You have seen the headlines. Wall Street firms have paid billions of dollars of fines for cheating or defrauding investors. You may have disregarded the headlines because they did not impact you. But, the headlines are not the only risks that are created by Wall Street. There are other risks and there is a 75% probability one of them is impacting you.
These risks are created by deceptive sales practices that lower quality advisors use to sell investment and insurance products. Continue reading
There are actually two questions in the heading of this blog post. Who are the financial advisors and what does it mean to be independent?
Just about everyone who sells financial advice, services, and products refers to themselves as advisors. However, from a licensing and registration point of view advisors have some very specific characteristics that distinguish them from other types of professionals.
A financial advisor is registered one of two ways. They may be Registered Investment Advisors (RIAs), which means they own their own firms. Or, they are Investment Advisor Representatives (IARs), which means they are registered with an RIA. This is a critical distinction because only RIAs and IARs are permitted to provide financial advice and ongoing services for fees. So if you believe, the way I do, that fees are the appropriate way to pay for financial advice, then you should select an RIA or an IAR. Continue reading
Financial advisors know people want superior investment performance for reasonable risk and expense. Advisors use a variety of sales tactics for making this claim and the less ethical the advisor the bigger the claim. For example, an advisor may claim his performance ranks in the top 1% of all advisors in the country. The claim is verbal and no documentation is provided so this is a safe sales tactic for the advisor. If investors are gullible enough, they may just select this advisor based on a false claim of high performance for low risk and expense. Remember, 11,000 people turned their assets over to Bernie Madoff. Continue reading
Financial advice is supposed to be suitable if your provider is a stockbroker and in your best interests if your advisor is an Investment Advisor Representative (Financial Fiduciary). The regulations do not say the advice you receive has to be competent. This would be a stretch for an industry that has no education or experience requirements for advisors. In fact, the minimum age to be an advisor is 18 and convicted felons can obtain securities licenses. This is the industry that wants to invest your retirement assets. Continue reading
The Chicago Booth/Kellogg School Financial Trust Index’s most recent quarterly report showed only 21% of Americans trust the financial system in the U.S. This is the lowest point since the financial crisis started in 2007. And, this study was conducted before the Libor scandal and JPMorgan’s latest acknowledgement of billion dollar trading losses. The combined impact of these two events will reduce this trust percentage even more.
According to Luigi Zingales, a professor at the University of Chicago’s Booth School of Business and co-author of the index, “This suggests that the national banks may be ‘too big to trust”. I could not agree more. The major banks are out of control. Continue reading
There is a one-page document that would stop Wall Street’s most deceptive sales practice in its tracks. Investors should ask for this document every time they select a new financial advisor. However, most investors don’t know what they don’t know. In this case they don’t know they can require the one-page document from advisors who want to control the investment of their assets.
What is Wall Street’s most deceptive sales practice? 75% of all so-called advisors are really sales representatives who are paid commissions to sell investment products. However, they are not required to disclose this fact to investors. They claim to be financial planners, financial consultants, and even financial advisors to camouflage their actual role of sales rep. Why hide this role? Investors do not want sales reps investing their assets. Consequently, there would be increased sales resistance if they knew the truth. Continue reading
The media calls them “alphabet soup”. Investor Watchdog’s record is reviewing the credentials of an advisor who had 28 letters after his name. The soup I am referring to is the letters that represent certifications, designations, and accreditations that appear after advisors’ names.
We are all familiar with the well-known CPA® (Certified Public Accountant™) designation. Less well known is CFP® (Certified Financial Planner™) designation. And, even lesser known is CFA® (Chartered Financial Analyst™), a very highly regarded designation that can take three years to obtain. Continue reading
Advisors know you want high performance. Some investors even want high performance for low risk (does not exist). If you are a more experienced investor you want competitive returns for reasonable amounts of risk and expense. How do you know if your returns are competitive? You have to compare your return to the returns of other investors with your same characteristics or to the returns of a relevant benchmark (See Performance Benchmarks).
The question is, how do you determine the performance you can expect from an advisor before you select him? This paper provides some important tips about performance and track records. Continue reading
Misrepresentation does not sound like the onerous business practice that it really is. It is lying for personal gain and it is endemic in the financial services industry.
Financial advisors are supposed to tell the truth. But, what if the truth causes investors to reject their investment recommendations? What if the truth caused you to terminate your relationship with them? They may pay a hefty price for telling the truth. Their alternative is to lie, by providing false information, and hope you don’t find out. This is a pretty safe bet for the advisors because very few investors have a process for gathering and evaluating advisor data. They let the advisors control their selection and investment decision processes because it is easier. Continue reading
My local newspaper has several advertisements per week that invite investors to attend free seminars for a broad range of financial topics. Most of the seminars offer solutions for major financial problems like saving for retirement and increasing income during retirement years. Some of the seminars include a free meal as an additional inducement for attending.
Advisors know you are less likely to attend seminars that are designed to sell investment and insurance products. So their ads say the seminars are for educational purposes only and no attempt will be made to sell any type of financial products. This falls into the category of Deceptive Sales Tactics. Continue reading