Aug. 2, 2005 - Whose Interests? |
Earlier this year, the Securities & Exchange Commission released new rules for broker-dealers (that's fancy industry jargon for what normal folks call "stock brokers") who also provide investment advice to clients.
"Wait a minute," you say, "I thought that's what stock brokers do is provide advice." It turns out that's not exactly true and so the need for new rules.
Let's define our terms so that we're all on the same page. A stock broker's princple activity is to sell securities. Providing advice is secondary, if it's done at all. As you can imagine, it's one thing to sell and an entirely different matter to advise.
As more and more traditional brokerage firms market their brokers as "advisers," "consultants," "planners," etc., it has become necessary for the SEC to make the distinction clearer between those who are primarily in the business of selling securities and those who are exclusively in the business of advising clients about securities.
What is the distinction between the two? Stock brokers do not have a fiduciary responsibility to act in the best interests of their clients. Financial advisers do. That's a big deal. It's so big, in fact, that the SEC's new rules require stock brokers who also act in an "advisory role" to notify clients that:
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the client is opening a brokerage account and not an advisory account, and
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the broker-dealer's interests may not always be the same as the client's.
That second statement should give you pause for concern. You are not seeing things and there are no typos. The broker-dealer's interests may NOT always be the same as the clients. What that means is that brokers are not obligated to act in their client's best financial interests. Instead, they may act in their own financial interests.
This is true even if the brokerage firm is charging you flat fees or a simple percentage of your assets, rather than the traditional commission fees.
There's nothing unethical, illegal, or crooked about it. After all, it's a broker's job to sell. As long as you are told up-front about that arrangement, then everything is fine. That's why the SEC will require some new language in the fine print so that you will be fully aware of what's going on and avoid any confusion between brokers and advisers.
But who pays attention to fine print in an advertisement, contracts, or a financial "disclosure" document? Probably the same number of us who actually take the time to read the entire software license agreements on our computers before we click on the "Yes, I Agree" button.
Doesn't it make you feel all warm and fuzzy to know that others may use your money to act in their best interests? If not, you'd better pay attention to the sales literature, account forms, and other disclosures provided to you by your broker -- even if he or she is called a financial "adviser," "consultant," or "planner." It's up to you to be informed and diligent. Don't rely on what others tell you. Check it out for yourself.
Better yet, you might want to look around for someone to handle your financial matters who IS obligated to act in your best interests. After all, it's your hard-earned money. The more you keep the better off you are.
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May. 13, 2006 - thoughts from an "evil" financial advisor |
| Posted by carolinametzgers |
Steve,
I've just finished reading your rants on "101 reasons the brokerage industry and everyone who works in it is evil." The solution of course is to hire you, the "unbiased, hourly financial planner."
First, let me introduce myself. My name is Mark Metzger. I am a "financial advisor" with H&R Block Financial Advisors in Charlotte, NC. I am the husband to Lisa Metzger, a second generation homeschool Mom to my four children, ages 13, 6, 5 and 7 months. We are a family committed above all else to a personal relationship with Jesus Christ and to bringing glory and honor to him in how we conduct ourselves personally and in the business world.
I have worked in this industry long enough to know that 80% of the stock brokers/ registered reps, etc. are self-seeking, somewhat dishonest, and do not consistently put their clients interests above their own. (Is it materially different in any other industry???) This means that you have deeply offended the character of the other 20% with your generalizations and accusations of impropriety, chiefly myself. (Incidentally, you may remember my wife's recent posting in my defense........isn't she wonderful?!)
This industry, perhaps more than most others, requires that advisors choose daily to place their clients' interests ahead of their own temporary interest. I will submit that any financial planner or stock broker out there will make or break their careers (in the long run) by their conduct and character. I do not believe that dishonest advisors do themselves a favor by cheating a client or taking advantage of a client for their own financial gain. This usually ends badly for the advisor. There will always be fast talking salesmen looking to make a quick buck but just as surely there will be advisors that deeply care for their clients and have a burning desire to make them successful. This necessitates that anyone looking for financial advice put their "interviewer cap on" and carefully and prayerfully search for an advisor who will put their interests first. Further, an advisor who does this, not because it is easy, but because it is right, and because that advisor is accountable to an omnipotent Lord and savior, Jesus Christ.
