Can You Trust Wall Street?
March 21, 2012
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For anyone who is a movie buff, this bombshell can be compared to the classic scenes in Tom Cruise’s Jerry Maguire and his career-killing “mission statement.” Except this time, it’s not fiction, it’s for real. When executive Greg Smith quit his job on March 14th, he declared, “The environment (at Goldman Sachs) now is as toxic and destructive as I have ever seen it.”
And this was no internal memo in which he aired his grievances. As most are now aware, he went public (very public) in his now-viral New York Times op-ed, Why I Am Leaving Goldman Sachs.
Time will tell whether Greg Smith ends up honored as a game-changing hero, cast aside as a “whiner,” or largely forgotten, like that JetBlue steward who departed his career via the emergency exit. But Smith’s observations are spot on. “If clients don’t trust you, they will eventually stop doing business with you. … People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.”
He may not enjoy lasting personal fame, but I fervently hope that the message he delivered ends up spurring a much-needed cultural shift within the financial industry. Smith’s condemnation of the leadership changes he saw during his decade at Goldman Sachs struck most of us as illustrative of a global epidemic rather than a problem at only one Wall Street firm.
It really shouldn’t be that complicated. As Susan John of the National Association of Personal Financial Advisors (NAPFA) commented in InvestmentNews, “I think clients want to know that whoever is working with them has their interests at heart, and that there’s more loyalty to the client than to the firm.”
It seems to me that this sort of dedication to investors’ best interests should be a no-brainer — regardless of a firm’s business model, fee structure or service offerings. It seems equally clear that, at least among Wall Street’s behemoths and likely far more widespread than that, it’s all too frequently not. (This blog contains a series of posts on the “dark side” of Wall Street.)
How do we make meaningful progress toward eliminating financial service environments in which, as Smith alleged, his former colleagues “push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals”?
Legislation can help, up to a point. But one need only look to Bernie Madoff to know that laws will only get us so far when someone is determined to break them. What’s required is an attack on all fronts. As individuals — financial professionals and investors alike — we must share a common passion for championing continued cultural, legal, procedural and educational improvements in all that we do with our investment activities.
My first recommendation is that you insist that your financial advisor promise in writing that your highest interests will come first. In legal terms, this is known as a fiduciary relationship between you and your advisor.
If your advisor won’t agree to this legally enforceable relationship with you, I would suggest you respond with a quote from another movie character, Howard Beal, excellently portrayed by Peter Finch in Network: “I’m as mad as hell, and I’m not going to take this anymore.”