I certainly understand the argument for a national agenda for better financial literacy, especially when, on an ongoing basis, I see examples of how the financial industry and it's participants continue to try to take advantage of those who are less well-informed (see yesterdays blog).
As a participant in the financial industry (for over 30 years now), I have to say that it is no wonder that regular, hard working people choose to ignore their financial futures when they are faced with a barrage of very confident and polished salespeople who appear to have all the answers, but prove, over time to be acting only in there own best interests (getting paid!)
A few years back, when the small sized investment company where we (a former business partner and I) operated our wealth management practice, was taken over by a large financial institution, I asked the "blunt" question:
Who is more important, the client or the (name of the large financial institution goes here) shareholder?
The senior executive did not even hesitate: "The Shareholder" he told me.
Interestingly, as one serious conflict of interest, part of our "retention bonus" (to encourage us to stay on at the large financial institution) was to be given shares of the company.
Ironically, I became a shareholder, so in essence, I was now more important (to the large financial institution) than were my clients. That was not going to work well for me.
So we decided to move our wealth management practice.
Interestingly, the large financial institution was under the incorrect assumption that our clients were in fact their clients (and that they could somehow do a better job than we had, even though they really didn't care about the client, just the revenue stream). So they incentivized their sales force to try and "retain" our clients. Without success.
My point (finally, you might be thinking) is that if the large financial institution is not looking out for the best interests of the clients, what is the "culture" within the company?
The culture is to reward the top "producers" (revenue generators) with a place in the President's or Chairman's "club" (as well as higher % of the gross revenue that they produce).
Success (for many, but not all) in the financial services business is focused on revenue generation. This is an enormous conflict of interest.
I do believe that I should be paid for the work that I do. However, philosophically, I believe that what I should be paid for is looking after those people who have taken it upon themselves to put their trust in me. It should be clear to my clients what those costs will be, at all times.
It should be even more clear to my clients that I have no other agenda than to seeing them succeed financially. Their success is in fact, my success.
Personal financial success does require using a professional who can guide you through the planning, strategizing, investing, monitoring, adjusting and educating aspects of it.
The key to selecting the correct financial professional is to understand their motivation. That may take some digging, but don't be overwhelmed by their confidence and polished sales pitch.
Be overwhelmed by their devotion to their fiduciary duty to you.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist