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
Stockbrokers, who sell investment products for commissions, tell investors they are financial advisors because it reduces sales resistance and improves their odds of making sales. They are breaking an industry regulation when they call themselves advisors, but the claim is verbal in a sales pitch. Investors have no record of what was said to them so the sales reps get away with it.
It is easy to recognize stockbrokers and other types of sales reps. They have two distinguishing characteristics that are difficult to hide. You just have to know the right questions to ask. First, “What licenses and registrations do you hold?” And second, “How are you compensated for your advice and services?” The advisor is a sales rep if the answer to the first question is a Series 6 or 7 license and the answer to the second question is commissions. 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
In a recent Charles Schwab study titled Independent Advisor Outlook Study, 63% of advisors say it will be difficult for investors to achieve their retirement goals. The study cited a partial list of problems that included: A historically high federal debt, high unemployment, and rapidly growing college and health-care costs.
Sitting in the background are additional causes for concern such as rising longevity, the demise of the defined benefit pension plan, and low saving rates compared to other developed countries. One of the biggest issues is the rise of defined contribution plans, such as 401k, that transfer investment performance risk to employees. Many current retirees enjoy the guaranteed benefits of a pension plan. Their children and grandchildren will not be so lucky. 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
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
Wall Street does not want you to know there are two primary types of people who sell financial advice and services. One is a sales representative (rep) who is limited to selling investment products for commissions. The other is an advisor who provides financial advice and ongoing services for fees. Wall Street knows you do not want sales reps handling your assets, so it does everything it can to obscure the key differences between reps and advisors.
You can avoid many of Wall Street’s shadiest business practices if you select a professional who is a financial fiduciary. Following are five reasons why this is true. Continue reading
One of the most frequent sales tactics that is used by financial advisors is convincing you they are financial experts. This is a critical step in the sales process because advisors know you do not question the advice of experts. You will buy what they are selling because they are experts.
What if the advisors were not financial experts? How do they convince you they are experts? Another popular tactic is to use words they believe you won’t understand. After all, one definition of an expert is a person who knows more than you do on a particular topic. The use of confusing terms helps advisors convince you they are financial experts. Continue reading
Wall Street is a marketing powerhouse. It knows how to manipulate investors for its own benefit. No matter how smart and sophisticated you think you are, all of those PhDs on Wall Street are smarter.
One popular Wall Street tactic is to blur differences to benefit itself. For example, can you tell me the difference between investment “advice” and investment “recommendations”? Would you believe there is a huge difference?
Investment advisors who are Registered Investment Advisors or Investment Advisor Representatives can provide financial “advice”. Stockbrokers, who hold Series 6 and 7 licenses, are not allowed to provide investment advice. They are limited to making investment “recommendations”.
If you want a real advisor you have to select a professional who is a Registered Investment Advisor or an Investment Advisor Representative.
This is a great question that has no easy answer.
We know investors need the services that are provided by the financial services industry. We also know, compared to Wall Street, investors really are powerless. This does not bode well for meaningful change.
Wall Street executives are protected by influential politicians who pass regulations that protect the executives from prosecution when they defraud investors. Instead of jail time for executives, Wall Street companies are allowed to pay fines without admitting guilt.
Can investors stop these two corrupt entities from working together?
Investors are voters. They can get rid of the politicians that pass regulations that protect Wall Street executives. However, history says this is not likely to happen. Investors believe they are powerless so they accept the consequences of corrupt business practices with barely a peep.
A more practical solution is for investors to stop buying products from major Wall Street firms. They should begin using the services of small, independent Registered Investment Advisory firms that are required to put their financial interests first. These firms do a better job than their Wall Street counterparts for less money.
Investors may not be able to change Washington, but they can stop doing business with Wall Street Robber Barons that have long histories of cheating investors to maximize their own incomes.
If you won’t use the ballot box, then vote with your assets. Move them to investor friendly, independent firms.
This would be a worthy cause for Occupy Wall Street if they can get their act together.