Today’s author interview is with Bobby Monks who wrote Uninvested: How Wall Street hijacks your money and how to fight back.
What was it that triggered you to investigate the deceptive nature of money managers?
Our financial system is broken – and it’s due mainly to the distorted incentives of the system and regulatory permissiveness rather than some congenital “deceptive” condition inherent to money managers.
I wanted to show investors what I observed first-hand from my unique vantage point during three decades working in and around the financial sector – as an entrepreneur, bank owner, chairman of a trust company, and chairman of Institutional Shareholder Services, which is where I recognized the full power potential of investors.
After four years of deep research on the subject and interviewing experts including Jack Bogle, Barney Frank, and Carl Icahn, I came to understand that the only solution is to empower investors, individually and collectively. They are the one and only force powerful enough to change the system.
In Uninvested, you stress that financial firms and money managers are overcomplicating financial statements, so much so, that investors are too confused to even question them. What would you say are the most important questions investors should be asking?
In the book, we focus on the over complexity of mutual fund prospectuses (as opposed to financial statements). But financial literature as a whole is not written to be comprehensible to the average investor. And beyond that, and just as important, is the fact that the whole business model is overcomplicated. The financial industry has discovered that it can hide all kinds of shenanigans underneath a veneer of tedious, jargon-filled legalese that few investors would even attempt to penetrate.
There are many questions investors must ask, but one of the most important is whether their money manager has a duty to put the client’s interest first. If they don’t, investors need to ask of themselves whether it’s wise to do business with that particular firm or money manager. Would you seek treatment from a doctor who’s first priority is selling the most expensive treatment? The vast majority of money managers sell what’s best for them – not for you.
Without spoiling too much, what is the best single piece of advice you can offer businesses and individuals that are potentially losing out, other than to speak up of course?
Speaking up and asking questions only gets you halfway there. Investors must actually understand the answers a money manager gives them. Financial firms and money managers are experts at talking smooth and blowing smoke. As an investor, you deserve to truly understand where your money is going, how much it’s costing you, who is managing it, what they’re doing with it and why, and exactly how they get compensated.
You also go into detail in your support for picking stocks, encouraging businesses to buy stock in companies in which they believe. Can you tell us a little bit more?
Nobody can predict the future. Financial professionals, broker-dealers, money managers – none of them know what’s going to happen to a particular stock, industry, or country. By law, we are all working with the same information.
The one thing we can know in advance (at least in part) is the amount of fees these folks will charge us. And reducing or eliminating the drag of fees on a portfolio is the best way for some investors to increase the likelihood of a good return on investment. For some people, investing in a manageable number of companies (in which they believe) is a viable strategy that minimizes exposure to fees.
While saving costs can seem the ultimate benefit, what are the alternative reasons why businesses and their book clubs should choose Uninvested to discuss?
Uninvested presents a uniquely holistic, empowering, and optimistic point of view on a subject that drives most people away through boredom or anxiety. Readers will get a digestible, entertaining explanation of how we got here, the mechanics of the financial industry, and the influence of politics, regulation and technology as well as some real tactical pointers that can save them hundreds of thousands of dollars over a lifetime.