Smart Money Magazine made the rounds at the major brokerage firms as a “secret shopper” of sorts. What were they shopping for? Honesty. They didn’t find much of it. Every firm missed the mark in at least one area (College Savings, Insurance, Financial Planning and Fiduciary). Of the eight firms examined (Bank of America, Schwab, Dreyfus, Merrill Lynch, Morgan Stanley, Northwestern Mutual, Smith Barney and Wachovia), only three followed the rules on offering financial planning and fiduciary based advice. Of those three none of them are glittering jewels, one of which (Morgan Stanely) was quoted regarding its outrageous fees “you buy the best doctor, why get cheap about your money?”. I don’t have to point out (but I will) that financial advisors are not doctors, in fact one can become an “advisor” with minimal training, literally less than six weeks. Would any of you goto a doctor who had no degree and only six weeks of training? In addition, most people have no clue what they pay their doctor, the insurance company usually is the payor.
The point here is that brokerage firms and brokers exist to sell you products, not a financial plan. They want to give you the look and feel of being with a qualified financial planner but without any of the regulatory requirements. In other words, they don’t want to be required to PUT YOUR BEST INTEREST FIRST. The main reason is if they were required to do so (this is called being a Fiduciary) they would have to quit the brokerage firm (as I did) they work for and start their own company, then they’d have to stop being product salespeople……that can be tough, after all, financial planning is much different than sales.
For those of you who don’t know, I came from the brokerage background, I worked for four of the eight companies listed above: Bank of America, Merrill Lynch, Smith Barney, and Morgan Stanley. It was my years at these firms that shape my view of the industry (not a great view, see the article on my webpage – Secrets of the Wirehouse). I was an employee, not an advisor free to make my own decisions for my clients. I could not put my clients best interests first, that is why I left and started my own company and became an RIA (Registered Investment Advisor).
I act as a Fiduciary for my clients, meaning I am required to put their best interests first.
Is your broker a Fiduciary?
Scott Dauenhauer, CFP, MSFP, AIF