Far be it from me to wrestle with angels or, for that matter, to grapple with oracles, especially the one from Omaha. Still, some recent observations from Warren Buffett can't pass without comment in a space devoted to the travails and triumphs of insurance agents and brokers.
In his 2006 letter to shareholders of Berkshire Hathaway, which he heads and which holds sizable insurance interests, Buffett saw fit to take after financial advisors of all stripes, with a vengeance. The man took no prisoners.
"Beware brokers who want your money," read a Fortune magazine banner over a report on the missive, while the Web site CNN Money carried this headline: "Warren Buffett explains how costly it can be to let advisors come between you and your money."
The idea is that people of substance are too easily seduced and sucked dry by an endless band of marauding advisors. As result, he writes, "shareholders, through a series of self-inflicted wounds are in a major way cutting the returns they will realize from their investments."
FRICTION'S GRIM REAPERS
The picture is grim indeed, by Buffett's account (Fortune calls it an "allegory") wherein he somewhat amusingly and darkly relates the saga of the "Gotrocks," a wealthy but hapless clan beset, overwhelmed and ultimately undone by "a few fast-talking Helpers." The "Helpers" are intermediaries and the emphasis, except in this passage, is disturbingly not on the "few."
"A record portion of the earnings that would go in their entirety to owners--if they all just stayed in their rocking chairs--is now going to a swelling army of Helpers," writes Buffett.
Over time, he writes, the commissions paid to the "Helpers" diminishes the family's wealth. "The more that family members trade," he says, "the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon the broker-Helpers: Activity is their friend, and in a wide variety of ways, they urge it on."
"A sufficient number of arrangements like this--heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so--may make it more accurate to call the family the Hadrocks," he continues.
"Today, in fact, the family's frictional costs of all sorts may well amount to 20 percent of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80 percent or so of what they would earn if they just sat still and listened to no one."
The Buffett piece is long on sarcasm, short on reality, and in the end leads nowhere. As satire, it's OK enough. Few would miss his overall and obvious point: the ranks of "advisors" have indeed swelled inordinately and there are, for sure, swindlers galore out there.
Still, his stern admonition takes no account of the "army of Helpers," insurance agents and brokers among them, who are simply and honestly just that--"Helpers"--an essential and valuable resource to personal and commercial customers alike.
Does Buffett suggest total and immediate disintermediation? And, if so, what does he offer as an alternative?
Let's leave it at this: for once, the Oracle of Omaha has been less than, well, oracular.
THOMAS J. SLATTERY a veteran editor and writer on industry affairs for more than 40 years, is also the managing director of Slattery-Esterkamp Communications, Baldwin, N.Y.
April 15, 2006
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