Once again, Wealth Management brings you the 10 best business books for financial professionals published this year. We considered over 200 new titles to curate the business books most focused on the needs of wealth management professionals. Unlike previous years, 2017 did not produce a blockbuster finance book (think Thomas Piketty’s Capital in the Twenty-First Century, 2015). That void allowed us to go far afield to recommend deserving books that help you do your job better. Some are written by practicing advisors for practicing advisors, some expand on new understandings of finance and behavioral economics, and others focus on personalities and current events. All will help you gain an edge in your profession. Most of the books are available in hardcover, softcover, e-book and audio book versions. Many feature websites and podcasts to further expand on the content and encourage engagement with the authors. Lastly, as always, we looked for one novel whose fictional themes offer lessons just as pertinent as nonfiction titles. This year, we chose a satire that skewers socially conscious investing and the entire wealth management industry. Happy reading.
This book is a literary look at finance that references dozens of pieces of wisdom, brightly illustrated with stories we are all familiar with, including Mel Brook’s The Producers. All the stories are in service to the author’s main point: that finance has been divorced from the humanities, creating a world that is hostile to financiers. First off, Desai explains the difference between finance and accounting. While both attempt to measure value, accounting is inherently backward-looking, concerning itself with what has been, and finance is completely and ruthlessly forward-looking. “The only source of value is the future,” the author reminds us. Desai, a Harvard professor, explains insurance by calling on the concepts of marriage strategies described in Jane Austin’s Pride and Prejudice. He suggests that money managers can find their way back to a more noble profession by “enlivening the ideas of finance through stories that illuminate their lives and work.” Desai embraces the idea that in finance people can find value and even nobility.
If you wondered why only one obscure banker went to prison after the 2008 financial meltdown, this book provides the lamentable facts. The title derives from an encounter James Comey, the former director of the FBI, had with Justice Department prosecutors. Comey asked for a show of hands of those who never experienced an acquittal or mistrial. Many hands were raised proudly. But Comey was not impressed. “We have a word for prosecutors like you,” he said. Members of the Chickens---- Club are simply unwilling to take on complicated financial cases with well-represented defendants. Patsies and poor people make easier targets. Eisinger won a Pulitzer Prize for National Reporting in 2011 for his investigative work covering Wall Street wrongdoing. This, his first book, documents a Justice Department that is so loss-averse that it hobbles prosecutors from pursuing any but the most slam-dunk cases. He considers the Justice Department’s inability to hold Wall Street executives accountable as a moral as well as organizational failing. The book argues that starting with the controversial prosecution of Arthur Andersen in 2001, a toxic mix of political pressure and aggressive lobbying subverts the institutional culture at the Justice Department, making white-collar cases too costly for most career prosecutors.
Compared to the toothless and hapless Securities and Exchange Commission described by Norm Champ’s Going Public, the Justice Department described in The Chickenshit Club comes off as a model guardian for the public interest. As a lawyer and hedge fund expert, Champ watched the 2008 financial crisis unfold with horror. In response, he quit his high-paying job and decided that the SEC could use his Wall Street experience to prevent other Bernie Madoffs and Allen Stanfords. Not so fast. Champ was quickly chewed up and spit out by a culture so toxic and inward-looking that it’s a surprise the SEC accomplishes anything of value. This is a very dispiriting account of an agency that investors count on to enforce a level playing field. He is also refreshing in his candor. Champ accurately describes the culture of the SEC as hopelessly undermined by a poisonous brew of civil service protections and public employee union contracts that make it virtually impossible to fire anyone. (It took five years to terminate an employee who simply failed to show up.) On his first week on the job, Champ received an anonymous letter warning him of the furies that will fall on his doorstop should he try to upgrade examiner standards. If the SEC spent as much time policing the markets as it does investigating anonymous accusations against other employees, corruption would be a thing of the past. By the end of Champ’s account, there is a glimpse of hope that the SEC is making baby steps to internal reform. This is a cautionary tale for any Wall Streeter who believes he can make a difference at the SEC.
