Industry abuzz over author who slammed financial advice biz

Helaine Olen's 'Pound Foolish' has triggered plenty of controversy among advisers

Jan 11, 2013 @ 3:19 pm

By Liz Skinner

Helaine Olen
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She did start the fire ((Photo: Bloomberg News))

A new book that criticizes the financial advice industry is being panned by many advisers, but surprisingly, others agree with at least some of its conclusions.

In “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry” (Portfolio/Penguin, 2013), financial journalist Helaine Olen says the nation's 320,000 financial advisers have been selling Americans financial products and services that have not provided the security they've promised.

For example, investors who thought they were playing it safe with “buy and hold” investment strategies watched in 2008 as their retirement expectations melted down along with the U.S. economy.

“We'd been sold a dream of savings and investing that had no basis in any history or reality,” Ms. Olen writes. “We were participants in a vast experiment, a hope that personal finance and investments would do it all for us. We now know that for all too many people, it did not.”

Ms. Olen, who used to write the “Money Makeover” feature for the Los Angeles Times, holds advisers' feet to the fire in her book. She briefly de¬scribes the differences between the suitability standard by which brokerage industry representatives must abide and the fiduciary standard of registered investment advisers.

Ms. Olen contends that the public doesn't understand that brokers don't have to make sure that sales are in their clients' best interests and that people are completely confused by the 200-plus designations that financial professionals can choose to list on their business cards.

“Under the suitability standard, there is no legal requirement for a broker to tell you how much you are paying for the service, or if there is a better product available at a lower charge,” she writes.

In an interview, Ms. Olen said fee-only advisers who charge for their services and don't receive commissions or other third-party payments offer clients a better option. However, they tend to have investment minimums that most Americans will never reach.

“Their focus on wealth management leaves out a lot of us who aren't wealthy,” Ms. Olen said. “Try calling a fee-only adviser and saying you have $100,000 to invest, they'll laugh.”

Ms. Olen said her own financial adviser, whom she declined to name, is paid hourly. She chose that model because such advisers are least conflicted, she said.

Reaction to the book has been mixed among financial advisers. Many of the comments posted on InvestmentNews.com criticized the book, but others supported Ms. Olen. The Financial Planning Association, the National Association of Personal Financial Advisors and the Financial Services Institute declined to comment on Ms. Olen's book.

Former broker Michael Salker said brokers disclose product fees by providing a prospectus to every customer, but “whether people read it or understand it is another thing.”

Now a fee-only adviser with MCS Financial Advisors LLC, he acknowledged that financial planning is difficult “for middle-class folks who don't have significant amounts of money and are constantly bombarded by financial products they don't understand.”

Fee-only financial adviser Karen Keatley of Keatley Wealth Management LLC said Ms. Olen's book will likely add to the public's disenchantment with financial professionals. She said the public is completely confused over who gives good advice and who does not.

“I work as a fiduciary for my clients, but I still have people call and I have to show them I'm not here trying to rip them off,” Ms. Keatley said. “People are so skeptical and so jaded.”

Buz Livingston of Livingston Financial Planning Inc. heard Ms. Olen talk about her book on a radio program and said he's excited that it highlights some truths. For example, her observation that some financial advice is geared more toward what rewards the adviser as opposed to what's best for the client.

In her book, Ms. Olen saves most of her harshest criticism for personal finance celebrities such as Suze Orman and David Bach.

Ms. Olen writes that Ms. Orman's own riches weren't “earned by investment savvy or astute savings strategies but by convincing many of us that we were so helpless we needed the help of her books and product lines.”

She also targets David Bach's “latte factor” approach found in his book, “The Automatic Millionaire.” It told Americans they could save $1 million if they only swore off their $4 a day coffee beverages and saved up that money for 30 years. Ms. Olean writes that a more realistic estimate of the amount one could save would be about $173,000.

Ms. Olen's condemnation of personal finance personalities isn't a personal attack, she said, but a criticism of their preaching that people can invest and save their way out of their financial troubles, when usually they cannot.

Mr. Livingston said he agrees with her criticism of Ms. Orman, whom he accused of being “condescending” to people and whose advice he said is often inconsistent.

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