Commentary and Words of wisdom from our Founder:
After more than 30 years in this business, the so-called "consumer protection" laws still leave me shaking my head.
And if that doesn't inspire skepticism, consider also the fact that obtaining an "Investment Advisor" license today only requires passing a 140 multiple-choice question test. No actual education or experience is required.
To avoid sounding like the complainer without a solution, let me point to other countries that have solved this problem by simply restricting the use of the term "Financial Advisor"; if they are unqualified by education and experience or receive any sales-related compensation, they must call themselves something besides "Advisor" so the conflict of interest is clear and obvious to the consumer - not buried in the fine print.
Why don't we do that in our country? Because self-regulated Wall Street spends gazillions of dollars lobbying to prevent it. This isn't the first time (go ahead and Google "the Merrill Lynch Rule") and it probably won't be the last.
Politicians should never accept gifts from special interest groups. Doctors should never take kick-backs from pharmaceutical companies. And financial advisors should never receive all-expense-paid trips to Vegas when their investment "recommendations" make a bigger profit for their employer.
MY WORDS OF WISDOM FOR INDUSTRY PROFESSIONALS:
I believe most of you are intelligent, honest and ethical. But let's keep it real - the financial service and investment industry conflicts of interest dig WAY too far into our clients' pockets.
Are you aware there is a very strong inverse correlation between what is best for clients and what pays YOU the most money?
Many of you are unaware rookies who blissfully drink the company Kool-Aid. I was too at one point, so my advice for you is to start looking behind the curtain and stepping outside that box.
Many of you are semi-conscious about it; aware but hopelessly addicted to the fancy title, company logo and hefty paycheck. I was too at one point, so my advice for you is to grow up and recognize, at the end of your career, that the most positive difference in your life will come from making a positive difference in the lives of your clients.
Many of you are fully aware, just don't care, and surround yourselves with open cookie jars yet claim to never have your hands in one. I've got nothing to say to you.
WORDS OF WISDOM FOR CONSUMERS:
Am I cynical? Probably. Realistic? Definitely. And today, it's worse than ever before. Wall Street is one of the most horrendously conflicted places on Earth, and the companies that profit from it deploy insurmountable resources to intentionally cloud the facts.
Here's a quick, true story that may help explain:
It's 1980-something; I’m standing in a cruise ship Casino among a crowd of passengers who appear hypnotized by a large number-wheel, spinning on the Casino wall. The wheel contains the numbers 1 through 100, and the objective is to correctly pick which number would be at the top of the wheel once it stops.
An attendant in a tuxedo spins the wheel - a few gamblers place their bets – but the majority of the crowd just stands there, gazing at the wheel, each holding a little yellow pencil and a white note card that says "Number Tracker" across the top in bright red letters.
Each time the wheel stops on a number, the spectators bow their heads and begin scribbling on their Number Tracker cards. My curiosity grows, and I finally have to ask why:
“Excuse me, Sir,” I said to one of the gamblers, “May I ask what everyone’s doing?” He reluctantly revealed his Number Tracker card and said, “We're tracking numbers."
As I studied his card, I saw that he had been marking an X across the numbers that had won in recent spins. “Number 34 just came up on the last spin," he said, "so I know that I should not bet on it right now.”
“Why not?” I asked.
The elderly man raised his eyebrows and glared at me over his reading glasses. “Odds are against it", he said. "How likely is it that 34 will come up again on the very next spin?”
I quickly answered, “One in a hundred”.
He looked to the ceiling and calmed himself with a deep breath. "Now look," he said, "since number 34 just won, the chances of it winning again anytime soon are pretty remote - so I crossed it off my card. Understand?"
"Actually," I replied, "every time the wheel spins, each number has a one-in-a-hundred chance of winning - it doesn't matter which number won last time."
The old man threw his hands in the air and sarcastically barked, “Oh, I see; you’ve got it all figured out, and the rest of us are just a bunch of dummies, huh?”
He returned to his task as I stood there with one of those "Are you serious?" looks on my face.
And then it suddenly occurred to me: Who gave all those elderly people the little yellow pencils and the "Number Tracker" cards?
That’s right - the casino did. They know that humans tend to validate risk through irrational behaviors, so the house promotes it. They capitalize on it. And they even distribute the tools for people to do it with.
Is this illegal? No. But that doesn't make it right!
The same shameless profiteering has become a cornerstone of the Wall Street culture, and the once respected brokerage firm has become a mere product distributor at the expense of well-intended advisors and innocent investors.
So even when it seems like everybody else is doing it too, be smarter. Even when your portfolio is going up and everything seems fine, read the fine print. Ask tough questions. And seek objective guidance from an independent expert with no dog in the fight.
Why am I still in this business if I so despise its traditional culture?
Because this is where we can make a BIG difference.
No - it's not okay to promote consumer confusion and then profit from their lack of understanding - and our firm won't let it happen to our clients.
I guarantee it.
Michael T. Koenig
FirsTrust founder & CEO