While Dr.Seuss is known for writing children’s books, his timeless sayings would go a long way towards cleaning up the often shady world of investment advice. It would be most beneficial to investors if advisors would apply the moral lessons from his various stories (far more than any score on the Series 7 exam). It is very difficult to regulate morality. This is why such things as the “suitability rule” are in place. Though an advisor may be following the letter of the law by following this standard, it is obvious it creates conflicts that lead to ethical lapses. Maybe things would work better if we put The Cat in the Hat in charge of the regulators and based all rules regarding advisor conduct under these five principals:
1. “How did it get so late so soon? Investment advisors need to always stress the power of compound interest and the long term over any short-term trading strategy. Simple math proves the fact: Starting to invest early and saving less will accumulate more wealth than staring later and saving more. Children can begin funding IRAs during their teen age years, which leads to enormous compounding opportunities. Good advisors should always stress this basic idea. Making this one of the pillars of advisor behavior will also eliminate the tendency to try to time the market or invest in the latest hot sector. Market “noise” would have no meaning and long-term planning would always be the priority in a creating a sound investment plan.
2. “The more that you read, the more things you will know. The more that you learn, the more places you will go.” Investment advisors should be forced to read books written by Benjamin Graham, Warren Buffet, Howard Marks, William Bernstein, Burton Malkiel and many others too numerous to mention. In addition to this, they should be required to take courses on evidence-based investing and the impact of investment costs and asset allocation on investment portfolios. Continuing education should include course work in psychology, and financial history. This broad coverage of knowledge will feed advisors’ appetites to learn more. It would also dissuade those who enter the profession based on their misguided motivation of getting rich quick by use of the quick sale. Not only will the advisor find their career more fulfilling, the client will benefit enormously from the vastly superior investment advice they will receive.
3. “It is better to know how to learn, than learn how to know.” Attracting people who love to continuously learn will eliminate the need to try and forecast the market. Learning how to know encourages false confidence in one’s abilities and often leads to disastrous investment returns for clients. By following this principle, financial professionals will no longer focus on making predictions about markets to the nearest decimal. All of this wasted energy could be channeled into practical knowledge of how the brain works and the differentiated learning styles of their clients. Knowing how to learn, and how people learn, will enable advisors to communicate better with clients. More important, it will be data-driven rather than emotionally motivated.
4. “Today I shall behave as if this is the day I will be remembered.” Imagine if an advisor acted each day if his last actions would show up on his tombstone or in his eulogy? Maybe he would think twice about selling an illiquid investment to an elderly person with medical issues. Is it possible that this would prevent him from hawking an expensive whole life insurance policy with inadequate coverage to a family with several young children? The public embarrassment of these actions could quite possibly cause the salesman to switch his offering to a much cheaper term policy, though he would collect a much smaller commission. Regulations forcing investment advisors to act in their clients’ best interests would be cheered on by Dr. Seuss. Too bad Congress uses Dr. Evil as their role model regarding this issue.
5. “To the world you may be one person but to one person you may be the world.” This is where we could eliminate pages and pages of legal mumbo jumbo and provide real investor protection with one simple sentence. Forcing advisors to strictly follow the principle that they are the most important person in their clients’ financial lives would change everything. People would not be labeled High Net Worth, Mass Affluent, or Not Worth Our While So We Can Rip Them Off. Advisors would be forced to treat everyone the way they would want their own mothers to be treated. Sleazy sales tactics and high pressure sales would no longer be part of the formula. Fear-mongering and performance-chasing would be eliminated from the equation. The idea that the advisor will shape the financial future for an entire family would be treated as the awesome responsibility it actually is. There would be zero tolerance for those who failed this test.
We could all do worse than model ourselves after Dr. Seuss or Thedor Seuss Geisel (his human name) He was a perfectionist and would sometimes spend an entire year on his books. He would often throw out 95% of his material. He insisted on being paid after he completed his books rather than in advance. Imagine if investment advisors used the same creativity, honesty, and enthusiasm Dr. Seuss applied to his books as they did with their clients. Motivating small children to read instead of play was no easy task. If advisors followed Dr. Seuss’ lead, a whole new breed of informed, intelligent investor class would be created. This would open up the possibility of untold benefits for the future of our country. Who knows it could change retirees’ menus from green eggs and ham to champagne and caviar!!