The Mental Status Examination is the universally accepted method of observing and describing a psychiatric patient’s current state of mind.  The components of the Mental Status Examination are appearance, attitude, behavior, mood and affect, speech, thought process, thought content, perception, cognition, insight and judgment.  The last two components, “judgment” and “insight,” are the most fascinating to me, as deranged judgment and poor insight explain why smart people do dumb things.

Judgment: the patient’s capacity to make sound, reasoned and responsible decisions. Traditionally, the MSE included the use of standard hypothetical questions such as “what would you do if you found a stamped, addressed envelope lying in the street?”

There are many smart, rational people who get suckered into paying high investing fees.  After all, we are bombarded with commercials featuring affluent clients talking about how their financial advisor helped them reach their financial goals.

The advisory fees and expense ratios all seem reasonable in the context of the firm’s glossy pamphlets, wood-paneled offices, and big leather chairs. But then you start reading about the differences between pricey firms staffed by glorified salesmen versus low-cost fiduciary advisors who have your best interest at heart.

Most investors know their financial advisors take a percentage for managing their portfolios, but they probably didn’t know the mutual fund industry is also giving these advisors commissions for pushing specific equity mutual funds, unbeknownst to investors….I’m not talking about front-end load fees. I’m referring to commissions and bonuses that financial planners get after they put their clients into these funds.

-“Confessions of a Financial Advisor,” CNBC

The news that you got suckered by the slick marketing paid for by the exorbitant fees charged to its clients doesn’t necessarily mean you have poor judgment.  After all, over 15% of UBS advisors and over 15% of Wells Fargo advisors were disciplined for misconduct.  This figure is staggering.  Taking this one step further, what’s to stop any advisor from taking as much as they can get away with (without getting arrested)?

While your advisor is likely abusing your trust, you need not feel victimized.  You can respond to this new information and take action, demonstrating to the world that you have good “insight” into your situation.

Insight: A person’s understanding of his or her mental illness including recognition of the problem, understanding of the treatment options, and the ability to acknowledge unusual mental events (such as delusions and hallucinations) as pathological.

What does it mean when a duped client fails to rescue their brokerage account?  While these same people spend an extra hour to save a couple bucks on toilet paper at Costco, they willingly allow strangers to swipe an extra 2% of assets every year in advisory fees, expense ratios, hidden kickbacks, and extra capital gain taxes from churning portfolios. Trapped in their delusional world, these advisory clients, who are more fixated on toilet paper prices than advisory fees, lack the insight to take the simple remedy placed before them.  They are mentally ill.

— AK