Long ago, before I started teaching, I flirted with the idea of working as a financial advisor. 

And I’ll admit, even after taking my first teaching job, I still considered it, from time to time.

But the more I looked into it, the more I realized that I couldn’t do it.

It didn’t have anything to do with the ‘excessive’ training involved.  After all, you can sell mutual funds in Canada or the U.S. with less than 3 weeks of related training under your belt.

Adding up the academic time (not including the mandatory time required, working at a brokerage before getting certified) it takes  a certified financial planner less academic study time than a single full time university semester.  Few people realize that.

I didn’t take the financial advisory route because it didn’t seem fair at the time.  The more I learned about the industry, the more I realized that most advisors will move their clients towards products that profit the firm (or themselves) at their investors’ expense.  For starters, they typically buy actively managed mutual funds for their clients:

  1. These underperform index funds over the long term
  2. They are less tax efficient
  3. Nobody can pick winning actively managed funds ahead of time
  4. Some advisors choose funds that charge sales loads (to buy) or deferred load costs (to sell).  Noted finance writer, William Bernstein, suggests that these shouldn’t be legal.
  5. Other advisors charge additional “wrap fees” which cost clients an additional annual expense of up to 1.75% per year.

There are advisors doing it out of greed, while others simply don’t know that they’re serving a bigger master than they realize.  The financial service industry encourages the sales of expensive products because they’re the most profitable…for the industry.

Dan Bartolotti, at The Canadian Couch Potato,  just published a fabulous interview with Rick Ferri.  A money manager with his CFA designation (significantly more substantial—in terms of education– than what most financial planners have) he realized, early in his career, that he was fleecing investors when selling traditional actively managed mutual funds.

His eventual journey led him to create a low cost, indexing option for American investors.

He had to form a new company, Portfolio Solutions, to pull it off (in 1999) and he serves as an inspiration to many.  There is goodness in the world of financial planning, thanks, in part to people like Mr. Ferri.

If you’re American, and you’d like a link to three noble investment advisory services that will build portfolios of indexes, here they are:

 I’m always looking to build the list.  So please pass on names of firms charging 0.4% or less, to build indexed accounts for clients in the U.S.

Over time, I’ll build an honor roll of investment advisors who are doing the right thing.