Perspective


  • February 10, 2021
  • Chuck Osborne

The Client is Not Always Right

“The customer is always right.” That is a cliché that has been a mantra in customer service for years. Unfortunately, it isn’t true. At Iron Capital our staff has probably heard me say a million times, “The client (we have clients not customers) is not always right. If he were, we wouldn’t have a job.” This, in my opinion, is one of the attributes that is a major difference between Iron Capital and the other guys. 

We always do what we believe is right, and it has cost us clients. We had one client who insisted that his portfolio should be 50 percent in bonds. I told him, and illustrated, that he could not achieve the required return if he did that and in essence he would be committing financial suicide. He left and sure enough about five years later we were asked to take another look at the portfolio, but by that time it was too late. There simply was not enough left to maintain the current lifestyle. That message was not well-received either. 

We have disagreements with our institutional clients as well, usually because they want us to fire a manager much faster than we are willing to do. That has never cost us a client, but it has made for some stressful meetings. So why do we do it? Why don’t we just go along with whatever the client wants? It sure would be easier. 

I believe Milton Friedman put it best when he said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” We don’t believe in doing whatever the client wants because while the intention may be to keep the client happy, the result is often to hurt the client’s long-term financial wellbeing. We have a fiduciary relationship with all of our clients and therefore cannot just sit by and watch them hurt themselves. 

Friedman was talking about public policy, and what he said 40 some years ago is as true today as it was then, perhaps even more so. This has always been at the heart of the divide in American politics: one side has always cared more about what they viewed as good intentions, and the other side has been more concerned with actual results. Government housing, rent controls, and price-fixing are just samples of past policies that were all put in place with great intentions, but that had horrible actual results. 

The difference when I was younger was not that these disagreements did not exist, but that there always seemed to be a benefit of the doubt for the other side. We assumed everyone had good intentions, we just disagreed on the best approach. We were also anchored by empirical evidence, so by the time we got to the 1980’s there was no denying that government housing was a disaster, or that price controls caused shortages. We knew this, which is why it was Bill Clinton and not Ronald Reagan who pronounced the days of big government to be over. 

Today that is no longer the case. Today, if one believes the Affordable Care Act (ACA) is a disaster and should be repealed, then as far as ACA supporters are concerned, he doesn’t want people to have healthcare. That, of course, is absurd, but it doesn’t seem to matter. It also does not seem to matter that the cost of health insurance (which is not the same thing as healthcare, by the way) has sky-rocketed since the passage of the ACA, and even the higher cost now comes with higher deductibles and copays, nor that getting to see an actual doctor (which is healthcare, by the way) is far more difficult. 

Unfortunately, these are conversations that cannot take place, because as soon as one brings up the subject, she will be accused of not caring and wanting to take away people’s healthcare. If you don’t believe me, then you obviously do not live in Georgia, because we just went through the most expensive Senate race in history; if one were to believe the advertisements, then two candidates wanted no one to have healthcare, and the other two wanted everyone to have healthcare. This is our discourse today. 

To some degree politicians have always tried to villainize their opponents and make it look like our choice is more black and white than it actually is, but today we seem to be going along with it. This comes in a large part because we no longer talk to one another. The other side is just a generic “they,” and the only choices are to do exactly as our side says or to be evil. 

That mindset means that where one stands on a $15 minimum wage means she either cares about workers or doesn’t. It means if one thinks stopping a pipeline is a huge mistake, then he doesn’t care about the climate and is in denial about climate change. This mindset is destroying us, and it has to stop. 

The truth is that the results of policies like $15 minimum wage or the Keystone pipeline are not black and white at all. We need to actually discuss such things and think them through. It would be easier to just go with it and proudly pronounce our goodness and caring for low-wage earners and the environment, but ultimately, what actually happens in the real-world matters. 

Where those discussions lead and whether anyone ever changes her mind is not nearly as important as simply having the conversation, and that is what we are going to encourage through our posts in the coming weeks. These conversations should begin with an agreement that if one cares about people and the environment, then she has to care about the results of policies. We also need to recognize that no one (not even you or I) is always right. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director