This a great blog post by Dan Wheeler. Click Here.
A little background on Dan: Dan is
a CPA who has an extensive background in accounting and finance. He recently retired from his spot at
Dimensional Fund Advisors as director of Financial Advisor Services after 21
years. He now is semi-retired and
writing his own blog titled “Wheeler Writes.”
Prior to starting his career in the fee only advisor
business he had a notable stint working for Merrill Lynch servicing retail
clients. It was this experience which
ultimately led him to see the ethical failing of the commission based financial
services industry and start out on his own as a fee based advisor.
He is currently writing a series of blog posts that speak to
his time at Merrill Lynch. I highly
recommend everyone read his blog. He
discusses the same issues I often mention, but with the most important
distinction of having actually lived it.
So I repost his short blog article and implore you to read it. (“Implore”
was the fanciest sounding word I could think of to say “I really, really,
really think you should read it.”)
Before reading it I want to highlight a few points that I
think are especially relevant to you.
1) This is not just Wall Street. Most average investors think they are safe
from these antics, but I promise you that all commission based financial
services have the same things happening somewhere in their firm. That includes your local advisor from Edward
Jones, Salomon Smith Barney, UBS, or any other quasi-advisor/broker.
2) Quote:
“But unlike other businesses, the
Financial Services Industry works
very hard to give the false impression that they are providing
objective investment advice, not “selling” products.”
This cannot be emphasized enough. There is nothing wrong with commission based
sales. The problem in the financial
services industry is they work as hard as they can to appear as though they are
providing a service, when ultimately they are providing a product. This is deceitful and harmful to their
customers.
3) Quote:
“Being a CPA and having a conscious was both a blessing and a curse. I was able to read and actually understand
the Prospectus. Very few in our office could and that was by design. Of course, the investor was required to sign
a statement saying they had read and understood the Prospectus basically
signing away any future rights they may have should the investment not work out
as projected.”
I have been harping on this for some time
now. After spending many hours poring
through the prospectuses of some variable annuities I came to the conclusion there
is no way the person selling this understands what they are selling. Ignorance is not an excuse for advisors any
more than for a Doctor who gives you the wrong medication because he did not
understand how it worked. These advisors
either cannot understand these products or do not want to take the time to understand
it. If they did they would not sell
them, but then they also would not get that 7% commission. Additionally, I do know firsthand that the
client is being pressured to sign these statements without truly being
confident in what they are getting.
4) And finally.
The most shocking thing is just what Dan states: “My experiences are rather dated, and that is
the point, nothing has changed!” This
was 30 years ago and nothing has changed!
Hopefully Dan’s experiences will help explain that these
problems are not just issues fee only advisors create to serve their own self-interest. These are real issues you will face not just
problems on far off Wall Street. In
reality, advisors choose the fee only route because it is the right thing to do. That is their bias.
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