Is Your Broker Looking Out for You?

The recently published book, “The Middle-Class Millionaire: The Rise of the New Rich and How They are Changing America,” illuminates a disturbing trend among financial advisors. The authors surveyed a randomly chosen group of experienced financial advisors. The advisors were divided into two groups: (1) Middle-Class Millionaire (“MCM”) advisors with a reported net worth between $1 million and $10 million; and (2) “aspiring” advisors with a reported a net worth below $1 million.

The Dark Side of Success

According to the survey, there were some surprising differences in beliefs and attitudes between the aspiring advisors and the wealthier MCM advisors. The survey showed that MCM advisors did not believe that success depended upon doing what you love, having a high IQ or working with good people. Instead, MCM advisors believed that, in order to be successful, it was necessary to:

  • Do whatever it takes to win
  • Take advantage of the weakness of others
  • Bend the rules at times
  • Leave a rewarding career to pursue financial success
  • Be Machiavellian at times

While the above characteristics may increase the advisor’s bottom line, I am not so sure how these characteristics will benefit the advisor’s customers.

The Brokers are Coming

These traits for success bring to mind the stereotypical stockbroker. In fact, the group of survey participants was limited to registered representatives working at brokerage firms and independent broker/dealers. Do stockbrokers have a different mindset than registered investment advisors? One can only hope that RIAs exhibit a less cutthroat attitude; however, with the steady increase in the number of brokers “going independent” and shifting into advisory practices, the lines are getting blurred.

Undoubtedly there are ethical investment professionals in both camps. Unfortunately, the investing public is largely unable to distinguish a financial advisor (i.e., stockbroker) from an investment advisor. According to a survey by Opinion Research Corporation conducted in April 2007:

Fewer than one out of three U.S. investors (30 percent in 2007)correctly understand that the “primary service” provided by stockbrokers is the buying and selling of stocks, mutual funds, bonds, etc., not investment advice.

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