Too much reliance on "science" and technology can undercut advisor's trust. Charles Lowenhaupt is chairman and CEO of Lowenhaupt Global
Advisors, a St. Louis, Mo.-based
advisory to ultra-high-net-worth families, and managing member of the law firm
Lowenhaupt &
Chasnoff.

If investment analysis is a science, then it's one along the lines of
economics: useful enough, but, as it doesn't approach the predictive power of
true empiricism, it's a really pseudo science.

Meanwhile its trappings and tools -- Monte Carlo programs, alpha and beta,
the efficient frontier -- have taken investment theory from the personal to the
impersonal. Powered by technology, index funds have become the hands-off
approach of choice, with the results quantified in graphs and charts from every
imaginable perspective.

Interaction

And so, because there is little left in terms of genuinely personal
interaction, investment management is losing the human touch, and the investment
professional is losing an important bond with the client.

Decades ago, I had a broker who grew up in the depression and had a large
following of clients. We trusted him implicitly.

He'd identify strong companies and buy stock in them, on the exchanges or
over the counter. His portfolio rarely contained more than thirty companies. He
told his clients stories about these companies. |image1|Among them were 3M (his wife liked scotch tape), IBM (he thought computers would come
into their own), General
Electric (which he acquired more of when it
merged with a mining company) and Chicago Bridge and
Iron (he knew the family that founded
it). When he recommended a company, he'd tell stories and left at least one
young customer wanting to hear more.

His investments did well. He never showed a chart or gave his customers any
indication that investment was anything other than getting to know companies and
using common sense to reach conclusions. His investing lexicon didn't include
"alpha" or "beta." He, like his customers, thought of "Monte Carlo" as a place
to go and lose money made investing in General Electric.

Are there such investment professionals today?

If so, they're hard to find at large institutions and on the conference
circuit. More numerous these days are the kinds of technologists who help Harvard and other institutions build huge
endowments. These advisors are often "investment professional s " who feed data
into computers that churn out complete investment programs -- much as airline
reservation agent s enter my itinerary and send me e-ticket s -- and of course I
can do that online without an agent's assistance at all .

But some investment professionals still use the soft touch. They use common
sense and a little wisdom; they get to know the companies they recommend by
getting to know their management and by learning their stories -- stories they
share with their customers. Warren Buffett is a famous example.

Overall though, the marketplace is dominated by experts who don't need common
sense, who have no stories, and do little to build trust.

Trust

My broker, now thirty years gone, built trust through conversation and
stories. I learned about my investments, about business, and about life. He was
my teacher, and I trusted him to help me work my way through issues in my life.

Once when I was at an investment meeting with a family, I listened to reports
by two of the family's investment managers. One had excellent numbers and a
slick presentation. The other's results weren't as good, and his report was more
haphazard and conversational, including photocopies of New Yorker
cartoons that touched on points he wanted to make.

Once the managers were out of the room, the family unanimously expressed the
view that the second presenter was a "much better investment manager" than the
first. I had to direct their attention to performance numbers before they could
recognize the effect of the second manager's interaction with them.

Can the modern investment professional be a "trusted advisor?" Yes; if she's
a counselor rather than mere manager.

So set aside the technology, discard the PowerPoint shows, and spend some
time talking with your clients. Look for stories in the investment portfolio;
buy common stocks to build communication; select investment managers who
themselves are interesting individuals.

My old broker was a trusted advisor to me and many others. He connected with
me personally by conversing with me in terms I understood. He engaged me in his
thinking and processes. He touched me well beyond the portfolio. Imagine the
satisfaction that gave him.

Then again, imagine the loyalty it would generate with clients if his
approach used state-of-the-art technology and tactics -- relegated, of course,
to their proper place in the ongoing dialogue between advisor and client. -FWR

The illustration for this column is a detail
from a Japanese woodblock print in the Charles A. Lowenhaupt
Collection.

Contact CHARLES
LOWENHAUPT

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