October 31, 2016

Investment Advisors, fearing extinction, have turned to God to defend their purpose on earth

I admit it. It irks me when I hear an investment advisor try to claim the moral or ethical high ground in order to buttress his or her argument for a “beat-the-market” strategy. Even when the sales pitch is obviously wrong or sketchy, the advisor will often claim that he and his firm adhere to the highest ethical standards in the industry.

Forgive me, but the phrase “highest ethical standards in the industry” doesn’t mean very much when 80% of Americans hold a dim view of the investment advice industry and its’ front men.

But I digress…

If you want to see an example of taking the high ground, listen to two industry luminaries – Lloyd Blankfein, head of Goldman Sachs, and Nick Murray, popular author and consultant to the industry.

The Offending Comments

“We’re very important… we’re doing God’s Work.” – Lloyd Blankfein, head of Goldman Sachs, in The Times of London.

Later, after realizing how damaging the statement was, Blankfein pleaded to the world, claiming that he was the real victim in all of this. “I know I could slit my wrists and people would cheer,” said Blankfein.

Why God Sent Financial Advisors into the World

In his book Simple Wealth, Inevitable Wealth, Nick Murray argues that an advisor earns his or her “weight in gold” and very little of it has to do with asset allocation, fund selection, or stock picking. In other words, his value is not related to making money in the market.

Murray claims that saving clients from their own biases and emotions, and protecting them from making dumb mistakes, is the true calling of an advisor. As he puts so eloquently, “god sent financial advisors into this world.” (I presume to do good, not extract as much as possible.)

“No one will ever be able to resist the behavioral traps of investing without the calm, consistent, empathetic but tough-loving counsel of a high-quality advisor, whose skills aren’t prediction and performance, but behavior modification. Thus, the highest, best and most valuable function of an advisor is coaching clients past The Big Mistake. And this behavioral counseling alone is worth many times what the investor has to pay for it.”

As Murray puts it, “…this is why my advice is worth so much more than I charge.”

Why is this a problem for you, the investor?

The investment industry will not help you reach your financial goals, because they have a different goal, and it’s the polar opposite of your goals. Their goal is simple: how to maximize the revenue stream from your account.

Secondarily, their goal is to keep you on board for as long as possible. That’s why when you’re bitching about your recent returns, your advisor offers to take you out for beers and steaks so you can “blow off some steam.” The last thing your advisor wants is to have you walk, because that would mean that he has to spend the next 3 days trying to replace you. Hopefully with someone who has more money and is less “high maintenance” than you.

The pitch is “don’t you worry your pretty little uninformed head. We’ve got this covered.”

So the best you can expect from your advisor is a portfolio that’s “right down the middle,” which means s/he can squeeze you into one of the standard strategies that the firm approves. It only takes the advisor about 5 minutes to describe you to the low-paid interns who will do the actual number crunching to come up with your “dream portfolio.”

What the Bible says about doing God’s work

“Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.”

O.K. So now we know that the Bible is clear on this point. Rich guys will have a tough time getting past the Pearly Gates. Maybe that’s because most of what they earn comes right out of the pockets of the savers who are just trying to eke out a meager existence from the soil.

So don’t tell me that you’re doing God’s Work. That’s an affront to both worshipers and investors. How about changing your business plan so that it’s in alignment with the interests of your clients? Why not change the sales contests you have so often, so that the winner of that Shanghai vacation is the guy or gal who made the most progress towards his or her clients’ goals?

What you should do

Your financial advisor should do one thing for you – make your money grow and multiply as fast and as safely as you want. You are in complete control of the advisor-client relationship. Don’t let him or her intimidate you into thinking otherwise.

If you’re just starting out (millennials) then you can set the ground rules for yourself. If you’re deep into the system (Gen-X) you have some painful ordeals ahead of you, assuming that you no longer want to give up 50% of your final wealth to a pirate in a $3,000 suit.

And for you Baby Boomers out there, most of you are in retirement anyway. Why make trouble? Why not just go along to get along. Here’s why. Every month, rain or shine, market up or down, your financial advisor is charging you $300, $500, $1,000. Why not have a conversation with him or her, and politely ask what exactly it is that you’re paying such a high price for?

What we know, for sure, and can prove beyond a shadow of a doubt, is that anyone can get a return of 9.5% by simply investing in the S&P 500 index. So anything you pay for expert advice has to produce results that are above and beyond the returns you can get without it.

About the author 

Erik Conley

Former head of equity trading, Northern Trust Bank, Chicago. Teacher, trainer, mentor, market historian, and perpetual student of all things related to the stock market and excellence in investing.

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