Outright Greed? Or Mere Miscommunication?

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Back in the Great Buying Panic of the late 1990s, I once asked a financial advisor what his biggest problem was. His response: “Managing client expectations.” This question was posed in the summer of 1999, the year the Nasdaq Composite soared by 85.6 percent—on top of double-digits gains in the preceding four years. The advisor told me: “My clients think it’s always like this.”

Now clients understand that the capital markets are not riskless, of course. But I do think managing clients expectations is important. And not just about risks in various investment strategies. I think retail financial advisors need to be concerned about what their clients expect of them—their services and their fees. I was reminded of that by reading a blog on HuffingtonPost.com recently. (Thanks to my friend and frequent source out in the North West who brought this blog to my attention; you know who you are!)

Okay, the blog is a few weeks old, but I share it with readers because the story—a short complaint about financial advisors by a “famous” rabbi—really demonstrates what retail financial advisors are dealing with when they court individual retail investors. That is, individual, mom-and-pop investors may not understand money management even a little. The post in question, (badly) headlined, “Bear Stearns Has Learned Nothing,” was written by Rabbi Shmuley Boteach, who is the host of a TV show, “Shalom in the Home” on the TLC channel. Boteach is also describes himself as an “international best-selling author” of 20 books, including his most recent work, “The Kosher Sutra: Eight Sacred Secrets for Reigniting Desire and Restoring Passion for Life (Harper One).” He has appeared on Oprah’s radio show and was a few years ago described by Newsweek as the “most famous rabbi in America.”

Presumably Rabbi Shmuley Boteach is not an idiot. In fact, he obviously possesses some business acumen apart from his expertise on personal relationship issues, his specialty. But in reading his post, it is not clear to me that Bear Stearns treated him with contempt. It perhaps charged him too much. But the Bear broker was right to put him into mutual funds. (Boteach wanted to own individual stocks.)

To me, from the information in Boteach’s short 24 June blog, Boteach did not understood what he should expect from his financial advisor, that owning individual stocks was probably not as wise as owning mutual funds. (He says if he wanted mutual funds, he would have gone to Fidelity.) In the post Boteach says a broker who won his account away from Ace Greenberg (yes, that Ace) “utterly misrepresented himself” to Boteach and his wife (who both held IRA accounts there worth about $200,000 each). He left Ace because Ace wouldn’t spend more than 60 seconds with Boteach on the phone, even when shares were plummeting. (By April 2009, Boteach says Ace wiped out 40 percent of the value of the two accounts.)

Boteach says, “I was given no choice but to sue Bear Stearns.” He adds, “I believe fervently that if we who are not investors but are simple people whose only desire is to put away money for ourselves and our children allow ourselves to be fleeced by Wall Street, things will never improve. Wall Street will remain as corrupt as it has always been, with devastating consequences to our economy, our morality and our bottom line. If you have your own horror stories of how the sharks on Wall Street have treated you, do others a favor and warn them. If we don’t confront Wall Street greed, it will continue to destroy our economy and our nation.”

If I were a financial advisor, I would be sure to remind clients what services I offer, why the strategy undertaken is the best one to take for their individual goals and how much they are paying—total—in fees for the advice.

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