Reply to WSJ regarding "How to Grill Your Investment Pro"

December 2006

As an expert witness, planner and author, I have gone through the entire gamut of the reasons people use a broker/planner/small furry animal- whatever- for investing and other financial services. (See resume and other material at efmoody.com. There is no one in the U.S. with more background). What I continue to fail to understand is why anyone would use these people? The point being that a broker has never been taught the fundamentals of investing to begin with.

As probably one of the only "securities pundits" who ever taught the licensing courses, none of the fundamentals of investing are required for licensing- alpha, beta, correlation (mandatory), diversification, standard deviation, asset allocation and on and on and on and on. Why? Simple. They are not tested. Never have been. Anyone can pick up any series 7 manual and clearly see what isn't there (assuming one knows what to look for.) None of the series 7 reps are taught the use of a financial calculator. Why anyone would pay a fee to any person who does not know how money works is ludicrous in the extreme. The series 7 is one college course in money. That's all it has ever been, That's all it is now. Supervisor's licenses do not contain any further knowledge or application. (See my letters to NASD, NASAA, Bernanke, etc.)

Then we have planners. CFPs, ChFCs ad infinitum. So What? The course work is the same as one semester on money. (The lower designations can be had in a day or even less). There are about 140 areas in the investment section coursebook for CFPs and not one on how to actually do asset allocation. Diversification is not taught. Standard deviation is wrong. Actually 99.9% of all financial plans incorrectly address risk- yet the entire industry (NASD, SEC, State securities departments, NASAA) allow it. Why? Well who makes up almost all of these organizations? Attorneys. And attorney wouldn't know a financial calculator from a door stop and are clueless to the fundamentals of investing. I have never even yet met a securities attorney who knew the proper application of diversification. And only a couple that were even interested.

Actually here is the bottom line. All sales must be suitable. But if you cannot determine risk, you cannot determine suitability. If you do not know diversification by the numbers, you are inherently deficient to trade stocks or do just about anything else. You cannot determine risk. Therefore, you have no business being in the business.

So, I ask you, do you know what the numbers are for diversification? Once you grasp the significance of this, you will find the use (trust) of a broker or planner is not only suspect, but just plain stupid.

Paying monies to an unknowledgeable and/or arrogant twit makes no sense at all.