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John Oliver skewered the financial advising industry in a video that went viral earlier this year. Does the bad behavior Oliver described mean you ought to go it alone when it comes to investing?
If you don’t have HBO, I can’t fathom where you’ve been or how you arrived at the decision not to watch Game of Thrones. But you don’t need HBO to watch John Oliver’s withering takedown of the financial services industry. The full segment is here, and an excellent write-up by Jared Kaltwasser is here.
Although the segment aired some time ago, I thought it was worth revisiting. That is, in part, because much of my writing for Dentist’s Money Digest discusses the utility of working with financial advisors as part of developing and implementing your savings strategy. Watching the Oliver clip—and, let’s be clear, everything he says in the clip is accurate—you’d be forgiven if you decided never to work with an advisor again.
I happen to think that would be a case of burning down the house because you fund a snake in the garage. Better to deal with the snake, and any of its kin, than eliminate a structure that can add value to the financial well-being of many. So, what can you do as an investor to protect yourself?
Beware the “altruistic” financial services company.
Besides being a writer for this esteemed website, I have worked for four different financial services companies—all of which you’ve probably heard of. I have worked alongside many good people with laudable values, and all of those companies did indeed include “corporate responsibility” and “helping clients prepare for retirement” among their stated goals. But each was also primarily interested in building its own revenue—a staple of pretty much every business everywhere.
Helping people achieve a good retirement outcome and making money for the company don’t have to be mutually exclusive goals; this isn’t a zero-sum game. Just make sure you are constantly aware that someone who is selling you something is, well, selling you something. That’s worth keeping in mind no matter how much trust you place in the institution—or the individual—working to help you meet your financial goals.
Consider the short- and long-term impact of fees and commissions.
One point Oliver hammers home, very effectively, is that fees and commissions, which often seem like negligible percentages of an overall investment portfolio, have an insidious way of adding up over the life of an investor. While many investigative reports can cherry-pick data that makes their point, the numbers Oliver uses and scenarios he describes are both accurate and germane to most investors.
The key to protecting yourself as an investor is making sure you’re aware not just of the amount of fees and commissions any investment vehicle carries, but two much more important considerations:
1. The true long-term cost of that fee, over the life of the investment, and
2. Comparable expenses from competing firms and different investment vehicles.
As an investor—really, as a consumer of anything—you’re rarely if ever going to get a product or service without any cost whatsoever. When those costs truly add up is when you could have gotten a similar return or result at a much lower cost.
The main issue I have with Oliver’s piece is that, while hilarious and mostly very accurate, it does (intentionally) ignore the simple fact that working with an advisor, even when it comes with commissions and fees, has proven to be more than worth it for millions of investors. As with any transaction, buyer beware.