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Financial Adviser Secrets Exposed


Financial advisers, by the very nature of their profession, have an agenda that conflicts with the client. They make their money by getting it from you.

“He is always nice to me,” says my friend when talking about his financial adviser.

The interesting thing, which I know but my friend doesn’t, is that his adviser isn’t managing his money. In reality, he hands over that task to an established firm in the city (where I worked in the early 2000s). Thereby my friend is paying two fees, one to his adviser, with whom he has a relationship only, and a second to the firm that is managing his money, but he never sees face to face.

Since fees cut into return and my friend is paying two fees (one for a relationship and the other for management), my acquaintance is not acting in this own best interests. He is paying more than is necessary for the service he is receiving. This is in part due to my friend’s ignorance about financial advisers and their practices.

Allan Roth, a certified financial planner, can help my friend understand this. He wrote a recent article in the April/May issue of the American Association of Retired Persons (AARP) Journal. It addresses what clients don’t know about their financial advisers. This article is so important that it cries out for greater exposure.

Here are some of the meatiest quotes from Roth’s piece and ones that could help my friend as well as anyone who has an association with a financial adviser. Remember, Roth is an adviser too. What distinguishes him from others in the category is that he is candid, a rare quality in this industry. I paraphrase what Roth says supported by his direct quote from the article below.

1. Financial advisers, by the very nature of their profession, have an agenda that conflicts with the client.


“Planners have financial aspirations of our own. We make money by getting it from you. This isn’t evil in its own right. But it is a conflict of interest, and it pervades everything we do."

2. Advisers do not necessarily give good advice.

“Bad advice is epidemic in my industry…”

3. However, like everyone else, advisers can convince themselves that they are doing the best thing for their client even though they aren’t.

“We financial planners are masters at persuading ourselves that what’s in our best interest also happens to be the moral thing to do.”

This is scary. For people who care about their money, Roth is like a preacher that gives a fire and brimstone sermon. He instills a fear of losing it to inept or insincere advisers.

There are several ways to counteract this fright, feel better and be more productive with investable cash. One is to learn more about how to manage it yourself completely or partially. This is accomplished by reading and/or seeking the guidance of an educator who charges an hourly fee, not a percentage of assets. This is what I do.

Another is to find a good investment manager, one who most often charges a percentage of assets, a more expensive option than the first. This is a task that is more difficult than it might initially seem. Here too, knowledge comes into play because a bad investment adviser won’t be detected short of fraud unless his client has an inkling of how to analyze his results. Thereby the first option comes into play again.

So, let’s get realistic. Most investors don’t like to do more than they have to when directing the management of their money. But, in order to take care of it effectively, the article by Roth suggests that investors have to take action, i.e. become educated. This is disappointing, I agree. Sadly, it seems that once again we can’t trust others with our most precious possessions, and surely our money is included in this category.

Read more:

In Whose Best Interest?

A Rising Tide Lifts All Boats (and Some Egos)

Expert Financial Advice Impairs Decision Making

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Victor J. Dzau, MD, gives expert advice
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