by Brian Mahany
German news source Spiegel says that according to a recent Swiss university study, stock traders are more reckless than psychopaths! Unfortunately, that news may take away what little remaining confidence investors have in the marketplace.
According to a study conducted by the University of St. Gallen, stockbrokers are both more reckless and manipulative than psychopaths. The Swiss study sampled 28 traders and tested their intelligence. These brokers also participated in computer simulations. The results showed both high levels of arrogance and large egos leading to riskier behavior.
Instead of being driven to get better results for their clients, their competitive behavior resulted in contests to see who get more than their fellow brokers. Said one of the study co-authors, Thomas Noll (as quoted in Spiegel), “the stockbrokers behaved as though their neighbor had the same car, ‘and they took after it with a baseball bat so they could look better themselves.'”
How accurate is the study? Just look at Kweku Adoboli, the rogue UBS trader that racked up $2 billion in losses from an unauthorized trading scheme. He behaved that way for years and simply thought he was smarter than everyone else.
Obviously not all stockbrokers are psychopaths but many do fail to properly understand their clients’ risk tolerance and make improper (and usually very risky) recommendations. After practicing law for 28 years, I have rarely heard of a case in which the client was complaining that his broker was too conservative. Usually, customers claim after they lose all their money in a risky stock, highly leverage option transaction or in a complex derivative.
Brokers have “know your customer” rules they must follow. That means before a broker can recommend an investment strategy or stock, he or she must fully understand your financial situation, short and long term goals and how much risk you are willing to tolerate to achieve those goals.
Once the broker understand you and your needs, the broker is obligated to make sure his recommendations are “suitable.” For example, a retiree relying solely on his portfolio for daily living expenses should not invest all his money in a very risky “winner take all” investment strategy. A younger investor with many years before retirement and ample cash reserves, however, can afford to take more risks.
Violations of the industry suitability rules – making recommendations that are too risky for clients – are one of the most common complaints against brokers. Perhaps now we understand why.
If you lost your money because of bad advice from a stockbroker, investment advisor, financial planner or brokerage firm, we may be able to help you get back your hard earned money. Call us for a no obligation and confidential review of your case. Often cases can be handled on a contingent fee basis meaning no legal fees unless we win your case.
Mahany & Ertl, LLC – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine