Medicine, Finance, Paternalism and Duty of Care

Recently on his excellent podcast EconTalk, host Russ Roberts had a conversation with Eric Topol, author of The Patient Will See You NowThey spent the episode discussing the shifting landscape of health care, primarily due to huge innovations in technology, driving more information into the hands of consumers and shifting the balance of power between providers and patients.

Historically medicine has been a paternalistic business, a “doctor knows best” type of environment where consumers were often discouraged to have questions or second-guess advice or direction. Patients had limited, if any, access to their own medical records, information and history. A paternalistic attitude led to restricted access to new research. It caused fear of new approaches and treatments and restricted information about costs. In this environment patients could not expect to receive explanations of prescribed treatments and there was a significant fear of challenging orthodoxy.

Roberts & Topol’s discussion brought to mind “The Immortal Life of Henrietta Lacks,” a phenomenal book about a woman whose cancer cells have outlived her by decades, used in countless medical research projects in finding new treatment methods for disease. The backstory of Lacks is compelling – a poor minority who was given brutal treatment, whose cells were taken without her permission and used without her knowledge, an authoritarian landscape where no questions were allowed and little information was given.  The concept of informed consent did not exist in Henrietta’s world.

Today, technology and widespread information is changing the landscape of health care, putting more control in patients’ hands. A good example of this is 23 & Me, a company which (formerly) offered low-cost DNA analysis directly to the public. Imagine patients having direct access to information about their own health and then choosing to share that information with their medical professionals – quite a turn from 60 years ago.

I see the same changes coming in finance.  For decades the informational asymmetry in financial services has been overwhelming. Clients of financial companies were taught to trust that their broker knows best and were often sold inappropriate products with high risks, high commissions and high internal fees. Much of the “advice” was better for the broker, who profited at the client’s naivete.

The landscape is moving. More and more investors have come to an understanding about how fees and commissions eat away at their long term returns, how difficult it is for active managers to beat their benchmarks, how inefficient stock picking is, how silly market timing strategies are. Every day the needle moves towards a more educated populace. It’s a good time to be an investor. It’s probably not a good time to be a paternalistic broker who makes money from an ignorant populace.

I know my practice isn’t exactly average, but you should see the stuff clients send me to chat about. It’s not “The 10 Best Mutual Funds for 2016!” from some garbage personal finance rag.  It’s Wade Pfau’s recent research on asset allocation and CAPE timing. It’s thoughtful and insightful market commentary.  It’s researched white papers on factor investing. It’s questions about the costs and benefits of international fixed income and commodities and TIPS. A good number of my clients read at least as much as I do – the good stuff from Mike Kitces and Meb Faber and Ben Carlson and Cullen Roche and Rick Ferri and Scott Burns and AAII and RIIA. There are probably a lot of financial professionals who shudder at the idea of getting these emails from clients and being expected to discuss their strategy thoughtfully. And these people should be afraid.  The trend is in place and isn’t about to be turned around. Investors expect better information and a more informed professional. The era of “trust me” finance is dying.


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