If we accept as truth that the financial services industry is fraught with challenges for a typical investor, what actions should one take?  Is it wiser to search for an advisor, guide, or professional who will rise above the difficulties, or will you be better served by figuring out how to “do it yourself?”

To approach to this problem, start with an inventory of what you are trying to achieve.  What do you really, really want from your investments?  Everyone answers that question a little bit differently .  Some typical answers, thought, involve maximizing returns, safety, gaining advantage, and not being left out of what is profiting others.  Getting a handle on what you are really trying to accomplish will serve you well as a first step in making it happen effectively.

The next question is whether getting outside assistance will be a help or a hindrance in attaining those goals.  There is an entire industry looking to get its hands on your money and claiming to do so in furtherance of your well-being.  Unfortunately, that industry is also trying to fulfill its own mission and make significant profits. Those two things often come into conflict.  Furthermore, those who work in financial services every day know a great deal more than you about the subject at hand.  As a result, there is always a danger that those offering financial advice may leave you further from your goals than when you first shook their hands.

Economists would caution you about the problems of conflicts-of-interest and asymmetric information.  Your humble blogger is warning you that financial service providers might not always have your best interests at heart.  They may, instead, be “looking out for number one” – and they know a lot more than you do about where the bodies are buried.  Using different language, the economists and I are saying the same thing.

This would seem to leave you on the horns of a dilemma.  On the one hand, you would like to tap into the greater skill and knowledge of those who possess relevant expertise.  On the other hand, they may use that expertise to enrich themselves at your expense.  What should you do?

The best solution depends, to some extent, on who you are and how you prefer to spend your time.  A choice must be made between learning to invest wisely for yourself, and figuring out how to select those professional advisors most likely to further your interests rather than their own.  If you have the interest, skill, aptitude, and (perhaps most important) time, you may want to embark on a great study of how to become a wise investor.  If you would rather have someone else to guide you, though, you must become astute at how to search through a haystack of potential advisors to find the rare one who will truly advance you toward your best interests.

Each of these paths has its costs and difficulties. Neither road is simple. After all, the expression that “there is no such thing as a free lunch” comes from economics.  On the other hand, declining to pursue either of them is surely a decision to flush a significant part of your wealth down the drain.  Believe it or not, for a typical upper-middle class family, the amount being wasted over a lifetime will be counted in the millions of dollars.