James BodeRecently, Morgan Stanley was fined $15 million by the Securities and Exchange Commission (SEC) for compliance failures that allowed four of its financial advisors to misappropriate millions of dollars from client accounts over a seven-year period.
These advisors orchestrated unauthorized Automated Clearing House (ACH) payments and wire transfers, diverting client funds to cover personal expenses, including credit card bills and transfers to private accounts. Despite implementing fraud detection systems in 2015, Morgan Stanley failed to adequately test and validate them, leaving the fraudulent activities unchecked for years. This case highlights a glaring lapse in oversight and underscores the critical importance of client asset protection through robust compliance measures.
Yet the real takeaway from this story extends beyond Morgan Stanley’s missteps into the overarching realm of financial advisor fiduciary duty.
Pandering to Investor Fear
While the Morgan Stanley case is undoubtedly a gross display of criminality and negligence, it’s not an isolated incident.
Misappropriation of client funds — whether through outright fraud or the subtle erosion of wealth due to systemic failures — happens every day in our industry. The culture that enables this behavior goes far deeper than any one case.
Take, for example, the messages that dominate our industry’s advertising. Ads touting “Mitigation of Downside Risk” or “Solutions to Reduce Volatility” have become commonplace. On the surface, these campaigns seem well-intentioned, offering investors tools to navigate uncertain markets. But dig deeper, and you’ll see they feed into a broader culture of pandering — a culture that equates volatility with risk, preys on investor fears, and prioritizes short-term comfort over long-term success.
This linguistic sleight of hand — the interchangeable use of “volatility” and “risk” — blurs the line for investors.
Volatility vs. Risk in Investing
Volatility, in contrast to how many of these ads define it, is simply the natural ups and downs of the market. Volatility is temporary. It is not risk.
True risk is the degree of possibility of a permanent loss of capital or, at a minimum, a material decline in one’s future standard of living. Yet our industry persistently frames volatility as something to be feared rather than as the cost — and the cause — of equities’ long-term premium returns.
This narrative doesn’t just come from marketing — it’s institutionalized.
Compliance functions, for example, are designed not to help investors succeed but to shield firms from liability. They don’t ask, “How much temporary volatility can you handle before you panic?” Instead, to meet financial advisor compliance expectations, they ask, “What is your risk tolerance?”
This question is loaded with assumptions and shaped by a culture that has conditioned investors to fear volatility. And when investors respond as expected — indicating a low tolerance for “risk” — they’re often placed in portfolios that are too conservative to meet their long-term needs.
This approach has consequences.
Pandering to a Low Tolerance for “Risk”
Building a long-term investment strategy around a low tolerance for “risk” has consequences.
When compliance dictates overly cautious portfolios, clients are at real risk — not from market downturns but from running out of money in retirement. It’s a cruel irony: in trying to shield clients from temporary discomfort, we often expose them to permanent financial insecurity.
But the solution isn’t to pander to these fears. It’s to address them head-on.
Our job as advisors isn’t to change the portfolio to suit the client’s misconceptions. Our fiduciary duty as financial advisors is to change clients' mindsets, helping them develop the resilience and perspective needed to endure volatility and reap the rewards of long-term investing.
This means teaching clients that uncertainty is not the enemy — it’s the engine of growth. It means guiding them to see temporary declines as opportunities, not threats. And it means helping them embrace discipline and patience, even in the face of inevitable market setbacks.
Leveraging a Long-Term Investment Strategy
Consider this: there have been three periods in the last 50 or so years where a properly diversified equity portfolio has been cut in half. Investors who have understood the true nature of risk and have accordingly built their portfolio — and their mindset — have reaped the long-term benefit by enduring these uncomfortable market downturns.
The key isn’t reducing volatility; it’s building resilience. It’s knowing that market declines will end and having the confidence and discipline to stick to a long-term investment strategy.
Therefore, successful investing is most closely correlated to temperament rather than intellect. Success isn’t about predicting markets or tweaking portfolios to avoid volatility — it’s about cultivating the emotional fortitude to ride out uncertainty and stay the course.
Our Financial Advisory Fiduciary Duty
This is where our industry has the greatest opportunity — and the greatest responsibility.
Instead of pandering to clients’ fears, we must empower them to rise above those fears. We must teach them to view volatility not as a risk but as the price of admission for long-term wealth. And we must lead them to better temperamental values, chief among them tolerance for ambiguity and resilience in the face of setbacks.
At Beck Bode, we’ve chosen to stand against the culture of pandering.
We don’t promise certainty because certainty is a mirage. Instead, we promise to guide our clients through uncertainty with discipline, perspective, and confidence. We don’t change the portfolio; we change the person. And in doing so, we help our clients achieve not just financial success but personal growth.
This approach to investing is not the easiest path, but it’s the right one. It’s the path that leads to lasting wealth — not just for our clients, but for their children and grandchildren.
Because at the end of the day, our job isn’t just to manage money. It’s to change lives.
Interested in learning more about our investment and wealth management methodology? Reach out to us; we’re always happy to chat about what makes ours a deliberately different firm.
Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.
