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What’s Your Purpose?

People only trust our industry to do what’s right half the time.

Carl Richards, 12/13/2013

As an industry, I think it’s worth asking, “What’s our purpose?” It’s a question I keep thinking about because it applies to everyone from the individual advisor to a fund manager. It seems particularly relevant when we consider just how little we’re trusted by the people we’re supposed to be helping.

The PR firm Edelman conducted its annual Trust Barometer study for 2013 and asked, “Please indicate how much you trust businesses in each of the following industries to do what is right.” On a nine-point scale, financial services got a 4.5. Think about that. People only trust our industry to do what’s right half the time.

So, what is our purpose? I suspect some will answer that it’s to make money, but I wonder if that’s shortsighted. It seems our real purpose is to help people meet their financial goals.

However, if our purpose is to help people meet their goals, it’s pretty clear we’re failing. The majority of the people we’re supposed to help are facing increasingly important decisions as many of the social structures we relied on in the past are going away. Planning for a reasonable retirement is a good example. As defined-benefit plans are replaced with 401(k) plans, it shifts the burden to individuals at a time when people are skeptical of the financial industry. I’m not arguing about the pros or cons of either model but simply pointing out that people really need us. And up to this point, we’ve failed them.

Instead of helping people navigate these increasingly complex waters, we seem dead set on making things even more complex. Instead of helping them focus on the simple tools, we create increasingly complex products and package them as solutions.

I recently met the founder of a mutual fund company. By any outward measure, the firm has been successful. But instead of celebrating, he felt like he had failed. When I asked why, he shared that when comparing the returns the fund has generated with the returns investors earned, it became clear that the very people the company is focused on helping, its clients, aren’t benefiting. The fund had outperformed, but the average investor in it had done a lot worse due to poor behavior. I reminded him that investor behavior is not his problem. He was not impressed: “That’s the most ridiculous thing I’ve ever heard.” He related it to being a rope salesman. Suppose one day someone comes in to buy rope. In the course of conversation, you discover he’s planning to hang himself with it. Do you sell him the rope? After all, it is not your job to control what he does with it.

We aren’t doing enough as an industry. The fact that we’re only trusted to do what’s right 50% of the time makes that clear. We need to do better. We owe it to our clients to do more than sell complexity. So, that just leaves one question: What will you make your purpose?


The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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