Financial "Professionals"? Why I still Remain Cynical

http://www.nytimes.com/2011/11/09/business/how-a-financial-pro-lost-his-house.html

This is not meant to criticize this gentleman. What he went through is a painful experience that I hope to never go through and I hope no one I am close to has to go through it.  But it is also a reminder to investors and people looking for financial advice to ask the right questions and make sure they are with professionals who are like-minded and who practice what they preach.

There are still so many people who spend less time interviewing and talking to their financial managers than they do purchasing a car.  Do you ever hear someone bragging to you about the awesome financial manager they have?  I am sure it happens…but usually during roaring bull markets when they have made 30% in one year, even though the market also made 30% or more that year.  Yet, you will always hear Joe Schmo bragging about how they went to a dealership and were very firm and got the dealer to knock $300 off the car they wanted to buy.  You won! Hardly.  This, to me, is the ultimate example of being penny-wise and dollar dumb.

The article above, like I said, is an unfortunate story and I give the writer A LOT of credit for swallowing his pride and writing about his experience.  But you have to remember, if you read the article, one of the first things you see is that he answered an advertisement for what he thought was a security guard position.  Next thing he knew, he was a financial “pro” at one of the biggest firms in the country: Fidelity.  He was working out of a call center basically cold calling to see who he could get meetings with. Business started to pick up and next thing he knew, he was leveraged up to his gills with debt, which I hardly believe is the advice he was giving to his clients.

Unfortunately, this example isn’t just at Fidelity and it isn’t just with people who thought the job was for security guards.  It is for the Harvard MBAs and the “geniuses” out there.  I am still surprised by how many investment and real estate guys I meet where the explanation for investment returns aren’t able to be broken down into simple steps.  It’s always the “We have been doing this for a long time and this is how it’s done.” 

Many people find it funny that I am in this business and yet I criticize it so much.  Well, there’s an easy explanation for that . I don’t want the wannabes giving me a bad name! Unfortunately, in our business, all you need in order to start is a phone and a suit.  The firm will get you the licensing you need and before you know it, you’re peddling boilerplate financial advise to people and getting 5% commissions on their investment purchases.  This is hardly the way a true financial adviser should be operating .

So with anything you do that involves such a personal and important decision, please make sure you ask the right questions.  Don’t be afraid to ask your financial adviser about their personal financial decisions! If they know about you, I surely think you should know about them and understand what they do for themselves.  If it’s different from what they recommend for you, that’s ok! As long as they can explain the reasons and you can understand them simply.