Since our Take the Long View® strategy calls for a level-headed mindset and evidence-based rationale, I am disciplined about keeping emotions out of the mix. But sometimes, even I have to vent. For example, my outrage seems well-placed when it comes to exposing dark players who pose as financial “advisors” while they prey on those who can least afford it. When that happens, the real damage is done if we calmly ignore what’s going on.
We work in an industry with an insanely low bar to entry. As I covered in my book, Odds On, I’ve personally witnessed how many of the big-name brokerage firms prize their sales quotas over solid client care and education. In any industry, a convergence of greed and incompetence is ugly. In wealth management, it can be life-shattering.
That makes me mad. Through our own experiences and in speaking with investors, we see the damage done far more often than you’ll read about in the papers. Yes, regulators have been known to levy millions, if not billions of dollars in fines against the worst offenders, but is it working?
Consider this recent article from personal finance columnist Tara Siegel Bernard. It makes me sick to my stomach to read that a “sandwich generation” daughter had to discover her ailing mother’s broker was quietly extracting roughly 10% in annual commissions from Mom’s account (compared to an industry norm of closer to 1%). In financial speak, that’s known as “churning,” or buying and selling just to turn a profit at the investor’s expense.
Worse, at least when Bernard published her piece, the offending broker was still employed at the same firm. The firm’s response? Bernard reports: “In a statement, [it] said, ‘The client agreed to an appropriate resolution of this matter in June.’ The firm said it was committed to doing the right thing for its clients, and was ‘disappointed when any feel their expectations haven’t been met.’”
What a ridiculous response!
Through the years, I’ve heard from many in our industry with their own tales, which sync with my experiences. The common thread is selfish salesmanship. Today there are thousands of independent investment advisory firms, all of whom are held to a fiduciary standard. While even that can’t prevent a criminal bent on malfeasance, it’s a step in the right direction.
Things are getting better, but it’s time more investors start choosing true financial advocates, not just the family relation, nice neighbor or daughter’s affable softball coach. It’s time to fire the entrenched, big-name brokers who don’t have to (and often don’t) represent your highest financial interests. It’s time to lead with questions such as: Is our relationship always fiduciary?
If the answer is anything besides, “Yes, always,” or if the written version is accompanied by an asterisk and a bunch of fancy legal footwork, it’s time for you to say no. You deserve better.
PS: Check out our related press release about Hillfolio, and how we’re working hard to bring “better” to an even wider range of investors.