Tuesday, March 27, 2012

Brokers vs. Fiduciaries

It's About The Money
If you haven't seen this video, you need to watch it.  It is more than a clever story.  It is also the fundamental basis of why I do what I do.  Most financial advisors are not telling you how they are being compensated.  The goal of corporations is to make money, and the goal of employees, then, should be to help the company make money.  Generally, the more money they make for the company, the better they are compensated.  How much their customers make in the process is, mostly, irrelevant.  I know because I have worked for these organizations.

Also, we don't normally shop at Toyota for a Ford product.  Sales people (including financial advisors) are going to sell you their products, not those from elsewhere.  A friend recently asked me to look at his portfolio, and, not surprisingly, it was jammed with mutual funds owned by the advisor's company.  We don't go to a car dealer to buy a washing machine, either.  It is up to us to know what we need to buy, and not let the sales people spend our money for us.  Even personal investors who already know of the undisclosed conflicts of interest between most financial advisors, the talking heads on TV, and their own financial health shrug their shoulders and say, "What else am I supposed to do?"

The first thing we all need to do is to become better educated.  Get a second opinion.  Ask why the differences exist between the first and the second set of options.  Eliminate unnecessary expenses.  Why pay an extra two percent for a mutual fund when an Exchange Traded Fund (ETF) will accomplish the same result!  Anybody with access to Google can determine the difference between a mutual fund and an ETF!  Not only can we avoid ending up with a lemon by doing a little research online, we can even find better prices.  Anyone who is trying to tell us anything different is trying to sell us their own agenda.

Whose Money Is It, Anyway?
So, then what?  We either make the people managing our money accountable, or we do it for ourselves.  Anyone who can fill in a form can open their own online brokerage account.  Start small, and don't take large losses.  Not interested?  Then direct your own broker.  Listen to what they have to say, but don't let them talk you out of anything - especially selling anything that is losing your money.

We don't do surgery on ourselves, but then we don't just write a blank cheque and tell the surgeon to fix whatever he thinks might be a problem.  We use specialists to handle specific problems (that's why they are known as specialists).  If "make me wealthy" is your only goal, then most of us should fire the people we have given our money to anyway, since they are the only one's pocketing the cash.  It pains me greatly to see other people taken advantage of, but there is also the father in me which knows that some people will never learn until it happens to them.  Don't let it be you.

For a lot of people, it is getting late.  Do you know where your money is?

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