Thursday, March 31, 2011

The Young and Wealthy Don't Trust Advisers

A recent report by Cisco’s Internet Business Solutions Group on young investors with $500,000 or more in investible assets “showed that more than a third of respondents had lost faith in the 'fairness of the market' and believe the individual investor doesn’t have a chance to succeed. Half expect to delay their retirement because of their losses” according to the Wall Street Journal’s Robert Frank.

Further, Frank notes that, “The under-50s also don’t trust their financial advisers as much for financial advice. The survey showed that more than half use social networking for investment advice and two thirds are interested in joining online investor communities. Boomers and silvers were far less interested in the online tools.”

This is very telling to me. It shows that in the recent past, young investors have felt that wealth managers are more concerned with making money for themselves and not their client. While on one hand it’s a bad thing that Gen Y feels as if they have no place to turn to besides the internet for investment advice, it’s also a great thing because one of the first steps to building wealth is understanding that most so-called “experts” in the wealth management business do not have your best interests at heart. 
After all, the goal of many people in wealth management is not to see that you grow your wealth, but rather, that you give it away to them! This is done through their advocating frequent trading for clients, constant sales pitches for new investment "ideas" and "cleaning out the inventory" of securities their company needs sold. Fred Schwed's classic book Where are the Customers' Yachts? explores the issue further with plenty of humor. Remember, you are your own best advocate!

This does not mean that there aren’t good advisers out there. In fact, fee-only advisers with the Certified Financial Planner (CFP) designation are often outstanding sources of planning advice. Unfortunately, some brokers, “vice presidents” and other salesmen in disguise give the business a bad name and no doubt represent one of the biggest issues that Gen Y has with trusting experts on Wall Street.
The image of Bud Fox in the moving Wall Street cold-calling investors can strike a raw nerve.

Interestingly, it’s noted that in many instances, Gen Y trusts internet message boards and financial websites for advice over a human adviser. For one, the cost of consulting the internet for advice is minimal. On the downside, there may certainly be a lag time in having key questions answered and in other instances, the investor may not feel comfortable divulging too many personal financial details. With that said, there are some great online resources available for do it yourself investors. Besides where you can actually set up an account to begin indexing, the
Bogleheads, those investors following Vanguard founder John Bogle's advice, are an outstanding group with plenty of knowledge to go around. As always, it’s best to seek advice from those people you feel comfortable seeking advice from. If that person happens to be on the internet as opposed to sitting in front of you in an office, so be it!

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