One of my favorite euphemisms in the entire galaxy of finance and investing is the “sophisticated investor.” A sophisticated investor, in legal terms, is one determined to be wealthy enough to be fleeced by con artists without missing the money too much.
For example, not just anybody could invest in Bernie Madoff’s hedge fund. Only those with plenty of money to spare could invest, with the understanding that when he absconded with it they wouldn’t miss it too much.
Likewise with the solar, housing, and other non-tradable asset classes with “annual target returns” in the high single digits: if you’re poor enough to actually need your money, you can’t participate, because of the unlikelihood that you’ll get it back.
What this has to do with sophistication has always eluded me. Whenever I meet someone who tells me about their stock-picking prowess, or the “really good team” at their brokerage firm, I quickly determine that person is an extremely unsophisticated investor, since they are not invested in low-cost passively indexed mutual funds (note: you can disagree with me. There are many excellent blogs describing all manner of contortions their authors believe are more sophisticated than a low-cost passively indexed portfolio). There’s nothing wrong with being an unsophisticated investor, it’s just fairly expensive compared to the alternative.
So I treat the “sophisticated investor” standard as allowing con artists to ply their trade, but only on those with enough money not to mind being ripped off, and who might enjoy the ride anyway.
Why do I bring this up? Because while it’s an odd (and oddly-named) standard, at least the sophisticated investor standard protects the most vulnerable people from losing their shirts. And it was introduced because, left to their own devices, con artists aren’t particularly picky about whose shirts they end up with.
Unfortunately, the guru economy doesn’t have any such guardrails. The other day I stumbled across this post at the White Coat Investor, in which he promotes some bank that refinances student loans at lower interest rates in exchange for giving up the protection of income-based repayment on federal student loans. This is far from an exception. Mr. Money Mustache pitches credit cards (as do many prominent financial independence sites). Others promote insurance companies, mortgage brokers, or whomever else they can find to finance their operation.
But there’s no “sophisticated reader” standard in the blogosphere. There’s no way to ensure your sponsored blog posts are only displayed to readers who understand the consequences of taking their advice. On the contrary, blogs are often targeted at folks who are unfamiliar with the relevant concepts (if they were familiar with them they wouldn’t be reading blogs about them), and thus more vulnerable to misleading advertisements, especially when they’re cast in the voice of a trusted author.
Whenever I raise these issues readers harangue me about the importance of personal responsibility. But of course the concept of personal or individual responsibility proves far too much: if we’re really individually responsible, then why should we publicly promote the virtues of financial independence/early retirement/weight loss/child-rearing/etc? When you take your advice public you make a public claim that the public will be better off if they follow your advice. Selling that platform to the highest bidder is the equivalent of saying that, having improved the public’s well-being by so much, it’s only fair that you claw a little bit of it back.
I don’t buy it.
If you only think something is worth doing if you can make money doing it, congratulations, you belong to a long and storied line of American capitalists.
If you think something is still worth doing even if it makes others worse off, congratulations, you belong to a long and storied line of American con artists.
Just don’t tell me you’re here to help.