Trust Planning

Trust Planning

Estate Planning and Wealth Management

Freakonomics: The Hidden Side of Managing Money

Edward Siedle
Forbes - Sept 2 2005

Freakonomics, as you may know (it was a bestseller), was written by University of Chicago economist Steven Levitt and a New York Times journalist Stephen Dubner (Dubner never thought he would have anything to do with economics). The book is all about incentives. Incentives to make money, incentives to cheat (teachers fudging student test scores), and incentives to break the law. In Freakonomics, the authors explain these hidden financial incentives as follows: “Though extraordinarily diverse, these crimes have a common trait: they were sins of information. Most of them involved an expert, or a gang of experts, promoting false information or hiding true information; in each case the experts were trying to keep the information asymmetry as asymmetrical as possible. The practitioners of such acts, especially in the realm of high finance, inevitably offer this defense: “Everyone else was doing it.” Which may be largely true. One characteristic of information crimes is that very few of them are detected. Unlike street crimes, they do not leave behind a corpse…”

This leads us to Edward Siedle, who took the Freakonomics theme and married it to his background: managing money. Siedle, known as the “Financial Watchdog,” is a leading expert on the money management industry, devoted to exposing corruption and misinformation. After Siedle got his law degree, he worked with the SEC's Division of Investment Management. He then became legal counsel for a large international money management company—which led Siedle to create firms helping pension funds, municipalities, and money managers. He testified before the Senate Banking Committee investigating the mutual fund scandals. Siedle founded Benchmark, a firm devoted to protecting investors from fraud by providing investment advisement, forensic investigations and fiduciary consulting for individuals, companies and the government (regulators and law enforcement). So, he knows his stuff. Here is an inside expert saying the financial industry really is as dysfunctional as the Occupy Wall Street folks say,that it really is as dysfunctional as other parts of my website explain.

With his diverse background, Siedle offers his expertise in money management from a Freakonomics perspective: exposing hidden financial incentives, information asymmetry, and corruption. He shows the fallacies in the traditional knowledge so easily given and accepted in the financial industry, and shows how experts use their knowledge to benefit themselves (in the long run hurting you).

Read Siedle's complete article in Forbes. This is worth your time.

He elucidates these points based on his own experience. He examines both the money management and pension management industries and find both to be an uneven playing field favoring the managers themselves and not the ultimate customer. Money managers work for incentives, generally dishing out advice that will benefit themselves, exploiting hidden financial incentives. In pension management, investment consultants (who give general advice on money manager selection as well as asset allocation) often have secret ties with money managers. The managers reward the investment consultants for their recommendations—while the pensions pay very little for consulting, at least in the short-term; in the long-run, they pay in terms of poor performance. How money managers advertise themselves is also a huge problem—often times overstating their abilities and expertise. Read Siedle's complete article. It is worth your time (as is the Freakonomics book and the Planet Money podcast). If your eyes are not open, this will open them.