Assets under Management (AUM) ‘Fee Only Planning Compensation’ Conflicts: Part III
AUM Inherently MORE, MORE, MORE MOREon Personal Financial Planning
More, better, now has a habit of becoming less worse later
Alas quoting myself
Sacrificing what we need for what we don’t need isn’t personal financial planning but the pursuit of ‘more for more’s sake’ which is ‘the ideology of the cancer cell’ according to writer Edward Abbey. The usual motivation for more (at the expense of enough) is comparative valuation of worthiness by ‘net worth.’ The result all too often: more, better, now becomes less worse later.
Assets under Management (AUM) reinforces this self destructive behavioral pattern of relative comparison to others, to indexes (Dow Jones, S&P) rather than measuring progress or lack thereof relative to each individual personal financial goal.
In the D. H Lawrence’s story, ‘The Rocking Horse Winner,’ the family of little boy Paul is living way beyond its means. Paul mysteriously discovers by rocking faster and faster – the names of winning races horses come to him. Of course, the spendthrift family parlays these tips into its bankroll. (Rock ‘n Bankroll?) However, to get more, and more, and more winning names – Paul has to rock the Rocking Horse faster and faster – until Paul dies of exhaustion.
‘More, more, more –what are we all more-ticians’ – e.e. cummings.
More, more, more - Assets under Management.
AUM pays off on the ‘more’ assets under management not ‘enough’ assets to meet the goals with the least risk. The more assets under management – the more AUM pays. Inherent in this compensation is often taking ‘more’ risk than necessary for the goal. And more risk – more leverage (i.e. keeping a larger mortgage so as to have more available assets in the market) cuts both ways – especially on the downside.
AUM is inherently The Rocking Horse Winner approach which too often causes a lot of whinnying, the Dow Jones becomes the Downer Jones, and Mr. & Ms. Planner lose clients especially in down markets.
A test of AUM’s focus: In down markets do clients ask:
· How did I do relative to the Dow, S&P etc OR
· Do I still have ENOUGH?
Odds are the former not the latter.
Therefore, is AUM the most or least consistent compensation method relative to the mission of personal financial planning: aligning clients personal resources (financial or otherwise) to support their life goals and values or really primarily a Trojan Horse for Assets under Management gathering?
They swayed about upon a rocking horse, And thought it Pegasus.