s observation of corporate earnings, managing to deliver short term results too often comes at the sacrifice of long term results. Put another way, research has shown that luck (good or bad) is prevalent in the short term. But long term success comes from the development of a comprehensive plan that maximizes the odd of success, despite short term challenges.
For advisors and clients alike, the choice is ours.
“What matters most to an investor is her probability of reaching her goal.”
– Robert Merton, Nobel Prize Laureate
“There are three classes of people; Those who see. Those who see when they are shown. Those who do not see.”
– Leonardo da Vinci