Mark Twain, well known for his classic American novels The Adventures of Tom Sawyer and Adventures of Huckleberry Finn, considered the income he derived from his writing as a side hustle. From his earliest days, Twain regarded himself as a businessman, entrepreneur and investor. His eyes were always on getting rich. This slim volume recounts just how disastrous Twain’s business acumen actually was. Readers would be well-advised to study Twain’s business strategy and do exactly the opposite. Even in publishing, a field one would think Twain understood, his results were mixed. Yes, he scored big ($11 million in today’s dollars) by publishing the memoirs of General Ulysses Grant, but he then promptly squandered his funds by investing in one hapless invention after another. When an associate of Alexander Graham Bell offered Twain a chance to invest in the telephone, Twain passed, seeing no value whatsoever in the invention. Soon after, Twain installed a telephone in his own home. Twain, the author notes, was the kind of man who didn’t believe a product had much value, but then found it necessary to buy one for himself. With large sums, Twain was totally undependable. But he well understood smaller amounts. Later in his life, when his autograph had value, Twain took to writing multiple checks to pay for purchases. So, if he owed the grocer $3, Twain would write three $1 checks, knowing that the grocer would proudly frame one and sell the other two to friends and neighbors. The checks would never be cashed. That’s one dependable, if gradual, way to get rich.
The invented self has always fascinated. The digital age has just raised the stakes by further obscuring the difference between reality and pretense until, as these three stories demonstrate, it becomes impossible to tease out one from the other. O’Hagan, one of Britain’s most distinguished writers, offers three cautionary tales of the web’s shadiest recesses. If you read just one story, I recommend the narrative describing O’Hagan’s doomed project to ghostwrite a book for Julian Assange, the founder of WikiLeaks. The project is doomed because it’s impossible to ghost the story of a ghost, which is what Assange reveals himself to be. For all of Assange’s celebrity, O’Hagan quickly learns there is nothing there. Assange is revealed, in detail by excruciating detail, to be a narcissist of the first order: deceptive, ungenerous, paranoid and utterly undependable. In the second story, O’Hagan assumes the identity of Ronald Pinn, a deceased Londoner, using digital tactics. Before O’Hagan stops the experiment, Pinn has a driver’s license, checking account, voter card, rented apartment and even a Facebook account with dozens of followers. The final story concerns an Australian tech-geek who presents himself as “Satoshi Nakamoto,” the legendary (no one knows who he is or even if he exists at all) developer of Bitcoin. As advisors engage with clients digitally, it is good to remember how slippery the virtual world can be.
This is a leisurely, well-told tale about the creation and scandalous manipulation of Libor—London Interbank Offered Rate—a benchmark used by many of the world’s leading banks, underpinning countless consumer and commercial loans, as well as mortgages and derivatives. In 2012, Barclays Bank revealed rampant fraud and collusion by member banks connected to the rate submissions. It’s quite an accomplishment for any book to make Libor interesting, but Wall Street Journal writer David Enrich does just that. In colorful profiles of the participants, Enrich dramatizes how the Libor scandal unfolded. In retrospect, corruption was inevitable. Every day, submissions by relatively junior bank employees were rolled up to calculate Libor. The value of each bank’s portfolio was influenced by miniscule fluctuations in the financial benchmark. Is it any surprise that traders tried to influence the submissions in the hope of moving Libor in a direction favorable to their holdings? Everybody seemed to be in on the fix. Pervasive greed and self-dealing overwhelmed anyone who mounted a moral objection to the goings-on, all of which the author recounts with dramatic precision. The book is filled with colorful portraits of the actors and unsparing descriptions of the amorality at the non-existent heart of the world’s largest banks. The book ends with a profile of the fall guy who is fired and then convicted to serve 14 years—an outcome Enrich considers unjust.
