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Are financial advisers failing the 99%?

It appears that middle-class Americans would be grateful to have affordable, professional and ethical advice for managing their retirement accounts.

By MSN Money Partner May 22, 2012 3:56PM

This post comes from Tim Parker at partner blog Bargaineering.


Image: 401k (© Brand X Pictures/age fotostock)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 are 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 about a study where actors were hired to pose as average customers with one of four different types of portfolios. They made 300 visits to Boston area advisers and many of the 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 like those advisers in the Boston survey who will be quick to sell you a fee-heavy mutual fund, annuity or life insurance policy, but what about the advisers who don't receive commissions? Fee-only advisers can't make a living on small accounts, so they often won't even talk to you over the phone unless you have $100,000 or more to invest.


Average, working Americans need help with their investments. Recently, 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 401k, it turned into looking at and adjusting seven people's retirement accounts.


They were in fee-heavy actively managed funds when they should have been predominantly in low-fee index funds. Their 401k's were 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 employers recommended. That, I believe, is a crime. (Post continues below.)

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 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 401k.


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 to help them with their 401k would be extremely or highly beneficial, and another 23% said it would be moderately beneficial.


We have to do something about this problem. About one in four people are 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 lives. 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 five-minute, anonymous survey that would help me to 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 401k. 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.


More on Bargaineering and MSN Money:

May 23, 2012 10:19AM
This is where the American school system fails us.  They mandate music, art, dance, ect but don't put financial management anywhere in the course work.  Why haven't they initiated a education system that teaches personal finance and the time value of money.  The arts are ok, but they are not essential to living like financial management is.  We need to instill financial management principles BEFORE college so students understand the burden they will have if they have to loan money for college or any other large expense.   Not to mention that money is much more interesting than art, music or dance history.....just saying.
May 22, 2012 10:16PM

I wanted to become a Financial Adviser and went to school for Financial Planning and got my investment adviser's license.  But when i went looking for a job, the only jobs I saw were as a commission-based salesman for the big financial companies.  You only get paid when you get someone to buy a financial product like a mutual fund, insurance policy, or annuity.  This business model creates a conflict of interest because the adviser is really a salesman and people don't realize this and because the "adviser" is forced to push financial products on people, otherwise he doesn't make any money.  The financial companies won't pay advisers a salary because the advisers would then sit on their butts & have no incentive to go out and engage new clients.  So, people with integrity and honesty who would like to be financial advisers and do the right/best thing for cllients are forced to work on their own - but without the affiliation of a big name-brand financial company behind them, people don't want to use them as their adviser because they don't trust them.  Plus, advisers going it on their own then have to run a business and it takes away from the time that they should be spending with clients.  Also, every time a "rogue" adviser makes the news for stealing peoples money, it tarnishes all advisers - even good, honest ones.  So people develop a false trust for the big, name-brand financial companies and think that these companies are looking out for their best interests when really they just want to make money off them.


Until this business model changes, middle class people will continue to be duped and ripped off.

May 23, 2012 8:38AM
I couldn't agree more.  I have a masters degree in finance and have often thought of going back for my financial planner certification for this very reason. Too many people are trying to handle investments that they just don't understand, but they don't deserve to be taken advantage of because of it.  We can't all play pro basketball or invent the iPhone and people shouldn't be at a disadvantage because they don't have the time to commit to learning about something that doesn't come naturally to them - especially when so much is at stake.
May 23, 2012 1:30AM
Here's what I don't understand. I repeatedly hear calls to end social security with claims that "I can manage my money better than the government." But when you dig into the specifics, it seems as if very few people know much about investing.

Combine the uncertain future of social security, the lack of pensions offered to the majority of workers, the very low savings rate for most families, and the skyrocketing costs of health care, what kind of a future are we likely to face as we age in this country? The numbers only add up to one thing, a great deal of misery in the years ahead for the vast majority of people.

I agree that it is the responsibility of the individual to plan and prepare and I'm no fan of the so-called "nanny state." But our collective actions in the present and the financial demands of the future are badly out of synch. Something somewhere is bound to break.

May 23, 2012 9:38AM

The 99% ers need to become familiar with their public library. Everything one needs to know about personal finance can be found in the 332 section.

May 22, 2012 9:47PM

I've been through a few different 'financial professionals', (in quotes because they don't know squat) and they gave me mostly bad advice, fortunately I ignored most of it.  I think you have to spend the time to learn financial management for yourself, as you can't trust anyone else to do it for you.


The thing I find most disturbing is that there is a higher expectation for an auto mechanic than there is for a 'financial advisor'.  If you take your car to a mechanic, you only pay them once they deliver results (i.e. fix your car).  However, 'financial advisors' take payment whether or not they actually deliver results.  They are paid even if they underperform the market.  As I've said before, "I don't need to pay a professional to lose money."


