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I just saw an article that made me shed real tears. If I understand it correctly a klatch of Ameriprise brokers (okay, “financial advisors”—ha!) are suing their employer for mismanaging their 401(k)s by forcing them to invest in Ameriprise funds. The claim is that these funds charged excessive fees. Omigosh, what a surprise. Aren’t these the same funds that Ameripriseniks foist on their hapless clients? If Ameriprise’s own employees know they’re junk, how on earth in good conscience can they peddle this to hapless consumers?
I don’t know how members of the brokerage industry can live with themselves. After endless press about the shenanigans and abusive sales practices of the brokerage industry, people are still convinced that that doesn’t apply to their broker. “But he’s such a nice guy” is what I hear all the time. Of course he’s a nice guy—he’d never sell anything if he were a troll. And that is exactly what he is—a salesman. They’re not allowed to recommend anything not being pushed by the company, they have to meet sales quotas or they’re out, and 90% of their customers don’t have a clue what they’re invested in. If the customer did have a clue, they’d be investing with a low cost brokerage instead and not accumulating a fistful of mutual funds with horrendous loads and management expenses and a crazy basket of goofball stocks and rip off insurance products. (BTW, Ameriprise was, once upon a time, American Express financial advisors until they came under so much bad press and regulatory scrutiny they changed the name. Catchy, huh?)
In fact, a lot of them lately have been populating the CFP® classes. Do you think this is because of their tender concern and desire to be more competent for their clients? Do you believe in the Easter bunny? No, because it’s another way to hoodwink clients into thinking they’re getting something extra for those commissions and fees. Or as one of them told me at my CFP® exam prep class—“It’s all about gathering assets. I’ll never use this stuff in my job.”
Whenever I get together with fee-only planners, I hear nothing but tales of the horrendous investments foisted on clients by their nice-guy brokers. In fact, I’m still waiting to hear a tale about a good, well managed and appropriate (low fee) portfolio designed by a Merrill-Edward-James kinda guy. But why is this? Are we as consumers all dumbbells?
No, this post is about outrage, not shame. I really don’t have any problem with commission sales, as long as the buyer can understand the product and knows what the actual cost is. I was totally okay with commissions when I sold real estate 20 years ago—people can evaluate the house or condominium, everyone knows what the agent is being paid, and the product and service are pretty easy to understand. Mortgages, maybe that’s another story. Did people make poor decisions and go against advice? Sure. Did some people go way beyond what they could afford? Not if they listened to me.
But the current mess in the housing industry really has its roots in the same kind of sharp practices as what the brokerage industry has always lived by. There’s always someone trying to figure out clever and complicated ways to separate you from your money. And let’s not ignore the factor of greed—without that, none of Bernie Madoff’s victims would have been cheated.
We live in a complicated world, and most of us are already more than busy just trying to keep up with our own field. Keeping up with the financial and investing world is, believe me, a full time job. And as anyone knows who’s ever tried to hire a carpenter, or a plumber, or a nanny, finding reliable help is no easy matter.
Three simple rules would save a lot of people:
- know how much you’re paying and think about whether that’s a fair price for what you’re getting;
- be able to explain the investment, how you’ll make money from it, and why you’re choosing it;
- if it seems too good to be true, IT IS.
A financial advisor should be very clear with you on how and what you’re paying for, and you owe it to yourself to understand any recommendations and keep asking questions until you do. That’s real smarts.
