Wall Street has created a sales culture that would have made Machiavelli proud. Its representatives routinely deceive investors when they sell products that make a lot of money for companies and lose a lot of money for investors. I think this is called cheating to win!
These deceptive sales tactics have very few ethical boundaries. On the one hand, a Wall Street firm knowingly sells a defective product to investors – for example, Goldman Sachs. There is no chance investors will make money. Then the company’s public relations department sponsors a local golf tournament to prove it is a good corporate citizen that cares about people. Machiavelli might envy the duplicity of these actions because investor assets pay for the golf tournament.
How can you avoid these dubious business practices and still obtain the professional advice and services you need to help you achieve your financial goals? The key is advice you can trust. Therefore, the financial advisor you select to help you is a critical element in your financial success.
High quality advisors do not sell junk to their clients. They leave if they are pressured to sell junk by the companies that hold their securities licenses and registrations. These advisors are called breakaway brokers. Many of them start their own Registered Investment Advisory firms or go to work for independent firms that do not manufacture defective financial products.
How do you determine who is a high quality advisor you can trust to put your interests first? It is tougher than you think. All advisors make claims in their sales pitches. They claim to be investment experts. They claim to be trustworthy. They claim they have special knowledge and services that enable them to produce high returns for low risk. You should ignore all sales claims that are designed to tell you what you want to hear.
Is there a better way to select advisors? I think there is. Divide advisors into two camps. There are those who practice full transparency for information that impacts their competence and ethics and there are those who do not. I believe high quality advisors practice full transparency because they have nothing to hide. I believe low quality advisors resist transparency because they have a lot to hide. Therefore, transparency is a major differentiating characteristic.
What is full transparency? It is advisors providing “complete”, “accurate” information for their credentials (experience, education, certifications), ethics (compliance record, fiduciary status), business practices (compensation, disclosure, reporting), and financial services (planning, investment, insurance, tax).
There is a second dimension of transparency that is as important as full disclosure. It is documenting advisor information in writing. Verbal information benefits lower quality advisors because it increases the impact of their sales skills. And, you have no record of what was said to you. You will lose if there is a future dispute and you have no documentation.
Lower quality advisors resist transparency and documentation because it forces them to tell the truth or lie in print. If they lie you have a record you can turn over to an attorney, compliance officer, or regulatory agency. Why lie? You would not buy what they are selling if you had the truth.
The next time you select a financial advisor limit your choices to financial professionals who practice full transparency and are willing to document their information.