On some of these deals, you will figure out that the 'financial advisor' and the fund managers are making money off your investments, while you are losing money.  Even when your investment loses value, these leeches are still taking their cut. 


May 23, 2012 6:56AM
I have been an adviser for over 15 years.  I have worked for a small, independent firm and also in a large wire house setting. It's true that when you arrive freshly on the grid and choose to work for a large financial firm or bank, sales goals seem top priority.  You are also pushed with whatever particular product the firm wants you to sell that week.

Working as part of a small, independent firm allows advisers to build their practice as they see it.  However- sometimes, the affiliation with a large broker/dealer prohibits you from offering advice on accounts not held through the firm.  UNLESS, you charge a fee and offer a plan...

I work with the 99%.  I do not limit myself to just their retirement plans.  The 99% have everyday life to muddle through.  Savings, buying a home and/or car, vacation planning, education, insurance... etc. Limiting advice to picking out investments within their retirement plan would be an injustice to that person. I have found that by building a practice with working for the 99%... I can pay the bills.

And... as for the comments regarding "why do you need an adviser" or the feelings that the advisers you have met with did not know "squat"... we cannot all be experts in everything.

 I don't go to my hair dresser to have my teeth cleaned...  or ask my dentist to provide medical advice... 

Sometimes, you need an adviser to just walk with you through life.  To keep you accountable for your goals... and to help you make good investment decisions along the way...

May 23, 2012 10:06AM

If people took the initiative to learn what they need to learn and invested on their own, then financial advisors would be almost obsolete. At many times, I thought I wanted to be an advisor also while in college, and as soon as I graduated, I began applying to such positions. I was excited because my inbox would fill up with messages from big-name companies. A short discussion with them over the phone, or a first interview was all it took for me to feel like I would be a sleezy salesman. I wanted to be an ADVISOR not a salesperson. Really, there are only "advisors" for the wealthy and financial counselors for those with no money management skills and on the verge of bankruptcy. There is nothing for the in-between. I can identify with this author, because I am also always explaining to friends (who are college grads), relatives, and colleagues how their 401ks work and just the basics of investing. There are so many resources out there to learn, but I also see how it can be overwhelming. People can feel as though they don't know where to start or how to decide what's right for them.


What we need is-financial education and consumer education earlier in life. We need this in schools just as much as we need algebra and economics. Most small public schools don't have these I imagine, mine certainly didn't. And unless you study business in college, most students dont volunteer to take an elective like this, although they should. Everything has its price of course, and there aren't enough people willing to hold classes everywhere for free. We, as a nation, just need more education and also personal responsibility/initiative to learn the things we want to know on our own if no one spoon feeds it to us!

May 23, 2012 9:49AM

Excellent article, and spot on. The current business model of the "financial services" industry is broken. The incentives of the advisors are not aligned with, and are often opposite to, the best interests of the investors. This is a recipe for bad results. It is hard to blame the individual advisors; they are simply responding to the incentives of their position.

Unfortunately I see no easy fix. Fee based advisors can be excellent -at least their incentives are properly aligned, but they are beyond the reach of many small investors. Self education is the only viable option I currently see.  

May 23, 2012 12:22PM
The truth. I've never had a broker that has made me money.
May 23, 2012 9:18AM

Good morning

the formula for my fellow working poor is simple ( in concept not action)


Identify and sepperate essentials, discressionary items and luxoury spending. ( be Honest and true)

Eliminate the Luxoury spending altogether.


Reduce as much as possiblwe the discressionary spending, as much as humanly possible without becoming a scrouge ( i spend $50.00 on socialising once a week, and eat a $30.00 meal at a casual dining place once a month).


Find the cheapist way to spend on essentials, cut out brand (you know you are only paying for name (the watch tells the time and cloth is cloth) Discount stores are sensible not a shame. remember you are the working poor.


After expenses are cut to the bone, scrape as much money as you have left and put into investments that are tax shelters, and if anyu is left over place mutual funds and fixed deposits, agressive and high yeilding if you are young and safe and steady if you are old.


You will not become a millionare but hopefully you should have enough to retire on time and maintain yuour present standard of living.


remember pension is not your full salary( unless you are in politics, or senior management) and you spend more on medical expenses, drugs, gardeners and handymen (old people have the time but not the energy or flexability to help them selves as much as before).    



