Beware the Source of Your Financial Advice

If you have an extra minute, please head over to Babycenter to check out the guest post I wrote for them: Can you afford a baby? The answer may surprise you.

beware bad financial advice

Today I’ve got a little bit of a rant for you. Nothing gets my blood running hotter than a supposed “financial advisor” selling people on an approach that all of the evidence says is about as valuable as the cat litter I throw into the trash every night, and then charging them an arm and a leg for the service. There’s so much BS out there, and unfortunately it’s often the people at the lower end of the income spectrum who get the worst of it.

So you can imagine my outrage when I came across this article questioning whether professional investment managers should be using active or passive strategies. Despite all of the evidence in favor of a passive approach centered around low-cost index funds (if you have any doubt, please read this: How to beat 80% of investors with 1% of the effort), there are still many, many advisors pushing an active strategy. Why is that? Look no further than this quote directly from the article from a guy named Jason Romano, himself a professional financial advisor (who, to his credit, seems to have moved most of his own clients into an index-centered approach):

Romano says many advisors may hesitate to add passive funds to the portfolio mix because they fear that clients may believe they can do it on their own.

Are you f***ing kidding me?

So these so-called professionals, many of whom are held to a fiduciary standard REQUIRING THEM BY LAW to do what’s in the best interest of their clients, are purposefully providing a sub-standard service in order to make their job look more complicated so that their clients perceive more value than actually exists? I’m sorry but the only professional designation someone with that mindset deserves is professional scam artist. I mean, we’re not talking about someone selling you a washing machine when they know the store down the street has it for less. We’re talking about someone who has a real live person’s financial future in their hands. Based on their decisions, retirement will be achieved or lost. Children will be able to afford their choice of school or not. Dinner will be on the table every night, or it may not. If they can’t keep those realities in mind and actually do what’s in the best interest of their clients, then they need to get the f*** out of the way. Because the truth is that if you’re only looking at investment returns, then you’ll be much more successful using a simple strategy on your own than paying someone to try and beat the market. Don’t believe me? You don’t have to take my word for it. The facts speak for themselves.

How can you find good advice?

Ok, deep breath. With all of that said, I do believe there can be a lot of value in working with a financial professional. I myself am working towards my CFP® designation because I believe strongly in that fact. But you need to be very, very careful that the person you work with truly has your interests, and not your money, at heart.

So, how can you do that? First of all you need to educate yourself. My goal with this site is to help people build up a solid foundation of financial knowledge, but there are lots of other great resources as well. Bogleheads.org has an amazing wealth of knowledge, particularly when it comes to investing. The blogs written by Mike PiperRick Ferri and Dan Bortolotti continually have incredibly practical and insightful investment advice. I Will Teach You To Be Rich by Ramit Sethi was one of the first personal finance books I ever read and really opened up my eyes to some of the very basic but powerful tools available to us all. And if you want to know where the core of my investment philosophy comes from, look no further than the book Unconventional Success by David Swensen, Yale’s famous Chief Investment Officer.

Second, you need to set the proper expectations. A financial planner is not going to help you get better-than-market investment returns. Beyond the fact that beating the market is an irrelevant goal in addition to an incredibly unlikely outcome, the true value of a good financial planner is in helping you develop and implement a comprehensive financial plan. This will include investments, but will also include things like setting appropriate goals, crafting a meaningful budget, making sure you have proper insurance, creating an estate plan, helping you buy a house, creating a plan to pay for college, and anything else in your life that has any kind of financial component. It’s the comprehensive planning that holds the real value, not an empty promise of exorbitant investment returns.

Finally, you need to know where to look. NAPFA is an organization of fee-only financial planners, meaning they sell only advice, not products. Garrett Planning Network is an organization of financial planners dedicated to providing financial advice on an hourly basis, making it affordable to a broader base of the population. But the fact that someone belongs to an organization like this isn’t enough. You need to have done your own research and know what you want from the relationship. That way you can lead from a position of strength and quickly weed out anyone who falls into the “scam artist” category.

In the end, only you have your own back

When it comes down to it, you’re the only one who truly has your best interests at heart. There are people who can help you make your goals a reality, but you have to understand that there are likely even more who are much more interested in simply taking your money and running. And the financial services industry is one of the worst in this respect. Educate yourself and thoroughly evaluate any prospective advisor before entrusting them with something as important as your financial future. After all, if they’re worried that you could do their job for them, they’re probably right.

