A friend of mine brought the above video to my attention, so I decided to make a post to comment and respond to it. There is a great deal of content in the video, so I did not comment on all of it. I will likely post a few follow ups in the future.
John Oliver raises raises many issues that I have addressed in previous posts. I have referenced those previous posts where applicable.
Overall I would say that John Oliver’s commentary is pretty accurate. His one real glaring short-fall is his broad characterization of the entire industry. He predictable falls into the “Wall Street is evil, finance people are evil” shtick.
“Money you know, the thing everyone likes to think they are good with despite evidence provided in every episode of the Suze Orman Show.”
True: People like to think they are good with handling their money and investments, however virtually all the data points to the typical person being both bad at handling money and woefully bad at managing investments.
“There are people who simply do not have money to save for retirement”
True: Before someone starts saving for retirement they should have a certain level of short-term cash reserves, the appropriate level is unique to each individual/household.
“Nobody invites their financial advisor to a wedding.”
False: John’s implying that it is unlikely for money managers and their clients to have a strong relationship. Money manager/client relationships vary widely. Trusting someone to manage your money is a really big decision and a lot of times that means a personal relationship.
“Even their name means less than you think… generic terms or job titles used by investment professionals who may not hold any specific credential.”
True: This is a major problem in the industry, and it hinders those doing good work. I have previously written about his subject: http://www.wswartz.com/2015/11/13/know-your-money-managers-1-0-11132015/. I personally refer to myself as an investment adviser, which implies that I am a representative/adviser of an RIA (Registered Investment Adviser), which is all true. Unfortunately nothing is truly stopping others from using the same title while not being at all connected to any RIA.
John makes reference to commissioned based pay, and how it can incentivize the money manager against the client.
True: Clients need to ask their managers how they are paid and understand the differences in pay structures and how it incentivizes said manager. W. Swartz & Co. is a fee only RIA. W. Swart does not collect any commissions.
Annuities are investment vehicles that are only appropriate for certain types of investors in specific scenarios… some managers push them hard… the commissions are typically very big.
True, true, and true: These are true statements, beware. Annuities are very rarely appropriate, I am happy to say I do not sell them at all.
“Generally it is currently legal for financial advisors to put their own interests ahead of yours. Unless they are what is called a fiduciary”
True: Depending on a number of factors money managers are held to either a suitability standard or a fiduciary standard. The suitability standard basically means that the manager can recommend anything as long as it is deemed suitable for the client, the fiduciary is bound to always look out for the client’s best interests. As an RIA W. Swartz & Co. is a fiduciary.
“Is it me or did that last domino fall really hard?”
True: That last domino did fall really hard.
401(k)’s can have a lot of fees
True: This is one of the many reasons that when an investor has the opportunity to make a tax-free rollover to a personal IRA account they should do it.
John shows a hypothetical meant to explain the dangers of fees.
True & False, Deceptive: Understanding and evaluating fees is very important. This example is very deceptive in the assumptions it makes. The flaws of this hypothetical are numerous and should be covered in a separate post.
“Many Wall Street professionals find it difficult to beat the markets”
True/False: I am pretty sure that year to year typically around 40% – 50% of active funds outperform their respective benchmark; I do not have the exact numbers at my fingertips. Many funds have a long-term track record of drastically beating their respective benchmark which can result in huge added returns to investors.
