W. Scott Simon often serves in litigation and arbitrations as an expert witness on fiduciary issues. Similarly he frequently writes about the Uniform Prudent Investor Act.
Consider the following from a recent article he authored about the problem with disclosing conflicts of interest:
“Disclosures of conflicts made by many financial services providers tell you just about nothing – or even less!”
In drawing a parallel I’ll paraphrase a CPA who once told me, “Auditing is the art of saying a lot without really saying anything.” Ha!
Consider these pearls of wisdom from Peter Lynch of Fidelity Magellan fame:
“If you’re prepared to invest in a company then you ought to be able to explain why in simple language that a fifth grader could understand and quickly enough so the fifth grader won’t get bored.”
“The simpler it is, the better I like it.”
“Never invest in any idea you can’t illustrate with a crayon.”
The lesson is clear: If a provider of advice (and in many cases an accompanying commission-based product) cannot succinctly explain what the conflicts are then it’s best to run for the exit as quickly as possible.
And to bring it all full circle here’s a gem from Mr. Simon’s article:
“Or how about this disclosure riddle (taking up only two pages!) from an insurance company offering a flexible premium fixed index deferred annuity? Not to worry, though, a friendly insurance agent – whose livelihood depends directly on his or her ability to make sure that you buy – will be glad to help you unravel all the ins and outs of this disclosure riddle.”
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