How a humble past can help advisors

Why less affluent financial advisors may have an edge in handling clients’ wealth concerns

How a humble past can help advisors
Necessity is the mother of invention, they say. After all, there’s nothing like an urgent need to inspire creative thinking and hard work. While this wisdom applies to inventors and innovators, it may apply equally to financial advice.

A recent report on Financial Advisor IQ cited academic research that indicates money managers from poorer backgrounds achieve considerably higher returns than those born with a silver spoon.

“Our research shows that poorer advisors are arguably more skilled at managing other people's money – either by working very smart or hard, or both,” said Denis Sosyura, a finance professor from the University of Michigan and co-author of the report.

The study looked at portfolio managers coming from “families in the bottom quintile” of income, comparing them with those whose parents belonged in the top quintile. It found that the former group gained more than 3% per year than the ones from a more favorable background.

The study zeroes in on sub-advisors and institutional fund managers, but it should resonate with full-service wealth managers, according to D.K. Brede Investment Management President Debra Brede. “If you come from a poor family, the little household expenses that many people take for granted are a big deal,” said Brede, who grew up in a single-parent, six-child family that had to rely in part on food stamps to survive. “All of these types of factors – from household spending trends to a client’s aspirations in defining their financial success – go into figuring out how much to allocate to stocks and bonds.”

Humble beginnings also impress the importance of value, and how to find indicators of it. “Growing up without having everything handed to me, I’ve developed a healthy skepticism about market data and claims by asset managers of outperformance,” said LJPR Financial Advisors CEO Leon LaBrecque, whose mother waited tables at a cheap restaurant and whose father was an industrial-machine repairman. “I just naturally gravitate to objectivity when evaluating portfolios – my process strays from becoming too stale and dependent on a few sources for commentary.”

For his part, Beacon Wealth Management CEO Mark Germain taps into a fear of becoming poor again when he deals with rich clients. In his view, one of his key functions is to help guide investment behavior and attitude. “As someone who grew up without money, I’m very aware of how even the smallest change in a portfolio’s investment mix can create feelings of anxiety for some clients,” he said.

Related stories:
Why it’s important to remove emotion from your clients’ decisions
Can team structure improve FA performance?