Informed consent

Wednesday, November 24, 2004 at 8am
By John Friedman

I am embarrassed to say that, after a long day, I often vedge out in front of the tube.

Yes, I often read and do other things, but, yes again, sometimes I just sit there, like a drooling, blathering idiot and do nothing but . . . nothing.

So last night I watched birds in Israel on PBS, and then another thing on there about the Cave of Letters in Israel, where Jews hid out from the Romans millennia ago (not too embarrassed about either of those).

But then I ran out of cultural faire, and ended up watching a new medical show called House MD, which is a CSI-meets-Dr.-Kildare sort of thing, in which mystery ailments are diagnosable only by the brilliant Dr. House, a troubled soul but beguiling in his own strange way.

Last night one of the younger doctors working with Dr. House said something wonderful in response to a challenge put to him by the parents of a teenager needing an unusual, and hard to explain, medical procedure.

The young doctor said,

It’s really quite complicated, so having you be smart about all the medical aspects involved is pretty much out of the question, unless you want to go to medical school for some handful of years. So this is a situation in which informed consent is a bizarre construct. But, really, here’s all you need to know about this procedure: it’s dangerous, it could kill your kid, and you should do it.

 

That statement struck a nerve because it went to the heart of the sort of difficult decision-making we all must make from time to time — decision-making in realms about which we know next to nothing.

Whenever we’re forced to make decisions in a realm about which we can’t possibly be fully smart, what we as decision-makers need is someone from that unknown realm — a person who lives and works and breathes in that unknown realm — whom we find undoubtedly trustworthy and undoubtedly free from conflicts of interest.

This young doctor had all those qualities, so the parents said yes and . . . well you know how most TV shows turn out, right?

*   *   *

The financial realm is one of those realms in which most people are clueless.

Just as most of us haven’t a clue about what goes on inside the body, so too most of us don’t have a clue about what goes on inside of many of the components of our financial health — the mutual funds, the insurance policies, the wills and trusts and the like.

And annuities? Forgehdabouhdtit. Most everyone out there owning annuities doesn’t have a clue about why they have them, let alone how they work.

*  *  *

So what does all that have to do with financial health?

Well, to be financially healthy, each of us needs to come to terms with what it means to be informed — we each need to decide how informed we are going to be about the various financial decisions we make, and what roll we’ll take in becoming informed.

Some people choose to be uninformed, while others choose to be very well informed. And the vast majority of people go for something in between.

So where do you fall on that scale?

Have you ever read one of those twice-a-year mutual fund statements you receive?

Do you know how well your mutual funds did last year? And, if so, compared to what?

And do you know what your will says and why it says what it says? (It is a universal, generically applicable truth that everyone is better off with a will than without one.)

Or do you never read those things, and leave it to others to do right by you?

*   *   *

It’s good to know where you are on the issue of being financially informed. Know that, and you’ve gotten to first base in terms of your financial health.

And if your financial world has two decision-makers in it, as is the case with couples, it’s good to know where each of you stands on that issue and, since there is no such thing as two people’s inclinations being precisely the same on any given topic — especially in this context — then it’s also a good idea to know how to reconcile your different approaches.

So do you want to be like the parents in the hospital who chose to rely on the good doctor to have your interests in heart and no others, or do you want to go up a learning curve to get smart enough so that you can trust but verify?

It’s important to know.

*  *  *

It’s especially important to know this about yourself in the financial context because, as noted in here before, the financial services industries are, by and large, not set up to ensure that the people with whom you do business are conflict-free and undoubtedly trustworthy.

Indeed, as I’ll discuss some other time, there is a huge regulatory debate right now about which financial services professionals should owe their customers a fiduciary obligation — the sort of fidelity obligation owed by a trustee to a beneficiary.

Right now it’s pretty clear that, legally at least, if not morally, a lot of financial services professionals are not obligated to just do the right thing vis a vis their customers, i.e., they do not owe a fiduciary obligation to their customers.

Most are subject instead to suitability standards and the like, which, on the just-do-the-right-thing scale, are a couple of notches below the tried and true fiduciary obligation.

So if you’re doing business with those sorts of folks — suitability folks — you had better be well-informed, because they won’t necessarily be looking out for your best interests insofar as the grand scheme of things go.

So it’s a good idea to not go to an insurance guy or gal hoping to get great advise about whether you need insurance or not. Many will provide that great advice; many will not. As for the proportions of the former to the latter, how many people do you know, in business or in friendship, who could say, well, you probably should do XYZ rather than buying ABC from me, so, here, let me look in my address book and get you the number of someone who can help you with XYZ.

What’d’ya think? Are half of us capable of doing that?

Let’s make this a harder and more concrete question, by saying that, if you were to buy ABC from this person, he or she would get a $5k commission, while if you were to go the XYZ route he or she would get zero dollars. Nada. Zilch. Maybe a heart-felt thank you, but nothing that can put food on his or her table.

So how many people do you think would steer you towards XYZ?

Less than half?

Who knows, but the point is that, without fail, if you are talking to an insurance guy or gal about anything having to do with your financial health, they are going to see solutions to your financial needs primarily from within the insurance realm. If there is a better, simpler, less expensive solution that is not insurance-based, they very well might not know about it, let alone have the moral unction to tell you about it.

So you might end up with insurance that is suitable for you, but did the guy or gal just do the right thing by you? Or did that person just fall a punctilio or two short of fulfilling his or her fiduciary obligation to you?

Maybe . . . it’s hard to say.

*   *   *

But this is for sure:

We is all humans, and humans tend to be self-interested, just like every other animal out there (and that is why altruism is such an interesting and difficult-to-explain behavior for people in all sorts of fields of study, from biologists to philosophers, and from anthropologists to novelists).

So, when it comes to financial health, it’s really helpful to know whether you are able to consistently apply your energy and smarts to getting financially well-informed. And if not, then it’s really helpful to know how to go about making sure that your advisor is being good to you for all the right reasons.

For most of us, as in most things purportedly either/or situations, the answer lies somewhere in between.

*   *   *

And to all may there be much for which to be thankful.

Me? Gee, I’m still recovering from earlier this month . . but, yes, there is much for which to be thankful.

It’s been a wonderful, wonderful year.

Yay.

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