On Wall Street and in the financial industry in general, not much has really changed since the financial crisis. Despite adding little value to the economy, the public’s standard of living or even their own client’s net worth, financial people from investment bankers to financial planners continue to be overpaid.
It is hard to fault these people for accepting the money, after all, it is a dog eat dog world out there. However, the institutions and government that allow this practice to continue, should really be held accountable someday. Despite a handful of good government officials attempting to pass reforms that would spare us the obnoxious skim that the financial industry has on America and possibly thwart the next financial crisis, the financial industry has succeeded in delaying, watering down and often outright defeating those reforms.
The most unfortunate part about Wall Street and the financial industry in general, is that it has moved away from helping to grow the pie that we all take part in here in America. The financial industry has become a big skim. It is more preoccupied with cutting up the economic pie with them getting a bigger share, than making more pie.
Because the financial industry demands bigger short-term profits from American corporations and enables corporate executives to essentially determine their own bonuses, there is a vicious circle of gluttony followed by collapse. Corporate executives, with the assistance of Wall Street, have captured so much control of corporations, that many do not manage for the benefit of long-term shareholders and employees. What these executives do is offshore jobs and layoff employees in order to meet annual profit numbers, so that Wall Street and themselves can get rich. Ultimately, the managing for today’s payday, comes at the expense of long term investors and employees, i.e. the rest of us.
We should have learned from the the 2000 to 2008 time period. Deregulation, leverage, money printing, poor management, poor oversight and ideology over pragmatics led us down a very dark path. Not much has changed from my point of view. Look out above when that next crisis comes, because when it does, it will be as bad as the last one, maybe worse.
Your financial adviser is most likely not going to be able to protect you from the next financial crash. How do I know? Because I’ve been in the financial industry 20 years now and it is rare that I find even partially qualified people at the retail level of investing. If you have a net worth under a couple million dollars, you are usually stuck with financial people who have precious little investment experience and little education in economics, math or investing.
Have you seen the commercial where the DJ pretends to be a financial person and gets away with it? Is that realistic? I say yes. Why? Because most people who become financial advisers or financial planners simply learn some lingo in order to sound impressive. That doesn’t confer on them good analytical skills.
What you really have in the financial industry are a group of people who want to sell you something. That something is usually a mutual fund or an annuity. The vast majority of those products are expensive, risky and rarely offer a good long-term return. Funny that those products tend to have the best compensation.
I know there is now a new world of “fee-based” financial planners popping up. Be careful there too. Fee-based and fee-only are different. Know the difference between a true fiduciary standard and the less stringent suitability standard of financial practice.
What many “fee-based” advisers and planners are doing is switching their clients from accounts that used to charge commissions to accounts that charge fees. In essence, they are double dipping in a sneaky deferred way. In addition, the fees in those accounts are not low, as these planners generally bundle an in house management fee with the management fees of the mutual funds that they recommend for total annual expenses right off the top of 2.5%. As a contrast, at my firm, I charge .25% for most clients and manage the money in stocks and low cost exchange traded funds with a net cost of under 1.25% – about half the industry average! Be careful of wolves in new sheep’s clothing.
I could go on for an entire book about how the financial industry is Skimming America (in fact I will soon), but I will keep this short. Trust your gut when talking to financial people and making financial decisions. If something feels fishy, it probably is. If it sounds complicated, it’s probably because they don’t want you to understand. If it sounds hopeless out there, then you’ll fit in right here.