Do Negative Online Comments About Investment Advisors Signal A Shakeout Is On The Way?

Tuesday, January 17, 2012 12:38
Do Negative Online Comments About Investment Advisors Signal A Shakeout Is On The Way?

Tags: client feedback | client satisfaction | competitors | online financial advice | profitability | RIAs | Wealth Management


Evidence is mounting slowly that a shakeout could be on the way for financial advisors. 
Ron Lieber, who covers personal finance for The New York Times, last week wrote about how the middle class and semi-affluent can get “good, ethical, reasonably priced financial advice without having to watch our backs and our wallets.”

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Lieber focused the story on Merrill Lynch’s Merrill Edge Program and on LearnVest, a new online app I wrote about two weeks ago.
In a blog post Saturday, Lieber asked readers to post comments about LearnVest if they tried the system.
Investors have since responded by with a strong dose of negative comments about financial advisors. Here’s a sampling:
“After 25 years of trying to find an honest Financial Adviser, I have given up,” says Karlmanz from New York City.
“The most appropriate financial advice for the middle class and semi-affluent is the free or next to free advice available in abundance online and in print,” says Ryan of Cranford.
“All the ‘investment advisors’ I work with, and there are many, want you to put money in the stock market,” comments Susan of Piedmont, California. “You will observe, perhaps, that the Dow at the end of 2011 was exactly where it was at the beginning of the year, and that the stock market itself has been, over the last 10 years or so, a money-loser.”
“There's a wealth of advice and 'portfolio management' tools available on Schwab and other sites for folks to learn (themselves) about how to manage the money they're able to save (a key point),” says Lisa from South Carolina.
“Instead of paying the outrageous fees to these ‘advisors,’ small investors should take the money and invest in a good unbiased investment management course at a reputable educational facility, i.e. universities, colleges,” says DannyK of Hong Kong.
“The middle class has a wealth of financial information available at little or no cost these days,” says Rocky in California.
“The first rule of middle class investing is: don't waste your money on investment 'advice,’ says Hal from New York City.
The negative comments represent posted in response to Lieber’s posting about an online planning app signal growing investor skepticism about hiring a financial advisor.
Indeed, the financial advice business is likely in the early stages of a shakeout in which one-person firms and advisors without professional designations will suffer most.
Competition from online advice apps is growing. Transaction-oriented advisors who don’t offer financial planning advice and those with no professional designation will come under growing business pressure.
Investment advice professionals — CFPs, CFAs, CPAs — will survive, and some will thrive, because wealthy investors will still need sophisticated advice. But RIAs with multiple professionals will take more market share and we will see growing consolidation along with more RIAs managing billions.


Comments (4)

I don't disagree with your premise that perhaps a shakeout is under way. The unfortunate thing is that many of these comments a reflect an ignorance of Dalbar and other research about the true cost of do-it-yourself. As for advisors who don't know that the market is more than the DJIA and whos clients went nowhere because that's all they had, well, they deserve to go away. But if Susan, or her advisors, had her more globally diversified and well balanced she would not be flat for the last 10 years - she might have gained 5-8%, or more compounded - in other words, she might have doubled her money. If it was bad advice, shame on her advisors. If she was a DIYer, then in the interest of saving 1% per year she missed out on significant real growth that was available. Which was the higher cost? Price is not a synonym for value. Knowledge is not wisdom. Ignorance is not bliss. And, what you don't know CAN HURT YOU. So... we're back to us as practicioners, and our professional associations, needing to do a better job of helping our clients understand what we do. And.. if the mainstream financial media would stop talking as if 3 months or a year was a long time, it might help. I can't tell you how many people I've talked to that think an 8% inflating distribution and growing principal over a 20 year retirement, or longer, is a reasonable expectation. Where did they come up with that??? It sure wasn't from us. The internet perhaps? Dangerous? You bet.
vguettlein , January 17, 2012
As most of us know, the problem with the public, and all but the most astute investors, is that "They don't know what they don't know". In other words, they have NO idea how to judge the ability of their advisors. I don't think you should print anything verbatim that the Times prints, since it almost always the case that they also "don't know what they don't know". This post of yours is very surprising.
stephene212 , January 18, 2012

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Poor advisors might get shaken out Andy. But the glut of financial data on the web can lead to "information overload" for the average Joe & Josette, who are too busy with their jobs and raising kids to take time to study it in depth. So it's actually a boon to skilled advisors.
This e-mail address is being protected from spambots. You need JavaScript enabled to view it , January 18, 2012
It does not matter whether investors are wrong about their perceptions that their advisors are not serving them well. What matters is that so many investors are dissatisfied.
agluck , January 18, 2012

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