Full disclosure: The links to books within this post are affiliate links and will earn me money if you purchase the product. As always, I only include affiliate links for products I actually use and have proven helpful for me personally.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

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Matt is a fee-only financial planner dedicated to helping new parents build happy families by making money simple. His free time is spent building block towers and jumping on beds with his two awesome boys. If you want to learn more, you can go here.

Latest posts by Matt Becker (see all)

  • John S @ Frugal Rules

    “Romano says many advisors may hesitate to add passive funds to the portfolio mix because they fear that clients may believe they can do it on their own.” WOW…that is absolutely nutty. Why on earth would we want people doing it on their own, Lol?!

    I saw a lot of this in my time in the industry and it’s much of the reason why I left it. When people trust you with their hard earned money that behooves you to act a certain way and to treat them in a similar manner. Unfortunately, many do not take that responsibility to heart and the client is at risk because of it. There are many, many shady advisors out there, but I know there are some good ones too. You just have to do the legwork and make sure you get someone who is reputable – by asking the right questions, checking their credentials, etc.

    You’re right in that you’re the only one who fully has your own back, but there are some good advisors out there who’ll treat you well. Like I always told clients, hiring an advisor does NOT release you from culpability…you need to know what they’re doing and you need to be up with what is going on in the market and your portfolio (basically making sure you’re informed) – I’ve seen way too many not do this and pay a huge price as a result.

    Anyway, sorry for my mini-post Matt. ;) Nice rant!

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I love the mini-post John. The more input we have on this the better. I agree with you that there are good advisors out there, but unfortunately they are often less well-known than some of the not-so-good ones. Several years back I had an opportunity to work in a position similar to what you’ve described as your previous job, and looking back on it I’m very glad I passed on it. It just would have been too far outside what I consider to be ethical advice. Your accounts of your own experience has only confirmed that for me. There’s certainly a right for a professional to make money, but when making money takes precedence over giving good advice, you run into real problems.

  • Green Money Stream

    I can understand this rant. As John @ Frugal Rules says, there are some good advisors out there, but it is tough for the average person to find a reputable one. After all, advisors are trying to make a profit too!

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I definitely respect and understand the desire to make a profit. They absolutely deserve it if the service is providing real value. But there are far too many advisors who are in it PURELY for the profit and either don’t know how to give good advice or, as the quote above suggests, willfully ignore it in favor of more profitable advice. That, to me, is a travesty and a scam.

  • http://Www.Plantingourpennies.Com/ Mrs PoP @ PlantingOurPennies

    I think part of the problem is when employers seem to endorse a particularly shady advisor, as is the case with my MIL. The guy “everyone uses” gave her flat out bad advice, but he’s te only one she’s allowed to do certain things through. So she now needs to calculate the benefit of doing a few things with the cost of having to deal with this scummy guy.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Oh yeah, that’s definitely a problem. It’s often the case that employers don’t know the good from the bad any better than their employees and end up hiring the same kinds of camouflaged salesmen that average people get fleeced by on a daily basis. For your MIL, it sounds like she has to go through this guy for any employee benefits, but anything else could be done independently right? If she really needs advice, she could hire someone independently to review all of the same information she has and help her make the best decisions possible, even if she has to go through the employer’s guy to actually get it done. It might be an extra up-front cost, but it would come with the benefit of feeling confident she made the right decisions.

      • http://Www.Plantingourpennies.Com/ Mrs PoP @ PlantingOurPennies

        I had a big sit-down with my MIL this summer and sent her with questions for the next time she meets with this guy. Basically it’s about a 403b plan and a “deferred compensation” plan that she can opt into with pre-tax money. He keeps trying to convince her that she’s going to save thousands in taxes, but the front-load charge on the funds he’s recommending is over 5%. Totally not worth that front load fee, but is that the ONLY option? It’s certainly the only option he’s presenting…

      • http://Www.Plantingourpennies.Com/ Mrs PoP @ PlantingOurPennies

        We suggested she find a tax planner to go through what her situation will look like pre/post tax, etc and even offered up some names near us, but when work started back up in the fall, the planning took a backseat to life. We hope to get her to one of those types of planners, though.

