Noles, War Eagle and a football week in Pasadena

Published: Thursday, May 29, 2014 at 10:08 AM.

“I don't go for all that wine and dine, With that ray ban, fake tan, never mind …”from  “I Want a Cowboy” by Reba McEntire


I read recently about several prominent investors who were taken on a seven-day trip to the NCAA Championship Football Game last January in California by their financial advisor. The clients played golf at several upscale courses and dined each evening in a trendy restaurant. Apparently the advisor footed the bill for everything.

During the five working days when markets were open and the advisor was entertaining the entourage, who was monitoring his clients’ accounts? Probably the same person who normally monitors those accounts. In other words, someone other than the advisor. This advisor’s role appears to be more of a relationship manager, one who is charged with entertaining affluent investors and attending social functions. And that’s fine, as long as the client understands that when he sits down to discuss his accounts, he is not visiting with the person who is actually making investment decisions.

Say the Dow drops 500 points on the day of the championship game, 2008-style.  Who would have been in charge of making changes in the portfolio to minimize losses? Or, say the market hit an all-time high that day. Who was at the controls, possibly taking gains off the table and considering the tax consequences for the client? 

Perhaps the advisor actually manages these accounts, but believes in a “buy and hold” investment style. The thinking here is that “the market always rebounds,” so no need to react to market vagaries, because there may be upturns as well as downturns.  Thus, week-long football vacations don’t really interfere with the advisor’s portfolio management activity. This investment philosophy works fine during steady uptrending markets, like those the late 1990’s provided. However, investors nearing or in retirement risk damaging their portfolios significantly if they suffer large downturns like we witnessed in 2008. “Set it and forget it” may not work well for this demographic, especially in volatile or choppy markets.

Additionally, the investor/client is probably paying for the trip one way or another.  The advisor may have funded the football journey, but the money to finance those activities most likely came from the investor in the form of management fees, trading fees, and commissions. 

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