1. Money
Dana Anspach

Make Sure You Don't Get a Lemon

By April 11, 2012

Follow me on:

On Time.com Christopher Matthews writes Your Financial Advisor Might Be a Lemon, where he discusses the results of a National Bureau of Economic Research (NBER) paper titled  The Market for Financial Advice: An Audit Study. This paper was written after trained auditors went out undercover to interview financial advisors. In the summary they say, "Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

Is this a surprise to anyone? Not to me. I used to work for a big brokerage firm. My experience there was they trained you to sell. If you wanted to figure out how to deliver meaningful advice, well you had to go figure that out on your own.

In the lemon article he quotes one of the authors of the NBER paper as saying, "So making sure you do your homework before you talk to an adviser and understanding the benefits of passively managed funds is important" and "that requiring advisers to have a fiduciary responsibility to their clients would fix many of these problems."

True, very true. (To find passively manged funds start with this list of index funds. Not sure what passive means? Read Active Vs. Passive Investing.)

The disappointing thing is instead of telling you how to find the fiduciary kind of advisor the article concludes with "Until the industry reforms itself, however, the best defense for investors is the knowledge that not all investment advisers have your best interests at heart."

What kind of advice is that? That is ridiculous. Don't just accept mediocrity. You can easily search for an advisor who is a fiduciary. Yes, they are out there. Fee-only (which means advisors like myself who are not compensated in any way through commissions) are members of NAPFA and they take sign a fiduciary oath. You can use NAPFA's find an advisor search feature to find such an advisor near you.

No comments yet. Leave a Comment
Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.