        • http://momanddadmoney.com/ Matt @ momanddadmoney

          Gotcha. Yeah, there’s only so much you can do as a third-party. It sounds like she would benefit from an independent review, as you guys suggested, but you can’t force it. Those 5% loads are such a huge burden. Deferred compensation can also be a tricky area and is much less cut-and-dry than the typical retirement plans. I hope you guys are able to work it out.

  • http://moneystepper.com/ moneystepper

    Nice rant! I agree with it completely though. Like in any industry, the few bad eggs do more damage that the majority of the good people can do!

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I actually believe that in the financial industry it’s the majority that are bad eggs who give the minority a bad rap.

      • http://stopworryingaboutmoney.com/ Adam Kamerer

        Do you think more financial literacy is a counter to that? It seems to me that if we as a society can start teaching the average person more about their money and what investment options are available and suitable to meet their needs, the bad eggs will have less naive people to abuse.

        • http://momanddadmoney.com/ Matt @ momanddadmoney

          I think that’s definitely a start. I think companies like Vanguard have really helped open people’s eyes to the power of investing simply. Hopefully there continues to be disruption coming from the industry itself as well.

  • http://theheavypurse.com/ Shannon Ryan

    Sad, but true, Matt. Sometimes financial advisors misconstrue what they can do or clients don’t really understand what a financial advisor does. Investments, to me, is only a small piece of what I offer. Certainly an important piece and the one the everyone emphasizes, but it’s just a piece of the overall puzzle. After 21 years as a financial advisor, I have seen advisors who do amazing work for their clients and I have seen the other side too, which can be incredibly disheartening. The most important thing a client can do is actually engage and care about their money. Too many times I have seen people who want their money to grow but really don’t want to learn about investments, etc and just expect their advisor to take care of it. This is a mistake, even if you have a great, ethical advisor. You need to care, have an opinion, ask lots of questions because as you said – at the end of the day, this money affects them and their ability to achieve goals, retire, put kids through college and live.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      “The most important thing a client can do is actually engage and care about their money.” This is so true Shannon. A good financial advisory can be incredibly valuable, but only if you yourself care enough about it to educate yourself and work with him/her to align your financial decisions with your goals. Money management is so personal and there is no one right answer, which is exactly why picking even the best financial planner isn’t enough. So there’s definitely a good amount of responsibility on the client as well. But it makes me sick when people hold themselves out as advisors when they’re really nothing more than salespeople.

  • Done by Forty

    I love the rant! While I agree that it’s scummy for advisors to violate their own code of conduct and to give sub-standard financial advice simply because they are worried about their customers moving to a DIY approach, I suppose I’m not surprised by it. I guess most service providers must have this same concern: my plumber probably doesn’t want to teach me how to use PEX, you know? Still, it’s a totally different scale and set of consequences when we’re talking about someone’s financial future.

    I wonder what the approach is, since the standard of feduciary responsibility can’t overcome self-interest. I wonder if a free-to-the-consumer, government-run financial services agency might help bridge the gap, by educating citizens on the basics.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I think the sentiment of a government run agency is a good one, but I have strong doubts that it would actually be effective. I would love to see the basics of personal finance taught more in schools, but beyond that I think it’s tough. I think that in general we’re moving in the right direction. Vanguard has really disrupted the industry and index investing is getting more and more popular. Unfortunately that also leads to people taking advantage of that success by introducing new “indexing” techniques that are really nothing more than mechanized active management. I think in the end it’s up to the “good guys” in the financial community to market and the consumer to educate himself.

      As for the service industry, a valuable service can serve one of two purposes. Either it requires actual skill and expertise that isn’t replicable by the average person, or it fulfills the service at the highest value for someone who simply isn’t willing to do it on their own. “Advisors” selling market-beating strategies aren’t doing either of these things. They’re simply collecting money for something that could be done more effectively by anyone by simply investing in something like a Vanguard LifeStrategy fund.

  • Cat Alford/ Budget Blonde

    Such a good rant just because it’s true. Everyone should take the time to become educated about their own financial situations and not just hand their money blindly over to someone. I’m excited about your CFP certification. I know you will be a great one!

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Thanks a lot Cat! You do yourself such a big favor by taking just a little bit of time to educate yourself. You don’t have to be an expert, but you can’t be totally ignorant either. A little bit of knowledge sets you up to successfully capitalize on any expertise you do seek out.

