Financial “expert” a misnomer for the majority of advisors

In my experience the financial advice business is largely populated by those who are financially inept in their own affairs and dangerously undereducated in their supposed field of expertise.

Part of the problem has been low barriers to entry where pretty much anyone with a smile and a suit can call themselves a financial expert. The other problem has been lack of serious professional standards in a an industry that is primarily driven by the sales side: scale, cross-selling, bonuses and commissions.

In reality it is not that hard to require high academic accreditation, transparency and ethical standards from those who give advice. We have done this successfully in other professions where for example, lawyers, dentists and doctors oversee their own self-regulating organizations and standards. Its just that in finance, the sales firms are in charge of their self-regulating organizations and standards, and they do not operate under oaths of “do no harm” and serving the “best interests of the client first”. Hence the disaster we call the financial advice business today. This article highlights some of the problems for consumers. See:  Protecting Seniors from financial abuse

“In a new survey, the CFP Board revealed just how pervasive the financial abuse of seniors has come to be. At the same time, the board is seeking new standards to helps seniors – and all consumers – better understand which self-described financial advisors are truly out to serve their best interests.

“There are 142 designations for financial advisors,” says Marilyn Mohrman-Gillis, managing director for public policy and communications at the CFP Board. “We determined that most of them actually have nothing at all behind them other than a weekend course with an open book test and then you get three letters behind your name. They are basically worthless.”

To help distinguish the pretenders and sales people from authentic advisors, the board is asking the Consumer Financial Protection Bureau (CFPB) to create a ratings system for financial certifications and designations.”

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5 Responses to Financial “expert” a misnomer for the majority of advisors

  1. Dirk Burhans says:

    My sense of the people in mainstream financial management, based on working experiences with three of them, is not necessarily that they are inept or under-education but that they are ignorant. They came of age in the roaring secular bull of the 1980s-1990s and they don’t know anything else; they’re still of a buy-and-hold mindset. I’ve tried to talk to them about the secular bear that started in 2000 and how cyclical bulls work inside that, and all I get are blank looks as they move onto their next suggestion (which is why I now manage my own money, for better or worse).

    In a recent video Jim Rogers talked about how Wall Street was a backwater when he started there in the 1950s. Right now we are in the midst of a sea-change in the world of investment and investment managers… these folks may likely become pariahs by the end of this generation.

  2. michael says:

    Except that the practice of law, dentistry and medicine are looking more and more like the financial service industry. Oaths mouthed by participants are nothing more than a necessary exercise in the pursuit of monetary wealth. Hippocratic oath or hypocritic oath.

    “A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.”…. Chris Hedges

  3. Ian M says:

    There is a difference between knowing what financial products are and how to make money with them. There are NO books or courses that make money if there were then every one who gets a degree will be rich, winning in the financial markets is like sport, either you have the talent (or timing) or you dont.

    This the real truth :

    Four Real-World Investing Rules That Should Be Taught in Schools

    Read more:

  4. aliencaffeine says:

    Actually I make consistent money in the market adhering to a book I bought called “How to Make Money in Stocks” by William J. Oneil. Its rather a simple formula: Know the markets general direction and be selective in buying individual companies stock and paying close attention to their charts price and volume action.

  5. Joseph says:

    Higher academic accreditations for advisors are probably for the best but the current secular bear has exposed a huge caveat. These designations, such as the CFA, which is pretty rigorous, tend to be financial theory oriented. Unless curriculums have changed recently, they seem to indoctrinate their graduates in discredited nonsense like the Efficient Markets Hypothesis, the Capital Asset Pricing Model, etc., consequently even the most well intentioned advisor may be misguided depending on the macroeconomic circumstances.

    Moreover these programs have a tendency to also be mathematically oriented, thereby discouraging non-mathematical “big picture” oriented people. Unfortunately, the secular bear demonstrated that a critical mindset along with knowledge of economics, and an awareness of history and politics, was far more useful and valuable than a CFA or other financial designation. Jim Rogers, George Soros, John Paulson, and scores of other successful advisors/investors exemplify this.

    Transparency and serious ethical and professional standards would also be nice, but I doubt very much that would be sufficient in practice. Ms. Park cited the self regulated legal profession as an example of where this has been successfully implemented. I am not sure if that is the best example because many of the biggest abuses in society are facilitated by lawyers and their firms who prostitute themselves to various vested interests. They are after all the experts at getting around regulations or redrafting them in their or their clients favour.

    I do not think the disappointing situation with the financial advice industry can be resolved unless you get to the root of the problem. Simply, financial experts usually do not “have enough skin in the game”. That is, they are playing with other people’s money with mostly upside and no, or not very much, downside. If their accountability were to be increased, such as for example, making them partially liable for a portion of clients’ losses that was based on their advice, then it is highly likely that their behavior would improve. They would be more likely to treat clients’ money more like their own.

    Of course this is much easier said than done, especially in an increasingly corrupt political context (especially in the US), where the financial industry has significant influence, as demonstrated by the successful obstruction of reforms following the financial crisis. It is likely going to require a catastrophic economic crisis to get meaningful reforms and serious enforcement.

    Meanwhile it is buyer beware for investors. Hopefully they can educate themselves about the predatory nature of the investment industry by reading insightful writers like Ms. Park.

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