In the past months, I’ve explored the elements of a successful business. Last Friday I was joined on About Money by Warren Willoughby, CEO of Sound Glass. He hit on something I think is very important when he said, “My leadership style is transparent.”
I believe the root of good, transparent leadership is honesty. In any aspect of business, honesty is critical to long-term success. This includes financial advice.
As a financial advisor, I post my results on my website. I’m up front – transparent – about the highs and lows my clients encounter. I’m forthcoming about my approach to investing. These is no salesmanship involved in my practice. My results sell themselves.
But what happens when a financial advisor isn’t honest? What happens when he or she makes claims they can’t back up? This is considered fraud. The financial advisor can face a legal action.
Several weeks ago the Securities and Exchange Commission (SEC) announced Ray Lucia had failed to backtest his investment strategy – called the bucket strategy. What does this mean?
Many financial advisors base their investment moves on a series of complex mathematical models – such as Ray did with his bucket strategy. To backtest a model historical data is applied. The results are used to support claims of the model’s future success.
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