What the financial industry needs is a C. Everett Koop

A journalist asked recently, “Is it ever OK for a financial advisor to sell a bad investment?”

It’s a provocative question. If an advisor is a fiduciary then no, it is never acceptable for the advisor to sell an investment that he or she believes is bad.

The problem of course is, except in hindsight, there just isn’t any investment (or hardly any) that is unequivocally bad.

At some point we’ll need to carefully review the work of economist Israel Kirzner. A lot of his work provided justification for a self-interested economic agent not revealing relevant information to a trading partner (read, “client”).

For example, if the economic agent is able to discover a source for a product that her client wants at a price that is much lower than the client expects, the agent is entitled not to disclose the source to the client, or the source’s price, but to disclose only the agent’s own marked-up price.

Does the argument apply if the product (investment) the client wants is something the client wants only because it was sold to him by the advisor, who himself/herself, in his/her heart of hearts, suspects is a bad investment?

I certainly don’t think so, but I think the industry in effect extends the Kirzner argument to justify this.

The ultimate justification of the bad practices in the industry is that “it’s what the client wants”. But what the client wants is what the industry has gone to great pains—by means of what could be called a conspiracy of misinformation—to persuade the client into wanting (or at least not to educate the client into not wanting).

It’s a moral labyrinth. Which is why I think it’s time for a “daddy state” to impose a moral framework, if it can possibly do so without going overboard.

What the financial industry needs is a C. Everett Koop—the Surgeon General who looked like a wrathful God in uniform, and pushed a major government-led crackdown on the mendacious and injurious tobacco industry. The crackdown included outlawing misleading forms of advertising, as well as requiring very forceful warnings on cigarette packs.

Something like that kind of campaign to bring the financial industry to heel is needed.

Comments

[abercrombie and fitch]

earned their discoverers several shelves of Nobel Prizes

[Prada Outlet]

Hey, baby! I agree with the idea, perhaps our peers, this is a consensus! I want to use this article, believe that you will agree to me!

[Bob Sherman]

There is a gradation between level of trust in, say a financial advisor and, perhaps, a stock broker. While we hope the finanical advisor has our best interests in mind, the stock broker is interested primarily in a commission.

While both are "economic agents", the hope is the client knows the difference. Is simple education the key here rather than a "daddy state" of regulations?

[Polo Outlet]

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