I was recently sent Daniel Solin’s new book The Smartest Investment Book You’ll Ever Read for review. I enjoyed the book and it only took me a few hours to get through. The layout and presentation of material is excellent. In terms of the content, I have mixed feelings. Solin takes a big swing at the brokerage and product-based financial advising businesses. He especially enjoys exposing how they make money- a similar theme to his first book Does Your Broker Owe You Money?
I can appreciate some of his points as it is true that many investors just don’t understand concepts such as risk, return, expenses, and fees. Solin will hopefully reach some of these investors with his message about low-cost, index-style investing. That being said, I think Solin is a bit aggressive with his points. It’s interesting because I felt similarly when I glanced through his first book. Perhaps the fact that Solin is a securities arbitration lawyer explains his aggression and matter-of-factness. Many of the chapters end with a rearrangement of words which all make the same point: brokers, advisers, and portfolio managers are counterproductive and “Smart Investors” will stop doing business with them. Solin doesn’t want you finish this book without believing that index investing, and avoiding commissions, are the only logical way to invest your money. He disregards the brokerage business and claims that it not only lacks value, but is both detrimental and unethical to investors. Again, I’m 75% in agreement, but 25% worried about how this information will be understood by an ordinary investor.
I think the book may have benefited from a brief discussion about the differences between various financial professionals. I find there is often a very fine distinction between terms like “stockbroker,” “financial consultant,” “financial advisor” and “financial planner.” When you bash a professional who lives off commission (as is Solin’s primary target), you are focusing on professionals who earn a living from transaction-based business and sales of investment products. Note that not every financial professional makes their living this way. Especially in today’s litigious environment, we’re seeing many smart investors using fee-based financial advisers and financial planners rather than stockbrokers. Plus, many stockbrokers are going back to school and learning how to really become “advisers.” In fact, you’re seeing many more people working with financial professionals, period, in light of the difficulty associated with good financial decision-making.
So, while Solin’s point about picking stocks and actively managed funds as a waste of time is important, I would have liked to see more discussion about the reasons people choose to work with financial professionals. I can’t believe its all part of a giant conspiracy to steal money- rather it has to do with a general lack of understanding on behalf of the public about the financial services and personal finance arenas. A good adviser will explain the tax-rules surrounding an IRA, help a client plan for retirement, and track net worth with personal financial statements. These are real and important functions that some financial professionals - probably not your commission-earning stockbroker- will provide.