Investors Unload Gripes On Securities Industry
April 10, 2013
Investors let go with both barrels at an industry event today, unloading a litany of familiar complaints about the much-maligned securities business.
Among their war stories: Advisors who lack expertise.
Advisors who don’t explain what they’re doing. Advisors who never take the time to get to know the client.
Advisors who lay out various investment options, but don’t tell the client which is the best.
Advisors who sell a high-priced product, then come back years later and tell the same client to switch to another high-priced one.
Advisers putting clients into products manufactured by their employers that don’t work out.
Are these advisors, an investor wondered, trying to get rich at the client’s expense?
Investors had plenty of bad experiences to share at research consultant’s Tiburon CEO Summit—so many that at least one industry executive in the audience left upset and apologizing investors.
The session had a consumer panel in which well-heeled investors, who only used their first names, painted an often unflattering picture of the advisory industry. The most frequent complaint was many advisors either can’t or don’t clearly explain how assets are being allocated and what is the long-term plan.
Indeed, Tomas, a technology specialist who considers himself a relatively savvy investor, described “as pretty awful” the experience he had with his wife’s advisors, whom he inherited when he married in 2008. Five years before, they had sold her family a variable annuity. Then the same advisors decided he and his wife needed to place that variable annuity with another.
“When I asked about the fee structure, they said we’ll have another group of experts coming to get into the nitty gritty,” Tomas said, setting off snickering among a financial executives.
Tomas also complained that these advisors are “not as insightful as they should be. They lay out options and then expect the client to choose.” He called the advisors’ process “disappointing.” Worse, he added, is that even over several years of working with them, clients will often still misunderstand how money is being allocated.
For example, Tomas said, just before the market meltdown of 2008, his wife was sure that their investments were conservatively allocated. They weren’t. The portfolio was 65 percent into equity and 35 percent into bonds split, and it was badly hurt.
“It’s disappointing,” Tomas said. Asked by panel moderator Craig Gordon, director of correspondent services at RBC Correspondent Services, what he would like to see changed in the advisory industry, Tomas wished for a do over. “I would have liked to have seen that asset allocation changed before 2008.”
So why doesn’t he and his wife dump their advisors?
“It's tough,” he said. “The relationship is ingrained over years.” This was confirmed by all investor panel members, who said it is often difficult to go through the process of re-allocating investments with another advisor.
Vic, a hotel manager, said he has done well. But he is using bank wealth management services. However, he contended that no financial professional has given him a financial strategy for the next 20 years. Vic explained how he believes advisors should be paid: “I like fees. I understand the concept philosophically.” Another panelist agreed.
“I like the idea that they only make money when we do,” added Joan, a leading New York architect. She calls her herself “a financial idiot” and wants a strong relationship with an advisor. She said that she and her husband sold their home several years ago, making a profit. With her pool of money, she started looking around for advisors and dispersed her assets among three of them. She had numerous bad experiences with advisors and ended up giving some business to JP Morgan. She praised the way the firm treated her, but she regretted putting her assets into its funds, which turned out to be dogs.
“These funds weren’t any good. They weren’t successful investments,” she said.
Joan also said she received statements and communications and had no idea what they meant. At the height of the meltdown, advisors told her it would be a good idea not to open her monthly statements. “My faith in the financial industry was definitely shaken,” she said.
A former Morgan Stanley wealth management executive in the crowd was upset by Joan’s various bad experiences.
“I am embarrassed. Just about every experience you had was wrong,” said Paul Hatch, a former vice chairman of wealth management at Morgan Stanley.
After much trial and error, Joan said she found a good advisor in Seattle.
What does she like about her new advisor?
“He takes a lot of time and explains things to me,” she said of her adviser, who selects money managers for her. Twice a year, she added, he will visit all his clients.
“He recognizes that I’m not involved in finance, but he respects my intelligence. I feel like we have a real partnership,” Joan said.
Some investors apparently are still looking for that kind of relationship.
“I really want someone I can respect analytically,” Tomas said. “But I don’t view my advisor that way.”
Moderator Gordon of RBC said the panel’s comments showed that “there are some things we are doing well in this industry.”