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Are Financial Advisers Failing the 99%?

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As somebody who is in the financial advising field, I’m getting a little tired of hearing that all financial advisers are duping their clients out of a lot of money but what I’m far more tired of is the fact that in way too many cases, it’s true. You may have heard about the Goldman Sachs employee who quit by writing this op ed in the New York Times. To sum it up, he was tired of advisers being more concerned about profits than they were about doing what is best for their clients. Maybe the most embarrassing part was his claim that Goldman employees refer to their clients as “Muppets.”

Then there’s this article that spoke of a study where actors were hired to pose as average customers with one of four different types of portfolios. They visited 300 Boston area advisers and the large majority of advisers changed their portfolios to more fee laden options. Seriously?

My Other Pet Peeve

Along with the issues above, my other pet peeve is that the average American has no access to quality, non-biased financial advisers. The 99% can find one of those advisers in the Boston survey above because they’ll be quick to sell you a fee-heavy mutual fund, annuity, or life insurance policy but what about the advisers that don’t receive commissions? These fee only advisers can’t make a living on small accounts so often they won’t even talk to you over the phone unless you have a $100,000 or more to invest.

The average working American needs help with their investments. Just this past weekend I spent some time with family members and some of their friends. After I told them what I did and offered to look at one person’s 401(k), that turned in to looking at and adjusting 7 people’s retirement accounts.

They were in fee heavy actively managed funds when they should have been predominantly in low fee index funds. Their 401(k) was bleeding money away in fees not because they chose to do it that way but because it was one of the prebuilt options that their employer recommended. That, I believe, is a crime.

I see this every day and it bothers me. Average Americans need help and there should be advisers working with those people. That’s what I do with my practice and I’m looking to expand that offering. I believe that if advisers provide an affordable option to middle class Americans, they would gladly accept the help and that’s what I’m out to prove.

The Numbers

I’m currently conducting a survey to see if my theory is correct and here’s what I’ve found so far. As of the time of this writing, 81% of Americans are worried that they won’t have enough money for retirement, 78% of middle class Americans don’t have a financial adviser, 88% report little or no investment knowledge, and 82% claim that they have little or no confidence in their ability to pick the right mutual funds for their 401(k). If that doesn’t sound like a whole lot of people who desperately need the help of stand-up, ethical financial advisers, I don’t know what does.

And here’s the second part of the survey, 63% said that having an unbiased professional help them with their 401(k) would be extremely or highly beneficial and another 23% said it would be moderately beneficial. We have to do something about this problem. One out of every four people is postponing retirement because they don’t have enough savings. We as advisers can’t let this happen. People work hard and sacrifice time with their family throughout their working life. They should be able to make up for that time once they retire.

The financial advising community has failed and we have to change that. Sure, Americans have to take responsibility by saving more but financial advisers have to stop worrying about fees and start seeing themselves as financial physicians who have an obligation to help everybody.

Will You Help?

I’m putting my money where my mouth is. I want to make more of a commitment to middle class Americans who need help but I’m not yet sure how to do it. Would you click here to take a 5 minute, anonymous survey that would help me develop this business model? Not only do I plan to use the results of this survey for my own practice but I hope to continue writing about it to raise awareness. Your help would be greatly appreciated.

Am I wrong? What’s your take on this topic? How is the advising community failing the middle class and what do you need from the financial advising community. There’s no shame in not knowing enough about your 401(k). I probably don’t know enough about what you do for a living. Let me know how financial advisers can help people of all income levels.

{ 13 comments, please add your thoughts now! }

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13 Responses to “Are Financial Advisers Failing the 99%?”

  1. tom says:

    The answer is fee-based financial advisers. They either manage your money for a nominal quarterly fee… say .05%.

    No commissions, no sales, no pressure.

  2. Megan E. says:

    I find the whole thing confusing and clouded with misinformation.

    Fees are hidden inside long documents and can change depending on so many factors.

    I am loathe to trust anyone since I don’t understand the words (and I’m not new to financial lingo).

    My advice – HR Block type stuff that allows people to bring in all their paperwork and for $XX per hour, someone will go through it with you and help you set up the right stuff. If you want to continue with follow-up later, then you can and still pay $XX per hour. In other words, no trading fees, no consulting fees, no selling fees, no buying fees, etc…KISS methods work best.

    • Anonymous says:

      You want a tax person to do your financial stuff? Do you go to your mechanica to do your oral hygiene? That’s nonsense. Your lack of trust in professionals should stay within your comfort zone, not invading those of others. Also, non-captive financial advisors (aka brokers) can both provide you with top notch products for a commission from the product provider. Not all commission-based reps and agents are out to get you.

