Financial services employ tricks and illusions to fool clients, causing them to fall into financial traps.
That's according to the recently published "Outsmart the Money Magicians," by Christopher Manske.
Manske, who was a Merrill financial advisor for more than a decade before founding an RIA, Manske Wealth Management, 12 years ago, argues that the system is rigged. The book's intent is to reveal institutional "deceptions" and how clients can avoid them.
"Wall Street uses tricks to fool customers," he tells ThinkAdvisor in an interview. "What we need are ethics and integrity."
For example, Manske says, changes in valuation are shown on statements but not profit, per se. That lack of clarity can encourage retirees to sell valuable investments, he adds. He also calls out conflicts of interest, such as revenue sharing.
In the interview with Manske, whose firm manages more than $500 million in client assets, he explains "The Wall Street Wizard of Oz" tactic, in which "the buck [is] passed to some supposed genius behind the curtain."
Here are highlights of our conversation:
THINKADVISOR: Why did you write a book "demand[ing] financial reform," as you describe it?
CHRISTOPHER MANSKE: Wall Street uses tricks to fool customers. As an industry, we can do better for them. Reputation is a powerful thing, and Wall Street has a terrible one. It needs to be better.
But won't the potential implementation of the Labor Department's new fiduciary rule help?
You can't legislate excellence. We don't need lawmakers to come in and make rules because there's always some clever way around a rule.
What we need are ethics and integrity — a strong moral compass.
The tack of the "Wall Street Wizard of Oz," as you call it, puts "an unknown someone behind a curtain at the end of the Yellow Brick Road." Please explain.
In money management, this concept is prolific: Clients aren't talking directly to the person responsible for the management of their money.
They've passed the buck to some supposed genius behind the curtain. This helps to diffuse accountability.
Why do you label the Internal Revenue Service and Wall Street "tricksters"?
Because of the regulations surrounding the way Wall Street reports to Main Street. Wall Street is following the tax rules prescribed by the IRS.
For example, investment statements don't show profit in a clear way. You can see a change in value, but maybe some of that change is your own deposits going into the account.
You see taxable gain and loss, which is not the same thing as profit.
The number shown is based on what we can sell the investment for. So [the firm] is encouraging you to do a transaction.
Is this one way that "retirees get tricked into selling good investments," as you write?
Yes. It's like the magician putting a plastic film around one of the glasses he uses in a coin trick.
The film has been printed to look like it's filled with coins, which is how it appears to the audience.
Likewise, the investment statement has a "costume." It shows the yield based on the price you get if you sell the stock.
"Upfront fees clearly go against the very thing Wall Street supposedly offers," you write. Do clients even know they're paying upfront fees?
