It’s A Matter Of Ethics


Let us tell you a story.

We spent 7 years researching the financial services industry.  In the process, we learned about investments, various product structures, performance, risk and the best ways to do professional financial planning.  However, in the process, we also learned the details on the industry’s little tricks, how it presents things to look good when they are not, how payments flow, and where the conflicts lie.  It was those secondary elements of learning that we found so deeply disturbing, enough so that it made us never want to join the industry.  Frankly, we just didn’t want to be part of an industry that we felt (and then knew) was low integrity in many aspects.

What are those aspects?  Let me share with you four key tidbits as if you were a knowledgeable “insider”;

  1. 60-90% of most mutual funds (the often touted and industry sold actively managed ones) will miss achieving their benchmark, much less surpassing it.[i]
  2. Investments in the above much touted mutual funds will fall short of their benchmark performance by an average of 1.5% per year.[ii]
  3. A reasonably diversified portfolio will have 10 asset classes or more (you have 32-35). Over their lifetime of investing, the chance of most people falling short of their potential return – their DESERVED RETURN mind you — is 99%.[iii]  99 frink’en percent!  Oh, and if by some rare chance you happen be in the 1%, it’s just by luck.
  4. When you get switched out of a mutual fund into a ‘better performing one’, you have a 78% of falling short in that new[iv] The joke in the industry?  A client says; “I hold the 3 best performing funds of last year.  Unfortunately, I bought them this year.”

Add it together and the cost to the average investor: 2.329 times[v] whatever you currently have saved.  If you have $100,000, Wall Street in conventional form costs you $232,900.  If you have $500,000, the cost is $1,164,500!!  That’s not a penalty: that’s close to robbery.  White collar untouchable “we earn it” robbery.

From a legal standpoint, absolutely nothing is wrong.  From a moral standpoint, we’d argue nearly everything is wrong.  People are getting hurt.  It’s a matter of ethics.

Then we asked our self; “Well, you grew up poor but have some money now.  How would you want someone to treat you?”  We came into this industry to do it better.  As our client, you are avoiding every one of those four shortcomings, your current results are demonstrating it clearly, and I’m very happy for it.  However, for millions of Americans, they are not so lucky.  Your kids, friends, work and church colleagues are part of that group that is getting shortchanged.  Most of them simply can’t afford it.

Because of that reality, we’re going to try to offer a solution for those folks.  The truth is I won’t be able to meet with them one-on-one like we do with you, but we’re committed to offer the same investments and give them their highest probability chance of being okay.  The industry itself is going the other way….because they just want to sell the low end people a product, make money on them and move on.  God willing and the creek don’t rise, if we can make this work, it will have to use the internet and address people in a broader group forum vs. one on one.

People in the industry say we will fail.  They say people don’t care enough, aren’t smart enough, etc.  But, these are the same families that need all the money they can get if they don’t want to be dependent on their children or government in retirement, and are being treated like a pawn in Wall Street’s game.  Frankly, and we wish it wouldn’t, but it haunts us and we have to try.  It’s a simple matter of ethics.

So here’s the bottom line; the above is extremely hard to accomplish and we don’t think we could do it without you.  If we did underwrite the costs and made the service available, would you help me spread the word?


[i] Standard & Poor’s Indices Versus Active Funds Scorecard (June 30, 2011)

[ii] On Persistence in Mutual Fund Performance” (M. Carhart, Doctoral Dissertation, Univ. of Chicago (1994)) and “How Well have Taxable Investors Been Served in the 1980s and 1990s” (R. D. Arnott, et al, Journal of Portfolio Management (Summer 2000

[iii] Richard  A. Ferri, “The Power of Passive Investing (John Wiley and Sons, copyright 2011)

[iv] 7 0ut of 9 probability of under-performing the average in the succeeding 3-year period (Morningstar study, 1998)

[v] 8.9% vs. 7.5% annualized return over a 25 year period cumulative difference on initial investment