There’s no crying in accounting (my holy war origin story)
The stock market has fascinated me since I was young. When I discovered Buffett, and then Munger, it was a revelation. Nerds who spend their entire days reading and multiplying capital? Sign me up!
Despite my love for the markets, finance jobs in my hometown were hard to come by, and I decided that studying accounting would lay the groundwork for a future picking stocks. During tax season I worked at a local accounting firm.
That’s how I found myself on the phone with a crying widow.
Betty’s return came back from final review, and I saw a large balance owing, somewhere around $50,000. It fell upon me to call and let her know that she had a bill to pay. “Shit,” I mumbled under my breath, and braced myself to deliver the news while I dialed the numbers. Betty answered before I had a chance to decide on the best way to break the news.
“I have some bad news for you…” I started. Yeah… twenty year old me had no bedside manner.
Immediately I heard Betty draw a breath on the other end of the line. “I was worried about this,” she said.
“So… you owe 50 thousand dollars” I blurted out.
“There must be a mistake!” she insisted.
I double checked.
Nope.
“How?”
“Let me check…”
And I rustled through the tax return and identified the culprit.
“Well, it seems like you had some large capital gains this year - your broker sold some mutual funds for some large gains.”
Betty was beside herself.
“I didn’t take any money out of that account! How could this be?”
“I don’t know,” I said, now eager to get off the phone. “Looks like he sold a bunch of Pinnacle funds and bought a bunch of Excelsior funds.” What I didn’t tell her was that there had been no real change in her asset allocation - the broker had simply swapped from one fund company into another, with the obvious motivation of generating commissions.
On the other end of the line, I heard her voice begin to crack. “Is there anything we can do about this? I can’t afford that much. Bob always handled this for me, but ever since he’s been gone…”
Silence.
I could hear her crying on the other end of the line.
I was not prepared for this. They don’t teach you how to deal with a crying client in a second year accounting class. Frankly, there’s not supposed to be any crying in accounting.
All of a sudden it hit me like a ton of bricks. As much as so many of us in this business love the markets and the “game” of investing, it’s actually not a game at all. It’s real people’s life savings. An accumulation of a lifetime of work, and a security blanket to protect from the vagaries of the future. Managing it on behalf of others is a huge responsiblity.
Betty’s broker was churning the account for commissions (this might be the moment I learned how deferred sales charge mutual funds work). He didn’t give a second thought to her tax situation, or the person behind the cash balance in the account.
He was the worst of what our industry has to offer.
After I hung up with Betty I quickly talked it over with coworkers, asking if there was anything that we could do to remedy the situation. Of course, there wasn’t.
This experience helped me see the rot in the investment industry very early on. I felt an obligation to save clients from predatory advisors. I joke that it is my holy war… but it’s only partly a joke.
There are good people in this industry. They tend to be a bit harder to find, because they have their hands full helping their existing clients and probably have a long list of referrals coming in the door. The marketing noise, as a general rule, is generated by those you should be more skeptical about.
I tell people to look for advisors who promise simplicity of process, full transparency on what’s happening inside your portfolio, and low fees. That goes a long way to weeding out the worst of them.
The more wealth you have, the more you stand to lose if things go wrong. I wrote Low Risk Rules to help investors develop a wealth preservation approach that is based on principles proven over time, and to give them the tools to avoid the pitfalls.