Sex, Lies, and Videotape!

The 1989 movie starred James Spader, Andie MacDowell and others. Well I just wanted to grab your attention, as there will be no discussion of sex in this article, and what is a videotape anyway?

I will share some of the common untruths I hear from people inside and outside the industry. I’m surprised by very little after 27 years in the financial industry, but I’m reminded of how confused the public may be at times about how things work. In no particular order, I’ll share a few examples.

  1. Financial industry designations have no regulatory standing. Chfc, CLU, CFP®, CFA, etc., etc., etc., are simply alphabet soup from a regulatory standpoint. These various designations are meaningless with regard to conducting business in the financial industry. They are not licenses. Many organizations simply created a designation, then sold the right to use their designation to financial professionals. The financial professional, especially if inexperienced, may buy the designation so they appear more qualified than experienced professionals who don’t buy the designation. In most cases, like the CFP designation, the continuing education required to maintain a life insurance license would also qualify as continuing education to maintain the ability to use the CFP designation (if you pay the fee). Advertising and marketing is often the reason for an advisor to buy these designations.
  2. You can completely prevent being a victim of a Ponzi scheme like Madoff. The only way you may be a victim of a broker or advisor stealing your money is if you write a check directly to the broker, advisor or their company. If your investments are held with a custodian separate from your broker or advisor, then you are completely protected. My firm has worked with the three largest custodians serving independent advisors in our country: T.D. Ameritrade, Charles Schwab and Fidelity. My firm, Poterack Capital Advisory, has client protections equal to any other firm in the industry. No client ever makes a check payable to any staff member or my company. The check is always payable to a third-party custodian.
  3. Some think there’s no difference between an agent, a broker and an advisor. Insurance agents and investment brokers are paid commission. Their income is entirely based on transactions. No sale, no pay. There is nothing inherently wrong with commissions as most industries operate this way in our everyday lives. You should know there is a conflict of interest when working with an agent or broker, even if the agent or broker is working in your best interest. An advisor is a fiduciary and is not paid commissions, only fees for services. Fee-based advisors are not paid by transactions, so there is no conflict of interest around what investments are recommended. At PCA, we have been fee-based advisors for many years when recommending investments for clients.
  4. Large brokerage firms may provide more services and lower costs than smaller independent firms like PCA. An untruth that surprises many is uncovered when I examine statements from large brokerage companies. All of my readers would be familiar with these companies, yet the fees and expenses built in to their mutual funds and method of trading investments are almost always more expensive than our firm. To date, I’ve never seen another firm provide investments with lower investment expenses when the same exact funds are compared. On the service point, large firms may be boilerplate and inflexible relative to a smaller, relationship-oriented firm such as PCA.

Sexy article huh? “Untruth” seems nicer than “lies.” I remember my brother-in-law believing his videotape collection was going to be worth a lot of money. That retirement plan hasn’t worked out well.

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