A Warranty is normally attached to a product, except in the Financial Industry
The Lack of Warranty attached to Financial Investments.
Buying a car means whoever sold you the car stands behind the car. The financial system works on the opposite principle. BUYER BEWARE !
Money is Earned by Your Advisor When you Buy Something
This issue is at the core of what is wrong in our financial system. All incentives for the financial industry are based upon the money made by selling the instrument to you.
No one makes money or is really interested in what happens after you buy the instrument. If your investment goes up in value, the Advisor can then claim he/she made a good choice and sell you something else. If the investment loses value, it is never the advisors fault.
Every Excuse in the Book – The Financial Industry has Developed this list of Excuses that Sound so Plausible
It reminds me of that old movie called “The Blues Brothers” when John Bellushi is trying to explain to his former fiancé why he didn’t show up at the wedding. He gives her every excuse from “I missed the train.” to “I left my suit at the cleaners.”, all in rapid fire. Very funny and very similar to the lame excuses given by your advisor who really couldn’t care less what he sold you, as long as he sold you something.
They talk about Benchmarks, about the economy, about unexpected events, about how they left their suit at the cleaners, and so on.
When You Buy a Bargain at Walmart, You Get a Warranty
When you buy a toaster at Walmart, it carries a warranty. If something goes wrong with it, Walmart stands behind it. Walmart will refund your money or exchange the product. No questions asked. They stand behind what they sell.
When your financial advisor sells you something, he and his company and whomever created the product that you bought, should stand behind it. If it doesn’t do what it is supposed to do, they should make good your losses, or at a minimum, refund the profit that they made on selling that piece of crap to you.
Since the only way that they make money is to sell you something, shouldn’t they be responsible for ensuring that what you bought lives up to what they promised it would do?
Change the System
The first change that should be instituted is making the financial industry stand behind what they sell. At a minimum, if something loses value, they should refund the commissions that they all made in selling their garbage to you.
It is Time to Change the Law
It is time to make them responsible for doing due diligence on what they sell to ensure that at a minimum, what they sold you has validity. No one should be allowed to sell you something unless they have done enough due diligence to ensure that it is a reasonable thing for you to invest in, and if they are mistaken, they shouldn’t be allowed to keep the profit they made by selling it to you.
Isn’t that the way that the rest of the world works? Let’s stop this fraud perpetrated upon investors and hold our Advisors as accountable as used car salesmen are accountable.
If someone assures you that what you are buying is a good thing and that it meets your needs, then that person has a responsibility to be right, or at a minimum, to not profit if they are wrong.
It is their responsibility not to sell you a long term bond at a low interest rate if the world is about to have higher interest rates, or vice versa. They are in that business. They are supposed to know. They have all the tools, all the statistics, all the analysts, all the economists. You don’t.
The only information that you have comes from them and from the daily news.
If your advisor is wrong, they should not be taking your money as a reward. They should lose their commission on that sale.
Moderating the Effects of the Next Big Cycle
Now imagine how moderating an influence this would be on the next great wave, the next hot cycle. If the people selling you that overpriced financial instrument had to worry about whether they would have to refund their profit made by selling you something at the top price of the current wave, don’t you believe that they would think twice before convincing you to buy something?
I suggest that as the majority of us have accounts with Investment Advisors, if every person sends their advisor a note saying that if an investment goes down in value, that IA must return his commission to you. What a novel thing to hit them with!
