Investment Advisors Don't Care About You

I have always questioned the motivations of investment advisors. I've also often questioned the value that real estate brokers bring and whether that value justifies their commission. I guess I'm suspicious by nature, but being so seems to have served me well so far. And so it was with great interest that I read this month's Conde Nast Portfolio magazine and came across the story of an investment advisor, Blaine Lourd, that let the cat out of the bag. Here are some of the more telling quotes from the article.

"The traders in New York would accumulate a block of shares, driving the price up, and then get brokers like Blaine to unload the shares quickly at the higher price -- whereupon the price would, often as not, fall."

"Most of the time, he just read from the same script as the other brokers: Are you familiar with Warren Buffett? We have information from our sources on the Street that his next position is going to be in a company much like..."

"It was amazing the gullibility of the investor. When you go a new customer, all you needed to do was get three trades out of him. Because one of them is going to work. But you have to get the second one done before the first one goes bad."

"Blaine, you're confused about your job. Your job is to turn your client's net worth into your own."

"He quit Lehman Brothers and took a job at the Los Angeles office of Bear Stearns. But Bear wasn't any better. He says he was pressured to make transactions rather than give good advice.

Eventually Blaine became unhappy with his role in the investment industry. His search for a way to provide actual value to his clients took him to Dimensional Fund Advisors (D.F.A.) -- a firm that believes in the efficient market hypothesis. He now puts his clients' money in what are effective index funds. The only decision made is what proportions to allocate to each fund based on risk measures.

Needless to say the article, by supporting my belief in exchange traded funds, made my day!