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The Benefits of Telling the Ugly Truth

YOUR stock portfolio has been climbing like a rocket, and you’re beginning to think that your financial adviser is a genius.

hen he tells you he’s not. “It was just luck,” he says. That oil stock, the one that jumped 80 percent? A good pick, sure — but he had no idea it was that good. “It was a surprise,” he says, “Don’t count on it happening again.”

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Disappointing? Maybe. But it sounds like the truth, and that may mean that the rest of what he says is true, too. This kind of self-deprecation may not be standard patter for financial advisers, but Shlomo Benartzi, a behavioral economist at the University of California, Los Angeles, says it should be.

In order to build trust and credibility, Professor Benartzi suggests, advisers should come right out with the truth, especially when it’s ugly. If advisers have been merely lucky — or have made recommendations that were outright failures — they should come clean about it, he says. Such admissions may be off-putting initially, he said in an interview, but as long as they are followed by a clear description of what an adviser is doing well — assuming, of course, that something is being done well — candor is good business.

http://www.nytimes.c…=1&ref=business

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