My Comments: This article strikes close to home for me, a financial professional for many years. If you are a client, or perhaps a potential client, the finger is also pointing at you. I’ve argued in the past that rules about financial professionals being held to a fiduciary standard, the same standard that applies to lawyers and CPAs, are very necessary. Some of us already live by that standard, but the majority don’t.
I spend much of my time trying to reach out and find individuals and families who are looking for trusted help when it comes to money. Recently I’ve found an investment program that is hands down the best I’ve found in the 38 years I’ve been involved professionally in finance. Get in touch with me if you want a no strings attached explanation or click on the flag image for a quick introduction.
By Paula Aven Gladych | September 3, 2013
Many retirement accounts that took a hit in the Great Recession are back on track, but those dark days left a lingering, hard-to-erase legacy: an erosion of the trust that investors had placed in their financial advisors.
The problem – aggravated by scandals involving rogue trading, rate manipulation and insider trading – crops up every time there’s a financial meltdown. This time, it appears especially pronounced among middle and lower-income workers who tell surveyors they simply do not believe their financial advisors are working with their best interest in mind.
The latest CFA Institute/Edelman Investor Trust Study found only half (53 percent) of investors trust investment management ﬁrms to do what is right. Worse results can be seen in the Forgotten Investor Survey, a poll of retail investors by State Street Corp., which found that financial advisers are trusted by a mere 15 percent of respondents.
The good news is that many in the industry have taken notice (as they tend to whenever credibility and reputations are called into question). What choice do advisors have? None, really, not if they want to stay in business.
The clear-eyed thinkers on the topic know the problem can only be resolved by pushing further to eliminate conflicts of interest – real and perceived – becoming even more transparent and, yes, even more regulations.
The advice advisors need to hear sounds a bit like a Boy (or Girl) Scout oath:
Be honest. Put your clients’ interests ahead of your own. Communicate, communicate, communicate. Adhere to the highest ethical standards.
Many advisors have been managing their practices in just this way from the very beginning. Too many others, unfortunately, have not.
Susan Fulton, president and founder of FBB Capital Partners in Bethesda, Md., says she believes the problem is mostly rooted in those everyday conflicts of interest that are so pervasive in the securities industry.
The industry, she notes, is highly competitive and chock-full of incentives tied to achieving sales goals. This, Fulton said, is what seriously undermines the advisor/client relationship.
Of course, very few people can resist the pull of additional money.
“If there is a conflict of interest, at some point in time it will be triggered,” Fulton said, sounding a bit philosophical. “It won’t be triggered because they (advisors) are bad people, although some of them are. It will be triggered because they are human. Human beings are fallible and do put their own interests first.”
In Fulton’s opinion (and in the view of many others), the only solution to this is to be hyper-transparent about which products pay advisors a commission.
In her shop, Fulton doesn’t represent any particular investments or insurance products. She doesn’t earn commissions for pitching certain companies’ investments. Hers is a fee-based operation.
Of course, many advisors are fee-based nowadays and have been so for years. Rather than receive a commission for the recommendations they make to client, they charge a set advisory fee. The client knows what they will be paying upfront.
Fee-based advisors, however, tend to work with the wealthy, not middle-class earners. That means the bulk of Americans are still working with an advisor who relies on a commission to make a living.
In any case, Fulton also believes fee-based advisors need to be more transparent about their charges and why they chose certain investments for their clients.