Journalist's book blisters advisers

Many irate over skewering of personal-finance industry, but some applaud

Jan 13, 2013 @ 12:01 am

By Liz Skinner

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 contends that the nation's 320,000 financial advisers have been selling Americans financial products and services that haven't provided the security that they have promised.

For example, investors who thought that 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 wrote.

“We were participants in a vast experiment, a hope that personal finance and investments would do it all for us,” she wrote.

“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.

EXCLUDING MANY

In an interview, Ms. Olen said that 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.

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

Reaction to the book has been mixed among advisers. Many of the comments posted on InvestmentNews.com criticized the book, but others supported Ms. Olen.

The Financial Services Instittute, the Financial Planning Association and the National Association of Personal Financial Advisors declined to comment on the book.

Sean Walters, executive director of the Investment Management Consultants Association, whose members are brokers and independent advisers, said that the financial advice industry serves “every stratum of the population.”

He said that the author's skewering of the entire industry in an attempt to sell more books “is a bit hypocritical.”

Former broker Michael Salker said that brokers have to disclose product fees by providing a prospectus to every customer who is offered a product, 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 that Ms. Olen's book likely will add to the public's disenchantment with financial professionals.

Ms. Keatley said that the public is confused over who gives good advice and who doesn't.

“I work as a fiduciary for my clients, but I still have to show them I'm not here trying to rip them off,” she said.

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.”

Ms. Olen also targets Mr. Bach's “latte factor” approach found in his book, “The Automatic Millionaire” (Crown Business, 2005). It told Americans that 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. Olen writes that a more realistic estimate of the amount one could save would be about $173,000.

Neither Ms. Orman nor Mr. Bach could be reached for comment, and e-mails to their public relations representatives weren't returned.

lskinner@investmentnews.com Twitter: @skinnerliz

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