"Client Last" Attitude

"Client Last" Attitude

I founded Pauley Financial over 16 years ago because of my passion for helping and serving others. I decided early on that the FeeOnly™ approach of aligning our firm’s interests with that of our clients was best suited for the my personality and, more importantly, best for our clients. We remain steadfast in our belief in this approach, as it ensures that no other financial incentive is provided by any institution to our firm - that we do not receive commissions on the actions we take on our clients’ behalf.

Yesterday’s Op-Ed piece in the New York Times entitled “Why I am Leaving Goldman Sachs” reinforces the bedrock values that Pauley Financial was founded on. In professional circles, we often talk about a "client-first" attitude, which is shorthand for giving your clients the same quality of financial advice that you would give your mother. It's a useful shorthand way to navigate through a financial world that is still beset by incentive payments, expensive rewards for sales production, under-the-table or soft dollar incentives, and a host of other ways that product vendors try to buy their way into your portfolios.

"Client-first" simply means that the client's financial success and well-being comes before all other considerations. It's what you would expect from a doctor or other professional, and, many of us believe that you have a right to expect the same level of care from your financial advisor.

Wall Street firms and sales organizations are very good at hiding the real agenda behind their advice and do a masterful job of hiding the profits they skim off the top when you take their recommendations. This is why it was so startling when, in the above-mentioned New York Times opinion piece, Goldman Sachs executive director Greg Smith essentially pulled the curtains back (a la “The Wizard of Oz”) and showed how Wall Street really works.

Smith declared that he was resigning from the venerable brokerage firm - perhaps Wall Street's most highly-respected organization - because, in his view, its culture is all about putting the client's interests last. "To put the problem in the simplest terms," he writes, "the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."

Pulling the curtain aside a bit further, he said that the criteria for promotion and success was not "leadership" or "doing the right thing". Instead, he said, "if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence."

How do you make money for the firm? Smith outlined three ways. A Goldman broker or executive can rise in the ranks by "persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit". (Just what you want to buy for your retirement portfolio, right?) Or, alternatively, "get your clients - some of whom are sophisticated, and some of whom aren't - to trade whatever will bring the biggest profit to Goldman. “Call me old-fashioned," said Smith, "but I don't like selling my clients a product that is wrong for them."

Pulling the curtain back still farther, Smith said that "It makes me ill how callously people talk about ripping their clients off. Over the last 12 months, I have seen five different managing directors refer to their own clients as 'muppets', sometimes over internal e-mail... Will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client's goals? Absolutely. Every day, in fact."

He said that the most common question he gets from junior analysts about derivative investments is: "How much money did we make off the client?" He wonders what the effect will be on that junior analyst who sits in the meeting rooms hearing senior executives talk about "muppets", "ripping eyeballs out", and "getting paid".

You can read Mr. Smith's comments in their entirety here, where you will also see a nice illustration of vultures at feast. He predicts that companies - and people - who care only about making money will not be able to keep the trust of their customers.

Millions of people routinely trust their brokers and the big firms that buy Super Bowl advertisements, never seeing this messy view on the other side of the curtain, unknowingly chipping in their retirement dollars to the outsized Wall Street bonus pools.

You find yourself wondering: who's going to tell those "muppets" - your hard-working friends and neighbors - that their broker is quietly, invisibly, cleverly putting their interests last?

All financial consumers owe a debt of gratitude to Mr. Smith for helping reveal how some in the financial industry behave. Fortunately, there are many who don’t. Certainly, we do not. We continue to uphold our fiduciary responsibility of “clients first” and do so in a way which does not create a conflict of interest between our clients and ourselves.