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In Whose Best Interest?
Bankers, investment houses, brokers and a myriad of other financial professionals act according to human nature — in their own best interests. Their commissions, fees, hidden charges and less-than-transparent transactions bear this out. As a result, their returns are enhanced and clients’ diminished, many think unfairly.
The curious thing is that customers freely allow this to happen at their expense. This is perverse: that one party’s best interest is preferentially preserved and another’s isn’t, especially when it is the paying party that is losing out.
An investment client can shoot himself in the foot if he doesn't take care.
By recognizing the forces of human nature that allow this phenomenon, investors can better protect themselves. One is a skewed perception. Many investors believe that financial managers can do better than the market and thereby help their clients in spite of objective evidence to the contrary. This client’s belief is basely largely on banker, investment house and brokers advertising power. They spend a ton of money on it, which the existing clients pay for. These massive campaigns have appeal because the ads are constructed to make the product appear beneficial, sometimes by omitting cost and emphasizing benefit.
Consumers of investment services often believe the positive message portrayed to them because it suits their purpose. They hope without justification that what is advertised can really do what they think it says it can because that would make their life easier. Investment choices wouldn’t have to be made. Responsibility could be shifted. A welcome abdication of accountability could occur. The prospective customer conveniently ignores any awareness that occasionally slips into his consciousness: that no one cares about his money as much as he does.
In addition, this easy abandonment of shepherding one’s own monetary resources occurs because many people think they don’t have the ability to nurture their own money. They have a belief system — an expectation of reality that is presumed to be true or false — that does not allow them to conceptualize themselves as guardians of their own investment futures. Their biases are that the investment professional can do it better. They feel more comfortable herding with other dependently minded people since the majority of Americans are doing the same thing.
Lastly, inertia envelopes most people, even when they know a different path would serve their own best interests.
Warren Buffet has some pertinent words of wisdom: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
The curious thing is that customers freely allow this to happen at their expense. This is perverse: that one party’s best interest is preferentially preserved and another’s isn’t, especially when it is the paying party that is losing out.
An investment client can shoot himself in the foot if he doesn't take care.
By recognizing the forces of human nature that allow this phenomenon, investors can better protect themselves. One is a skewed perception. Many investors believe that financial managers can do better than the market and thereby help their clients in spite of objective evidence to the contrary. This client’s belief is basely largely on banker, investment house and brokers advertising power. They spend a ton of money on it, which the existing clients pay for. These massive campaigns have appeal because the ads are constructed to make the product appear beneficial, sometimes by omitting cost and emphasizing benefit.
Consumers of investment services often believe the positive message portrayed to them because it suits their purpose. They hope without justification that what is advertised can really do what they think it says it can because that would make their life easier. Investment choices wouldn’t have to be made. Responsibility could be shifted. A welcome abdication of accountability could occur. The prospective customer conveniently ignores any awareness that occasionally slips into his consciousness: that no one cares about his money as much as he does.
In addition, this easy abandonment of shepherding one’s own monetary resources occurs because many people think they don’t have the ability to nurture their own money. They have a belief system — an expectation of reality that is presumed to be true or false — that does not allow them to conceptualize themselves as guardians of their own investment futures. Their biases are that the investment professional can do it better. They feel more comfortable herding with other dependently minded people since the majority of Americans are doing the same thing.
Lastly, inertia envelopes most people, even when they know a different path would serve their own best interests.
Warren Buffet has some pertinent words of wisdom: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
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gtstuhring
how do I screen for the hidden money shunt when its so deeply buried in the numbers, when I AM attempted to believe my broker's honesty?
September 23, 2011 - [ 16:15:57 ]
shirleymmueller@mymoneymd.com
The below is for a broker; not necessarily a manager. They are different.
Ask, ask, and ask (in person better than over the phone because you can read the face of your broker). The below is for funds your broker might suggest placing you in:
Am I paying any sales load, redemption fees, exchange fees, account fees or purchase fees?
Am I paying any distribution (and/or service) fees or 12b-1 fees?
Am I paying any other expenses or fund operating expenses not included above?
What is the turnover of the fund? You pay for this. Though it depends on the fund, a high turnover is greater than 100%. I usually aim for 30% or less.
Shirley
Ask, ask, and ask (in person better than over the phone because you can read the face of your broker). The below is for funds your broker might suggest placing you in:
Am I paying any sales load, redemption fees, exchange fees, account fees or purchase fees?
Am I paying any distribution (and/or service) fees or 12b-1 fees?
Am I paying any other expenses or fund operating expenses not included above?
What is the turnover of the fund? You pay for this. Though it depends on the fund, a high turnover is greater than 100%. I usually aim for 30% or less.
Shirley
October 1, 2011 - [ 11:45:36 ]
cyborg1939
I think there is a general rule to all this. This rule states that whenever we do a transaction FOR THE FIRST TIME with a professional we will inevitably be taken advantage. A learning curve is necessary for all new experiences. The rookie is at a BIG disadvantage because he/she is blind to so much. That is why mistakes abound. That is why a sucker is born every second. IMHO, Cyborg
October 2, 2011 - [ 11:20:22 ]
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October 18, 2011 - [ 10:27:36 ]
Anonymous
December 31, 1969 - [ 19:00:00 ]
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Author Bio
Dr. Shirley Mueller is a physician turned financial consultant and investment educator. Her fee is hourly, not a percentage of assets. She welcomes comments at ShirleyMMueller@MyMoneyMD.com. For more information, visit her website at MyMoneyMD.com.Blog Information
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