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Investment Advisor Confidence Upheaval

April 12, 2016

According to a NY Times front-page story on April 7, 2016, the financial services and insurance industries are aggressively lobbying against a Department of Labor rule that will require financial advisors to consider the best interests of their clients when they make recommendations.

That same day, I received an ad for a webinar for investment advisors that read in part: “If the DOL rule has you up in arms, it’s understandable. It could change the way you do business, affect client relationships, increase costs and more.  If you attended our February DOL webinar, you already know that the DOL rule can be challenging for your business and could change the way you operate.”

Further, AIG announced plans to sell off their broker-dealer division because they will not be able to make money under the Fiduciary Rules.

Most people believe that when they engage an investment advisor, the advisor will act in their best interests.  That is not the case and desecrations are so egregious that the DOL has seen it necessary to issue regulations requiring financial advisers and brokers handling IRAs and 401s to act in the best interests of their clients.  “We put our clients first” is a myth, but the DOL wants to make it the reality.

The financial services and insurance industry has many people holding themselves out as investment advisors, registered representatives, financial planners and other similarly descriptive job designations.  Many have multiple initialed credentials supposedly signifying expertise and that they warrant trust.  In reality, they might not mean either, other than expertise in selling inappropriate high commission products to customers.

Not all investment advisors fall into this bad advice category.  Also, many that pocket high fees and commissions while selling unsuitable products are following the standard practice of their “profession.”  The SEC and industry associations make clear distinction between acting in the best interests of customers or acting as a marketer, but the problem is that the public does not distinguish between the fineries of the stealthy crafted language.

Many people needing assistance in their financial plans judge those they hire based on one or two meetings that determine how they feel about the salesperson and the level of trust that is connoted.  These salespeople, that follow the hidden industry rules have licenses, so to speak, to steal money and somewhat destroy some of their customer’s future financial security.  That is not right and the DOL has seen fit to intervene to promulgate honesty.  This is terrible and a blot on the entire industry.

A suggestion is to meet soon with your financial advisor and obtain in writing a statement of how they are compensated and by whom and under what circumstances payments are made to them, either directly or indirectly and what amounts or percentages; and to what extent they act in your best interests.  Until then, caveat emptor!

4 Comments leave one →
  1. Alan Zeitlin permalink
    April 12, 2016 2:47 pm

    Very interesting. It is very difficult to know who you can really trust. But it does seem that a fee based advisor might have your best interests in mind rather than a commission based advisor.

  2. Ed Mendlowitz permalink
    April 12, 2016 7:41 pm

    Alan – it depends on the integrity of who you are dealing with. Both methods have pros and cons.

  3. Ed Mendlowitz permalink
    April 12, 2016 10:59 pm

    Here is an article indicating the pressure the financial services industry is putting on legislators to stop this rule which would require honesty.

  4. Ed Mendlowitz permalink
    April 12, 2016 11:01 pm

    Here is another article quoting Jane Bryant Quinn.
    I’m stopping with – there is too much going on fighting this.

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