“Show me the incentive and I will show you the outcome’’ – Charlie Munger, Vice Chairman, Berkshire Hathaway.
Charlie Munger, aged 95, is best known for his role as Vice Chairman of Berkshire Hathaway. As Warren Buffets right hand man, they are possibly the world’s most successful long-term investors. Their company, Berkshire Hathaway, is the third largest company on the Fortune 500 by revenue, with a market capitalisation of over $490 Billion. THEY EARN MORE MONEY THAN APPLE! In fact, they own 5% of Apple.
This is a famous quote by Charlie Munger; “Show me the incentive and I’ll show you the outcome”. It can be related to the sales culture that exists in almost every industry and a number of workplaces. While incentives can motivate, they can also cause conflicts of interest, which is evident in society and human nature. Self-interest can often be hidden behind a ‘looking out for your interests’ catch-phrase. Sometimes, however, this catch-phrase and the actions which follow do not match up.
This disconnect is when the product or service provider may have as much interest in their benefits from the transaction as the benefits that you, the consumer, will receive. This can come in several forms; from receiving feedback from a retail sales person about how ‘good’ you look in the overpriced garment, to being offered by the attendant to upsize your meal to ‘add value’ at McDonald’s.
If the person ‘selling’ to you is going to directly benefit from their engagement with you, then you need to ask yourself; How are they being incentivised? Is that incentive motivating them to sell me something in my best interests, or their best interests? It’s okay to be told how ‘good’ you look in that new suit, or to up-size your coke and fries (occasionally). Just get into the habit of questioning the incentive behind the transaction more often. Charlies quote cuts through the fat, suggesting if the seller’s incentive is linked to the consumers service or product, then ‘buyer beware’. If you question this relationship, I’m confident you’ll making better decisions.
Conflicts of interest, including monetary, will always exist. The finance industry we work in potentially has many conflicts of interest. Fortunately, by law we are required to honestly disclose all conflicts, either current or potential, and ensure our clients are aware of them. To help minimise our potential conflicts, our business operates largely on a fixed dollar advice fee model. This means we will charge a fee that corresponds with the value we provide and the work involved to produce that value. This is aligned with our motto of being kind and fair to the people who entrust us. We believe that if every business and industry followed our motto, then conflicts of interest would be rare.
To see how we can create value for you, give the team at Steve May Financial Services a call and start a conversation today.
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Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
