Last week, Greg Smith, a Vice President at Goldman Sachs, resigned in a very public way. He penned an extremely critical Op-Ed column, published in the New York Times, entitled “Why I Am Leaving Goldman Sachs.” Smith declared that he was resigning from Goldman because, in his view, its culture has changed over time from one which “revolved around teamwork, integrity, and always doing right by our clients” to something just the opposite. "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."
Smith tells of Goldman employees persuading “clients to invest in the stocks or other products that we are trying to get rid of,” or getting clients “to trade whatever will bring the biggest profit to Goldman.” Highlighting how little regard Goldman seems to have for clients, 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.”
Smith’s words and actions have received a lot of attention in the past few days. Some have cast him as a disgruntled employee who stalled on his climb up a very steep corporate ladder. Others have praised him for his bravery and for calling attention to the conflicts inherent in most advisor/client relationships.
You can read Mr. Smith's comments in their entirety here.
The quote above, from the movie Casablanca, is spoken by Captain Renault as he shuts down Rick’s Casino, while simultaneously collecting his own winnings. The point is that no one should be surprised Goldman Sachs (or any other investment bank) is in business to make money. You may be “shocked, shocked” to hear that they can do so at the expense of their “clients,” but this inherent conflict of interest exists for every broker, bank, and investment firm that does not adhere to a fiduciary standard. In stark contrast, SEC registered investment advisers and Certified Financial Planners © always adhere to a fiduciary standard of care, which requires them to place their clients’ interests ahead of their own – at all times, in all situations.
Much of the investment community thinks this distinction is unimportant, and they fight every attempt to raise (or unify) the standards of care across the industry. Possibly, because many financial services companies are very good at hiding the real agenda behind their advice, and do a masterful job of disguising the profits they make off their recommendations.
Most people trust their advisor and feel they are doing business with a reputable company, but Mr. Smith’s article shines a needed spotlight on the sometimes messy activity on the other side of the curtain.
Century Wealth Management is a SEC registered and operates as a fiduciary. This is by choice and by design. We would adhere to such a standard even if we were not required. Every decision we make in managing money, building our company, and serving our clients has been from the perspective of serving our clients’ needs. We always ask, “What would I want if I were the client?”