Middle class deserves unbiased advice

People most in need of unbiased advice either cannot get it or are getting it from brokers who aren't necessarily looking out for their best interests.
JUN 28, 2015
By  MFXFeeder
It's time for the industry to stop turning a blind eye toward its own inconvenient truth: The people in this country who are most in need of unbiased financial advice either cannot get it or are getting it from brokers who are not necessarily looking out for their best interests. This truth means that the vast majority of middle-class Americans are left to fend for themselves when it comes to navigating such crucial financial issues as credit card debt, buying a home, sending their children to college and setting themselves up for a comfortable retirement. Had honest financial advice been as affordable and as readily accessible as, say, a gym membership or a subscription to Netflix, such financial catastrophes as the mortgage crisis of 2007 or the explosion of the technology bubble in 2000 might have been blunted — if not completely averted. And more Americans would be better prepared for retirement. Indeed, 43% of Americans have not “spoken to anyone” — friends, family and financial advisers included — about the state of their retirement planning, according to a study of more than 5,000 adults released in April by Northwestern Mutual. If that's not bad enough, the study also found that 21% are “not at all confident” they will be able to reach their financial goals. For too many years, financial advisers, and the associations that represent them, have talked about the need to figure out a way to deliver unbiased financial advice to middle-class investors. But relatively few have put their words into action. The vast majority of financial advisers today continue to charge fees based on assets under management and have an incentive to pursue wealthy clients. In fact, many financial advisers deliberately turn away less wealthy clients by imposing lofty minimums of $1 million or more.

NEW MODELS

Let's be clear: We are not suggesting advisers offer their services for free or at a cost that would make it impossible for them to stay in business. Rather, we urge advisers to consider ways to expand their compensation models to include hourly rates, flat rates for specific services and even subscription-based pay. That would make it easier for investors who are serious about developing a financial plan but lack the savings necessary to meet minimums to have the same access to financial advice as their wealthier neighbors. We also urge the groups that represent advisers to work harder — either individually or as a coalition — to develop a blueprint for increasing middle-class Americans' access to unbiased financial advice.

ROBOS STILL PRIMITIVE

We take exception to anyone who would point to automated investment platforms as a total solution for delivering high-quality advice to the mass market. While these platforms, commonly known as robo-advisers, are good for delivering investment guidance, they hardy offer adequate comprehensive financial planning — at least not yet. For that, human advisers are key. We know this adage to be true: Where there is a will, there is a way. For evidence of the will to deliver financial advice to the middle class, look no further than the hopes and ambitions expressed by some of our 40 Under 40 honorees last week in the pages of InvestmentNews. “I wanted to be able to help people just starting out, and those who had lower assets than most traditional advisers are interested in helping,” said Robert Schmansky, president of Clear Financial Advisors. Jason L. Smith, who is chief executive of Clarity 2 Prosperity Mastermind Group and Prosperity Capital Advisors, put the situation less delicately. “The middle class [are] served by salespeople,” he said. “They don't get the service that the wealthy get.” The will is there. Now to find the way.

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