The Power of ‘AND’, and the Walmartization of Advice

Growing up in the beautiful swamp that is Brazoria County, Texas, you learned quickly that you took entertainment where you could get it. I’m not saying that it was boring, but having fun did require a certain amount of creativity. Some of the kids, by which I mean the ones who weren’t the drum major of the band and a member of the madrigal singing ensemble – y’know, cool kids – were rumored to collect in the fields owned by absentee cattle ranchers for pasture parties. I did not get invited to these parties. I’m not convinced they really existed.

The rest of us? Yeah, we hung out at the mall. Oh. Late Millennial readers, a ‘mall’ was a large structure which housed a variety of different stores, pretzel restaurants and a kiosk that offered, but to my knowledge never actually sold, small bits of ice cream flash frozen with liquid nitrogen.  Gen Z readers, a ‘store’ is like Amazon, but…anyway, the problem was that around 9PM, the mall closed. But there was a place, a magical place, which never closed. A place where the small town Texas kids who didn’t drink and were too awkward for words could go at any hour to have slightly-above-replacement levels of fun.


I don’t have to defend myself to you, and I won’t. I have an affection for Walmart. Even beyond my affection for the place, I think it has probably done more than any one other company to improve the quality of life of the everyday American. Walmart, along with generally free trade, have allowed the average lower and middle class American to enjoy technology, home amenities, foods and conveniences that we could only have dreamt of 50 years ago.

If you’ve got a “yeah, but” forming in your head, save it. I know what Walmart has done to many small businesses that offered a valuable niche service. God, I desperately miss having a small town butcher. I also know that a job at Walmart probably doesn’t offer the quality of life that most people imagined for themselves. If we’re going to survive the widening gyre, however, there’s a trick we have to learn.

We’ve got to learn to say ANDa heck of a lot more.

Yes, Walmart has improved the tangible quality of life for hundreds of millions AND I’m not sure any of that made us happier AND I’m not completely sure how to balance those things, which is why I’d prefer to let the market do so. We must be able to hold multiple truths in our head at once. The second ‘BUT’ and ‘OR’ escape our lips, we implicitly insert beliefs about the relationship between those facts, and about the weighing of those facts. We will have to do that at some point if we’re ever going to come to conclusions about things, but when we’re exploring questions – and when we are engaging with people about ideas – we ought to stick with ‘AND’.

So here are a few finance ‘ANDS’ for you: I think Vanguard may have done more for the average person than any financial institution in the last several hundred years AND I think that their aggressive move into financial advice will be a net good AND I think that it will lead to harm for many individual investors.

If you don’t know what I’m talking about, it’s this: Vanguard believes the next step in making investing work for normal people is making financial planning and advice less expensive. This is self-evidently true. The less investors pay, the more they keep. But it’s a bit more complicated than that.

There is a big difference between a fund manager and your financial adviser. For the average investor, the specific stocks and funds in a portfolio really don’t – and shouldn’t – matter that much. John Bogle realized this and changed the world. On the other hand, for the average investor, the decisions made with a financial planner and adviser matter a LOT.

Does that mean you should pay a lot for them? No, not necessarily. A lot of the decisions that matter a great deal have perfectly reasonable answers that are generalizable – by which I mean applicable to a lot of people based on shared traits – with just a little bit of information about the client. How much risk to take. What the diversification should look like. How liquid the portfolio should be. How to adjust allocations over time to reflect changing life circumstances. If someone tells you that you need to pay a lot for their advice on these topics, they are misleading you.

But here’s the thing: none of those topics are why you hire a financial adviser. You hire a financial adviser to keep you from doing something stupid. You hire a financial adviser to tell you the truth about that stock you’re thinking about buying with a huge chunk of your assets that they don’t manage. You hire a financial adviser to tell you ‘No’ when you call in to ‘place an order’ to a discretionary account that doesn’t take orders but the industry still kind of allows to take orders. You hire a financial adviser to keep you from endlessly tweaking to find the next big thing. You hire a financial adviser to keep you sane, and to keep you from firing them so that you can do something stupid, like sell, generate capital gains and go to cash after a 30% drawdown in the stock market.

Vanguard, Schwab, and many of the others are wisely expanding their advice models to include humans capable of doing these things. That’s a good thing. Not because the humans will add any valuable investment insight (sorry), but because most of us need both technological and human algorithms to manage our behavior. A lot of people will find that person at one of those institutions – which is great! Do it! AND I worry that a lot of investors are going to be drawn to these robo-plus-a-call-center solutions instead of pursuing a relationship with whichever adviser is going to keep them from hitting sell, sell, sell or buy, buy, buy at exactly the wrong time, even if it costs 30 or 40bps more.

