Fyre and Fury
Billy McFarland had a smile that engulfed his entire face. His smile was accompanied by a Maserati, expensive suits, and a penthouse or two. He was described as ‘uncannily persuasive’. “This was Billy’s charm. He could just sell you on anything.”
Billy is a con-man, now serving 6 years in prison for defrauding investors out of $27.4m, mostly as a result of the failed Fyre Festival.
I just watched the Netflix documentary ‘Fyre: The Greatest Party that Never Happened’. I remember the saga unfolding at the time, but the documentary does an admirable job exploring the more complex emotional and societal dynamics that were at play. I highly recommend watching it.
Billy had promised rich millennials the party of a lifetime – private jets, super yachts, luxury villas, food cooked by celebrity chefs – on a tropical island in the Bahamas. The promo video featured models frolicking in crystal clear waters, and I have to say, it looked pretty fantastic. It was promoted by ‘influencers’ on Instagram. Kendall Jenner is reported to have been paid $250,000 for a single post. The rapper Ja Rule was Billy’s co-founder.
As the party approached it was clear to everyone involved that Billy had bitten of way more than he could chew, but the 27-year old refused to turn back. It was the ultimate display of ego and hubris. Guests turned up to find luxury tents were in fact leftover disaster relief tents with mattresses which had been soaked by heavy rains the night before. The food was stale bread and plastic cheese served in polystyrene boxes. The event was cancelled by email after the guests had arrived leaving many stranded on the island. No one received any refunds.
At the time, the duped millennials were ridiculed on social media – it was hard to feel too much pity for the rich 20-something year-olds. But what was not clear at the time were the repercussions of the event for the local Bahamian population who had worked for months (many drafted in from Nassau) and were never paid. Some lost their entire livelihoods.
I always talk about how many unscrupulous people there are in my industry. But what really struck me whilst watching the film was that there are unscrupulous people in every industry. Financial services is not an exception. We humans are social, herd-like, creatures and we have been getting duped since the beginning of time and will continued to get duped for ever more. Whether it’s guaranteed returns of 12% per annum, or a luxurious festival on a deserted Caribbean island with no infrastructure to support it, humans will fall for it. We want to believe. And when you throw in an air of exclusivity, we don’t want to miss out.
The whole story could have just as easily been about a hedge fund or a company (think Theranos). There was even a whistle blower – Calvin Wells, a venture capitalist, who cottoned on to what was afoot and created the twitter account @fyrefraud. He was the equivalent of a short-seller. His motivation wasn’t all together clear, but I’d like to know more.
Separating consumers from their money seems to be considerably easier if you surround yourself with the right people, wear the right clothes, drive the right car. It’s social proof in action. Robert Cialdini coined the term ‘social proof’ to describe how we follow the actions of others in an attempt to reflect the “correct” behaviour for a given situation. Our urge to conform or follow the lead of people in authority, trendsetters or simply people “in the know” is the social glue that binds people into a herd. Billy understood this, as did every other con-man (or woman) who walked the earth before him.
Billy was unable to deliver on his promises and his only real interest was his bottom line. Sadly, that’s the case with many financial advisors. How can you protect yourself from the next Billy who turns up in a nice suit, driving a nice car and seemingly having all the answers?
Here are some red flags to watch out for:
1) No certification. If you are employing someone to manage your money because you don’t have the expertise or time to do it yourself, surely you want that person to have some credentials? Whilst credentials (the CFA and CFP are the main two) don’t guarantee ethical behaviour, they do show that someone has the technical expertise to deliver on their promises.
2) Lack of transparency. Advisors can get paid in a number of ways. As a consumer, you must understand how they are getting paid and ensure that their incentive structure aligns with your best interests. Selling products for a commission does not align with your interests. I recommend asking two questions – 1) how do I pay you? and 2) how are you compensated? The answers to those questions should be the same. Mostly they are not. If you cannot understand how they are paid, that is a MAJOR red flag.
3) They pressurise you. If you feel pressured by an advisor, it’s most likely because they have sales targets to hit or are being paid commission to sell a particular product. If this happens towards the end of the year, it’s a double red flag.
Ultimately, the party-goers bought into the hype and exclusivity. People often buy investments for exactly the same reason. As with Fyre it’s a combination that can very easily leave you stranded and feeling somewhat foolish.