What’s the Value of Conflict Free Advice?

conflicts of interest exist you can be sure that some people will take advantage of them. The pension consulting business has a laundry list of possible conflicts: Pay to play, proprietary products, revenue sharing, and commissions to name just a few. Disclosure is almost nonexistent, and fiduciaries are generally inept. In theory, pensions are subject to extensive oversight, but legislation and regulatory enforcement badly lag the situation on the ground. With both regulators and plan sponsors asleep at the switch, it is hard to imagine a more target rich environment for a sales organization.

For plan sponsors, the Gordian knot is a simple exercise in comparison to untangling the conflicts embedded in a bundled product pension solution. Half of pension consultants receive compensation from the managers that they recommend. So, it shouldn’t be a big surprise that those conflicts impact both price and performance in a meaningful way. […]

Who Are the Real Financial Advisors?

Stockbrokers, who sell investment products for commissions, tell investors they are financial advisors because it reduces sales resistance and improves their odds of making sales. They are breaking an industry regulation when they call themselves advisors, but the claim is verbal in a sales pitch. Investors have no record of what was said to them so the sales reps get away with it.

It is easy to recognize stockbrokers and other types of sales reps. They have two distinguishing characteristics that are difficult to hide. You just have to know the right questions to ask. First, “What licenses and registrations do you hold?” And second, “How are you compensated for your advice and services?” The advisor is a sales rep if the answer to the first question is a Series 6 or 7 license and the answer to the second question is commissions. […]

Looking for Help on How to Trade? Make Sure the Advisor Puts Your Interests First!

In the good old days, there was a straightforward relationship between investors and stockbrokers who were paid commissions to help investors trade their portfolios. They recommended stocks for purchase and sale based on input from analysts that worked for their firms.

That whole model fell apart in 1975 when brokerage commissions were deregulated. This change spawned a new type of firm that was loosely described as a discount broker. Then, when you needed help on how to trade, you had a choice: the traditional full service brokerage firm or the new upstart discount broker. […]

What Financial Advisors Don’t Tell You May Damage Your Plans For A Comfortable, Secure Retirement

Financial advisors do not have any mandatory disclosure requirements – not one. It is up to investors to ask the right questions and obtain written responses so they have a written record of the advisors’ responses.

Most investors trust their financial advisors. They may even consider their advisors to be friends. They fail to recognize advisors want to be liked. Advisors know investors will tolerate bad results a lot longer if they forge a friendly relationship.

The bottom-line is advisors do not volunteer information that would cause investors to reject their sales recommendations or terminate relationships. It is not in their best interests to provide this information. And, investors who don’t know what they don’t know do not ask critical questions that impact their advisors’ recommendations and results. They have a hard time believing friends will take advantage of friends for money. […]

Viva La Diferencia! [Consider a Fee-Only, Independent, Registered Investment Advisor]

Fee-Only, Independent, Registered Investment Advisors are an entirely different animal than the brokerages, broker-dealers, insurance companies, and banks that have traditionally dominated the investment advice market.

The traditional commission based sales model is fatally flawed and cannot be fixed. It’s almost impossible to provide fiduciary standards of investment management if the advisor is commission based. External influence and production pressure make any recommendation suspect. The investor’s best assurance of objective advice is the ironclad separation between the advice and brokerage functions. This is why we think fee-only compensation is so important. Do you really want to pay for tainted advice? […]

Avoiding Advisor Risk

Market Risk and Behavior Risk are well known and frequently discussed. But, there is another type of risk that is often overlooked; The Advisor Risk.

Investors that recognize that they don’t have the time, knowledge or inclination to deal with market risk, and/or the discipline to deal with their own behavior risk may seek advice, and unwittingly run into a third level of risk: The risk that their advisors are either not working in their best interest and/or are incompetent. This third risk is little discussed or appreciated. But, advisor risk is not trivial. Countless investors that delegated their investment decisions to so-called professionals have been devastated during the recent bear market. […]