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Confused Investors Think They Get Expert Investment Advice
The Securities Exchange Commission fund a study by the Rand Corporation to determine the confusion levels of investors who buy investment products from sales representatives and planning and investment services from financial advisors. The results of the study show investors confused to the point they don’t know the critical differences between a sales reps, planners, and advisors.
Jack Waymire, co-founder of Paladin Directories & Registries said, "the level of confusion that was documented in the study shouldn’t be a big surprise. Wall Street thrives on investor confusion. It makes them dependent and it’s easier to sell shoddy products to investors who don’t know very much about reps and advisors. Notwithstanding Wall Street spin, the fact is financial services companies spend hundreds of millions of dollars per year on lobbyists who make sure investors stay confused. Knowledgeable investors would reduce the profitability of Wall Street companies.”
Waymire added, “Wall Street companies and their reps hide a lot of information that would help investors make better decisions. They hide it for two reasons. One is reps serve a very important role helping investors accumulate and preserve assets for their retirement years. The other is, the industry has very low requirements for reps. For example, there are no education or experience requirements. Rather than raise standards, companies and reps hide this information from investors. Hence, there is a lot of confusion when investors select representatives and depend on them for competent, ethical advice.”
Another reason investors are confused is sales representatives don’t have any mandatory disclosure requirements for their credentials, ethics, business practices, and services. Consequently, investors have to know the right questions to ask to obtain this information and reps can use their personalities and sales skills to hide the information. Sales reps usually win this contest because they are prepared and investors are not.
Waymire added, “reps do not have the registrations that permit them to provide investment advice. Their securities licenses limit them to making sales recommendations, but they are very adept at making recommendations sound like advice. In fact, you would be hard-pressed to describe the differences between advice and recommendations. No wonder investors are confused.”
Another source of confusion is the way reps communicate with investors. It’s primarily verbal which makes it easy for reps to use their personalities and sales skills to influence or control the financial decisions of investors. Verbal information is also easy to misrepresent and deny later when it’s the investors’ word against the advisor’s. No documentation benefits reps at the expense of investors.
Waymire also observed, Investors are their own worst enemies. The joke in the financial services industry is most investors spend more time planning their next vacation than they do planning their financial futures. They are going to stay confused as long as they don’t commit time to learning enough to protect their own financial interests.
Investors are up against a stacked deck when they rely on reps and advisors to help them achieve their financial goals. The deck is stacked in the favor of companies that want to maximize their profits and reps who want to maximize their incomes. |