May 23, 2012 11:03AM
A successful retirement is NOT just your ROI. It takes a comprehensive risk analysis, which as the author states, is always individual and never simple. We use certified advisors and on a recent AARP discussion thread, it was asked what results everyone had seen in 2011. Everyone except me was a fervent DIY, I-can-do-it-better investor. Every single one lost money in 2011. Interestingly, I was in a heavily defensive position in 2011, so we "only" made 6.5% after fees. I happen to believe that for many people, using a fiduciary financial advisor, such as a CFP or CPA/PFS, would improve their overall financial position. You don't use an advisor for better than average returns - you use an advisor for GOOD RETURNS WITH LESS RISK.
May 22, 2012 7:33PM

My comment. Very good article. Most free financial planners, try to sell products, that they make a very good commission selling, far more interested in making money from a persons investments, than recommending as the author wrote, no load, low management fee, mutual funds.


Now more than at any time, in modern history, middle class, Americans need honest financial planners.  

The reason for the above sentence, just a few years ago, a investor could get a interest rate, on there bank savings, that would exceed the rate of inflation. Right now and for the foreseeable future, savings

rates, are not keeping up with the rate of inflation, investors are seeing the value of there investments in bank savings, being eroded by inflation. I do not see this cycle of low interest rates changing for a decade or more. Our US Government is so heavily burdened with debt, and with the high rate of payments, that have to be paid on our debt, our Fed. Reserve chairman Bernanke, has no choice but to keep interest rates low, just to satisfy our Governments borrowing.

May 23, 2012 10:48AM

My sole experience with a financial planner was shortly after getting married.  He had my wife and I take out a whole life insurance policy.  He had me change it a few years later.  Found out I'd been flipped.  When he stopped making money off my first policy, he had me go to another.


The real problem is workers let companies eliminate their pensions.  Most people don't have the time or inclination to study the market while building their own careers and raising a family.  Also, back in the day, regular people put their savings in a bank where it would earn interest, not in the stock market.  Companies can't commit to funding a pension for people who now may be retired for more than 20 years, but they should have taken the money they funded pensions with and funded 401K's for their employees - ones that don't require an employee contribution.

May 23, 2012 9:49AM

The US needs to go back to defined pension plans.  The 401k experiment that was started in the late 70s and early 80s is not working.  Study after study show that people generally have not and do not save enough on their own.  Further, there is no financial educational instruction in schools to show people how to invest and accrue compound interest necessary to grow savings into a healthy retirement nest egg.  I'm not talking complex financial derivatives, here.  Only stocks vs bonds, aggressive vs conservative portfolios.  Most people do what their parents did.  But here's the catch, their parents have defined pensions, and have little or no idea what they're doing, either.


People's retirement savings should not be at risk to poor financial advise, or lack of educated decisions.  We either pay for it now, or pay for it later.  The country won't tolerate significant numbers of boomers being homeless in their elderly years because they didn't invest their savings properly.  It will ultimately come out of the taxpayers' pockets.

May 23, 2012 8:25AM

I am retired and have talked to several FAs in my life.  I have never taken advice from one for one simple reason - None of them are willing to share their personal portfolio with me.  If the FA isn't getting wealthy through the investments they recommend to me, why would I take their advice?


You show me - the guy preparing for retirement - your personal growth and I will consider you.  Otherwise you are a snake oil salesman selling me funds based upon growth from the 1930s and nothing since 2000.  You guys are old hat.  You need something new - Like return on my investment. 


Shut up.  You are whining.  Bring us money, not advice!!

May 22, 2012 9:49PM

if financial advisors failed - ask the question how many investors pulled out of the market and missed the market rally that followed,and are probably still on the sidelines, "waiting for the market to get better". before they know if the market will be running without them.

Your article maybe should include the survey results that conclusively show investor returns of do it yourself investors versus investors using an advisor.

Most do it yourself investors are the worst market timers in the world.



May 22, 2012 9:49PM

which is worse, a crooked financial advisor or a stupid financial advisor?

Neither, you will end up broke either way.

May 23, 2012 9:41AM

1) Most advisors know little to nothing about investments, they just sell spots in a mutual fund that were designed by someone else.

2) Be cautious of mutual funds, the percentage of people who actually make money after fees is just incredibly poor.


Learn to or find someone who knows how to conduct a fundamental analysis of a company and invest in stocks who's intrinsic value appears to be above the current market price.  You don't see warren buffet buying mutual funds do you?  I may just be a random person on the internet but anyone looking to deapen their knowledge on investments should read "A random walk down wall street" by Burton Malkiell.  It will help give you persepctive about investments and even how to tell if your advisor acutally knows what they're selling.

May 23, 2012 2:42PM

I believe that, done correctly, financial planning is boring.  For many years, bankers were some of the more staid, boring people in any town.  That was back in the "green eyeshade" days.  Then the guys with the slicked back hair and the Gucci loafers took over, and "investing" became sexy.  Actually, it was no longer "investing," it was gambling with other people's money, or outright Ponzi schemes.  It became all about how much money the banker could make for himself, rather than how much service the banker could proudly provide to his customers.  It's an attitude adjustment that is needed.  Sometimes, the old ways are best.

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