Caveat Emptor!!
March 22nd, 2010
Today Senator Dodd dropped from his financial reform packet the demand of a fiduciary duty on those who give investment advice. Simply put, this means that you the client will continue to be taken advantage of by the vultures that put themselves first at all times and that this will remain legal!
There are a myriad of financial products that will continue to be sold due to their high commissions and the story selling that surrounds them. Whether they are appropriate for you will continue to be up to you to determine. Of course, whether these are good solutions for you or not will require you to study investments and financial planning for a few years as many of these products are complex and intentionally opaque. An equity indexed annuity is a prime example of the difficulties you will encounter in understanding and evaluating whether something is a good investment. Not only are these complicated (though the sales pitch is simple), but you are unlikely to know about similar or better products available with FDIC insurance that may be preferable. Why won’t you know about them? Because they pay far smaller commissions so they will not be presented by sales people who do not have to put your interests first.
The thought that you would pay someone for investment advice (whether that is by fee or commissions) who is not legally bound to at least try to put your interests first is absurd. That the financial services industry at this late date would campaign to avoid this level of responsibility is deplorable. Given all that we have gone through, you would hope that putting clients first would be acceptable to all moving forward.
What should you do? I think there are two questions that should be foremost in your mind when dealing with anyone in financial services (insurance, stock brokers, financial planners, etc.). First, ask them if they are acting as a fiduciary? If they do not respond in the affirmative, make sure you ask them how they are compensated for a transaction and how much they are compensated for the transaction. If they are not forthright in disclosing these answers (e.g. they say their compensation is built into the product and you don’t pay anything additional), then you need to run for the exits. If you get a reasonable answer, then you may choose to proceed with the transaction. Just remember-caveat emptor.
An excellent blog entry! Thanks, Tim, for the heads-up on it.
Anybody who has followed the track record on the Congressional banking committees knows that Sens. Dodd (D-CT)and Shumer (D-NY) and their counterpart(s) in the House, esp. Rep. Barney Frank (D-MA), are in it for themselves and their Wall Street connections. They planted, watered and fertilized the seeds of the banking & mortgage and real estate crisis then blamed wall street and the financial institutions for doing what they were compelled to do by Congress.
It stands to reason that after the storm blew over (via the bailout–that will cause this country long-term storms for decades to come), they went back to business as usual, with token reforms and hand slaps.
It is a disgusting array of hubris, greed, and power-plays. We are being poisened from the inside by those who continue to allow self-interest to trump true capitalism as espoused by Adam Smith.
Add to this fiasco the political mafia tactics that brought us state run health care, the U.S. losing our AAA credit rating, and all I can say is these are sad days indeed.
Sorry to be such a buzz kill, but I don’t know how we are going to find our way back to our once, true greatness.
I am not surprised that Washington operates the way it does, only that the American public is naive enough to believe the government is altruistic when they elect leaders who are shameless creeps. Still, one does expect more from adults, who have presumably learned to tell the truth.
I so appreciate that this article gives direct questions to ask of any person who collects a commission from a purchase of a financial product. I have heard that “oh, it’s all included in the price” stuff before, and didn’t like it, but didn’t know why, or what to ask.
Thanks for sharing this, Tim, and keep up the good work!