Darryl Tom - The Value of Staying in Your Lane

Darryl Tom is a private wealth manager who delivers personalized comprehensive wealth management strategies and solutions to high-net-worth (HNW) individuals. Previously, he was a private banker at DBS and ANZ private banks and an investment manager with HSBC Australia, providing investment portfolio construction across multi-asset classes, including unit trusts, ETFs, equities, global fixed income and currencies. He provided investment guidance to relationship managers to meet the investment needs of their clients. Darryl has worked as a financial planner for AMP, Australia’s largest wealth manager, and was also based in Tokyo, Japan, where he was a private wealth manager for a boutique wealth management firm catering to HNW expatriates and specializing in wealth management and asset protection. His experience includes business training and development for large multinational firms, such as Goldman Sachs, Pictet Asset Management, Baxter, Roche and Microsoft.   “I come across a common theme across all of my clients, which I guess if you were to boil that down into a simple sentence, it would be that clients are chasing the market or following the market as opposed to following a strategy.” Darryl Tom   No.1 mistake witnessed as a wealth manager Chasing the market rather than following a strategy Darryl has been on the front line talking with a lot of investors and people wanting to protect and grow their wealth for future generations and one of the common themes across all of his clients’ mistakes has been chasing or following the market as opposed to following a strategy. He says investing is a very disciplined and patient game. Investors’ styles likened to The Tortoise and the Hare He also says investing is like the moral in Aesop’s: The Tortoise and the Hare fable. Consider the tortoise as being the slow, precise, and disciplined investor, just doing what he needs to do and staying the course. Meanwhile, the hare races ahead, but stops every five minutes to talk to people, responding to different information in the market, basically just being distracted. This is a common theme across most of his clients and as a private wealth manager, it’s his job to sit back and try to steer clients more onto the tortoise track as opposed to running with the hares. Following the market instead of following a clear strategy would be the overarching theme. How to be the tortoise? Stay in your lane! Darryl asks his clients if they’ve ever been stuck in heavy traffic, trying to leave town on a long weekend Friday afternoon. He asks them to recall being stuck in the right lane while watching cars go by and feeling desperate to join them and get where they’re going. So they wait for a break in the traffic, pull out, do a few car lengths and the car in front slows down and they’re stuck again. Suddenly, while looking to the right, that lane starts to move forward. They do that two or three times, but if they had actually stayed in their lane, they would have gotten to their destination a lot sooner, and a lot more free of stress. He adds: “We’ve all done that”. Industry and media often drives investors to be the hare The way the financial system operates and is structured and the way the media also markets the financial services industry does not really help investors or clients. They talk up this stock or this “hot buy”, or come up with plausible reasons for why the markets are going up or down, what people should buy and what they should sell. They try to excite, because if they were just saying: “Let’s put together a strategically allocated all-weather portfolio and just let it run its course,” that would make for pretty boring TV, Darryl says. “(If the media were saying:) ‘Let’s put together a strategically-allocated, all-weather portfolio and just let it run its course … that makes for pretty boring TV.” Bankers’ and advisors’ advice makes them money too Often our bankers and advisors are remunerated based on commission, so they are driven to make money for themselves. They will never say: “Let’s put a portfolio together for you, and come back and see me in six months or 12 months, and we’ll rebalance it a bit. But otherwise, shut the TV off and just go about your life,” because that is not going to make the bank or the investment firm any money either. State of the industry is really quite sad for investors Fee-for-service models are evolving, but clients still struggle to invest money and struggling to, put in cash on a 1% annual management fee basis. Then they are told they are going to be charged 1%, but the broker also had to justify their existence by giving market updates.   “It’s a vicious circle. And it’s something that really needs to be addressed.” Darryl Tom   Worst investment ever Professional should have known better Overactive trader fits the gung-ho profile This is the story is of an error made by a financial professional that Darryl was advising, so this is someone who should have known better. Darryl was based in Tokyo, dealing with the expat community there and many of his clients were also financial professionals. The client in question was a trader for a large multinational bank, and he fit the profile: always looking for the next trade, buying, selling, and very confident in their abilities. So Darryl felt he was more of a sounding board and the trader was “driving the bus”, while Darryl sort of navigated. Client panics and sells after 30% drop in portfolio The client came to Darryl often, and he was very active, wanting to trade almost every tip from his bank’s equity desk, and they were usually high-risk items. So at the top of the market, Darryl was starting to see the market downturn. When the market started to tip further and further, his client was about 30% down on his portfolio. So the client came back to Darryl and said it was time to pull out. So he cashed out at a loss. He was then on the sidelines and while he had missed a little more of the downside, the experience had shaken him so much that when the market started to recover, he was too nervous to step back in. Burned by loss, client is shy to re-enter market and misses big upside While it was a scary situation, by the time the client regained the confidence to start trading again, the market had already gone up and he had missed all the upside. So he missed a little of the downside, all the upside, and also lost a lot of money for the institution that he was working for during that period, which affected him greatly, emotionally and psychologically. He was hit on two sides, personally and professionally. It was a very sobering experience for him.   “What I advise in the book I wrote for my nieces is to invest in just one ETF that owns 8,000 or so companies. And that is your chance to be a business owner and get the benefits of that over a long period … think of it as strolling through your neighborhood and seeing all these people working so hard for you.” Andrew Stotz   Some lessons Even the pros aren’t immune to market distractions Be proactive in stopping clients from making mistakes Darryl’s client was a peer. So...