Tag Archives: Transparency

Is more scrutiny of investment advisers needed?

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Obama wants to expand the SEC’s budget by a few hundred million dollars so it can increase the frequency of financial advisory firm audits and expand other oversight functions. This sounds more like political posturing than a real solution to a major problem.

Auditors find problems after the money is long gone. What investors really need is a solution that prevents the money from disappearing in the first place.

One low cost solution would be to require full transparency by financial advisors and the firms they work for. Then provide an easy, free way for investors to validate the accuracy of information that is provided to them by advisors.

This will not happen. Wall Street spends millions on lobbyists fighting regulations that would mandate full transparency. There is a lot of information Wall Street does not want investors to have – for example, information that exposes deceptive sales practices. Bad advisors and scam artists will continue to flourish as long as Wall Street is successful withholding information from investors.

Keep in mind, the SEC and FINRA let this happen. What are your thoughts?

What is Full Transparency for Financial Advisors?

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Financial advisors and financial planners practice full transparency when they provide investors with accurate information that describes their credentials, ethics, business practices, compensation, performance, and investment expenses. More importantly, they don’t withhold information that may cause investors to reject their sales recommendations or terminate their services.

A very low percentage of advisors practice full transparency. They can’t afford to. Full transparency could cost them money. Instead, they provide information that makes them sound like trustworthy financial experts and they withhold any information that may damage the perception they are trying to create.

Wouldn’t you want to know the experience, credentials, ethics, and business practices of the financial professional managing your money? Seems like a no brainer.

There are Three Types of Financial Advisors

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Due diligence is the process investors use to gather and evaluate financial advisor information before they sign a contract or invest assets.

Full disclosure is a financial advisor business practice that is based on the professionals’ willingness to provide complete, accurate information to investors. Based on these descriptions, there are three types of advisors.

High quality advisors practice full disclosure because they have nothing to hide. Your questions can cover Education, experience, certifications, compliance record, criminal record, conflicts of interest, and investment expenses.

Then there are advisors who practice partial disclosure. They volunteer information that makes them look good and they withhold information that makes them look bad. These advisors are dangerous because you don’t what information is being withheld and more importantly why it is being withheld.

The last group of advisors practice non-disclosure. They use personalities and sales skills to market investment and insurance products. They hope you do not ask them meaningful questions and if you do they use four deceptive sales tactics to avoid providing truthful responses: Omission, misrepresentation, exaggeration, and verbal responses so you have no documentation.

Full Transparency Scares Wall Street Executives

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What is full transparency when you buy investment advice, recommendations, and products?

Transparency occurs when investors are provided an easy-to-read document that contains all of the facts they need to make an informed decision when they select advisors and invest their assets.

Wall Street spends millions of lobbyist dollars per year fighting transparency. Corrupt politicians who are more interested in Wall Street money than serving the interests of the American public make sure regulations favor companies and not investors.

What is Wall Street afraid of? In a nutshell, companies are afraid investors would not buy what they are selling if they knew the truth. Transparency would damage revenues and profits of companies and the bonus compensation of the executives who run the companies. Wall Street’s solution is to keep investors in the dark.

So what are they hiding?

How about financial advisors who lack experience, education and certifications? Or, advisors who have numerous investor complaints on their compliance records?

How about financial advisors who use deceptive tactics in verbal sales pitches so investors have no written record of what was said to them.

How about investment products that that have excessive expenses and poor performance?

How about “beat the market” investment products that have never beaten the market?

In January, 2012, Investor Watchdog is going to begin providing free tools that investors can use to obtain the information they need to select and monitor quality advisors who are willing to practice full disclosure. Watchdog tools will also expose advisors who withhold important information from investors.

Watchdog tools have the potential to change the game in favor of investors.

Do broker or advisor steer clients

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Ameriprise to pay $17.3 million to settle case with the SEC. http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090719/REG/307199991&ht=ameriprise

One of the things that clients or prospective clients need to do is ask why a particular investment was recommended. Many people do. What they don’t ask however is how much do you get paid to recommend that investment. They should know how their advisor or broker gets paid. They should know if their are different ways to invest. Investors have a right to know how much they are paying for any product or services. What the industry needs more than anything else is transparency.