Say No to Yes Man Financial Advisers
Mr. ToughMoneyLove is a big believer in self-management of personal finance, if you are willing to study, learn, and then fearlessly apply what you have learned. Too many people turn their financial planning over to so-called professionals who are more interested in selling than in objectivity.
A recent study by a behavioral economist, however, is casting doubt on the benefits of using a fee-only planner to provide investing advice. According to the research, most planners reinforce bad investment behaviors rather than give advice that will correct those bad behaviors. They are, more often than not, “yes men” (or women.)
The data was acquired by sending actors around to different financial planners, pretending to need investing advice. According to the summary of the outcome:
The result was nearly always the same: The actors walked out with advice that mimicked the biases in the original portfolios. Investors who wanted to find the next hot sectors, for example, were put in actively managed funds that try to beat the market. The cash-sitters were more likely to be told to take the cautious step of buying index funds.
Why did this happen, even in cases where the planner was paid by the hour?
The theory is that the financial planners were concerned that giving advice that contradicted what the clients were already doing would alienate the clients, causing them not to return for more advice. Once again, human frailties cause self-interest to trump objectivity and hard truth. Planners want repeat business, even if it means handing out sub-optimal advice to get it.
You can also fault the typical client who tends to reject financial advice that does not align with their own ideas. Why pay for advice if all you want is affirmation of your own choices, good or bad?
This is why I am and will remain a DIY financial planner.
Source: Fortune article