Not so very long ago, if you developeda fever, some of theworld's most prominent physicianswould open up one of your veinsand bleed you. If that didn't producerapid recovery, they would bleed youagain. The process could continue untilyou died, after which time the doctorsinvolved would feel very sorry and thentreat another patient.
Fortunately, the science of medicine hasevolved. Today's leading physicians practiceevidence-based medicine. Every procedure,drug, and treatment is rigorouslyexamined to see if it works. Inherited lorehas been replaced by research driven solutions.As the science evolves, every physicianworth their salt strives to keep upwith the leading edge developments intheir field. There are still no guarantees,but success rates have soared.
To give those earlier physicians theirdue, they did practice state-of-the-artmedical techniques and dedicate themselvesto their patient's best interests.Operating under an oath laid down in400 BC, they swore to "follow that systemof regimen which, according to my abilityand judgment, I consider for the benefitof my patients, and abstain fromwhatever is deleterious and mischievous."The investment industry couldlearn from physicians.
Today, in response to an investmentquestion, you're likely to get discreditedpseudo babble from an advisor whomay not have ever had an investmenttheory class. Few of them could identifyMarkowitz, Sharpe, Tobin, Fama,Ibbotson, Miller, Merton, or Scholes. They don't play on a professionalhockey team. As if 50 years of investmentresearch had never happened,Wall Street prescribes the same oldmedicine. Then, when the patient diesan economic death, those advisorsnever even wonder why.
A fiduciary pledge would be theinvestment world's equivalent of theHippocratic Oath. Unfortunately, notone wire house employee could sign thepledge. While it seems only reasonableto require an investment advisor to actsolely in their client's best interest, thisquaint notion has never caught on in theWall Street world. Instead, representativesand brokers serve the interests oftheir employers and their own wallets.And when it comes to Wall Street, conflicts of interest are the rule of the land.
There is an alternative to business-as-usualon Wall Street. There are a fewcompetent and objective fee-only advisorsout there. These advisors keep upwith developments in their field so thatthey can provide clients with the best theinfant science has to offer. And they willwillingly sign a fiduciary pledge to actsolely in the interest of their clients.Investors should demand nothing lessfrom their financial advisors than theydo their own doctors. It doesn't seem liketoo much to ask.
Frank Armstrong III is thefounder and principal of InvestorSolutions, Inc, a fee-only, SECregisteredinvestment advisor. Heis also the author of TheInformed Investor: A Hype-FreeGuide to Constructing a Sound FinancialPortfolio (Amacom; 2002), which is now availablein paperback. For more information, visitwww.investorsolutions.com.