Walking a Mile

This will be the last post until after Christmas. Have a Merry Christmas for those who celebrate it, and to everyone else, enjoy the time off work.

There is a lot of truth to the saying that you shouldn’t judge people until you’ve walked a mile in their shoes. Looking at things from another person’s point of view can give useful insights. Let’s try this with financial advisors and Tiger Woods.

The investing do-it-yourself crowd tends to vilify financial advisors who are actually mutual fund salespeople. The truth is that I don’t tend to think ill of these people; I just choose to protect myself from them, and I think other investors should do the same.

If evil advisors were the issue, then we would have much less of a problem. Most people are basically decent and honest. The same is likely true of mutual fund salespeople. The fundamental problem is the incentive structure that they work within.

Suppose Jim sells mutual funds and has hit some hard times. The economy is bad, old clients are leaving him, new clients are nearly impossible to find, and his income has dropped considerably. Jim’s bills are piling up, hydro has threatened to cut off his service, and his daughter needs braces.

How much longer can Jim resist the temptation to call up his best client, a little old widow who calls him dearie, and recommend that she switch her $400,000 from one set of mutual funds to another? This would trigger huge deferred sales charges for the widow and bring in a commission of $20,000. Jim’s share would be enough to keep his family afloat financially for a few more months.

The pressures on Jim don’t excuse his behaviour if he recommends a pointless switch of funds just to get paid. But this does explain why even decent people have difficulty sticking to what is best for the client in a commission-based incentive structure. As a client, it’s not good enough to avoid advisors who are evil; the problem is much bigger than this.

I see a parallel between this situation and Tiger Woods’ predicament. There is no doubt that Tiger let his family down in a serious way. But I would be curious to know what proportion of men would have failed in the same way in his circumstances. It’s easy for a poor, dumpy guy in his fifties to fend off the nonexistent women who chase him. Tiger would have had a constant stream of young women looking for him.

None of this excuses Tiger, of course. But the steady reports of powerful U.S. politicians with “marital difficulties” seem to suggest that many men aren’t able to resist the same temptations that Tiger couldn’t resist.

Perhaps this is a business opportunity. In addition to bodyguards, wealthy married male athletes need a team to keep women who are on a mission away from them. This would be admitting that they can be tempted, but it’s better than getting caught cheating. I could imagine many of the athletes’ wives approving of this kind of “blocking” service. No doubt some wealthy public figures already have their people performing this service.