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Your Take: Do You Trust Financial Advisers?

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Stock advice I can trust!I don’t trust financial advisers. I’m not entirely sure why but I inherently do not trust experts in any non-science field and I have my fraud radar on red alert if it has anything to do with money.

I separate financial advisers into two categories – those that help you plan and those that help you invest. I see some value in the ones that help you plan for the future. You sit down with the planner, list your financial goals, and come up with a financial plan that helps you achieve those goals. They provide another perspective on your situation and can give advice as to what has worked for others and what has not. While I’m sure that’s a simplification, that’s the basic idea.

Then there are those who help you invest. They can recommend a basket of investments to help you achieve your goals or they directly manage your money. The advantages of using an adviser like this is that you can stay hands off while they invest your money on your behalf. They can do the research, buy a diversified portfolio, and help you an area you may be weak in. Whether they’re fee only and provide only direction or commission, where they earn a percentage of assets, the end result is that you’ve outsourced the work.

So why do I not trust them? First, I don’t think I need someone to help me plan our financial future. While I’m certainly not an expert on the subject, I feel that sitting down and setting a plan with an “expert” isn’t going to be any better than if I sat down with a book on financial planning. As for giving my money to someone or taking the advice of an adviser for investing, I don’t see how that beats going with a mutual fund. Since they don’t have a crystal ball, are their recommendations going to beat a mutual fund managers? If I go safe with an index fund and opt for a lazy portfolio, will I really be that far behind? If the majority of actively managed mutual funds, staffed with the best and the brightest working on this 24/7, can’t beat the index… can an adviser?

Let me know what you think, hopefully I haven’t kicked over a hornet’s nest! (or maybe it’s good if I do, I don’t know what I don’t know so I’d love to hear another perspective)

(Photo: unlistedsightings)

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38 Responses to “Your Take: Do You Trust Financial Advisers?”

  1. Soccer9040 says:

    They are certainly on the list of “people who could scam you” but certainly not as high as lawyers and insurance salesmen.

    I guess it depends on what they are selling and how they get paid.

    Not all of them are out to get you, but you can’t put your guard down.

  2. Ken Lempit says:

    I built my portfolio using ETFs and borrowed from models based on the efficient frontier that are to be found at Index Fund Advisors (ifa.com) who themselves have a very compelling offer based on a great set of funds from DFA (a leading provider of index funds only available through advisers). My expenses are very low, and i sleep just fine at night… Interestingly, IFA has a lot of investor education resource and shows one how to build a portfolio of ETFs vs. buying their services.

  3. CK says:

    Most are just trying to sell you their product. A few good apples do exist though.

  4. HT says:

    There are plenty of good financial advisors of both types. There are plenty of incompetents too. It’s a fallacy to thing that since funds on average don’t beat the market that the brightest and best are running funds that don’t beat the market. The brightest and best are beating the market, and some of the funds are losing to the market. Can you pick which funds (and which managers) are which? I dunno, but it’s silly to think they are all equal.

    Saying that I have 90+% of my own portfolio in index funds and play around with the rest of it myself…

  5. Chuck says:

    You don’t trust them because they have an inherent conflict of interest. However, if you can find an advisor (or planner) that charges a flat or hourly fee, you can trust them more, because they get paid for their knowledge, not their sales. But that is not the only factor. You have to account for the individual, too. It’s tricky.

  6. I do not have a lot of trust in financial advisers either. Well, maybe it’s more in the fact that I do not trust that much money in the hands on an individual or organization that does not have a lot to lose if they lose all of your money.

    • daenyll says:

      I agree, no one cares more for taking care of your money than you do. And comissioned advisors are biased by the fact that they get paid not to get you the best investment but to get you to invest. They may still be trustworthy and honestly seek to get the best for you to get you to come back but it’s still a bias that must be considered.

  7. zapeta says:

    I don’t really trust financial planners, since they have to sell you something to make their money its not in their interest to use your money to buy and hold. I know where I want to go with my finances and with all the information on the internet I can figure out how to get there without a planner.

  8. Martha says:

    Hum, some people must trust them because it is a large field. I think that if you do not have the time or the interest and have money to invest a financial advisor may be the best way to go. Its everything in life, if it seems too good to be true, it probably is… so you have do your research to pick a good one. Just my two cents.

    • ian says:

      Equating quantity to trust (or quality) for these individuals is far from likely. There a plenty of lawyers but they are not known for building trust.
      The quantity of them simply points to a market being available (people who know of investing but are intimidated or lack knowledge) and a low bar to enter the field (put a resume with a 4yr degree on a career website and you will get an offer from a financial adviser company – even if you are physicist).

  9. Shirley says:

    Hmm… I really can’t imagine needing one. Maybe I just don’t have more finances than I can handle? :-)

  10. Russ says:

    This is an important topic and one that I think needs to be discussed openly and honestly.

    I am a financial advisor and put my clients’ interests first in all matters. I know that I do a good job for my clients, but of course that is subject to opinion.