      THIS is why America is failing. We rely on the opinions of unlicensed strangers as opposed to going and TALKING to the professionals.

  3. Matt says:

    Sounds like a good idea, i’ll definitely take the survey.

  4. Tim,
    Outstanding call to action here. You’re right on several accounts.

    This was a refreshing read that I’ll share. Thank you.

    -Christian L.

  5. Great article Tim! That’s why I started my blog, for the average person. I don’t think you should have to pay for anything directly. I’ve gained all my financial knowledge from research and experience. I try to package it neatly in a simple and easily consumable form :)

  6. Jenn says:

    For the most part, it seems that many financial advising topics go over the head of many people who do not work in the field. Making it a topic that is understood even at the very basic level by the time people get into college will make a difference. As for what we can do now – you’re certainly on a great track.

  7. Grant says:

    Great topic for discussion. This immediately jogged my memory of an NPR planet money podcast where there was a discussion about the role of educating the consumer vs using professionals. I looked for it but couldn’t find the specific podcast but the gist of it was that the financial professional made the comparison to people managing their own finance is relative to people performing their own medical procedures. The argument was compelling to the extent that she made it known that financial products these days are getting so confusing that even the professionals themselves can have difficulty keeping up. While this is a legitimate argument, I still think that all consumers should be educated on the basics of financial literacy, just as they should be aware of basic health and nutritional suggestions. I enjoy managing my own money and I’m sure many people on this site may, but nonetheless, there is a significant portion of the population that needs help with this. We need a viable solution that can balance the compensation of the managers and needs of those that could use this help the most. Good luck with your venture Tim.

  8. John Vine says:

    I worked in the UK and Europe as a financial adviser for over 30 years and I agree with just about all your sentiments.
    The more I learn, the less I know what the solution is! I will be fascinated to follow your progress, as IMO, the problem is certainly not limited to the USA and is just as serious elsewhere.

  9. Brian says:

    How can a financial adviser be failing the 99% when your survey shows that 78% of middle class don’t have one?

    People make choices all the time and this is a area that most just follow the crowd because it’s “HARD”. Most of my fellow employees can tell you what their favorite team is doing, trading who for who and salaries but can’t tell you what mutual funds they have in their 401K.

    I would be more apt to use a adviser if they just took a small percent on my gains then a chunk of my entire portfolio.

  10. RLoot says:

    The constant social interaction at my former work place was dominated by football, fantasy football, basketball, and occasionally celebrity scandal “news”. We mooks (or muppets) are always crying and dying…. I spent over 35 years in a blue collar job…occasionally teaming up with fellow wage slaves to study the real games of life: investing and specific skills education. It amazes me how many of my coworkers even with degrees in business, had no opinion or desire to gather the most rudimentary information about saving, investing, 401ks, Roth IRAs etc. Most disgusting of all has been my own inertia on these matters. Finding Robert Kiyosaki’s cd’s and publications at a thrift store has helped me to wake up. The Indian doctor of economics Muhammad Yunus who started the micro loan movement among the poorest women in India, philosophically has insights that may be valuable to your quest to model a better financial advisory service. Especially the idea of building mutually supportive investment knowledge communities. “http://bonsaimovie.com/” this movie is about this man.

  11. Well put, Mr. Parker! Like the disenchanted former Goldman Sachs employee lays out, it seems like years of culture erosion have brought us to where we are today: almost transparently broken faith between advisers and the clients they are supposed to serve.

    It won’t be easy to restore that deficit of trust. It’s going to take a lot of courage, passion, and good old fashioned sweat equity to build new institutions capable of meeting the huge need for affordable, sound financial counsel. But we at Community Ladders agree with you 100% – its time to get to work.

    Check us out if you can – we are trying to build a front-line solution to this very problem!

  12. Danny Cahill says:

    I will be happy to discuss this issue with any investor. I believe all options are good options under specific circumstances, but with regards to advising the middle class (my specialty), fee-based is not a good option for most. I prefer commission based mutal funds because of the active management you get from portfolio managers (make sure you find a good team), but you also get my advice for no additional cost anytime you want it. Index funds won’t work soon so be careful, active management is still important, stock selection is vital, knowing when to sell is critical. I urge anyone reading this article to visit my website, you can have high net worth solutions with middle class expenses! Great job to the author for bringing awareness to a very serious problem.


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