Meaningful Returns

“It ain’t gonna be easy and it may seem unorthodox at times but stay with me and do what I say.” 

If you came to me and said, “Jared, I am looking for a financial advisor, someone to manage my money and help me do the things I want to do. Can you give me some tips on what to watch out for as I interview potential candidates?” If you came to me and said that, I would give you a number of things to watch out for, and I would say, “Watch out for anyone who says in an email ‘I WILL MAKE YOU A PILE OF MONEY.’” And then we would both laugh and chuckle because we would know that such a thing is an absurd, absurd thing to write in an email.

AND YET. And yet, that is actually a thing that gets said, and in this instance it was said by a broker in central Mississippi to one of his clients in 2007, probably right before he lost a bunch of that client’s money and a few years before he was eventually sued (along with the firm that employed him).

There is probably a moral to this story, and I want the moral to be as simple as, “Come on, this is easy, don’t hire a sleazy broker who says those sorts of things.” But, unfortunately, it’s not that simple. Other terms that were used to describe this particular man were, “boy genius,” and “gregarious salesman,” and maybe those terms should also be red flags, but the human mind is a strange and complicated realm, and avoiding bad advisors is not as easy as one might hope. I think it’s a classic example of what Daniel Kahneman refers to as “attribute substitution,” where we are tasked with answering a difficult question that will take time and serious thought (i.e. Will this person be a good financial advisor for me?), and because our brains often employ shortcuts to our advantage, they substitute the question for a much easier question to answer (i.e., Is this person likeable?). Sometimes shortcuts are terribly unhelpful.