What remodeling my house taught me about trusting a stranger with your money
I interview corporate executives for a living. I have spent nearly three decades analyzing businesses and managing other people’s savings. And yet, when my wife and I decided to remodel our house, I felt completely naked.
We are taking a perfectly good 25-year-old house and spending 20% of the purchase price on a sizable remodel. Many parts of it are going back to the studs. I had never done a big remodel. I knew nothing about construction, and I was shocked by how many landmines, wrong decisions, and outright deceptions we had to avoid just to start.
Strangely, the experience gave me incredible empathy for anyone seeking help from a specialist in an unfamiliar industry, including the people who walk into a financial firm like mine. They are smart, highly educated people: lawyers, doctors, engineers, businesspeople who have accumulated a sizable nest egg through hard work. They lack domain expertise, and they are making one of the most important decisions of their lives (after whom they marry): who will manage their savings.
I am embarrassed to admit it, but now I get it. They feel what I felt: a mix of confusion, fear, and paralysis.
So I interviewed a dozen contractors and designers the way I would interview a CEO. I talked as little as possible. I asked questions and listened, not just for the answer but for the thoughtfulness behind it. Every conversation started the same way: I really don’t know anything about this, so I am going to ask you a lot of basic questions. From the competent ones, I learned new things; from the incompetent ones, I learned what incompetence looks like.
When you hire anyone, whether a contractor, a surgeon, or someone to manage your life savings, you are looking for four qualities: focus, character, incentives, and competence. That sounds like a lot to evaluate in an industry you know nothing about. It is not. You will rarely find an incompetent specialist obsessed with one craft; focus tends to drag competence along with it. And nothing reveals character like incentives. So it comes down to two tests: the tuna test and the incentive test.
In the documentary “Jiro Dreams of Sushi,” about Jiro Ono, whose ten-seat Tokyo restaurant was the first sushi restaurant in the world to earn three Michelin stars, there is a line where Jiro explains that through trial and error over the years, he figured out that octopus tastes better if you massage it for exactly forty-five minutes. That is the kind of obsession I am talking about. But the man who fascinates me most is a supplier. Jiro buys tuna from only one man. This man goes to the fish market every morning and chooses the best tuna. He doesn’t buy octopus, yellowtail, or any other fish. Just tuna. He knows more about tuna than anyone else alive. I call this quality being a tunaman.
Focus, narrow specialization, and a somewhat unhealthy obsession: that is what I am looking for in anyone I hire, whether they manage my money or remodel my house. During my interviews, we met designers and builders for whom the work was a part-time gig sandwiched between other activities. The ones we chose were obsessed with their craft.
Now apply the tuna test to the financial industry, which sprawls across investment advisors, financial planners, insurance salesmen, brokers, and asset managers, often all under one roof. Most are octopus-salmon-yellowtail-uni-crab shops, not tunamen. Many sell products under fancy titles that camouflage what they really do. Some “financial planners” are insurance salesmen in disguise who, under the pretense of advice, will sell you an annuity with enormous fees. Imagine if used car salesmen had a new, elevated title: mobility planner.
When you meet an advisor, ask how they spend their time: on research or on sales? If it’s the latter, they are salespeople with a fancy title. And if they do many things, how good can they really be at all of them?
Then the incentive test. Charlie Munger said it best: “Show me the incentive, and I will show you the outcome.”
I learned this at ten years old, in Soviet Russia. My parents, a scientist and a physicist, both terrible businesspeople, were building a summer house five hundred miles from where we lived. The builders came highly recommended and asked for full payment up front. My parents agreed. Ten months later, my mom took a fifteen-hour train ride and discovered that almost nothing had been built. The builders were gone, and the money was spent.
The human condition is universal, whether in Soviet Russia or the capitalist United States: when you pay someone in full up front, their will to do a great job declines. Nearly every contractor I interviewed charged a percentage of total project cost, which perversely rewards them for hiring expensive labor and buying expensive materials. We negotiated a fixed fee instead, paid in twenty installments, each only upon full completion of a phase. No one wants a 90% completed bathroom.
Your money deserves the same scrutiny. The financial industry runs on two standards: suitability and fiduciary. A fiduciary must put your interests above their own. Brokers and many “financial advisors” only have to answer a much easier question: is this product suitable for you? An annuity that pays them a 7% commission can be perfectly “suitable.” Some advisors are dually registered; they are fiduciaries when giving advice, and then, mid-sentence, without telling you, they switch into salesmen. My suggestion: pay attention to incentives. Ask, directly, how they make money. Every stream, every commission, every fee layered on top of another fee. If someone only gets paid when they sell you something, they will keep coming back with something to sell, whether you need it or not.
Finally, do your homework, and here the financial industry gives you a gift the construction industry does not: standardized disclosure. Every SEC-registered advisor must file a Form ADV, which discloses their services, conflicts of interest, and any regulatory or legal history. Almost nobody reads it, because it is written by lawyers. I don’t blame them.
But we now live in an age when nobody has to. Hand the ADV to an AI model with a simple prompt: What does this firm actually do, one thing or many? How do they make money? Where do their interests conflict with mine? Any disciplinary history? Then ask for a list of pointed questions to bring to the interview. The contractor bids I received were opaque and impossible to compare; in one, the contractor’s fee, buried inside subcontractor charges, amounted to half the project cost. AI caught it. The fine print, in every industry, has finally become readable.
There are no dumb questions when you interview someone who will manage your savings. None. You are not expected to be an expert in their industry. You are looking for one. Look for the tunaman.
This essay is adapted from a longer letter about how to choose someone to manage your money, which you can read here.
comments
0