Within minutes of the Space Shuttle Challenger disaster in 1986, the stocks of Morton Thiokol, one of the major contractors (along with Lockheed, Martin Marietta and Rockwell International) began to plummet. The New York Stock Exchange halted trading only in Morton Thiokol stock 13 minutes later. By the end of the day, Morton Thiokol stock was down 12 percent. The stock of the other contractors also went down, but not as much, stayed within statistical norms and recovered. How did the market figure out what it took NASA more than five months to determine? It’s called the efficient market hypothesis, and it’s just one of many theories that MIT Management Professor Andrew Lo argues is incomplete. In this very readable book chock full of stories and anecdotes, Lo suggests that Adaptive Market Theory better explains the often bizarre behavior of markets and investors. Adaptive Market Theory first destroys the assumption that people act rationally. The journey to the heart of the theory can be a little bumpy, but for readers who stick, the ride is rewarding. Basically, the heart of the theory is that people develop investing heuristics—rules of thumb—that may be successful, but the environment in which those heuristics are successful is always changing due to the behavior of the individuals as well as to external factors. Examples include a discussion on hedge funds and how the quant meltdown of 2007 played out in a market more fragile than anyone thought possible. But as fun as the book is, I wish it passed the “so what?” test. Readers will be at loss what to change in the rules of thumb they deploy. The book is instructive but short on beating-the-market strategies.
If you appreciate the finely reported articles of The New Yorker, you’ll love Black Edge, the story of the billionaire trader Steven A. Cohen, by staff writer Sheelah Kolhatkar. Cohen is revealed to be a brilliant, ruthless and foul-mouthed trader resembling Jordan Belfort, the trader depicted in the movie, The Wolf of Wall Street. But unlike the hapless Belfort, the subject of Black Edge was too smart to go to jail. The SEC investigated him for insider trading in RCA stock (his wife dropped the dime), but Cohen emerged unscathed. In 1992, he founded SAC Capital and through a series of savvy investments grew it into a $15 billion powerhouse. Much of the book recounts the Justice Department’s most recent attempt to take down a target that had earlier evaded its claws. Cohen once again escaped indictment, although SAC Capital was forced to shut down and he was fined $1.8 billion. Nothing in Black Edge (the title refers to illegal extremes traders resort to in the relentless hunt for “edge”) makes the Justice Department or the SEC look good. Cohen, and hedge fund managers in general, fare no better. The details that Kolhatkar dug up about Cohen reveal a thoroughly miserable boss, husband and human being. This is a book without heroes or—for those invested in the concept of justice—even a satisfying conclusion. Yet it is a fascinating account of the underbelly of investing and the limits of accountability. Wash your hands before hugging your loved ones.
Half the wealth management industry is made up of solo firms. But next generation advisors, whom the author calls G2 advisors, see value in joining a firm that offers professional development, mentoring, rigorous procedures and protocols, a recognized brand and an established clientele. Palaveev, an expert on the management of “ensemble practices” (he coined the term), calls on personal experience to guide both established and G2 advisors in working together for the sake of the clients. Established founders will gain insights into two vexing questions: (1) how to attract, develop and retain the next generation of leaders; and (2) how ensemble practices enable succession planning. The author marshals his own consulting work supported by industry data to encourage founders to trust the legacy they have built to the next generation and to inspire G2s to be worthy of that trust. The author gets into the weeds of practice management. For example, he offers guidance to founders who are considering the delicate question of whether G2 advisors should purchase or be assigned equity shares. Palaveev has walked the walk. He describes bringing a G2 partner into his own consulting practice. The book is a reliable guide for founders who are considering or on a path to partnership with next generation advisors.
At first blush, Investing in Vain is a satirical farce about socially responsible investing run amok in a world of extreme political correctness. And there is much to blush about. Vain Capital creates portfolios that address clients’ restrictions, no matter how absurd. In response to the custodians of the California public employee pension fund, Vain Capital is instructed to create an investment fund managed entirely by gays of every variety of gender fluidity. After many hijinks to identify LGBTGIA money managers, the MaxiGay fund is born. The novel also takes down the quants who dream up increasingly esoteric algorithms for beating the market. William Worsley, a former investment manager, is perfectly positioned to skewer the pretense, hypocrisy, corruption and double-dealing of money management. The novel features hilarious set pieces showing the absurdity of socially conscious investing in a world without values. Warning: the book gleefully trespasses on PC. If you are easily offended by racial and gender stereotypes, you should probably pass. The author skewers religion, male lechery, gay excess, education and even nuns. It’s all done in biting good fun and deadpan one-liners that will make anyone in the finance industry squirm. Example: A quant is asked if his results survive vector autoregression. The response: “Actually, I’m very fond of my results and didn’t want to risk their survival, so I didn’t put them through that.”