Wes Moss: Who can you trust with your money?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

How much do you trust “Wall Street” when it’s defined as the big brokerage houses such as Goldman Sachs and Merrill Lynch? If your answer is “not much,” you have a lot of company. A whopping 41 percent of Americans have “little or no faith” in the fairness of large investment firms. Only credit card companies, corporate CEOs, the federal government and lawyers fared worse in a recent Yankelovich Monitor survey.

That lack of faith is justified if we can believe a recent New York Times column by former Goldman Sachs Executive Director Greg Smith, in which he charges that his old firm has lost its moral compass. According to Smith, the once principled and far-sighted Goldman is now concerned only with maximizing its own bottom line and “has zero concern for making money for the clients.”

How can a company whose product is “We’ll make money for you,” get away with generating huge profits while making, well, not much money for you? Who knows? But you should understand these mega-firms do not have a fiduciary responsibility to you, which means they are under no legal obligation to put your interests ahead of theirs.

Many investment advisory firms do operate as fiduciaries. When deciding on which investment vehicles to buy for you, these advisers cannot be swayed by the commissions they would receive from the transaction. So when choosing between two similar investments, the fiduciary would (in practice) recommend the investment he deems best for the client.

When a non-fiduciary firm needs to make the same decision for a client, it is free to sell him the investment that pays the highest commission, so long as it meets certain risk parameters. Those higher expenses (or commissions) might very well make this the better choice for the brokerage firm, and not the client.

Let’s be clear. No investment firm is legally required to turn a profit for you. But a fiduciary firm is required to put the client’s interests ahead of generating commission and revenue. Let’s also remember that fiduciary firms aren’t non-profits — they need a source of revenue to survive. Many fiduciary advisers, including mine, generate income by charging clients a fixed percentage fee for the money they manage. This allows fee-only firms to get paid without the conflicts inherent in relying on commissions, and aligns the client’s goal (growing their money) with the firm’s goal –- more money to manage.

As you look for help with your investments, understand exactly how your adviser will be compensated. There is a big difference between being treated like a client and being treated as a commissions cow.

How do you feel about commissions versus fixed fees?

– By Wes Moss, for Atlanta Bargain Hunter

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11 comments Add your comment

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Ronin

March 19th, 2012
8:41 am

“Wes Moss: Who can you trust with your money?” Answer: Almost anyone except Wall Street mega firms and the Government.

I like Vanguard, Fidelity various accounts and index. Yacktman (YACKX), Meridian Growth (MERDX), FPA Crescent (FPACX) because of long term managers and Permanent Porfolio (PRPFX) for its alternative balance.

“How do you feel about commissions versus fixed fees?” With rare exceptions, long term, low management fees with no-loads beat commission funds.

clyde

March 19th, 2012
9:32 am

I trust me;pretty much,but sometimes I’m a little shaky too.I don’t trust governments or Wall Street ,or banks. Certainly didn’t trust my ex-wife.That’s why she’s ex.Can’t trust your kids,that’s for sure.

I got my money out of Wall Street in 2007.Haven’t made much since,but I didn’t lose any either.

nelsonh

March 19th, 2012
9:55 am

Invest with an online broker, no conflict of interest. Do your homework and make your decision. LLY has been good for me, pays a whopping 5% dividend plus capital appreciation. Doesn’t get any better than that, as Jack Nicholson would say, “it is as good as it gets”.

joanshumer

March 19th, 2012
10:34 am

To me, I pay my financial advisor a fee so that 1. I don’t have to do it, 2. I will likely get emotional and make the wrong decisions at the wrong time and 3. I don’t have the time. I tell her that if she can make me the same return as I could do buying a couple index funds at Vanguard NET OF HER FEE, then I am OK paying to have her do it. As long as she isn’t trying to sell me mutual funds or investments that she makes commissions on…..fee for service is the only way I go.

MoneyT

March 19th, 2012
3:16 pm

Why hire investment people to buy stocks/bonds for you? Other than diversification / hedging benefits, they can’t predict the future better than anyone else, unless they have inside info.

Billy Ray Valentine...Capricorn

March 19th, 2012
10:15 pm

“But you should understand these mega-firms do not have a fiduciary responsibility to you, which means they are under no legal obligation to put your interests ahead of theirs.”

The above statement is disingenuous at best, and a flat lie at worst. Any registered investment advisor, regardless of their firm, has a fiduciary responsibility to the client. That is, they must put the clients interest ahead of the firm’s interest. So whether you work for Merrill Lynch or for XYZ Wealth Management, if you are registered as an investment advisor (RIA) or a registered investment advisor’s representative (IAR) your obligation is the same. All investment advisory enrollment documents at Merrill Lynch, Goldman Sachs, Morgan Stanley, etc. clearly state in the disclosure that a fiduciary relationship is being created. Mr. Moss should know this well, as he spent time in his career at one of the big Wall Street firms. Perhaps he conveniently forgot.

If you engage one of the big Wall Street firms in a BROKERAGE relationship (usually meaning you pay commission per transaction), then indeed the level of responsibility is lower. If you engage your local advisor in a brokerage relationship, the level of responsibility from the firm is also lower. But, that is ultimately the clients choice.

Can an advisor related to a Wall Street firm steer you wrong? Absolutely. Just as an advisor related to a local firm can steer you wrong. Hire who you want, but do so on the basis of fact, not misinformation as delivered by the author.

mR. kOUpoN

March 19th, 2012
11:00 pm

I’m not gonna get me a wall street advisor!

ripoff

March 20th, 2012
5:18 pm

financial “advisors” are just in it for the commissions—they could not care less if your investments make money as long as they get paid—a ripoff!

Who Cares?

March 21st, 2012
10:11 am

No one! To quote my father,

“Since man to man is so unjust,
I know not who is to trust,
I trusted many,
And to my sorrow,
You pay today,
And I’ll trust tomorrow……but tomorrow never comes!”

And that’s the way it is, friends!

Oliver Klozoff

March 21st, 2012
1:08 pm

It’s funny. When you are in your twenties (and thirties), the kind of people that are set up as “financial” advisors” treat you like you are something that they wipe off their shoe. Banks, brokerages and insurance companies and the like really stick it to you and make life much more of a hassle than it should be. They tell you that your account is really too small for them and maybe you should go somewhere else.

Then you arrive at 50 and have saved up a nice little chunk of change and these SAME PEOPLE suddenly want to be your new best friend and they’re buying you dinner and sending you invitations to “sit down and discuss your dreams” like the previous twenty years of screwing you just never happened.Once your house shows up in the county courthouse records as free and clear,they get all squishy-touchy-feely about how “together,we can build your tomorrows”.Funny, the work to build that wealth up was not done “together”. In fact, those same people and same companies were doing their darnedest to hogtie you with tricky financial products designed to skim off a lot of your wealth before you could put it away for your own use. (Cancer insurance,anyone?).

So here’s a note to all of the “investment pros” out there reading this (and I know you are) – This is one dude (and dudette) that you will never see a dime from. We made our pile with our hard work and we’ll be dammned if we will share it with you.