Whom Can You Trust For Advice?

If you view most financial advisor websites you will find lots of lofty rhetoric. Phrases like achieving personal goals; finding peace of mind; discovering what you want in life. These words litter the financial planning world but there’s just one big problem…many clients don’t know whom they can trust for advice. In the words of musician David Byrne from Talking Heads, “Same as it ever was”.

Fiduciary; fee-only; fee-based; wealth advisor; financial advisor; financial consultant; investment advisor; and financial planner are just a handful of the terms used by those seeking your trust. For the most part, regulators have succumbed to powerful lobbyists from the securities/insurance industries and allowed the confusing status quo to continue. Same as it ever was.

Elevator Pitch

Traditional financial services firms are sales organizations focused on making money for themselves by pushing expensive investments that don’t help investors achieve their particular goals. Same as it ever was.

Investors often end up trusting people they know or like and lose sight of whether these individuals are brokers or advisors.  The well-rehearsed “elevator pitch” sounds good and the big firms they work for have resources. Well, if you’re interested in just how valuable (or destructive) those resources are to you as an investor, scan this list of Key Statistics from the Securities and Exchange Commission. You will quickly see several pages of big firms charged with misleading investors, defrauding investors, failing to inform investors, participating in schemes, etc. Hundreds of millions of dollars in fines and these same firms want you to trust them for financial advice?  Same as it ever was.

Hook, Line and Sinker

None of us are pre-wired for making good decisions about whom to trust.  Instead, human behavior leaves us vulnerable to making emotional choices that often don’t serve our long-term objectives. Same as it ever was.

The financial sales firms pitch you in much the same way as they did your grandparents. That is, they portray their firms as possessing “special expertise” in selection and timing, just as they did decades ago. Market history, evidence, and data now teach us the folly of that approach, yet it continues. Same as it ever was.

When I started my firm in 1982 I thought it would be just a matter of time before the traditional brokerage firm model would collapse. That proved untrue largely because of human behavioral biases and the ability of non-advisors (brokers) to exploit these emotions. That continues to this very day, same as it ever was.

Are You A Customer or Client?

The large brokers and banks have customers, not clients. There’s a much lower standard of care for how these entities interact with customers than with clients. Webster’s defines a client as “one under protection of another”. In my view nothing less will do. However, most of the “advisors” in these firms are registered BOTH as brokers and advisors. Like the chameleon, sometimes they function as one and still other times they function as the other. Exactly how are investors supposed to figure that out? Same as it ever was.

Even meaningful words like fee-only and fiduciary have been diluted over time by brokers and other non-advisors. Many brokers who charge investors both fees and commissions hold out as being “fee-based”. Again, this puts an unreasonable expectation on the investor to be able to discern between fee-only and “fee-based.” Same as it ever was.

Is your advisor protecting you or selling you “solutions”? Start there. Ready for a real conversation?

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