We work with a lot of entrepreneurs in China managing their overseas assets.  Still, it suprises us how many try to labor alone rather than calling on the services of a specialist.  

We found this article recently from an American entrepreneur which we found valuable for all investors, whether they are an entrepreneur or not.  This article originally appeared on www.inc.com but we will repeat it here over two posts, along with our comments where appropriate. 

It always bothers me when I hear a news broadcast that begins, “In business today…” and proceeds to report on developments in the investment world. In fact, business and investing are by no means the same. Business, to me, involves bringing various resources together to create value. Investing is about using money to make more money by attempting to predict the future value of whatever you happen to invest in. The two endeavors call for very different skills. So it’s little wonder that good investors often make bad businesspeople, and good businesspeople are often bad investors.

I have to admit that I knew almost nothing about personal investing until I was well past my 50th birthday. Of course, that was partly because I didn’t really have any money to invest. Whatever I took out of the business I had to be prepared to put right back in if the company needed it. In addition, I had personal guarantees on my bank loans, which meant I could lose everything if the business went under (see “Free At Last”). My entire net worth was effectively tied up in a single investment, the riskiest type of all, namely, a young growing company. When I did take money out, I would keep it in CDs and bank accounts, so as to be sure I could get it whenever I wanted to. In retrospect, that was silly. You should always have a balanced portfolio. But I didn’t know any better at the time.

Balance is something that some risk-taking entrepreneurs find hard to find.  Being an entrepreneur is risky and some build a tolerance for it.  Too much tolerance sometimes.  Yet, many successful entrepreneurs (particularly Chinese) seriously explain that China is no place to grow old, nor a safe place to store assets.  Yet they continue doing so for far too long. 

Another fault we see with entrepreneurs is that they often get confused between their business acumen and their investment acumen.  As a successful boss they start believing their own hype and think they can do it too.  Yet they hire outside lawyers, IP specialist and computer systems analysts yet think they can replace the decades of training and experience that our partners, and other experienced financial advisers have to offer.

It was my wife, Elaine, who convinced me we should start paying more attention to our personal finances. Her friends all had investment advisors and accounts with stockbrokers and were heavily into financial planning. “Shouldn’t we be doing something?” she asked. “Our money is just sitting in the bank.”

“I don’t know,” I said. “That money isn’t really ours.”

I explained that if the business was unable to repay its loans for any reason, the banks could come after our personal assets. She was not pleased. “That’s all the more reason to get help,” she said. “We need to protect ourselves, and we don’t know what we’re doing.” I agreed.

And so began our education in what turned out to be the most difficult part of developing a personal investment strategy: finding advisers and money managers who will listen to what you want, do what they say, and put your interests ahead of theirs.

In the beginning, we didn’t know exactly what we wanted–a broker, an investment advisor, or a financial planner. We interviewed 12 people over the course of a year, settling on a married couple in New York City who had appeared as experts on CNN and repeatedly made the best-adviser and best-money-manager lists of Money, Worth, and other such publications. We visited them in their Park Avenue offices. After interviewing us for an hour or so, they said they wanted to develop a plan for us and asked for $2,500, which would go toward their fees if we hired them. That seemed reasonable. We gave them a check, and they said they’d have our plan in a week.

Interviewing 12 seems excessive to us, yet, at the same time perhaps they didn’t know what they were looking for, or didn’t find the right fit quickly.  Fee based financial advisors usually are pretty good, so their selection here seems sensible until you read…

Two months went by without a word. When I finally called to find out what was going on, they said the plan was complicated, but they’d have it in a week. After hearing nothing for two weeks, I called again. It was almost finished, they said. We’d have it on Monday. But Monday and Tuesday came and went. By Wednesday, I’d had enough. I called again.

“This is ridiculous,” I said. “I don’t know what your problem is, but you obviously can’t keep a commitment. I’d like my money back.” They insisted the plan was almost ready. They’d call back that afternoon.

They didn’t. The next morning, they agreed to return my money but said I’d have to wait until the end of the quarter, when they were paid their fees. “Pay someone else back at the end of the quarter,” I said.

“I want my check tomorrow or I’m going to report you to the attorney general.” They became indignant and reminded me of their prominent position in the investing community.

“You ain’t that prominent,” I said. “I’ll see you tomorrow.”

We found this surprising to an extent, but we have seen parallels in Shanghai.  We have seen many financial advisors, and banks, trade off their expansive offices and brand locations.  An office or a brand isn’t everything when giving financial advice.  The key is trust and common understanding with your advisor.  You might be able to find a star in a private bank or even one like HSBC who breaks their system to find you the best deals.  You probably won’t though.  Look through the gloss for the attentiveness, execution and integrity.  It will become apparent quickly.  Fortunately Norm only lost time, and not money.

The check was waiting for me the next day. As I walked away with it, I couldn’t help feeling stupid. We’d spent a whole year doing research and ended up where we’d started. So we tried another gambit: getting recommendations from friends. One of them swore by two brokers from Prudential and insisted they’d be perfect for us. We met with them.
“Let me tell you what I’m looking for,” I said. “Most of my money is in my business, which is a big risk. The money I’m giving you is not risk money.”

“What do you expect?” one of the brokers asked.

“I’d like to average between 9 and 10 percent annually over 10 years,”

I said. We were in the middle of the great bull market of the 1990s.

“I’m not looking for 15 or 20 percent returns like everybody else these days. I want you to invest very conservatively.” They seemed to get the idea. I opened an account with Prudential and put in about half the money I had outside the business. They would invest the money as they felt necessary to achieve my goals, earning a commission on the trades.

Within days, we began receiving a flood of slips recording purchases and sales of securities. I’m talking about stacks and stacks of slips–50 shares of this, 200 shares of that, 150 shares of something else, and on and on. I called the lead broker, who said, “Don’t worry.We’re establishing our positions.”

“Okay,” I said and waited for the flood to let up. It didn’t. I couldn’t imagine how these guys could square their aggressive trading with my desire to invest conservatively. When we sat down to review the account after six months, I asked what was going on.

“We’re doing well,” the lead man said. “We’re tracking 18 percent [after commissions] for the year.”

“No, no, I mean what’s with all this trading you’re doing?”

(Read along more in part 2)

About Caterer Goodman Partners

Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.

About Owen Caterer

Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010.  He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model.   Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.