The Business Ethics Blog

A little over a month ago, I took an easy jab at purveyors of the paranormal, and wrote about Psychics as (Unethical) Financial Advisors. I was reacting to reports that, in tough economic times, folks were turning more frequently to so-called psychics for advice on money.

These psychics and fortune-tellers — businesses — are taking money in return for…well, what? Certainly not reliable information or guidance. Entertainment? Maybe. … [S]ometimes fools need to be protected from themselves, and the fact that their customers are fools (or simply uneducated) doesn’t make these scam-artists any more ethical.

Basically, these people are charging for something — namely insight — that they don’t actually have. It’s a form of fraud.

Well, psychics might be the easy target, but financial advisors who rely on less-spooky sources of insight can also provided flawed advice. Check out this bit from Business Week: The Worst Predictions About 2008…

Here are some of the worst predictions that were made about 2008.
…
1. “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
…
2. AIG (AIG) “could have huge gains in the second quarter.” —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
…
5. “No! No! No! Bear Stearns is not in trouble.” —Jim Cramer, CNBC commentator, Mar. 11, 2008

All three (and seven more noted in the Business Week) piece turned out to be not just wrong, but spectacularly wrong. Of course, hindsight is 20/20, and a commentary like this one — focusing only on one bad prediction from each person quoted — doesn’t help us evaluate the predictor’s overall reliability. (Probably some of the people quoted in BusinessWeek should have known better; for others, the bad prediction was likely a low point in a string of good predictions).

So, question for discussion: if you’re in the business of making such predictions and guiding people’s investments, how reliable does your advice have to be before you can, with a clear conscience, offer it for sale to sometimes-unwary clients?