Throughout 2004, investment advisors were frequently vilified in the financial press. They were accused of such things as: not disclosing their total profits and commissions, putting clients in higher-cost house-brand mutual funds, in the case of brokers - churning accounts to make commissions, and generally of being in a conflict of interest position and failing to always put their clients interest ahead of their own.

Well, I am about to come to their defense. And please remember, I am not an Investment Advisor and never have been, so I am defending complete strangers here.

I don’t know why Investment Advisors were singled out for putting their own interests ahead of that of their clients. Do people really think that that anyone that they deal with is truly going to make his or her own interests secondary to that of their clients. It’s really quite a conceited view to think so. Is the car salesman selling you a car for your good or for the sake of his commission cheque? Is the restaurant owner in business for your sake or for his own? Do you work for your employer’s good or your own good? The plain fact is that in a capitalist system we are all primarily interested in looking out for number “1″. Sure we care about our customers and most of us want to do a great job and provide good value. But it is really unrealistic to expect any vendor or service provider to truly put the customer’s interest ahead of his own. Such thinking is socialist drivel. As capitalists we might pretend sometimes to truly put the customer first, but it’s just not how things really work. Vendors will do things that are good for you, but they also have their own self-interest firmly in mind. And that’s actually a very good thing.

In his famous 1776 book, Adam Smith argued, in effect, that the greatest societal good and abundance is achieved (as an unplanned by product) by a capitalist free enterprise system when each person seeks to maximize his own self interest.

Consider an Investment Advisor facing the following choices of investments to recommend for clients:

According to many recent articles in the Financial Press, it should be a crime for the Investment Advisor to recommend the higher-cost in-house mutual fund. But when you consider that the Investment Advisor’s commission goes up 50% with the in-house fund and it only costs the client 0.5% more, it is unrealistic to suggest that the Investment Advisor should put the client’s interest first and recommend the external fund. Even if there is a rule that the Advisor must put the client’s interest first, then there will be an awful lot of incentive for the Advisor to simply convince himself that the in-house fund is superior and will likely earn a higher return and leave the client better off.

In my view, expecting an Advisor to recommend the far lower-profit product is unrealistic and an immature and conceited view that basically goes against human nature and the essence of capitalism.

I believe that the client should have a legal right to expect the advisor not to wantonly and recklessly disregard the client’s interest. But it’s really ludicrous to suggest that this should go so far as to expect the Advisor to make his own interest completely secondary to that of the client. Such an expectation would be indicative of a client and a public that expects “the system” to protect them. A more mature attitude would be to realize that in the end all clients need to be mature and look out for their own interests.

If you trust your money to an Investment Advisor, then I think it absolutely makes sense to seek out someone who is fundamentally honest and fair-minded but I don’t think you can expect an advisor to totally ignore his or her own interests in favor of yours.

The same thinking applies to life in general. The world economy does not exist to look after you or me. In fact the broader world really does not care about, or even know about, any particular individual at all, (with rare exceptions). As individuals, we are better off accepting this and making sure that we work to look after ourselves, rather than relying on wishful notions of what we think others should be doing to look after our interests.