  • Laurie @thefrugalfarmer

    Matt, thank you for writing this. We have seen this attitude of “my pocketbook comes before the best interest of my client” in so many arenas, from investing to real estate, and on and on. It really steams me. This, in fact, is why we do SO much of our stuff on our own: we’ve been screwed multiple times and now know, like you said, that only we have our own backs. Sad, isn’t it, when people who know better and have good advice to give won’t do it because it might make them less money.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      It’s incredibly sad Laurie. What’s most sad is that these are people who have clients that are truly entrusting them with their future. It’s not some guy at Best Buy trying to upsell you a bigger TV. It’s someone in whose hands has been put the financial future of real, live families, and they themselves don’t even feel like they provide enough value to truly be honest with those families and give them the best service possible. It’s truly despicable.

  • Kyle James

    Love this! Finally someone has the balls to say it like it is. I’d rather go with an index fund from Vanguard than trust someone I know very little about.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Thanks Kyle. Vanguard has done an excellent job offering top-notch investment options to people from all financial backgrounds. They’ve really been a huge disruption in the industry and I hope that continues.

  • http://budgetandthebeach.com/ Tonya

    Good article Matt! I luckily had my dad to thank for my current financial advisor as he was with him for years. I have to go on my gut instinct in this department, however there is a lot I need to learn on my end to know how I can have intelligent conversations with him.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I think it’s only smart to make sure you are educated enough to set the parameters of that relationship. A good financial planner can only be helpful if the client is truly on board and the two can be in sync in terms of goals and plan. As soon as the client stops paying attention, the potential for real problems start opening up.

  • http://brokemillennial.com/ BrokeMillennial

    Great points, Matt. It’s sad how often people will just hand over their hard-earned money without doing the research to make sure they’re doing the right thing. It’s even worse that a crook would swindle the ignorant. Glad to hear you’ll be a positive force of change in the financial industry. I hope to join you there one day!

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Thanks Erin. The industry definitely needs more people like you.

  • http://www.livingrichcheaply.com/ Andrew

    So tell us how you really feel! I think many financial advisors, not all, but many are just salesman. I’m a big fan of Rick Ferri and he is a financial advisor who does invest in passive funds. If I were to go to a financial advisor, I’d probably go to one who charges hourly and is not trying to push a product…would definitely try the Garrett Network as you mentioned. Not to say that financial planners don’t provide a valuable resource but I think many can go without one. Once my assets have gotten to a point where I’d need more complicated advice, I can see going to one.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I think that many people can do a lot of things themselves, but I also think many people would greatly benefit from the advice of a trusted professional. There are just so many facets to sound financial management and while many of it can be made pretty simple, I don’t think it’s realistic for most of the public to know all of it on their own. But blindly trusting an advisor is a bad idea, and thinking you can simply hand off your finances is also a big mistake. No matter what you have to be involved.

  • Jacob @ iHeartBudgets

    My question is: How can an advisor make money and keep their morals/ethics in tact? I have explored this quite a bit, and don’t know the answer. Even “fee-only” planners are charging MUCH higher fees than, say, just using a target-date index fund from Vanguard. How can you justify someone paying 20x the fees for “advice” when they don’t really need it…

    I, too, want to help people invest well, and manage money like a baller, but I can’t find a situation where I don’t feel like I’m stealing from a client…

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      It’s a great question Jacob. Like you I’ve been thinking about this for a while and have two main thoughts.

      First, you’re going to pay more for advice than you would doing it on your own. Same thing with going to a mechanic. But each individual has to decide whether the extra cost is worth the value of having a true expert help them make the right decisions. There are some people who will be able to DIY. But there are many who would get a net benefit from paying the extra money because they would make more “right” moves and fewer “wrong” ones.

      Second, if you’re really going to charge a fair price for financial planning then you aren’t going to get rich from planning alone. You can make a decent living, but it will be much more modest than what people typically think for financial advisors (I would say roughly $50-80k for the most part). And it’s a lot of work to get there. So it’s not glamorous and you won’t be summering on your yacht, but you can certainly live a comfortable life.

  • krantcents

    There are a lot of quotes such as “buyer beware!” to name just one. I think you have to look at their motivation when a sales person is pushing one or another product. This is why I do not use a financial advisor and I have done pretty well without one.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Understanding their motivation is definitely key. I think there are many people who can do just fine without a financial advisor. But I also think there are many people who would really benefit from good, objective advice. Money is difficult and I don’t expect everyone to know how to manage it well. We all rely on others in different parts of our lives, and money isn’t any different. You just want to rely on the right people.