    The larger issue, I think, is that as an industry financial services and its advisors haven’t done a good job of earning and keeping the trust of the public.

    Whether it’s Bernie Madoff or a large Wall Street firm taking a leading role in creating some the current economic mess we’re dealing with, it doesn’t take many of these “bad apples” to spoil the bunch.

    I’m not going to ramble on in defense of the value I provide, but I’m interested to see other people chime in about this and hopefully see some other advisors weigh in too.

    I will say that I think the value of a trustworthy advisor isn’t in setting a plan or investing money. It’s in helping people make the necessary adjustments to their plan as they experience the inevitable changes coming from the markets and/or their personal lives.

    • ian says:

      How can an individual properly select a financial adviser based on quantitative measures?

      These questions will be directed to you, but would as easily be asked of the profession in general…
      Do you have a degree in finance or a related field?
      Do you have any nationally accredited certifications?
      What did you do before becoming a financial adviser?
      What type of continuing education do you participate in?
      How do you rate your performance year to year?

  11. Pete Matthew says:

    As a UK based Financial Planner I’m interested in this healthy discussion. Many people don’t need a financial adviser. In my (free) first meeting with a prospective client I’m trying to ascertain whether I can add any value or not, and if not, I’ll tell them and we part company.

    For those whose affairs are complex enough to need help, the best way is to look for a fee-based CFP, and agree fees up front which are not dependent on him selling you a product. That way, his interests are more aligned with yours.

    As is often the case, our profession is tarnished by a history of commission-hungry salesmen and, in the UK at least, mis-selling scandals. We are cleaning things up slowly, and I know many fine professionals who live for their clients’ well-being. As ever, personal recommendation is the best way to find a financial planner, if you need one.

  12. My thoughts:

    a.) I would only ever go to a flat fee advisor, and would walk out the room if anyone every tries to sell me a life insurance in this context

    b.) I have the DIY approach better and with an MBA and some experience feel like I know half-way what I am doing. That said, if my assets reach critical mass, I will at some point engage a financial advisor, more as thought partner, not someone to blindly hand my money over.

  13. Justin says:

    Jim,

    I read your blog most every day and enjoy your commentary. First, full disclosure: I work for the Garrett Planning Network (a group of 300 fee-only, hourly financial advisors) and I’m also a CERTIFIED FINANCIAL PLANNER™ practitioner (CFP®) and run my own fee-only, hourly Registered Investment Adviser firm.

    I agree that most people don’t need a full time financial planner, but I think most everyone can benefit greatly from periodic, professional advice, if even just a second opinion to ensure they’re on the right track.

    I also agree that you and most readers of this blog are probably doing fine on your own, but you all have a great interest in, and knowledge of, personal finance and investments. Many people either a.) aren’t interested in personal finance and/or b.) don’t know the difference between STD and LTD insurance or term vs. UL insurance or a Roth IRA vs. a Traditional IRA or a mutual fund vs. an ETF… for those folks, I truly feel we can provide tremendous value!

    Regarding investments specifically, I have a very passive, index, buy-and-hold investment philosophy and educate my clients as to why that’s the best way to go, in my opinion. So I’m not trying to beat mutual fund managers (and believe very few, if anyone in the world, can beat an index consistently), but I feel that I can provide tremendous value in educating them about passive investing, heIping them set up an initial asset allocation and subsequent rebalancing.

    -Justin Nichols

  14. Staci says:

    It’s funny. Just yesterday, I asked my husband if he thought we needed to meet with a financial planner because we haven’t in a while. His response was, “for what? They’re not going to tell you anything that you don’t already know”. I’m skeptical of financial planners. For the most part I’ve been very unimpressed with financial planners. So many try to sell people investments/insurance while knowing the client is drowning in debt. That annoys me. A few years back, my husband had a load of student loan debt that needed to be paid off (we’ve recently paid off that debt, and besides the mortgage have no other debt). We were looking for financial planners and met with many. Only two told us they wouldn’t recommend any investment beyond our 401k/403b until the student loan debt was paid off. All the others kept trying to sell us investments and annuities. I read A LOT of books on finances, investing and follow a lot of financial blogs. Generally, I don’t find that financial planners add much value beyond what I already know. I’m always searching for that one planner that will give me some super compelling financial advice unlike anything I’ve ever heard or read to help us grow our money and make wise investments, but I always feel disappointed when we meet with someone.

  15. freeby50 says:

    I don’t tend to trust commission sales people who try to sell you their high fee products which you don’t need and that is really what many (most?) financial planners really are.

    I wouldn’t have a problem trusting a “fee only” financial planner (like Justin above) who gets no commission and doesn’t work for a particular brokerage or mutual fund or insurance company.

    I think most people can benefit from a financial planner just like most people can benefit from help & advice when doing their taxes.

  16. Ken says:

    I think consulting a ‘fee only’ planner is a good idea. Sometimes we may have blind spots that an objective eye for our situation. A professional may also ask important questions we haven’t considered. I would never consult a planner without first asking for references and how much the consults costs.

