Investment Advisors Don't Care About You

I have always questioned the motivations of investment advisors. I've also often questioned the value that real estate brokers bring and whether that value justifies their commission. I guess I'm suspicious by nature, but being so seems to have served me well so far. And so it was with great interest that I read this month's Conde Nast Portfolio magazine and came across the story of an investment advisor, Blaine Lourd, that let the cat out of the bag. Here are some of the more telling quotes from the article.

"The traders in New York would accumulate a block of shares, driving the price up, and then get brokers like Blaine to unload the shares quickly at the higher price — whereupon the price would, often as not, fall."

"Most of the time, he just read from the same script as the other brokers: Are you familiar with Warren Buffett? We have information from our sources on the Street that his next position is going to be in a company much like… "

"It was amazing the gullibility of the investor. When you go a new customer, all you needed to do was get three trades out of him. Because one of them is going to work. But you have to get the second one done before the first one goes bad."

"Blaine, you're confused about your job. Your job is to turn your client's net worth into your own."

"He quit Lehman Brothers and took a job at the Los Angeles office of Bear Stearns. But Bear wasn't any better. He says he was pressured to make transactions rather than give good advice.

Eventually Blaine became unhappy with his role in the investment industry. His search for a way to provide actual value to his clients took him to Dimensional Fund Advisors (D.F.A.) — a firm that believes in the efficient market hypothesis. He now puts his client's money in what are effective index funds. The only decision made is what proportions to allocate to each fund based on risk measures.

Needless to say the article, by supporting my belief in exchange traded funds, made my day!

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4 Comments

  1. it is very true that investment managers are not at all concern about your investment, they only interested in the commission/ own gain from your investment. They donot stick to one company and will try to sell you different products of different compnay when they change and carry the previous customer to the current company. they will inspire your with the huge returns and hides the charges for the maintainance and entry load. Do good research on compnay and their products. compare the returns of last 5,1, 6 months and current & future position before investing. Risk factor should be decreased as you progress towards your retirement age. invest in to secure products when you are nearer to the retirement age..... even there are lots to do..... if anyone needs help please let me know i will be ownered to provide all assistance to the best of my ability...... after all decisions are yours....

  2. HEY, I don't really know what to do about investing and now that I am 53yrs old with my wife and trying our best after raising our likds and public service for 29 years, what do we do? Who can you trust? I thought the Motely Fools was something trustworthy to learn from and in vewst through, I don't know anymore. Is there help out there for us folks? thanks, Ken R.

  3. I agree with Steven. It bothers me to see that some so blatently stereotype an entire industry - especially when each adviser is very free to run our practices however we wish, some clients like the "stockbroker" others like the "planner", (all this regardless of a wirehouse or independent). We are by no stretch in cookie cutters, so one bad experience (that wasn't even yours) taints the whole industry and then you have the audacity to make it a headline. Expand your mind, put yourself in the position of being stereotyped and then ask how you would feel if someone wrote this about your occupation knowing that you didn't come close to the description.

  4. I would argue your point about investment advisors. Many people are just clueless about investing and need to remedy that issue if they ever hope to have the resources needed for retirement. Some like your self find investing a rewarding challenge and spend the time needed to become knowledgeable and implement good strategies. The majority do not. Your indictment of advisors seems very much like the charges being made against mortgage lenders today... that somehow, those folks who borrowed beyond their capacity to pay are victims. If being uneducated about our financial abilities makes peolple victims...you get the point. For the majority then, they need to take some steps to ensure they get on the right track. Education is a great answer, but many simply do not have the time. And for those who do not or will not take those steps, then a professional may be the key. You should not paint all investment advisors with the same brush. First, it simply isn't true. And secondly, every profession has it's share of bad apples. All of us at least need to carefully weigh the criteria we use in choosing our providers, whether it be legal, medical or financial. I believe that everyone should work with a financial advisor, and a great many of those are investment advisors as well. There is simply too much complexity for the average person to master. Perhaps your focus should turn toward finding a suitable advisor. My preference is a fee-only planner. But that's personal to me. I could in other situations argue that a commission sales person was the appropriate choice. Regardless, there needs to be a means to seperate the bad choices from the good. And that focus seems to be far more appropriate. Food for thought...

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