  • http://www.moneylifeandmore.com/ Lance@MoneyLife&More

    I’m not surprised that things like this happen, but I am surprised that people are surprised. You really need to watch out for yourself and at least know enough to know if you’re being scammed or not in today’s world. Sad but true.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      “You really need to watch out for yourself and at least know enough to know if you’re being scammed or not in today’s world.” Well said Lance. It isn’t reasonable to expect everyone to be an expert, but it makes all the difference in the world if you have enough knowledge to know what to look for.

  • Charles@Gettingarichlife

    Matt,
    People should also read a Random Walk Down Wall Street that discusses bubbles and investing. No one cares more about your money than you, it should be treated accordingly. A good adviser helps your allocation, a great adviser can calm your nerves and help you stay the course.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      That’s another great book recommendation. Thank you Charles. And I 100% agree with you that a great advisor’s biggest job is not just helping make the plan but then helping you stay the course. Very well said.

  • Alexa Mason

    This is why I don’t think I’d ever be able to fully trust anyone with my money. When it comes to money I do research and do things on my own. I am not going to pay someone to lose it all for me.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I do think there can be a lot of value in getting some expert help, depending on the situation. But it’s never a good idea to just completely hand the keys over and wipe your hands of the issue. Good financial management is really inseparable from your general life goals, which change and evolve over time. It truly pays off to be educated enough to know how your plan ties in with those goals and to know what to look for when you actually do seek out advice.

  • http://www.youngadultmoney.com/ DC @ Young Adult Money

    It’s really too bad that you can’t trust a financial advisor to act in your very best interests. It’s one reason I would be leery of even going to one. I’d constantly wonder if they are pushing certain options because of some sort of financial incentive or as a way to impress me and make me think they are worth whatever money I am paying them to advise.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I think that’s why it’s so important to be educated yourself going in. There are plenty of good financial advisors and the services they offer can be very valuable. Having a strong base of knowledge will help you weed out the ones who are selling from the ones who genuinely have something to offer.

  • http://www.debtroundup.com/ Grayson @ Debt Roundup

    This really doesn’t surprise me. They see their job in jeopardy and so they make it look like their job is harder to do than it really is. This gives them the ability to charge people for their services and keep their job. Most people will do anything they can in order to keep the job they have.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      The part that really gets me is that if they were really doing their job well, it wouldn’t matter to their clients that the investments were simple. There’s so much more to financial planning than investing, and if an advisor is presenting all of his value as the ability to beat market returns, then it’s just a scam and it’s also really missing the mark on what people actually need.

  • http://edwardantrobus.co.cc/ Edward – Entry Level Dilemma

    “Romano says many advisors may hesitate to add passive funds to the
    portfolio mix because they fear that clients may believe they can do it
    on their own.”
    To be fair, that is probably accurate. Many clients are going to believe they can out-perform the market. That seems to be a consistent, if unrealistic, expectation. Just like driving, it is impossible for most people to do better than average.
    While an advisor has to steer their clients in the right direction, they also realize that pushing someone in a direction they don’t want to go, even if it is the right direction, is just going to lose them a client. It is a delicate balance.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Actually, what’s represented in that quote is the fact that advisors are representing that they can beat the market when in fact they can’t. I’m all for advisors protecting clients from their own overconfidence, as you seem to be suggesting. I think that has great value, but that’s the exact opposite of what’s happening here. A good advisor will recognize the effectiveness of a passive strategy and help his/her clients implement it because it’s best for them, AND because they provide other services that have actual value rather than an empty promise of market-beating returns. These advisors are pushing sub-standard active strategies on the false promise of extra returns and lack enough confidence in their other services to do any different.

  • http://thebrokeandbeautifullife.com/ Stefanie @ brokeandbeau

    My”lazy” investing strategy of total stock market index funds and target retirement date funds are serving me quite well. Glad I’m not paying commission for any of this nonsense.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      I think that approach is one that would serve many people very well.

