If you have money, you will know one thing about the financial industry. It is largely parasitic.
A parasite attaches itself to you and drains you of your blood. Its interests are at odds with yours.
The stockbroker, for example, wants to encourage you to buy and sell – when that is precisely what you shouldn’t do.
And the fund manager, the dealmaker and the structured products engineer – they all make their money by encouraging you to spend yours… often on things that make little sense.
Wall Street sells dreams… hopes… and pies in the sky.
Sure, its labor force tends to dress well. They often go to the best schools. They are smart. They are presentable. But get close enough, and you will see they struggle to mask the moral strain of flogging hopeless investments to people who they believe were “born yesterday.”
Wall Streeters are not bad people. They are not dumb people. Neither saints nor sinners, they are just like the rest of us. But their industry encourages a huge fraud: That they are there to help you make money.
They are not. They are there to help themselves make money.
By taking it from YOU.
The financial industry is very large and very profitable. The service it pretends to provide is helping to match worthwhile investment projects with the capital they need. The service it actually provides is separating fools from their money.
But the financial industry isn’t equally bad to all comers. It reserves a special zeal for the “suckers.”
A friend of the family used to own a brokerage on Wall Street. And in conversation about the work my son Will and I are doing on our family office research advisory, Bonner & Partners came up.
Will was talking about the many pitfalls of second-generation leadership of the family’s wealth-building effort. And our friend mentioned that every big Wall Street brokerage has a “suckers list.”
Evidently, there are two types of people on the “suckers list.” First, there are the guys that hit it big, but not because of any financial skills or investing experience.
For example, the inventor of the breakthrough medical device. He is worth $80 million. And as our friend put it, “He’ll put $5 million into anything.”
The other group on brokers’ “suckers lists” is made up of widows and children who were left sizable estates without the ability to competently manage that wealth.
This is the list that brokers hit with their new deals and products. A few whales on this list can mean big profits for a brokerage.
Of course, even if your broker isn’t ripping you off directly… there are the commissions, costs and hidden fees.
That’s why spinning, leveraging, churning and frenetic trading are the hallmarks of the financial industry. The more you trade, the more it earns in commission.
Most people don’t give it too much thought. But if you have managed to accumulate substantial wealth, you will understand that all this “friction” in the system is one of the biggest wealth destroyers.
You just don’t notice because it’s a death by a thousand cuts… each one is small enough to make you bleed only a little.
Of course, what I call “Old Money” – family money that has been around for an extraordinarily long time – has ways to avoid the parasites on Wall Street… and still come out on top.
At Bonner & Partners Family Office – the small research service I set up to help modern-day families learn how to protect what they’ve earned using “Old Money” techniques – we focus on super low-cost plays we call “beta investments.”
These may be simple… and low cost. But they are also powerful wealth builders.
In fact, using “beta investments,” savvy investors could have multiplied their money 150 times over the last 40 years by making just three low commission… and low friction… trades.
What can Wall Street offer you?
Well, in 2011 the average fund fell by about 9%. But hedge fund investors who only lost 9% were the lucky ones.
If you’d asked hedge fund superstar, John Paulson, to look after your money for you, in 2011 you would have been down 46% through November.
Of course, not before he charged you the typical “2-and-20” skim off the top.
If this isn’t parasitic, I don’t know what is…
P.S. Membership is currently closed at Bonner & Partners Family Office. The next intake – our only one of the year – is January 2012. If you’d like to receive an invitation to join at that time, simply fill out this brief declaration of interest here.