You Can't Be Too Trusting About Anything Today
Over the term of my writing this series of articles, there has been a pervading message for readers: You cant be too trusting. The majority of Americans are trusting people. We are a young country that was formed on principles, morals and values. Yet, the realities of human nature have compelled us to become less trusting. We no longer leave our doors unlocked, as generations before us did. The sad thing is that trust is a concept we all learned as a positive. It was a good and virtuous thing to trust. What signaled the demise of trust in this country? Perhaps it was that memorable line from Animal House in the 80s - "Hey, you xxxxed up - you trusted me!"
Incidents of late force me, once again, to remind my readers that trust does not always serve you well. I make a living helping people who have trusted and who have been betrayed by those in the financial industry. Sometimes I discover that I have trusted my client and been betrayed. The majority of stockbrokers are honest, trustworthy individuals. But remember - a majority is only 51%. Honesty is measured in a interesting way in this country. Many who tread the line and conduct themselves in the gray area of right and wrong think of themselves as honest, forthright people. The reason for that is that they do it in a comparative analysis. An analogy is that those of us who are 10-15 pounds overweight may not be too concerned about it, because there are many more people who are significantly more overweight.
The Trickle Down Effect
The events I speak of are our Presidents recent philandering escapade and subsequent denial and cover-up. If you think that Clinton is telling the truth, then I fear that many of my articles have fallen on deaf ears. What Clinton has once again proven to this country is that abuse of power, deceit, and a lack of morals and ethics is not only undeserving of a raised eyebrow, it is acceptable. How can you expect your financial advisor to tow the line and respect the rules of the industry in the face of a powerful built-in conflict of interest (commissions) when the President of the United States, the highest elected official and world leader, lies, commits adultery, and abuses government employees at the drop of a hat? The keen public awareness and possibly acceptance of these acts may deal a serious blow to individual morals. As Shakespeare said, "What is right and wrong but thinking makes it so."
As in any industry or profession, there are always degrees of good and bad. And the brokerage industry, like many others, attracts all degrees of good and bad. There are some brokers, advisors, or money managers who are nothing but con artists. They intentionally cheat and lie, yet they sleep well at night. Clintons behavior will likely have little affect on them. Then there is the broker, advisor, or money manager who really is trying to give you good advice and make you money, but its more important that he make good money than you make good money. Many brokers, sometimes unwittingly, fall into this group. This group is most at risk for the trickle down effect. Clintons behavior will exacerbate the conduct of this group, because it will makes the justification easier - "Hey - if its okay for the President to lie in order to serve his best interest, then it must be okay for me."
There is another type of broker or financial advisor who is as dangerous as the con artist. He is the financial professional who doesnt know what hes doing. Worse yet, he probably thinks he does. He usually makes lots of money for himself but very little for his clients. Even though his client turnover is high, he always gets new clients with new, fresh money. I find him less repulsive than the one who is committing bad acts knowingly, but his damage can be every bit as brutal. Though the large brokerage firms are slowly doing a better job of weeding out true con artists, they are very much at fault for hiring babes who are wet behind the ears, giving them a license and a desk. Overnight they are managing as much money as they can attract. I knew of one broker who came directly out of training school with no previous investment experience and landed a job at a major firm. During his first few months on job, a new client called in and gave this rookie broker a $40 million dollar account to manage. The broker proceeded to abuse the account and was subsequently indicted on criminal charges.
Its not like the morals and ethics of the business world were at a record high prior to Clinton taking office anyway. Clinton is leading the country down a very dangerous path, one that will have ramifications for decades to come. This is a wake up call. If you cant trust the President of the United States, theres a pretty good chance you cant trust a lot of other people.
Anatomy of a Lie
A lie takes one of two forms - the misrepresentation or the omission. Even in law, fraud is defined as not only material misrepresentations, like when someone says, "This car is new" and its used, but also as omissions of material fact, like when you buy a new car and later discover its used, but the salesman failed to tell you.
When dealing with a stockbroker or money manager, it is often more important what your broker isnt telling you than what he is telling you. Granted, you will always hear the positive aspects of the investment, but what you will find in many instances is that the broker fails to advise the client of any or all of the risks of the investments. An example is the broker who pushes his client to use margin in the account but does not fully explain the downside, that is, the negative spread.
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Tracy Pride Stoneman is an attorney specializing in investment related complaints.