  • Lindsey@ Sense & Sensibility

    That Romano guy sounds like a complete bastard. What a dirt bag.This is why I love you, buddy, you aren’t afraid to toe the line

    I guess like everything, there are good and bad seeds out there. It’s scary to think that people place their trust in financial professionals like this and they end up screwing around with their futures – just so they can make themselves look more necessary. How terrifying is that? I like that you are asking people to educate themselves on investment basics so they understand what they’re asking their financial professional to do. This is an important part of planning for our future

    While we are responsible for our own futures, I think the “professionals” that we hire owe us an honest service. We should be encouraging people not only to educate ourselves but to report those professionals who are conducting themselves in an unethical manner. At least we can try to save some other people from from falling into the same trap and keeping people accountable for their work.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Actually, Romano is simply acting as the messenger here explaining the actions of his peers. Although I can’t say for sure, he does seem to have moved his own clients to primarily passive investments, which is encouraging.

      But I completely agree with you on your other points. There is some regulation meant to curb this kind of behavior, but as we’ve seen in the past regulation is not enough. We as consumers have to be informed and do our part to keep the people we hire honest. If we can’t bother to put in the time to learn what constitutes good service, it’s tough for us to get mad when we don’t receive it.

  • cashRebel

    It’s such a sick industry. I took a meeting with a financial adviser last year just to see what they would recommend. He tried to push active management/life insurance on me. When I brought up the facts that you so readily pointed out, he changed the subject, left, and then never contacted me again. Scam artist sounds about right…

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      That was definitely a salesman through and through. Not a hint of “advisor” in there. Glad you got out before you got hurt.

  • http://www.financialsamurai.com/ Sam Dogen

    The great or bad thing about the internet is that anybody can say anything. I’ve got a post about this in the future I might publish, but when you can make millions teaching others how to be rich when you yourself are not rich and right out of college, you know there’s a lot of opportunity in America!

    Sam

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      That’s a very interesting point, but this here is actually referring to certified professionals who are deliberately fleecing their clients in an effort to save their own profits. That, to me, is disgusting, and really reinforces the burden on us as consumers to educate ourselves so that it’s harder for these kinds of people to take advantage of us. But there’s also a burden on the industry to effectively distinguish between salesmen and true advisors.

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  • http://dreamscashtrue.com/ Anton Ivanov

    Couldn’t agree more and that quote from Romano is absolutely disgusting.

    I’m featuring this article in my round-up today!

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Well Romano is just the messenger here (from what I can see in the article, he seems to have his clients mostly passive). But the message is certainly disgusting, I agree.

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  • MoneySmartGuides

    I worked for a financial planning firm that only uses passive funds. When potential clients ask why hire you when we can invest in these funds on our own, the response was that this is true, but we (the financial planning firm) add value by helping you stick to your plan when so many people don’t. Additionally, we help you with all other aspects of your financial lives: making sure you are protected should an accident occur, making sure all of your wills and directives are current etc. The Investing part is just one piece of the puzzle.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      That’s a perfect example of knowing your value proposition beyond a false promise to deliver above-market returns. It’s always nice to hear about the good guys out there.

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  • http://thechicagofinancialplanner.com/ Roger Wohlner

    Good post Matt. I am a huge advocate of passive investing and use index mutual funds and ETFs extensively in my financial planning practice. I would be careful to say the using exclusively passive products is the right answer, however. I do use a number of actively managed funds that I feel add value to my client’s portfolios. Even here though I endeavor to use the lowest cost share class available to me. A couple of resources for your readers to use in checking up on a prospective financial advisor include FINRA’s broker check http://brokercheck.finra.org/Search/Search.aspx and BrightScope http://www.brightscope.com/.

    • http://momanddadmoney.com/ Matt @ momanddadmoney

      Roger, this is why I appreciate your take on things. You always have a very balanced approach, which I really respect. I think that in the right hands (of which there are very few), active management can have a role. But I think people need to be very, very careful before assuming that’s the case. The default should be passive and there needs to be a very big hurdle that has to be cleared before you trust someone to do otherwise.

      Regardless, my main issue here is that the reason given for using active funds has nothing to do with whether they’re best for the client, and everything to do with what’s best for the advisor’s bottom line. That, to me, is deplorable and has no place in an industry that should be dedicated above all to helping people reach their financial goals.

      As for your two links, I think those are useful places to start but they do not tell the whole picture. They would not tell someone whether the advisor uses the best evidence-backed practices. That’s where personal education comes into play, which I know you fully support. We have to be our own watchdogs out there.