Are you a Muppet?

Kermit the Frog and Miss Piggy attend the U.K. premiere of "The Muppets" at on Jan. 26, 2012, in London. Chris Jackson

(MoneyWatch) COMMENTARY By now, you've probably heard about Greg Smith, a former executive director at Goldman Sachs (GS) who resigned last month through a scathing New York Times editorial. In his critique of the investment bank, he claimed that he had seen five different managing directors refer to their own clients as "Muppets." Smith also said the firm's culture had changed during his nearly 12 years at the company from one that looked out for clients to one that seemed focused on liberating them from their money.

You may be wondering what it means to be a Muppet. Comedian Jeff Foxworthy became famous for his "You might be a redneck if" lines. In that spirit, here is my list of "You might be a Muppet if...":

  • You're working with someone who doesn't provide a fiduciary standard of care, only a suitability standard of care
  • You're working with someone who hasn't fully disclosed the nature of any conflicts of interests
  • You're working with someone who doesn't own the same or equivalent security that is being recommended or sold to you
  • You're working with someone who sells investment products instead of only investment advice
  • You've ever bought a "structured" investment product (such as an equity-indexed annuity, reverse convertible, equity-linked CD) or any product with an acronym that you don't know what the initials stand for
  • You've ever bought a product, but can't fully explain the nature of the risks involved and calculate the cost of the embedded options
  • You've ever bought a product that carries commissions when there was a cheaper or more effective alternative
  • You've ever bought a product with a high yield, while being told it was a safe investment (If there's a high yield, there's high risk, even if you can't see it)
  • Your investment research consists of advertisements, star ratings, shouting TV personalities, shock-jock endorsements, or free steak dinners
  • You "invest" in an insurance-based product
  • You figure an investment must be good because everyone at "the club" is doing it
  • You spent more time researching the restaurant you went to last Friday than you did researching your advisor or latest investment
  • You believe that your broker sold you bonds, charged only a small transaction fee (such as $25), and didn't include a markup
  • You don't insist on independent statements from a third-party custodian (think Bernie Madoff)

  • Larry Swedroe On Twitter»

    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.

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