Are You Being Advised or Sold To?

Last weekend I was thinking about an article I read almost ten years ago in the October 2004 issue of Investment Advisor magazine, that sadly still remains true to this day. Dan Wheeler, then the director of global financial services for Dimensional Fund Advisors, wrote an article, ‘‘House of Games,’’ which sums up an unfortunate dilemma still prevalent in our industry.

He wrote that. . . . the problem with seeking professional investment help is that all too often the person sitting across from the investor as an ‘‘advisor’’ is there to make a sale . . . unfortunately too many people think that Wall Street brokerage firms are there to provide investors with good advice designed to help them reach their financial goals.

That’s powerful stuff. Yet in my experience, having worked at brokerage firms, trust companies, and banks, and despite my generally positive disposition, I’m still inclined to agree with him even 10 years later. I still see, over and over again, how investors do not get what they really want from their advisors – straightforward providers of advice and direction who customize their thinking to that of each individual client. As time goes on, I see more and more of the industry truly acting as “fiduciaries” to their clients, and that is great to see. But there is a long way to go until investors’ objectives and those of their advisors totally match up.

You must ask yourself: in an industry where many are rated by their employers based primarily on the revenue they bring to the firm as ‘‘producers,’’ and not how much better off their clients are for being with them, is there not an obvious disconnect between the needs of the clients and the way those needs are being addressed? I think there is, and I also think that many financial advisors have figured this out over the years, and rightly decided to start independent firms. What was once a small minority of the professional financial advisor population, has grown into a giant that now rivals the size of the traditional brokerage industry.

Independent advisors come in all shapes and sizes, but in my opinion, the ones who ‘‘get it’’ treat the client as a teammate, not an opponent, and see their role as being the client’s advocate, representative, and interpreter, within an increasingly complex investment world. Furthermore, they do so without making it appear that the client is getting something they are not. Shortcuts and overkill by Wall Street firms increase the chance of the client’s later feeling fooled, and feeling like a fool. Independent firms will, in my opinion, continue to be the winners in that battle for the client’s affections because they are far less likely to allow that to happen.

© Sungarden Investment Research

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