Investor's Watchdog: Think Twice Before You Say "Not My Broker"

"Nothing is more true because it is elegant." Saint Augustine’s words are as relevant today as they were 16 centuries ago. Your broker is persuasive. He is friendly, personable, funny, knowledgeable, considerate, successful, charismatic, and interested in your family. He is the kind of guy you’d like to hang around with outside the office. Of course he is. He’s a salesman. He has received advanced sales training from his employers. He has been trained specifically in how to sell you on whatever his firm wants you to buy. And, his firm wants to sell you whatever products are most profitable to the firm. Your broker is good at it because his livelihood depends on it. His manager is grading him on how well he sells you what his firm wants to sell you. His manager gets a cut of whatever he sells you. That is why his manager, who doesn’t even know you, is pushing him to sell you products that bring in more money to the firm. That is not to say that he is not genuinely what we’d consider a “good guy.” If he is, though, he is a good guy who regularly has to choose between what is good for you and what is good for himself.

Investor’s Watchdog’s founder, in his time at the SEC, saw all manner of investors fall victim to fraudulent or negligent brokers. Accountants, Actors, Astronauts, Business Owners, Doctors, Engineers, Entrepreneurs, Factory Workers, Lawyers, Mechanics, Ph.D.’s, Retirees, and Scientists. They all had two things in common. First, they trusted the salesman based upon his presentation or a referral from a friend, with no independent verification of his claims or his credentials. Second, they believed that they were too smart to be taken in by a salesman.

Believing that, because you are smart, you can discern every essential fact from a presentation carefully designed to hide some of them, delivered by a person specially trained to gain your trust, is like believing you can hit a major league fastball because you are a baseball fan.