Monday, February 23, 2015

Another reason for skepticism about financial advisors


As if you do not need another reason since most financial advisors underperformed the stock market(s) last year by quite a bit, and they still collected their fees.

In the news from the Labor Department is that after fighting with the industry for a long time they are pushing forward on something called the ‘fiduciary duty rule’.  I do not know what is worse, that the rule is necessary or that the industry is fighting both the rule and any publicity.  Here’s why:

Financial advisors for families or individuals planning their investments and particularly retirement have an opportunity to earn fees from the investment funds they steer their clients towards.  This was, back in the day, called kickbacks. In many business activities it is flat out illegal.  For independent financial advisors it has not only been common practice, but seldom revealed to the customer.

In the grand scheme of outrage, there are many financial activities which are probably worse (think about how congressmen do their investing) but the scale and scope of financial advisory services which exploit the ignorance of savers has the potential to be the biggest of all.

In the era of index funds, and transparent advisory services at the funds it is time to wake up the public.  No wonder ‘they’ are trying to keep it as quiet as possible.

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