Your Fault, Dear Reader

How much time do most people spend “thinking” about paying for their retirement? How about “thinking” about vacation? — I think you may be wrong on the facts here.

As to the advisor — Out of the 300,000 financial advisors in the US — Who picked that one advisor?

What’s his track record? How much digging did you do? how many references did you check? how many clients did you speak to?

The bottom line is no one is more qualified/concerned/responsible to take care of your financial future than you

People might be responsible for their investments in the sense that it is their money that is at risk, but clearly there are many circumstances where losses occur and the investors aren’t responsible in a legal sense. There is a whole industry of lawyers, both private and public, who do nothing but disgorge money from brokerages and companies that have ripped off investors. While it is clear that the bulk of these claimants are never recompensed in full for thier losses, I can’t help but suspect that these activities mitigate away from your overall point.

Barry:

Your column states a basic reality. People need to face it. My position is that even if you hire an advisor to direct your investmenrs you need to have a clear sense of who they are and what their approach is. If you can’t analyze and you have a long term perspective then dribble a little bit a month into a balanced set of index funds or etfs. Or avoid markets.

However the fact that you need to show certain cautions in certain neighborhoods does not mean the neighborhood is functional or sane. One essential social mechanism is trust. Many people make bad investments because they trust the integrity and competence of the advisor. Just as we trust doctors and though it’s wise to have a second opinion, we expect honesty and competence as the rule.

My parents and many decent people who work hard and play by the rules are not sophisticated in these games. And I’m talking people here with IQs over 100 which is not half of the population.

People are persuaded by “authority” which has all the aura of trustworthyness. In the worst cases we found that many of these people are sleazy, others are less than competent and there is typically an underplay of the risk. The limits of danger and prediction are not stressed.

So people are informed that if they want to keep their savings above x they should engage in such behavior (a somewhat justified cllaim) they believe this, and risk their futures. We are still programmed to expect a certain conservativism and caution in our bankers.

Now things like you write need to be stressed and at the begining of any discussion. They are not. We have an entire media and social culture, including a press which encourages certain behaviors.

And you are completely wrong about many in the that I know. They accept responsiblity, they don’t sue, they say to themselves they should have known better, but the simple fact of the matter they had that “quiet conversation” (or whatever) with someone who they assumed was doing business the way they would, with integrity and the best evaluation they could of the situation.

Now of course people who are reading the kind of publication you are writing for may not fall into this category. They look at enough things to be responsible, though I’m not sure their problem is not enough time lstudying issues, but too much time. But we alsoi have a system that persuaded seventy year olds to buy net stocks in 1999 and where bankers suggest you borrow on your home at 6% to make twice that in “investments.”

A viable social system depends on trust and the whining coming from some individuals is smoke that indicates a smoldering fire.

I think we’re only beginning to see just how angry and bloodthirsty people who lose money can be, and how much grandstanding politicians (see: Hatch, elitists) will fan those flames. Mr. Bennett’s acquaintences who accept personal responsibility for their losses are not, or perhaps I should say, will not be the norm by a long shot. As Paul Tudor Jones said years ago, there will come a time when you don’t want to be someone who made a lot of money on shorts. They will be coming for you, and most people will be glad to see it.

Most folks just don’t get it, and never will. Most brokers are ‘just following orders’. They do not take a Hippocratic oath; they are employees of a company and are expected to generate income for that company. A number of them may mean well, but few will buck the ‘common wisdom’ (too upsetting and difficult for most clients, and basically not an income-generating idea), and most don’t understand when it should or shouldn’t be bucked (unless someone at work tells them, and even then…). As in all endeavors, the majority of advisors range from bad to mediocre. Part of the definition of excellent is that very few people are.

Speaking of taking responsibility, a lot of advisors don’t ever really admit to themselves the damage they may be allowing or even encouraging. It’s the only way to stay in that career without collapsing under psychological weight — either that, or you become callous and cynical and just don’t give a damn.

In their defense, I work in a professional service business myself, and you learn pretty quickly not to push too hard when your income hangs in the balance. You can tell a client when they might be making a mistake, but experience teaches you to shrug and let them do what they obviously want to do. Maybe you can mitigate the downside a little, maybe not. A lot of clients don’t listen, or can’t even comprehend what you’re saying. After a while, you don’t always have the energy to try to make them. You get tired of beating your head against the wall. It’s not really what you want, it’s just how it too often is.

One other note. Keep in mind that both clients and brokers are both very susceptible to the prevailing herd psychology. During the go-go years, especially in late ’99 and early 2000, how many brokers really believed–and how many clients would be willing to listen– that the market was about to tank? Not many. Almost everyone was greedy and smug and complacent and actively promoting the same feelings in everyone they knew. That’s how otherwise smart but naive people lost their shirts. And that’s one of the signs of a top.

Caveat emptor. The markets are unmerciful, especially toward the trusting.

Yet, as Barry says, ultimately the herd will blame someone else for their troubles. For most people, accountability is for the next guy. Heck, our political ‘leaders’ drive that point home on a very regular basis.