This famous quote from Charlie Munger gets straight to the point regarding the behaviour of individuals (and companies), and as vice-chairman of the hugely successful US investment firm Berkshire Hathaway, he is certainly someone who understands how this links to long-term financial gain.
Nowhere do incentives play a bigger role than in the steering of a salesforce, with its successes and failures impacting heavily on earnings.
Tracy Dewart tells Tara Siegel Bernard about what she discovered when she looked at the JPMorgan brokerage account being managed for her Alzheimer’s stricken elderly mother. From the New York Times: “After about six months, she learned that the account, worth roughly $1.3 million at the start of 2017, had been charged $128,000 in commissions that year — nearly 10 percent of its value, and about 10 times what many financial planners would charge to manage accounts that size.
In August 2017 alone, Mr. Rahn had sold two-thirds of the portfolio, or about $822,000, and then reinvested most of the proceeds, yielding about $47,600 in commissions, according to monthly financial statements and an analysis by Genesis Forensic Consulting, the firm Ms. Dewart’s lawyer hired.”
The point is understanding incentives.
If you delegate the management of your money to others, are you clear about how they are incentivised? The case in the US is atrocious, but at what point does it become atrocious? When does it move from acceptable charging to unacceptable charging? Where is the line?
Most investors don’t really check costs or measure success. Some do ask but rarely take action. Few ask difficult questions. I hope you belong in the ‘few’