The naked investor: Why almost everybody but you gets rich on your RRSP is the latest assault on the financial services industry by investor advocate John Lawrence Reynolds.

If you weren’t around, or were not interested, when the first edition of The Naked Investor appeared in late 2004, you probably will have an angry reaction to the latest version. It blasts the financial services industry for all its faults and weaknesses, both inherent and perceived.

If you managed to digest the first edition, however, you will feel the same pangs of ravaged emotion you felt back then, because the new version — while it does correct some previous errors and adds some content concerning products and events that have been popularized since the first edition — is basically “same old, same old.”

Not that you should be dissuaded from reading the book. In fact, I encourage every financial advisor, branch manager, compliance officer and regulatory official, as well as every fund company, dealer, brokerage and insurance company executive, to “give it a go” — even though I suspect most will dismiss it as heresy or “yellow journalism.”

In The Naked Investor, Reynolds, a prolific writer of nonfiction books and novels, recounts a number of instances of investor abuse. Horrible things happened to nice people, and all of us in the industry should be mortified or, at the very least, terribly ashamed of the actions (or inaction, as the case may be) of those who executed or failed to correct the unforgivable misdeeds that inflicted such financial pain on ordinary people who trusted us.

That said, I believe the message has been lost in the rhetoric. Damnation of an entire industry and the tens of thousands of honest, caring and committed people who work in it through selected portrayal of the most egregious examples of foul play is not the way to promote reform. All it does is anger those who can achieve change.

There is little that escapes Reynolds’ scathing criticism, from the broadest perspective to the most pointed. According to him: “When not conceiving new ways of siphoning funds from investors, the industry keeps busy diluting demands for reform and greater accountability.”

He continues: “You may believe that the investment industry exists to make you wealthy. It does not. It exists to build its own wealth.”

Narrowing the attack, Reynolds castigates the “enforcers of federal and provincial laws” for failing to “respond to claims of larcenous behaviour and misstatement of personal information with the full weight of the law.” He criticizes the industry’s self-regulators for “protecting the interests of the various members making up the organization.”

Predictably, brokers and advisors are characterized, as a consequence of commission-based compensation, as being far more interested in their personal financial well-being than that of their clients.

On the product side, the most vociferous criticism is aimed at mutual funds for the size of MERs, performance shortfalls, confusing product offerings and bewildering prospectuses. Reynolds describes wrap accounts as “one more way to have [investors’] heads patted while their pockets are being picked.” He dismisses segregated funds because, among other reasons: “They originate with insurance companies and not investment specialists, [which] should tell you something about their true value.”

Organizationally, there is little difference, according to Reynolds, among independent financial planning firms, bank-owned brokerage firms and the national banks. All are guilty of aiding, abetting and harbouring sinners.

The most regrettable thing about this book is that, to some extent, all of its allegations are accurate. There have been horrific abuses of individual investors; too many products have been designed more for marketing purposes than for consumer benefit; regulators are glacially bureaucratic; and the vilest of advisors have gone comparatively unpunished relative to their crimes.

The second most regrettable thing is that a book such as this will do little to encourage progress in areas in which it is most needed. I suspect its blanket condemnation of the industry, couched in such vicious language as is used, limits its credibility to a small group of like-minded critics. The legions of honest, caring and committed people I have met throughout my 35 years in the industry can make a difference. Unfortunately, many are likely to reject The Naked Investor as the ranting of a misguided zealot.

@page_break@That’s too bad. IE