What is wrong with my industry? Part One

Tina Haapala |

Over the next two weeks I’d like to discuss with you what I think is wrong with my industry (well, more a lecture as you don’t get to talk back). While there are many things wrong that affect me, I’d like to mostly stay on problems that affect you, the “normal” people.

A lot of what I am going to talk about I’ve known for quite a while, but the impetus behind this series is a speech that Andrew Bowden gave at a recent investment compliance conference. Bowden spent well over two decades in the financial service industry, so he knows things from my side of the fence. But for the last few years he has been in the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission (SEC). In fact, he is the Director of this part of SEC. Basically, he’s in charge of making sure that the people you do business with in my industry aren’t crooks.

He thinks that the majority of people in the business of providing investment advice are honest, good, hard-working folks. I agree. Although my opinion has worsened over the years, I still believe this.

Nevertheless, bad things are done (intentionally or not) by “professional” investment folks to people like you. It is Bowden’s job to catch them. I’m going to help you spot them.

I’m going to divide my discussion as Bowden divided his. After all, he’s seen first hand how advisors work even in the face of intense scrutiny for several years. He sees, and I quote, “(1) some people lie, cheat, and steal; (2) some people act recklessly; and (3) some people don’t see, think, or act clearly or fairly because their judgment is clouded…or contaminated…by conflicts of interest.”

With the few inches I have left in today’s column, I think we can cover the liars, cheaters, and stealers. They are probably the easiest to spot and represent the fewest cases. To protect yourself against most of them, remember these three things. First, there is no free lunch. Second, if it looks too good to be true, it probably is. Third, trust but verify.

More than one of these may apply. Take the case of Bernie Madoff. Every year he made a good return. And every year that return was just about the same as the year before…regardless of what the stock or bond markets were doing. His investors felt lucky to have him as he had a secret proprietary way to invest that somehow took the risk, but not the return, out of investing. Sounds like a free lunch to me, seems too good to be true, and he made sure that no one was allowed to verify what he was doing—trust was demanded.

Get a phone call from an investment genius that wants to let you into the ground floor of a can’t-fail deal? Does someone want to share with you the secret to wealth that the powerful and rich have been keeping to themselves for decades? Is there an investment that requires only cash or perhaps a cashier’s check made out to the person selling it to you? I’m not saying these things are always scams, however your common sense should be waving red flags, and you should probably pay attention.

This article was published under the title "What is wrong with my industry"

in the Wichita Falls Times Record News on June 15, 2014.