    • jsbrendog says:

      this. only via direct references withpeople i trust would i trust someone who has any say with my money.

  17. billsnider says:

    I have had two experiences with FP’ers.

    First time was on a fee bais (so I thought). He strongly encouraged me to go with two funds. Turns out one had a front load of 7% and the other was a heavily back loaded anuity. When I asked him about the 7%, he said everyone knows that front loaded funds do better! (Yes, i bought the Brooklyn Bridge).

    The second time was with a commissioned FP. He tried to push me into annuities which I have come to hate with a passion.

    Two bad apples to say the least.

    Having said that, my brother has used one to great success and I have a friend who has really dome well with another.

    Point is you have to be somewhat educated if you plan to use one, otherwise you are at risk.

    Bill Snider

  18. pmulroy says:

    I agree with others who have suggested going with a fee-only planner and would avoid a planner who wants a % of your portfolio to manage it for you.

    I think the % of assets manager job has managed to stick around so long because the vast majority of people get nervous when talking about money/investments. Then a planner steps into the picture and says he will take care of everything for them and they won’t have to worry about a thing, all for the low price of 1-2% your portfolio balance annually. Of course these same people have no idea how a 1-2% drain on your return will kill you over time and they think they are getting a great deal.

    Nothing will change until more people get comfortable educating themselves and taking care of things themselves. It is mind boggling to think of some of things people used to pay for (having someone pump your gas for you) or still pay for (paying someone to fill out your 1040 EZ tax form and file it).

  19. I once had a Prudential Mutual Fund account where the “advisor” wanted to meet with me several times a year to adjust my portfolio. I went once realized what a waste of time it was. It was basically a pitch to buy insurance. Stay away.

  20. Revanche says:

    As a longtime PF blogger, I’ve never felt the need for a financial planner because there’s very little I can’t research on my own in my current situation. As I get older and the finances get more complex, though, I might see the need for one.

    Conversely, however, very few of my friends are interested in their financial futures in a healthy way beyond: make “enough” money, pay off their debt, buy new toys/cars/houses. Some are more educated than others, but by and large, they don’t know 1/2 of the things I do about basic retirement planning, goal setting, the current markets for savings accounts, online banking, competitive financial anything. And so I help them very very cautiously from what I know, and would actually enjoy doing that professionally if I could serve my clients’ interests well and always to the best of my abilities. (I’ve little interest in being an investments sales FP, though.)

    Most of my intelligent, driven and well-educated cohort cannot and will not personally handle their finances in an in-depth fashion. There’s no way to force the desire to do so on them, either. In those cases, I can see where they would benefit from engaging a reputable and trustworthy financial planner in the future when they’re no longer just newly-graduated professionals and students.

  21. BrianC says:

    I don’t trust anyone who will make a commission off of selling a product to me. I recently opened up a Chase checking account (for a $100 bonus), and the personal banker was VERY intent on me opening up savings and credit card accounts as well. It had to be that day, through him–though no disclosure of commissions, of course. I almost said, “I’ll do it–if you’ll split your commission with me.” ;)

  22. ebekele says:

    If I don’t know what I’m doing, have a busy schedule, etc; I believe in letting the professionals handle it with some due diligence, until at least I pick up some knowledge.

    But when it comes to finances, I trust both, financial planners and advisors. There is a reason why they’re in the profession, to make money and help us make money. At the end of the day I always have the option; I have the right to say ‘yes’ or ‘no’ to their suggestions. In the past it’s been beneficial, the knowledge I picked up is/was priceless. I’ll continue to bounce ideas off planners & advisors.

  23. George says:

    I agree with many of you that a fee only advisor makes the most sense…in principle. But I’ve never been able to reconcile the economics of fee based advising in my mind.

    For an advisor to gross $150K, they would have to have 300 customers willing to pay them $500 for their advice over the course of the year. Office space, equipment, marketing, licenses, taxes, benefits and salary have to come out of that gross. I would expect that the retention rate would be no more than 50%, so that means they would have to attract 150 new customers every year to make a modest living (by Financial industry standards).

    And do you think fee based advisors would be the best and brightest? I would guess that Wall Street would attract those with the greatest talents, so these advisors would be those who couldn‘t get a job with the brokerages or funds. My low opinion has been confirmed by advisors (fee and commission based) that I‘ve personally met (although I admit that’s a statistically insignificant sampling).

    So perhaps someone can tell me why a savvy financial person would be interested in entering this field? If I could understand this, maybe I would be more open to using their services.

  24. javi says:

    I don’t trust Financial Advisors since I have seen what they have done to my parents by pushing high fee, poor investment choices. Now that I have been learning more about my money, I can ask better questions to an advisor if I choose to get one.

  25. You can never know if the planner takes fiduciary responsibly seriously.

    I’m sure there are some planners who do just that, how can you know if you have found one?

    There are almost zero salespeople who don’t place their commissions ahead of the interests of the client. And that’s especially true on Wall Street.

    I’d avoid them like the plague – unless you are simply incapable of doing it yourself.


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