I applaud Greg Smith for speaking up for his values and I believe that he is probably trying to shed some light on some of the nastiness that is most certainly present in the financial services industry.  His comments on selling products with no thought in regards to whether or not they are right for their clients, but instead focused only on the amount of money that could be made for the firm, is something I’ve encountered at various companies that I have worked with.  It actually is why I had to start my own company, T&T Capital Management, so that I could control the culture of the firm.

When I started my own investment advisory I knew that the only way I’d be able to succeed fully in my career was by offering the best product (value investing), at  a reasonable price.  By keeping to these core principles I feel comfortable selling myself and my company, and I invest my family’s money, and my own money in the same things that I buy for clients

The problem is that for many people a financial services career isn’t a passion but instead it is a means to an end.  Salesmanship and compliance laissez faire, enable brokers and agents to manipulate people into fee intensive investments, that they wouldn’t touch themselves with a ten foot pole.  Not being willing to sell these products is very unpopular when you are immersed in the culture of one of the “boiler room” firms, as everyone wants to make more money, but to build something great one must not deviate from their mission, which in our case is trying to provide the best performance, service, and education over the long term for our clients while maintaining 100% honesty and transparency.

I’ve seen products that needed 100% returns to break even due to the excessive fees involved, and others that have 15-25 different funds using different strategies so that hopefully they have one that they can sell that overshadows the majority which have terrible track records.  These funds would rack up fees between 5-8% a month on the assets under management which is impossible to justify.  The fee structures are disclosed but most people don’t read them fully or are told verbally something that might contradict those documents to put them more at ease.  Many sales people dwell on fear of stocks and volatility to offer fee intensive products where you are almost assuring yourself of underperformance due to today’s low interest rate environment.  While often products like annuities or private R.E.I.T’s, which carry hefty fees and long lock-up periods, can be okay for people, it is more important that the sales person pushing them is focusing truly on what is right for the client.  Too often in my experience this has not been the case, which is why I feel priviliged to be able to provide no conflicts of interest, and a reasonable and transparent fee structure (1-2% a year depending on the size of the account.)

It is important to note that I am not trying to disparage an industry or anyone in particular, but it’s the clients that are in the dark about these issues and they are the ones that ultimately have paid for it.  Many firms and sales reps are extremely reputable and honest, and unfortunately they are smeared by the activities described in this New York Times piece.  In situations such as MF Global, clients believed that regulators were monitoring their money, and that they were protected, only to find that billions had been misappropriated.  For regulators it’s almost impossible to monitor so many firms but you’d hope that the cultures of these companies would understand their role in society, and their fiduciary obligation to always do what is right for their clients.  At TTCM we maintain that pledge and responsibility to our clients and we will not waiver.

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