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All’s fair in love, war and investing

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December 20, 2012

Published December 20, 2012 11:18 PM

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    An interesting article was published on WealthManagement.com claiming that clients of financial advisors who are also investing through self-directed accounts are “cheating” on their advisors.  While the tone of the question presumes that somehow individuals are betrothed to their financial advisors, what is more troubling is the construal of investors as “cheaters” for seeking out […]

    An interesting article was published on WealthManagement.com claiming that clients of financial advisors who are also investing through self-directed accounts are “cheating” on their advisors.  While the tone of the question presumes that somehow individuals are betrothed to their financial advisors, what is more troubling is the construal of investors as “cheaters” for seeking out other services.

    The article reports that while 74% of investors have a personal discount brokerage account, only 17% of financial advisors believe their clients have these types of accounts.

    What these “stats” mean, or the position they are meant to support isn’t entirely clear. On the one hand, if it is true that 74% of the population has a discount brokerage account AND a financial advisor, the big question is – so what? They are still retaining a financial advisor. On the other hand, if 83% of financial advisors (100%-17%=83%) are completely oblivious to their clients having discount brokerage accounts, doesn’t it seem like the overwhelming majority of these advisors are disconnected with their clients and therefore probably undeserving of the business anyway? If the author is talking about two different groups of people – those who have financial advisors and those who have discount brokerage accounts, then why brand investors who don’t have financial advisors as “cheaters”. If, however, the author is saying people with financial advisors also have discount brokerage accounts, why on earth label current, paying customers of financial advisors as cheaters?

    Reports about the scale and growth of the discount brokerage industry are not news to many in the investing world.  If the author and potentially 83% of financial advisors from the survey read the annual reports of the two discount brokerages cited in the article (TD Ameritrade and Charles Schwab) or read the myriad of reports showing the continued interest in ETFs over mutual funds, then why they are surprised at so many people having discount brokerage accounts is a bit of a head scratcher. It stands to reason that the growth in discount brokerage accounts has to come from somewhere.

    It is precisely the attitude of entitlement that will be the undoing of an industry that is service-based.  The financial services industry relies heavily on trust. That trust is not only built on good intentions, but more importantly, it is built on good investments. If the financial advisors polled in the survey could manage their clients’ money more effectively than clients could do themselves, what incentive would people have to try something else?

    Aside from generating poor returns and charging high fees, accusing 74% of your current customers of “cheating” because they are seeking out other sources of investment management is definitely one more reason for those customers to look elsewhere. Hyperbole is one thing, but reckless accusation paints a grim picture for the state of the wealth management industry as a whole. Unfortunately for the author, it seems like she can count herself amongst the 83% of individuals who just don’t get it.

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    Hi, Impact