The Problem With Most Financial Advisers and Brokers

Quick history lesson:

In the past there were only brokers and they worked on commission. The problem with this is that they might "churn" the client's account, which means that they would buy and sell primarily to generate commissions. Anyway, these were also stock guys in that they were mainly buying and selling stocks for customers.

You can still find these brokers, not that you would want to hire one.

Now the industry has Financial Advisers, which work on a annual fee basis and are at least somewhat trained to have a more holistic view of the client.

Here are the problems with advisers:

1. Most are incompetent and/or unethical
2. Most will hold their interests above the client's
3. Advisers are trained purely to "sell" and are judged by their peers and firms. They are not judged on investment performance but buy revenues produced.
4. Most buy investment products from wholesalers rather than doing their own research.
5. They will always tell you it's a good time to buy. Always! They will act as though you are stupid not to buy.
6. They will show research/charts to prove point #5. This research/charts will have 20 to 50 year time horizons. Most investors don't have 20 to 50 years to invest.

Here's how it works when you walk into an office of, or call, any of the big firms:

You will be put in front of the most inexperienced people/person in the firm. Now, I think that the only offices that really get this kind of business are the ones that are visible from the street. This person is highly likely to be completely incompetent and just wants to sell you anything that they can. This is what the big firms think of you the client - nothing! They could care less. They just want to sell you something and move on to the next "customer."

How would one go about finding an advisor that is truly competent and ethical? This can be quite difficult as my rough guess is that they are about 2 or 3 out of 100 at best. You could ask an attorney or a CPA for a referral but the problem with this is that most of these professionals have trouble figuring out which advisers are good and which ones they can trust. Many have been burned and just don't give referrals. Some will take years to develop relationships before referring clients.

I think the only way to find an advisor is to know just enough yourself about investing and then interview a lot of advisers.

Hopefully this blog can help you by pointing to all of the best information on the internet on investing. I will also try to boil things down for you so that you don't have to read everything.

-stealth