Lower-quality advisors deceive investors for four reasons. 1)
They cannot compete with higher quality advisors if they tell the truth. 2) Investors will not buy what they are selling if they tell the truth. 3) Current clients will terminate them if they tell the truth. 4) They make more money if they use deceptive sales practices.
There are three primary forms of deception: omission, misrepresentation, and exaggeration. All three violate industry regulations that require advisors to tell investors the truth when they sell investment advice and products. However, these regulations do not protect investors, because companies pay lip service to existing regulations and spend millions fighting new ones that would require full disclosure. In addition, deceptive information is often verbal, so investors have no record of what was said to them, regulatory agencies have no control over what is said to investors, and it is the investors' word against advisors' if there is a dispute.
Omission One of investors' biggest risks is what advisors don't tell them. This is an easy one for advisors because there is no way for investors to know what they don't know. For example, advisors neglect to tell investors:
They are new to the industry -- and three months ago they were selling cars.
They have numerous complaints on their compliance records.
Their investment recommendations are performing poorly.
Investors are paying more than 3% in annual expenses.
Misrepresentation This form of deception is more flagrant, because it is lying. It is also an easy form of deception for advisors who are willing to lie to make money. It's easy because investors assume advisors they like are telling the truth. Examples of misrepresentation include:
Advisors claim they are investment experts when it is not true.
Advisors buy bogus credentials so they look more knowledgeable than they really are.
Sales reps pass themselves off as financial planners.
Advisors claim they selected high-performing mutual funds before the performance occurred.
Exaggeration The third form of deception occurs when advisors exaggerate information that helps them sell investment products. They provide no proof for these claims.
They say their current clients have received exceptional returns.
They say they are in the top 10% of local advisors.
They say they produce high returns for low risk.
They say they service large numbers of clients with substantial assets.
What is the solution? You can assume Wall Street is not going to solve the problem of deceptive sales practices. We already know they fight new regulations that would fix the problem. You can also assume regulatory agencies have no way to control what is said to investors. That leaves you!
You could record your conversations with advisors, but a simpler solution is documentation. Disregard information that is delivered in sales pitches. Only accept information that is documented by advisors.
This is the process pension plans use when trustees select financial advisors. You will receive more accurate information, and you will have a permanent record of what was said to you. It is no longer your word against the word of the advisor.
If you don't have a process for obtaining written information, go to www.InvestorWatchdog.com, and use one of its services that gathers factual information from advisors. Watchdog also acts as your record-keeper by storing advisor responses for you. Both services are free to investors.
— Jack Waymire spent 28 years in the financial services industry, and for 21 of those years, he was the president of a registered investment advisory firm. He left the industry in 2004 for a career as an author and blogger. You can reach him at Jack@InvestorWatchdog.com.
Yes @Broadway, we can agree that there are different types of media people and some are worse than others.
However, here is an example of the insidious nature of the media bias. It's directed towards the reelection of Obama and those cited in the article would be the first to lie and say it's not bias
@Fred, I think we can finally agree to agree. We are talking about two different types of media people. And your analysis on political commentators is spot on ... though I would posit that there is no such thing as political "news" (besides who is running, what their platforms are, and who wins the elections). Everything else is really just spin, he-said-she-said, slander, hyperbole, idiotic stump speech quotes, etc. etc., so people "covering" this material are as bad as the people generating it.
Thank you @Broadway, for suggesting two media people that you consider skillful. I will certainly look at their work.
That said, it is becoming clear that we are talking about different things. My complaint is primarily with people who are influential and who have an effect on molding the political opinions of the public, opinions that affect their votes. Financial reporters who stick to the numbers don't fall in this sphere, unless they slant their conclusions to support or undermine an elected political official unfairly.
If you want to call Greta Van Susteren a commentator and Campbell a reporter or journalist that is fine, but let's look at any media people who have influence on voting behavior and decide on those who base their comments on careful research and those who do so on opinion alone.
Greta is in my opinion the best of Fox News primary anchors. She strikes me as fair and open minded and tries to let the facts come out for judgement by the audience.
Contrast her with Dan Rather, the other extreme, a man who even before he disgraced himself with an outright lie, had a lifetime of opinionated coverage behind him. Coverage that even when based on facts was based on facts selected to support a preconceived notion.
Again, in my opinion, for every Greta there are 10 Dan's presently reporting the political news and unfairly tilting it to the left.
You have me at a loss to know who even qualifies as a journalist under your rules. You have eliminated columnists, talking heads and content people. So I guess you will have to provide me with a few people that qualify as journalists in your world and I will be happy to give you my opinion as to whether or not they are bogus or not in my opinion.
It would be a silly waste of both our time for me to list people I consider to be bogus and then have you tell me they're not journalists. I can certainly give you a list of people I don't respect in the news business, but why don't you give me a few you do respect.
As a gesture of conciliation, here's one I respect a lot. Greta Susteren.
You said there were too many great journalists to mention and then gave no examples other than one apolitical type. One might conclude you don't have any examples of "great" or even decent political journalists, or you would have taken the time to mention one or two.
Then you went further and built a strawman argument. Who is suggesting that opinions should be limited? I certainly didn't. I merely suggested that opinions should be labeled as such.
And further, you don't have to go to Russia to find government manipulated press. You can get your fill from the AP, Reuters, NYT, CBS, NBC and ABC
@Fred, if you start naming "journalists" who you think are bogus, I'll show you mine.
But really, please don't go through the effort because I think you are missing my point. The fact that you say you don't like political "journalists" who push their politics shows you don't get that I'm saying those writers probably aren't journalists at all ... they are probably columnists, or talking heads, or some other form of content generator. When you say that you prefer your news objective, I agree, and the people who write that news are what I call journalists.
No Fred. I was just giving examples. There are many more great journalists -- too many to list. And your argument is getting boring, I don't know exactly what you are getting at. The media sucks? Or you don't like different opinions?
Okay, well then, let's just shut it down or limit it to one opinion and then we can be like Soviet Russia (or post-Soviet Russian).
I think the idea of verification is great and the list is indeed long of professions that could use some truth telling, but greed and duplicity will always triumph because people hear what they want to. Bernie Madoff comes to mind...
I think the easiest and most universal protection is remembering the old adage that if something sounds too good to be true, it is.
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Every year, millions of investors turn their assets over to advisors who should rather be tellers at small, rural banks, if that. Why do we give them control of our retirement assets?
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