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The Foundation of Trust: Rules vs Values


For an individual investor – the little guy in the world of huge Wall Street firms, banks and insurance companies – the big question is “who can I trust?”

Several weeks ago a high level executive at Goldman Sachs (GS) played “Take This Job and Shove It” to his bosses and on the way out pulled the pin on a grenade. The grenade was an op-ed in the New York Times exposing the culture at GS as money-grubbing client abuse of the highest degree.

This news was only a revelation to folks outside the financial services industry and the fact that it was GS being exposed was of no consequence. GS has always been known as “The Smartest People in the Room”, but they are not unique or unusual otherwise. They symbolize a powerful and widespread segment of financial services that is governed and regulated by rules.

The reason for governance and regulation is to protect the people that can’t protect themselves. However, the problem is that there isn’t a set of rules that can’t be broken, skirted or circumvented. The smarter the regulated the less effective the regulations. That’s why we have a tax code that requires two men and a boy to move from one side of the room to the other. Rules are incapable of providing a solid foundation for “right behavior.”

Values project a vision to follow. A value such as “we will always place our client’s interest before our own” will provide guidance in a million situations. There is no fine print interpretation, no skirting the spirit of the law by wringing the letter; and no producing a product designed to fail (packaged mortgage securities), selling it to your clients and then betting against the product to make money when it fails.

If you are an individual investor, it is very important to know if your advisor is rules based or values based. It’s as easy as asking them one question – are you acting as a fiduciary? If they are, they will be proud and quite happy to put it in writing. You deserve nothing less.

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Comment   |  6 years, 6 months ago from Kingsport, TN