Every time I get up in the morning and think about how to help advisors move their practices (and clients) forward, I realize how much I still don't know or can't figure out about the financial services world at large. Instead of trying to come up with answers, I'll let you help me. If you can't, well, you can enjoy the knowledge that a widely followed financial columnist lives in a serious state of confusion.
With that, I ask: Why is it that only people licensed to receive commissions recommend variable annuities? Why aren't these investment opportunities recommended by advisors who don't take commissions?
Why do people say that a middle-market financial consumer can be served only through a commission-based relationship? Why couldn't a dually registered advisor who earned $300 on a product sale simply charge a $300 fee for exactly the same time commitment and level of service?
Why do so many states and state insurance commissioners "protect the public" by prohibiting the discounting of life insurance commissions? (Is there another product on any shelf anywhere where the seller is prohibited from offering a discounted price?)
Why do most advisors in America have 70% or more of their clients' equity allocation in U.S. stocks, when U.S. stocks make up less than 30% of global stock capitalization? (And why do Australian financial planners recommend client portfolios with equity allocations of at least 70% Australian stocks, when Australian stocks make up just 2.6% of global stock capitalization?)
Why isn't it illegal to recommend an investment that carries a 20-year surrender charge? What public interest does it serve for brokerage firms to compete with their customers for returns by having brokers recommend sales and purchases out of the firm's own investment accounts?
Why aren't discount brokerage firms prohibited from implying in their advertising that customers can beat the market via hyperactive trading? Why aren't they prohibited from offering discounts and other incentives to encourage customers to make hundreds of trades a year, when every study shows that this is extremely bad for an investor's financial health?
Why do so many fee-only advisors still base their fees on a client's assets under management, just like many brokers and asset-gatherers? They could give consumers a clear alternative by charging quarterly retainer fees instead.
Why is it hard to find a female CEO of a brokerage firm or a Hispanic financial planner? And why do fewer than 30% of financial planning firms have women as owners or partners?
When a broker signs one of those up front, 300%-of-production bonus deals to stay with a firm for nine years, do they really believe that they're going to benefit from the deal more than the brokerage firm? Why?
Why are 22% of working Americans not covered by life insurance? Doesn't this suggest the life insurance industry has lost the trust of the American public?
How was it possible for European banks to have bought so much dicey sovereign debt so soon after they bought so many toxic mortgage securities? Does anybody in the banking industry monitor the quality of their investments?
When brokerage firms violate regulations and federal law flagrantly, why does the SEC routinely allow the companies to enter into settlements where they "neither admit nor deny" that they were, in fact, guilty as charged? Would the SEC allow any of us to walk away with such a cozy deal?
Is there any other criminal activity in the country where the perpetrators, when caught, are required only to give back the money and promise not to do it again? Should we adopt these SEC disciplinary procedures for bank robbers and purse snatchers? (If anybody wants the 1,212-page FINRA report listing violations, sanctions and disciplinary events at Merrill Lynch, let me know and I'll send it to you.)
Why are the CEOs of the companies we invest in allowed to create their own compensation committees and plunder company assets more boldly every year? Why doesn't the SEC, as a consumer protection organization, permit shareholders - theoretically, the owners of the companies - to veto excessive compensation arrangements?
When I buy gold for my investment portfolio, am I investing or speculating? How should it be permissible for a firm or advisor to give financial or investment advice to a customer, then turn around and bet against that advice in the firm's or advisor's own investment account?
If members of Congress receive advice on regulations from a major donor to reelection campaigns, and very different advice from people representing the best interests of consumers, whose recommendations should receive more weight? Why?
Has there ever been a higher rate of return on investment than the brokerage industry's contributions to political campaigns? Has there ever been a lower rate of return on investment than the synthetic derivative participation in collateralized mortgages that brokerage executives sold to U.S. and foreign lending institutions?
Would the 2008 market meltdown have happened if everybody who gives financial advice were required to live up to a fiduciary standard? Is there any explanation for fund flows into certain chronically underperforming, expensive mutual funds other than the fact that they pay generous commissions?
Why is there no industry data on how much it costs a financial planning firm to service a client? Why don't we know how many hours it takes to develop financial plans of varying complexity?
How is it possible that 16% of financial planners who say they provide comprehensive services to their clients don't own or use financial planning software? How is it possible that an estimated 70% of advisory offices still haven't adopted document management software? Is there any other profession in the world that is still so backward technologically?
Why do people, including advisors, still read the newspaper to find out what the markets did yesterday - and think that's somehow relevant to their investment activities? Has anybody ever made money by following the investment tips they got on the financial news channels?
Why has the FPA attracted fewer than 40% of the total CFP designee population as members? Will that change?
When the Financial Services Institute calls for FINRA to become the regulatory body for all RIAs, is it sucking up to FINRA management so that regulators will ease up on independent broker-dealers, or poking a finger in the eye of the FPA? Or does it really believe that an organization governed by brokerage executives will be a bulldog for consumer protection?
Why is it that some leaders of the profession remain relevant, while others fade into obscurity quickly? When the President and Congress, Democrats and Republicans, go to war over spending and the federal deficit, why aren't we hearing the voices of financial planners who deal with complex financial issues every day?
How is it possible for white males in business suits to be asked by a TV expert what the markets will do tomorrow, next week or next year - and act as if they know the answer? Are they ever right?
Should a diversified investment portfolio include government bonds when they're offering virtually zero return and inflation is looming on the horizon? Is there ever a time when we should deviate from our long-term portfolio allocations?
Has an advisor ever left a brokerage firm to become affiliated with an independent broker-dealer - and then decided to return to the brokerage world? Has an advisor ever left the dually registered, broker-dealer-affiliated world to go fee-only, then decided to go back to accepting commissions?
Is there any profession, anywhere, that's raised its own standards voluntarily, identified and reduced its own conflicts of interest voluntarily and lobbied harder on behalf of consumer protections than the financial planning profession over the past 30 years? What will the next 30 years bring for the profession and its clients? Will I live to see it?
Bob Veres writes and publishes Inside Information. The latest issue explains the new Four Factor client service model. For more information, visit bobveres.com.
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