I suggest that, from this point forward, you concentrate on making your blog a place for thought provoking discussion on biblical money management & stewardship. There is a great need for biblically based financial advice. Concentrate more on filling it and less on judging others.
Rbest4him,
Mark G. Metzger
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Jun. 29, 2006 - Dear "Evil" |
| Posted by |
Mark, I’m glad you’re a Christian brother, fellow-homeschooler, and an honest financial adviser. However, I disagree with nearly every point you make in your comment. Let me address them in order.
1. As they say, “if you can’t stand the heat, stay out of the kitchen.” It is not me who chose to do business using a business model with built-in conflicts of interest. I can certainly understand why you’re uncomfortable with someone pointing out this very important fact. Or do you really operate as a fiduciary to your clients? I didn’t think so. What you call a “rant” is simply what the SEC calls full disclosure. As a Christian and one of the good advisers, you should be happy that someone like me is equipping consumers to weed out the bad advisers so they can find you.
2. I happen to be an hourly planner because it is my Christian conviction that it is the best way to serve my clients’ best interests. So yes, I believe the public is better served by the hourly business model – whether they hire me or not. This is not a personal attack on “everyone” but merely pointing out that there are STRUCTURAL issues in the financial services industry that are aligned against consumers. The point I make in my writing is that the public should be fully aware of the differences so they can make an informed decision.
3. Gee, you think 80% are that bad? Not even I’m that pessimistic. But, your statement only serves my purposes in letting people know that they need to be careful. Don’t you think that an 80% failure rate merits some warning or attention? The comparison with other industries is not appropriate. As my state’s chief examiner put it so beautifully…”When someone buys bad windows for their house, they’re only out the cost of the windows. When someone buys bad financial or investment advice, it may cost them their life savings.” That’s why removing conflicts of interest in our industry is so critical.
4. The 20% who do a good job, like you, should have nothing to fear from me or any other independent planner. After all, it’s the big firms like yours that spend billions on advertising to convince people that “the solution of course is to hire you” to take care of their financial needs. Imagine that, companies that self-promote themselves and their “advisors” to help people! What’s mind boggling to me is you think nothing of your company promoting itself and you, even though you know there’s no fiduciary responsibility to the client and that an unsuspecting member of the public has an 80% chance of landing a goofy adviser. But I’m the bad guy for pointing out that there's a better system that’s aligned with the client’s interests. Shame on me.
5. Your big paragraph about the “industry” only proves more of my point. Indeed, as you state, our industry “requires that advisors choose daily to place their clients' interests ahead of their own temporary interest.” That being the case, just how does it make sense for companies like yours to operate with business models that INTRODUCE conflicts of interest? I’ll tell you why, because they can MAKE MORE MONEY off their clients. And they do. Plain and simple.
6. You contradict yourself by insisting that even though there are bad advisers, there are “just as surely” good ones who will do the right thing, implying there are plenty of them out there. But you previously asserted that 80% wouldn’t do the right thing. Those aren’t good odds for a consumer. You also seem to dismiss the bad advisers because they won’t last long in the business. That’s small comfort to those who’ve been mistreated. Besides, only the real criminals get booted from our business. The others just rotate from firm to firm.
7. Your last point is insulting. As time permits, I write about money issues that matter greatly to people. That includes how they go about selecting a financial advisor. I consider it God-honoring and a service to the public to point out the many hidden traps that obstruct average folks from obtaining honest, objective financial advice from a fiduciary who does not have conflicts of interest. The fact that you work for a firm with a different vision is not my problem. Perhaps you and your wife should spend less time reading my blog if you don’t like to hear the whole truth.
Steve
Edited by stevebraun on Jun. 29, 2006 at 11:45 AM |
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