You have seen the TV advertisements. Wall Street markets competence, trust, and services that help you achieve your financial goals. You have also seen the headlines documenting Wall Street abuses that have cost investors hundreds of billions of dollars. Which one do you believe, the ads or the headlines?
Wall Street is trustworthy or its not. I believe the headlines because regulatory agencies (SEC, FINRA, states) have documented one Wall Street abuse after another. When the most prestigious firms on Wall Street (Goldman Sachs, Citigroup) are ripping off investors you know the industry is not the trustworthy source of advice and information that its advertisements say it is. Continue reading →
You are interviewing an investment advisor who can help you achieve your financial goals – in particular, retirement goals that will determine when you retire and your standard of living during retirement. What could be more important than that? You really like an advisor’s personality and communication skills. He understands your needs and says what you want to hear when you select an advisor.
How do you know this advisor is not a skilled sales person who knows how to develop relationships and develop trust so people buy what he is selling? You don’t know and you may not know for several years when you have the benefit of 20/20 hindsight. By then it is always too late. The advisor has earned thousands of dollars of income from your assets and you have a lot less money than you should have.
How real is the problem? More than 50% of investors terminate new advisors within three years when expectations do not match what they were sold. Following are five tips that will reduce your risk of selecting the wrong advisor. 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 →
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 →
The media refers to all of the initials after an advisor’s name as “alphabet soup”. Sometimes the initials are referred to as designations. Other times they are called certifications. I am going to use certification when I refer to them. Financial advisors acquire certifications when they accumulate specialized knowledge that increases their competence. Most advisors use the initials to prove they are experts in their fields. For example, a CPA knows more than an accountant who is not a CPA.
However, what if an advisor purchased several certifications so he appears more knowledgeable than he really is? This is a major problem because the advisor is using a deceptive sales practice to get you to select him. Let’s call the tactic what it is – misrepresentation that violates industry regulations. Do you want this type of person controlling or influencing the investment of your assets? Absolutely not! Continue reading →
Advisors know you want the highest possible investment returns that are consistent with your tolerance for risk. If you are in your 30’s this could be an all equity portfolio of aggressive growth stocks. If you are retired your portfolio could consist of securities that produce the greatest amounts of income. Most advisors believe performance is the key to winning new clients.
On the other hand, financial advisors do not have track records. Only money managers have track records because they provide the same services to multiple clients. Advisor services vary by client so they do not have track records or at least they don’t have legitimate track records. So how do they market their services to investors who put a major emphasis on performance? 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 →
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 →
There is no ambiguity in the role of car salesmen. They use a combination of sales skills, test drives, and data to convince you to buy what they are selling. They make money if you buy. They make nothing if you walk across the street and buy from another dealer. This all or nothing reality is the primary reason why people do not like shopping for cars at dealers. The salesmen are aggressive to a fault.
You do not expect car salesmen to be automotive engineers who know what is best for you. This would be an unrealistic expectation. In fact, there is an old adage in the car business: People don’t have to know how the car is built to sell it to you. Consequently, car salesmen can be successful with very little knowledge about the products they are selling.
Like car salesmen, financial advisors are paid commissions to sell products. They make money if you buy. They make nothing if you buy from another financial advisor. Similar to car salesmen they can be very successful even though they have very little knowledge about investments and insurance. They just have to know more than you do. Continue reading →
You have a choice! You can control the process you use to select a financial advisor or you can let advisors control the process. Because you may not have a process, advisors are more than happy to step-in and provide one that helps them sell financial products.
Advisors use a four step sales process to gain control of your assets. First, they want you to like them. Second, they know you trust people you like. Third, they use trust to convince you they are financial experts. Fourth, once you believe they are experts they know you will buy whatever they are selling. Virtually every advisor in America uses some variation of this sales process because it works. Continue reading →