As a youngster growing up we frequently used a coin flip to determine who goes first. And, prior to the coin flip we would jokingly say, “Heads I win and tails you lose.”
Of course that never passed muster with our friends. But it strikes me that this is exactly the game that investment managers and institutions play with all of us. The only difference is that it is no joke and it is no game. If our portfolios make money, they get paid a percentage of our portfolios. And if our portfolios lose money, they still get paid the exact same percentage of our portfolios. There is something drastically wrong with this picture.
There are not many jobs where someone can fail miserably and still get paid. Most of us just wish we had that kind of a deal in our professions. Furthermore, this deal enables far too many of them to be far too reckless with our hard earned money. So, I propose a totally new kind of deal.
If the portfolio makes money in an up or down market, they would get paid for the amount they made which exceeds the average of the MSCI World Index. And, if the portfolio loses money, they must return the losses which are greater than the MSCI World Index. So basically, if they grow the portfolio greater than what a no cost indexed ETF would have grown, they get paid. And, if they lost money in the portfolio, they must share the pain. Then there would be a level playing field.
Can you imagine how this would drastically change their recklessness with our hard earned money when they have to share the losses equally? No wonder they can afford all of these expensive dinners that target investors. That practice is simply being funded with your money. By the way, my sincere thanks to many of you for taking me out to dinner last week. I wish you were there. We need to start a crusade to get this totally unfair billing practice changed. I started my crusade today with this article. If we all stick to our guns we can make this change happen. Please consider joining the crusade. Let’s all get together and stop the rip-off.
The writer lives in Murrells Inlet.