Human frailty only takes you so far, even in an industry built on relationships. If you want to achieve institutional scale, the people need to recede before the business implodes.
You can take Charles Schwab the person out of Charles Schwab the company. Vanguard and Fidelity thrive in the absence of John Bogle and Ned Johnson.
Merrill, Lynch, Smith, Barney, Morgan, Stanley, Bear, Stearns, Lehman, Goldman and other firms retain the names of founders who are now long gone. Charles Dow, Henry Poor and John Moody were just people once.
Now Fisher Investments is suffering because Ken Fisher still plays too big a role in the company’s operations for institutional clients’ comfort. They’re facing backlashes from advisory committees and pulling their money.
The logic makes sense. The human beings running those funds have enough personal politics to grapple with in their own lives. They want their relationships to run like clockwork.
They want an institutional partner. Fisher Investments may someday become that kind of partner, whether it keeps Ken’s name on the door or ultimately evolves beyond its family-based origins, but for now, it’s the worst of all worlds.
All the human frailties
Ken is in trouble for failing to keep up with the times. Maybe, as his son puts it, his brain is wired in some strange and beautiful way that makes him a challenge to work with.
As an individual advisor, he’s obviously found a way to gather and hold the assets. The firm has close to 33,000 mass-market clients and 24,000 bona fide high-net-worth individuals on its books, all of whom together have trusted the Fisher family with about $60 billion.
We’ll see how many stick around when the new Form ADV comes out. I suspect we won’t actually see a landslide of redemptions on that side.
Individual clients are attracted to Fisher for the brand. Most will never work with him even remotely. I doubt he knows their names.
He’s essentially an advertising character like Betty Crocker or Ronald McDonald, a face on the endless banner ads that seduce people to click and provide their contact information.
Once people click the face, the machine takes over. Fisher invented a robust process for working every contact until it either turns into AUM or no longer justifies the effort.
The ADV shows over 300 offices. Some are basically call centers designed to route prospects to local advisors. That’s not a firm overseen by a central executive. It’s an advisory network.
And the thing about advisory networks is the people in the local offices build and maintain the local relationships. The products might be developed at headquarters but in a real way, the clients “belong” to the branch personnel.
We haven’t heard much about Fisher staff breaking away from the parent brand and going independent. I’ll crunch the industry numbers one of these days and we’ll see what kind of advisor comes out of this company and what kind of careers they build.
For now, what’s important is that these people are responsible for the client relationships on the ground. If you have chemistry with local investors who signed up through the call center or the website, that’s a tribute to your personal style.
When you alienate those clients, it’s also a sign that some human trait severed the relationship. Until recently, Ken Fisher probably didn’t alienate a single mass-market client for a long time because he never worked with them directly.
He’s only licensed in three of the states where the firm operates. Even if he wanted to reach out to all 50,000 clients personally, it wasn’t going to happen.
Again, we’ll see whether these clients jump ship if they found Ken’s comments offensive. I really think their relationships with the local staff will be the key factor: if they like their advisor and hate the boss, they’ll stay. And if they were on the fence anyway, it was probably only a matter of time before they left.
Person to person
But with another $40 billion in various pooled funds and institutional relationships, the big money comes from as few as 500 accounts.
These charities, pension funds and corporations are run by human beings with strengths, weaknesses and opinions. The people make mistakes and have flashes of genius.
The better people keep an eye on their risk profile. They like their jobs and want to keep them, so they try to minimize the odds that a shock to the status quo will jeopardize anything.
That means real due diligence. In hedge fund land, the first phrase I learned after “portable alpha” was “operational risk.” You don’t want to partner with anyone susceptible to sudden flukes of fate. If the engine isn’t humming along, it’s not worth kicking the tires.
Fisher Investments could be a $100 billion humming engine. The investments seem OK if not especially spectacular. If you had a lot of money to allocate, it was probably worth handing Fisher a slice . . . provided of course the engine didn’t develop any alarming knocks.
It turns out Ken was that knock in the engine. Now state and union funds have a reason to kick the tires and they’re seeing that the investment performance just isn’t worth the potential headache.
Participants can protest board meetings. Investment policy statements can contain ethics statements. And since Ken’s problems originate on the human level, it all raises the big question of what happens to Fisher Investments when (not if) Ken leaves the building.
Is this an institutional-grade asset management company? It could be. The asset gathering process is institutional in scale and doesn’t require Ken’s interaction at all any more. It runs on its own.
Was Ken ever known as a gifted stock picker? If so, he’d better groom a team to replace him in the event he gets hit by a bus crossing the street or the next round of medical tests comes back bad. These things happen to human beings.
Planning for the departure of the human element is how institutions survive. The jobs remain in place. The people doing them change.
And the people rely on institutions. The people cutting Fisher from their portfolios now are worried that there’s no institutional control on Ken after all. He could remain a model citizen for the rest of his professional life, but there’s no way to be sure. That’s the problem.
We often encourage our readers to think in institutional terms for their own careers. You need succession planning. You need processes in place that other people can do in your absence.
One day, you’re going to want to leave the office and someone else will need to handle the emergencies. And eventually, you’re going to leave the office whether you want to or not.
Presumably Ken Fisher worked with the pension fund boards person to person. That’s where he built his relationships. The gatekeepers have turned on him. It happens.
Don’t let it happen to you.
