In 1933, the United States Congress enacted the Glass-Steagall Act (GSA). The Act, along with a later addition known as the Bank Holding Company Act, drew a very thick line between commercial banking, investment banking, and insurance underwriting. The resulting effect, other than prompting years of dispute (and many upset bankers), was a separation of services within the finance industry. Completely separate institutions primarily handled banking, investments, and insurance.
While industry and political debate continued for many years over the necessity and effectiveness of GSA, patrons became used to the idea of having a different banker, broker, and insurance agent. With many downsides, the system certainly wasn’t perfect, but lasted until 1999 when Congress repealed GSA with the passing of the Gramm-Leach-Bliley Act (GLBA).
In addition to clearing the way for the consolidation of many banks, brokerages, and insurance agencies (and some would say the eventual causation of the Great Recession of 2008), the new Act was also poignantly emblematic of the industry as a whole. Mergers and acquisitions (M&A) became abundant as financial firms took on alternative lines of business in attempts to improve the bottom line. Though many found loopholes or waivers to carry out crossover business in the past, GLBA’s enactment in 1999 commenced a wealth of M&A, and time-stamped the end of an era in financial services.
Symbolically, GLBA was a commentary on an already growing problem in our world. Seemingly gone from our minds was the mentality of less is more — replaced by corporate profits and a constant push for quantity over quality. In this sense, the Act is merely a representation of a growing need to make more money at all costs. Big companies want to grow even larger, and the drum now beats the sad mantra of more is more.
For your investments, this has deep and lasting impact. Many keep their portfolios (and therefore futures) with these very firms that spend the majority of their time diluting resources in the name of bottom line profits. Scarcely do we now find companies solely focused on doing one thing well. Seldom do we come across financial institutions that are dedicated to providing a single service with the goal of doing it better than anyone else. Quality has taken a back seat to quantity, and the picture is getting even worse. The state of affairs, or rather the number of affairs, at our financial institutions has become a spider’s web of mediocre services.
Those companies that actually spend their time and resource providing only one service, and doing it well, are indeed a rarity. These institutions are hard to find, have guts, and are real gems in this industry. For your portfolio, it is tempting to give-in to the “one stop shop” feel of a conglomerate Wall Street firm. But, for your future, you are better off with someone who specializes and will focus all their energy, time, effort, and assets on being the best (not biggest) in class. As such, though it may seem somewhat counterintuitive, for your portfolio (and for your future), less truly is more.
Jonathan Citrin is founder and CEO of CitrinGroup, an investment advisory firm located in Birmingham, MI. He is an adjunct faculty of finance in the School of Business at Wayne State University.
Founded in 2003, CitrinGroup specializes in portfolio management and advises clients on investment planning.
Contact: 248-569-1100 or www.citringroup.com or jcitrin@citringroup.com.
