By: Frank Armstrong
Not so very long ago, if you developed a fever, some of the world’s most prominent physicians would open up one of your veins and bleed you for a while. If that didn’t produce rapid recovery, they would do it again. The process could continue until you died, after which everyone involved would be very sorry and then they would be off to treat another patient.
Fortunately medicine as a science has evolved. Today’s leading physicians practice evidence based medicine where every procedure, drug, and treatment is rigorously examined to see if it actually works. Inherited lore has been replaced by research driven solutions. As the science evolves, every physician worth his salt strives to keep up with the leading edge developments in his/her field. There are still no guarantees, but success rates have soared.
To give them their due, those earlier physicians were practicing state of the art technique and all of them were dedicated to their patients’ best interests. They operated under an oath laid down in 400 BC in which they swore: “I will follow that system of regimen which, according to my ability and judgment, I consider for the benefit of my patients, and abstain from whatever is deleterious and mischievous.”
The investment industry could learn a lot from physicians. Today, if you have an investment question, you are most likely going to get long discredited pseudo babble from an “advisor” that may not have had an investment theory class in his/her entire career. Few of them could place Markowitz, Sharpe, Tobin, Fama, Ibbotson, Miller, Merton or Scholes. (Hint: they don’t play on a hockey team.) It’s as if 50 years of research had never happened. Wall Street will prescribe the same old medicine until the patient dies an economic death without ever wondering why.
The investment world’s equivalent of the Hippocratic Oath would be a fiduciary pledge, but not one wire house employee could sign one. It seems reasonable to require an investment “advisor” to act solely in the client’s best interest, but this quaint notion hasn’t ever caught on Wall Street. Instead, representatives and brokers serve the interests of their employers and their own wallets, and conflicts of interest are the rule of the land.
There is an alternative to business as usual on Wall Street. A few fee-only advisors are both competent and objective. They keep up with developments in their field in order to deliver the best that the infant “science” can offer. And they will willingly sign a fiduciary pledge to act solely in the interest of their clients. Investors should demand nothing less from their advisors than they do from their doctors. It doesn’t seem like too much to ask for.