Why some finance pros are walking away from Wall Street

wall400We’ve long urged readers to expand their view of investing to include focus on growing local economies and their own personal and tangible assets; we often use the phrase “weaning off Wall Street” to evoke these broader horizons.  Still, we and most of our clients remain substantially invested in the stock market, even as we seek ever more ways to diversify into all nine zones of the resilient investing map.  In the spirit of looking beyond such readily visible horizons, though, let’s hear from a couple of financial pros who have taken a more radical leap, revamping their entire approach to financial assets in ways that led them to walk away from Wall Street and never look back.

RSF Social Finance has gone all the way, divesting of all publicly traded stocks and bonds, rejecting the institutional standard for setting interest rates, and—interestingly, the hardest of all to complete—severing their ties to too-big-to-fail banks.  President and CEO Don Shaffer explains:

(As) Einstein famously said, “We cannot solve our problems by using the same kind of thinking we used when we created them.” Wall Street is tethered to only one kind of growth, the most relentlessly efficient kind. . . . Are there other ways to structure investment portfolios that are valid for the 21st century?

Shaffer challenges the idea that we need to accept our embeddedness in the system as it is:

If you’re inclined to rant about Wall Street, first check the mutual funds in your retirement account . . . This is the real deal. Figure out how complicit you are—and how comfortable you are with it.  At RSF, our answer is a resounding, “We’re not at all comfortable.”

Would we have a bigger balance sheet today if we had stayed in the market? Yes. Was it in conflict with our core values and the world we believe is possible? Yes.

Shaffer’s short column is well worth a read; in it, he elaborates on the fundamental dysfunction of the trading and banking systems that led to their decision to avoid both. And for a deeper take on why RSF has left Wall Street behind, check out this recent hour-long webinar.

Among kindred spirits, Shaffer points to Leslie Christian, a former Wall Street executive and mutual fund CEO, as “the most innovative financial advisor in America today.”  Christian offers a deep critique of business-as-usual in money management—in particular, she questions a core aspect of the advisor-client relationship:

There is much money and hand wringing to be saved if we can let go of our dream of finding, in advance, the investment that will prove in retrospect to have been the most profitable. Clients can stop paying fees upon fees for a slim and fleeting chance of beating the market. And advisors can start being more transparent about the nature of their services and more straightforward about setting reasonable expectations. . . . (We) find that if we aren’t always seeking the highest “risk-adjusted returns”, it becomes a lot easier and less expensive to do our research. We don’t have to spend time and money making sure we’re getting the best deal. And the truth is nobody knows in advance what the best deal really is.

In fact, we can stop thinking in terms of “deals” altogether if we give up on the drive to outperform. Instead, we can think in terms of mutually beneficial relationships. When we shift to viewing investing as engaging in relationships, we can then focus on developing our own decision-making frameworks to determine how we can recognize and support those relationships with our money. . . .

Christian echoes Shaffer’s commitment to steer clear of Wall Street’s prime directive: “To the extent we expect to maximize returns on our money—even while ‘doing good’—we are exacerbating inequality and ecological breakdown. It is not our god-given right to make money on money.”  Much like Natural Investments’ Andy Loving, who has long advocated seeking a “just return” with high social value, Christian makes the case for why a 2% return on affordable housing is a good investment, and elsewhere, she encourages a community bank to question the lure of “growing to sell”:

Leslie asked whether the bank might instead be kept local and its success measured by how much it deepened its values commitment to its community over a long-term horizon. … While Ken felt he had a moral obligation to investors who wanted to cash out, could the solution be to give those shareholders who wished to exit that opportunity by replacing them with values-aligned shareholders? … It was Leslie’s view that there are more and more investors who would be interested in a perpetual investment in an entity like First Green Bank. And, she said, they are among a growing community in a new world of investment that are questioning whether “grow to sell” strategies are in the best interest of the long-term health and sustainability of our economy.

The questions being asked by Shaffer and Christian are ones that resilient investors will want to be asking themselves as well.  There are many ways to push the system forward while staying true to your values, and some people may feel less ready to trade somewhat higher financial returns for broader social returns and purer ethical standards.  But for many of us, the examples being set by these trailblazers stand as shining lights, guiding the way along new paths that can reshape our expectations, and our world.

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Comments (2)

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    Mela Macquarrie

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    Message to Michael Kramer, ” We are ready to pull back a little bit on our equity investments for all our needs based on getting the highest returns.” This article voiced what we hold to be true in our fulfilling our rentals and partnerships in ownership of our business, The Garden Compound, mainly that building the relationships is the key most important job we have. We appreciate the language and the clarity of this article. And are focussing our marketing efforts on blogs that express our greatest concerns and accomplishments toward sustainability…..hope this is relevant to you. It was for us. Thank you. Mela and Doug

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      Jim Cummings

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      Hi Mela, and thanks for chiming in. I’m not sure Michael will happen upon this comment, but of course you can let him know directly. I think you’d also enjoy Andy’s article on “Just Returns” from the NI newsletter awhile back. Hope you and Doug are doing well; I’m now in Maine for a parental care chapter, enjoying the landscape of my youth and being closer to my kids—so like you, focusing on the personal/social close-to-home realm.

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