Claritas program for the general public...

Would the average Joe be better off navigating the world of financial services having earned the certificate? I’m thinking the $685 may have a hundred fold return by the time they reach retirement.

I run into a lot of people that can’t begin to make an informed decision when it comes to their money. And these are HNW individuals. They are the marks and they are the majority. I could tell them the financial equivalent of “go jump off a bridge” and they would say that sounds great. No clue how the industry works. Books can be recommended, but casual reading doesn’t seem to do the trick.

Eh maybe, but there are hundreds of good or even better sources of financial advice for average joe videos on Youtube and the like. Thing is , most people are just not interested. They think the world of finance is too complicated and are happy paying ridiculous interest rates and living paycheck to paycheck.

While more education is generally good, most wealthy people probably think that even with some certification, they would not be as good at managing their money as professional managers.

I’m not suggesting they acquire the knowledge needed to manage their own money. I’m just suggesting they acquire enough knowledge to be able to communicate with the advisor and evaluate and compare what different advisors may be telling them. The basics of risk and return is lost on most. And don’t begin to explain how compensation affects the advise they are getting, “but the guy from church says this insurance product he sells is a no brainer.”

Assuming the HNW person is being marketed a legit financial product - products run the gamut from simple to very complex.

This guy walked into my office a few months ago and expressed confusion over the fact that most people don’t know more about finance, when it’s such an integral part of their life. I told him that our life and health is very important and asked him how much he knew about medicine. He confessed he didn’t know much.

A certificate program can be useful if it teaches people to ask questions about, for example, fee structures or contingency triggers on an investment. At the end of the day, though, just like I hope healthcare professionals are looking out for my best interest, most people need to find financial advisors who will look out for their best interest.

When someone finds out they have a chronic medical condition, they often embark on a journey to educate themselves on the condition leaving no stone unturned. The patient ultimately decides what treatment they will receive. When playing in the cesspool that is financial services, their financial condition could become chronic, if they choose not to educate themselves.

The thing about the cesspool is that it is perpetuated by everyone believing that the products or funds they work on are the best. How many times have you heard how someone’s portfolio was constructed, and shaken your head because of how “stupid” whoever constructed it must have been? Everyone thinks they are right in this industry – even if people aren’t actively looking to scam clients, people support products all the time because their intellectual reputations are behind them.

But really, what is “right” in terms of someone’s portfolio? Yes, allocation is key, but even the borders of what kind of allocation is “the best” are fuzzy. Beyond that, it’s even fuzzier.

Well, when a regional head of the country’s largest financial advisory firm, in terms of number of advisors, that is trying to court you, says, “I think those are excellent recommendations for that client, but if that is what you recommend here, you’re not going to make a lot of money.” That’s all I needed to hear, not that I really was considering giving up running money to peddle financial products. But I agreed to go talk to him. He obviously thought the best thing for a single 25 year old with a little money was an overpriced fixed annuity. No need to even shop around for the client and find a fairly priced insurance product, if it happened to be appropriate. And these people are advisors, not brokers, with fiduciary responsibilities. Breaking the law every day. That is the cesspool. Would give used car dealers a bad name.

If incentives are set up to push questionable products on clients, more advisors will find those products “suitable in the total portfolio context.” One question might be how to align advisor incentives so they can properly counsel their clients.

Fee-only might be a start. Not fee-based. Because of all the literature on Fee-only, commission outfits have started using the fee-based misnomer in hopes that it will be confused with fee-only. So very sad.

A very interesting observation indeed, and you are so right. An argument for the old Prudent Man Rule vs. the Prudent Investor rule?

Fee based service, instead of commission based, may reduce potential conflicts of interest. If a product pays 7% vs. 1%, sure - that might affect advisor behavior!

That’s a fair observation. Even if an average investor theoretically gets a real benefit when an advisor adds uncorrelated assets to a portfolio that are unacceptable under the Old Prudent Man Rule, does it play out in the investor’s favor in practice?

Right, well that’s the big question, isn’t it? I do feel as though advisors (even dumb ones) know that regulators are unlikely to holistically analyze a client’s entire portfolio (say, during an audit) and so, it seems like a universal get-out-of-jail card to just claim that some bulls#it product has been added “to diversify the portfolio” or to “increase the risk-adjusted return of the portfolio.”

I should qualify this – if someone actually is doing real-deal quant analysis before adding product, then I have no criticisms to the claim of diversification. What irks me is when you see some know-nothing adding a product that pays him very well up front, and he “heard somewhere” that such product has “low correlation with traditional asset classes,” and the idiot adds it to the portfolio claiming that it increases diversification and therefore is good for the client, without doing a lick of his own analysis to see if the numbers pan out.

or, why not just teach some of this basic stuff in school?

surely a lot more useful than learning about rock formations, ancient kings, plants and all that fun stuff.