Typically I write about some ludicrous comment made by an economic or media pundit, or perhaps some ridiculous action taken by some government agency that I feel compelled enough to comment on. Historically, these have been the easiest targets per-say, in drawing attention to economic fallacies, and their eventual consequences.
However, this week, Chuck Jaffe, (another commentator on MarketWatch) wrote an interesting article about financial planners and financial advisers.
Apparently the GAO, or Government Accountability Office, issued a report concerning financial advisers and planners saying that additional regulations over these working individuals is not necessary.
Jaffe was arguing, and rightly so, that there are virtually no standards whatsoever for financial advisers or financial planners. And while the State and Government regulatory bodies do not specifically endorse any advisers, they are sure happy to collect both the testing, licensing, and annual renewal fees from every single adviser and planner every single year.
Couple that with the fact that the government prohibits advisers from making statements such as, "I can do a better job in this way or that way than your current guy is doing", or any sort of claim or any manner at all, and you wind up with a situation where all financial planners and advisers are licensed and recognized in the exact same manner without any quantitative differences in them whatsoever. The prohibitions set against advisers prevent the intelligent, competent ones from shining, and propels by default, the crud at the bottom of the barrel up to the same level of professionalism as the best in the business.
Jaffe, and several other certification organization were hoping for a bit more. A way for consumers to more effectively weed out the massive numbers of bad and incompetent advisers that are practicing today.
As it stands right now, the only real way an investor can determine if an adviser is bad, makes poor or selfish decisions with their client's money, or is simply too incompetent to own an E-Trade account much less manage other people's money, is only after some travesty has taken place.
The sad reality is that even some o the most grevous offenses are not prosecuted to the full extent of the law, or renumeration provided for the client becaseu the regulatory body which oversees the vast majority of financial advisers, FINRA, is completely funded and run by the very advising firms that are under investigation.
Imaging if the FDA were funded and ran by pharmaceutical companies on behalf of "consumer protection" mandated by the government? Doctors, pharma companies, and everyone in between would realize that if the FDA put too many Merck's out of business because of bad practices, the FDA itself would look incompetent and lazy for not preventing these poor practices in the first place, but for each one they put out of business, they would be lessening their own income and threatening their very own existence.
So how much real scrutiny do you think takes place over your friendly neighborhood adviser before a slough of investors are swindled out of their money? But each and every year the state and federal agencies send multiple reminders, electronically and by postal mail, ensuring that not a single penny of licensing fees are forgotten or unpaid. To what end is up in the air.
Jaffe is right when he says that the ways the laws are currently set up are confusing and don't assist the end investor in any way at all. Rather, it causes confusion with the investor. They ask themselves, "Both the Crook and the Diligent Advisor were licensed ny the same government organization, and are constantly regulated by them. How is it then that so many people end up not only disliking their adviser, but dispising them? And how can I differentiate between a good adviser and a poor one?"
The government gives no help whatsoever, but rather makes the investment process expensive and confusing.
The lesson Jaffe, and myself included, are trying to get across is that no matter how many different sets of acronyms are behind your adviser's name, it ultimately ends up being your responsibility to perform due diligence on your financial adviser.
Because ultimately, no one on earth cares about your money more than you do.
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