Walter the Muppet is known for his identity crisis. But there should be no question about yours. Photo from www.Muppet.Wikia.com

Many of you have undoubtedly heard about the news story of last week: The Op Ed (resignation letter) that the Goldman Sachs employee, Greg Smith, wrote in the New York Times. Mr. Smith had a few choice words for his employer of 12 years, and he revealed a few things that Goldman has been trying to counter ever since. It makes for a great news story, but it also provides a revelation to the majority of American investors who work with large Wall Street firms.

In professional circles, we often talk about a “client-first” attitude. Advisors place priority on the well-being of the client, while the advisor’s own well-being – or the compensation earned by their recommendation – takes a back seat. The client is served first.

Firms like mine, and the others listed on the Directions website, are Registered Investment Advisors. We are held to a fiduciary standard which requires us to put our clients’ interests ahead of our own. Yes, this is a legal requirement!

Imagine going to a family doctor who prescribes medicines according to whichever pharmaceutical company offers the largest kickback or “commission” for that prescription. We would much rather the doctor writes a prescription for the medicine that was going to be most effective, right? It seems ridiculous to imagine the medical industry operating that way, but large firms like Goldman Sachs have gotten away with it for decades.

Wall Street firms have been offering advice based upon what is in it for them, and much of America has fallen for it. This was the point of Smith’s letter, and it accounts for the media firestorm that ensued. Smith reveals that Goldman Sachs puts its clients last. Here are the “highlights” from Smith’s letter:

1. “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.” This form of business should be called “client-last.

2. Promotions are not garnered by merit, but profit: “If you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.”

3. In order to make money for the firm, a Goldman employee has a few options: “Persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.” Nice doing business with you, right? Or, “Get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned,” said Smith, “but I don’t like selling my clients a product that is wrong for them.”

4. Perhaps the most disturbing Smith comment addresses Wall Street’s unsympathetic approach. He reports, “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,’ sometimes over internal e-mail… Will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

You can read Mr. Smith’s comments in their entirety here, where you will also see a nice illustration of vultures at feast. He predicts that companies — and people — who care only about making money will not be able to retain the trust of their customers.

And I agree. In an age where trust is eroding, and the financial world is getting increasingly more difficult to navigate, consumers need to know where they can go to get honest answers and recommendations. You need an adviser who sees you as a person, not a Muppet, and treats your family affairs with respect and compassion. But as the world sees Super Bowl ads and magazine pages touting enormous caches of financial resources, it’s understandable that the public’s perception of these Wall Street firms is more respectful than their behind-the-scenes behavior deserves. It behooves us to make sure the longstanding allegiance to this system comes to an end. I may work in a firm that would profit from that kind of systemic transformation, but I firmly believe the consumer will be best served when she is served first, not last.

My only parting comment, which I cannot help but make, is if you have any question about the honesty or integrity of your current advisor, give me (or another advisor on the Directions site) a call. We may not have the vast resources that they do at Goldman Sachs (or many brokerage firms for that matter), but we can compete with their culture and attitude any day of the week.

Click here to read Margie Carpenter’s story.