In Whose Best Interest?
Sep 22, 2011 |
Bankers, investment houses, brokers and a myriad of other financial professionals act according to human nature — in their own best interests. Their commissions, fees, hidden charges and less-than-transparent transactions bear this out. As a result, their returns are enhanced and clients’ diminished, many think unfairly.
The curious thing is that customers freely allow this to happen at their expense. This is perverse: that one party’s best interest is preferentially preserved and another’s isn’t, especially when it is the paying party that is losing out.
An investment client can shoot himself in the foot if he doesn't take care.
By recognizing the forces of human nature that allow this phenomenon, investors can better protect themselves. One is a skewed perception. Many investors believe that financial managers can do better than the market and thereby help their clients in spite of objective evidence to the contrary. This client’s belief is basely largely on banker, investment house and brokers advertising power. They spend a ton of money on it, which the existing clients pay for. These massive campaigns have appeal because the ads are constructed to make the product appear beneficial, sometimes by omitting cost and emphasizing benefit.
Consumers of investment services often believe the positive message portrayed to them because it suits their purpose. They hope without justification that what is advertised can really do what they think it says it can because that would make their life easier. Investment choices wouldn’t have to be made. Responsibility could be shifted. A welcome abdication of accountability could occur. The prospective customer conveniently ignores any awareness that occasionally slips into his consciousness: that no one cares about his money as much as he does.
In addition, this easy abandonment of shepherding one’s own monetary resources occurs because many people think they don’t have the ability to nurture their own money. They have a belief system — an expectation of reality that is presumed to be true or false — that does not allow them to conceptualize themselves as guardians of their own investment futures. Their biases are that the investment professional can do it better. They feel more comfortable herding with other dependently minded people since the majority of Americans are doing the same thing.
Lastly, inertia envelopes most people, even when they know a different path would serve their own best interests.
Warren Buffet has some pertinent words of wisdom: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”