For better or worse, we are entering the Walmartization of Advice. I know that sounds bad, but that’s only because you don’t like Walmart as much as I do. I say it with equal parts admiration and concern. 

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  1. The Saturday night scene in the movie “Hud” argues that Walmart replaced - thus, did not create - the original answer to “A place where the small town Texas kids who didn’t drink and were too awkward for words could go at any hour to have slightly-above-replacement levels of fun” and, if you do watch it, you get to see the very underrated (and forgotten) Patricia Neal at the top of her craft steal scenes from a young Paul Newman.

    As to the skills an effective FA needs - behavior management techniques - my experience with call-center FAs is that it’s less than a coin flip that you’ll get one with those capabilities, but those odds are probably no better with a full-priced FA. On the plus side, though, most call-center FAs are so circumscribed, monitored and measured by their firms that they won’t do the really bad things a very small percentage of the full-priced FAs do.

  2. I’ve always found it fascinating that businesses spend a lot of time systematizing things in an effort to make money (i.e. Walmart, robo-financial advisors). And they’re quite successful if they’ve got that system in place! However, consumers are greatly advantaged when their needs are are met on an individual basis. Maybe you’d prefer your ground meat to come from the sirloin instead of packaged in a tube. Maybe your financial goals aren’t to be as rich as possible, but to be free as fast as possible living in a tiny home (or as stated in a previous Epsilon Theory article, how can everyone’s personal risk tolerance be reflected in the same exact diversified portfolio of index funds?). The free market should be about giving value to the consumer and rewarding those who give value. But the big money always seems to be automatizing (and dare I say, dehumanizing), the process. “Walmartization” is where the money is at. Where did the value go in the construct of these incentives?

    I have a background in Psychiatry. As a result, I suspect that the answer lies in the fundamental nature of humans as biological creatures first (a.k.a. machines). Thus, the value being provided isn’t the benefit of the deliciousness of ground meat or the soundness of financial advice. Rather, the ability for one to reduce using resources to fuel that massive energy hungry organ called the brain (and perhaps more specifically, the prefrontal cortex). Subconsciously, a life of not thinking can be a blessing in the right circumstances (perhaps environments with ever decreasing volatility?).

    Meh, you’re the financial gurus. I’m just happy to be able to interact with the Epsilon Community. Woo hoo!

  3. Avatar for rguinn rguinn says:

    Alright, Sunday night movie plans are now set.

    I’m with you on the odds, but for my money it’s less about capabilities than relationship. As you point out, a sufficiently process-constrained FA can keep a client from a dumb trade, but I’ve observed that the dumbest trades are usually the kind that competence can’t prevent. It’s the trade where a client fires his adviser altogether that causes the real damage. Only trust holds that in place. I think, but don’t know, that the low loyalty factor of some of the otherwise competent call center models may have consequences for many clients.

  4. Supporting your observation, call-center-FA models shoot themselves in the foot by having a high turnover of FAs, rotating them around too much (hence, creating a high turnover independent of the quit rate) and regularly changing their “coverage” model to the point that you give up because one of those three changes means you rarely get the same FA for long and / or he or she can’t cover you in the same way.

    That is not a model created to inspire the trust you rightly identified is needed to prevent the “critical moment” mistake. That said, every FA, sincerely trying to do his or her job correctly, is pushing against the “fool and his money” axiom.

    If you do watch “Hud,” which could easily provide some opening quotes to your or Ben’s longer pieces, I’d love to hear your thoughts. Best of luck in this new venture.

  5. Avatar for rguinn rguinn says:

    It’s the financial gurus who got themselves in this mess, though, so you won’t see me cry too many tears for them! This is an industry that spent decades convincing people that “this is too hard for you” so that they could charge people for expertise in topics for which they didn’t really provide expertise, and for which expertise wasn’t necessarily required in the first place. Now the industry seeks to convince people that “this is so easy that a baby can do it”, so that they can push scalable, activity-producing solutions and compensation models more suited for available technologies.

    And you’re right. I think the future IS some combination of allowing people to turn off their brains to things that are trivial, allowing them to engage with technology-delivered resources when scalability is called for, and recognizing that the value of higher cost humans in delivering some portion of both the true value proposition of investing as well as the psychological benefits of having a relationship of trust (i.e. the only thing that really allows us to reduce the energy demands of a stressful activity on that hungry organ).

    I think the question we should be grappling with as an industry is how to do this without resorting to illusory Hobson’s Choices for investors, without paternalistic ‘nudging’, and without removing clients’ agency.

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