Transparent Compensation vs . . . Not

“An astounding 75 percent of consumers believe, incorrectly, that all financial advisers already have to act in their best interest.”

–“Is Your Financial Adviser Making Money Off Your Bad Investments?”; The NYT (Sept. 29, 2015).

Want one more reason why millions of Mom-and-Pop investors are opting for low-cost index funds that simply match the performance of the overall market, rather than try to beat it?

They don’t trust financial advisers — often, with good reason.

“Suitability” vs. Fiduciary Duty

Whereas Realtors are held to a fiduciary duty (translation:  they have to act in their client’s best interests), at least some financial advisers only adhere to a “suitability” test.

That is, they only have to recommend investments that are “suitable” for their clients — rather than investments that may be better but are less remunerative for the advisers, due to lower commissions or other compensation.

Amazingly (to me), the financial industry is still fighting efforts to apply the higher fiduciary duty to all advisers.

P.S.:  And yes, Realtors have a fiduciary duty to their Buyer clients even though their commission is paid by the Seller.

So that my clients know exactly how much that is, my practice is to print out the MLS “Agent Full” report, which discloses that amount.

See also, “Realtors, Wall Street, and Fiduciary Duty“; “Will the Last Active Investor Please Turn Out the Lights?”; and “Picking Stocks (& the Case for Indexing).”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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