There is a large number of investors who believe anything their advisors tell them because they have personal relationships. They like their advisors and they inherently trust people they like. And, investors do not question the advice of people they trust. This is a license to steal for unscrupulous advisors who take advantage of investors who trust them to maximize their own incomes.
It is unfortunate, but a lot of investors have trouble believing people they like will take advantage of them to make more money. Ask yourself this question. Do you really believe your current advisor would voluntarily provide information that would get him fired – for example, bad performance, high expenses, excessive risk, or conflicts of interest? The answer is absolutely not! His income would stop and you might file a complaint with one of the regulatory agencies. If the abuse was bad enough, it could cost the advisor his job. It is much safer and rewarding for the advisor to withhold this information from you. Continue reading →
The greatest thing about defined-benefit plans was that workers didn’t have to do anything other than show up for work to get the desired result: a guaranteed income for life. It was a good system in that most workers didn’t want responsibility or control, just a secure retirement.
The defined-benefit plan is gone, and it’s not coming back. It’s been replaced by the 401(k), an accidental solution to the retirement problem. As a replacement, it’s been a dismal failure. The worker is still just looking for a secure retirement with little to no input required. Unfortunately, very few workers are on track to get that these days. Continue reading →
The employer’s obligation for the pension plan doesn’t end when they write the check. It begins.
Without any thought or planning the 401(k) has become America’s pension plan. The days of guaranteed retirement income for life are long gone, and along with them the financial security that the traditional pensions plan provided.
The 401(k) solution is deeply flawed. The widespread failure of 401(k) plans to provide adequate retirement income security for American workers has caught the attention of the courts, regulators, the administration, Congress, academics and participants. Continue reading →
Fee-Only, Independent, Registered Investment Advisors are an entirely different animal than the brokerages, broker-dealers, insurance companies, and banks that have traditionally dominated the investment advice market.
The traditional commission based sales model is fatally flawed and cannot be fixed. It’s almost impossible to provide fiduciary standards of investment management if the advisor is commission based. External influence and production pressure make any recommendation suspect. The investor’s best assurance of objective advice is the ironclad separation between the advice and brokerage functions. This is why we think fee-only compensation is so important. Do you really want to pay for tainted advice? Continue reading →
Market Risk and Behavior Risk are well known and frequently discussed. But, there is another type of risk that is often overlooked; The Advisor Risk.
Investors that recognize that they don’t have the time, knowledge or inclination to deal with market risk, and/or the discipline to deal with their own behavior risk may seek advice, and unwittingly run into a third level of risk: The risk that their advisors are either not working in their best interest and/or are incompetent. This third risk is little discussed or appreciated. But, advisor risk is not trivial. Countless investors that delegated their investment decisions to so-called professionals have been devastated during the recent bear market. Continue reading →
I read a great article this weekend that appeared in the Your Money section of The New York Times. The article was titled “The Perils of Finding a Conflict-Free Financial Adviser” and was written by Tara Siegel Bernard. It is pretty obvious, by the content of the article, that Bernard knows advisers and the tricks of the trade.
Her article starts by describing how difficult it is to identify advisers who are required to put investor interests ahead of their own. They are out there, but they are hard to find. These advisers are registered as Investment Advisor Representatives (IARs), which make them financial fiduciaries who are held to the highest ethical standards in the financial service industry. Perhaps one out of five advisers are IARs. Continue reading →
Whistleblower law firm Labaton Sucharow released a survey on July 10, 2012 that showed 25% of Wall Street executives see wrongdoing as a key to success. The survey included 500 senior executives in the United States and the UK. 30% also said their compensation plans created pressure to compromise ethical standards or violate laws. The survey confirms something I already believed. Wall Street has to cheat to win because it cannot meet the investor expectations it created with slick marketing and personable financial advisors. Continue reading →
Two years ago the most important concern investors had about financial advisors was their ethics. Could investors trust advisors to provide complete and accurate information that was free of any potential conflicts of interest? Major losses in 2008 and continuous headlines documenting scams and deceptive sales practices fueled their concerns.
Now, the biggest concern is the advisors’ ability to produce competitive performance for reasonable amounts of risk and expense. This new #1 concern is also not surprising. Four years after the 2008 stock market crash, investors are still trying to win back their losses. And, performance is their principal way of getting their assets back. 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 →
Thousands of stories have been written about Wall Street’s sales culture and how it damages investors. Part of the culture’s foundation is the sales tactics that financial advisors use to sell investment products. It is easy to see the damage that is produced by this culture: Bad performance, excessive risk, high expenses, and unmet goals.
Withholding or deliberately omitting pertinent information violates industry regulations (FINRA, SEC). However, omission is impossible to control because all of the information is verbal. Investors make a huge mistake when they do not require documentation for key advisor information. They have no record of what was said to them, so they have no record of what was not said. Continue reading →