Is the financial industry a scam? Dilbert, Scott Adams, wrote on his Blog last Thursday, “How to Make More Money in Stocks”,
“So my suggestion for permanently lifting the value of the stock market to new sustainably high price-earnings ratios is to pass a law making it illegal to offer financial services without disclosing the truth – that they are mostly a waste of your time.”
CNBC hosted Scott Adams yesterday to discuss his position that financial advisors and the industry are a scam. Josh Brown, (he calls himself the “Reformed Broker”) and went from being a broker to being a “money manager”, took issue with Dilbert’s critique of financial advisors. Josh and Scott Adams are pictured to the left.
Josh Brown is not “reformed” since he does the same thing he did when he was a broker, he sells product without any accountability at Ritholtz Wealth Management. Dilbert’s argument is sound. “Financial advisors” such as Josh Brown throw together a few things and call themselves “wealth managers”, with no published performance measurement standards or benchmarks.
Josh may be good at social media, but he has yet to show any value that he has added, after all fees, on his website, at Ritholtz Wealth Management. Before one selects a manager, review the NOMN checklist to the left. In this instance, based on our seven criteria, CNBC regular, The Reformed Broker, who sparred with Dilbert, fails to deliver (1) a minimum of five years published performance against an agreed upon benchmark on his website or with the SEC, (2) fails to detail portfolio turnover and trading costs and thus (3) an operating philosophy that clients come first. Clients have no idea what value they are receiving for money management, after all fees.
As the retirement investor advocate, The Derivative Project, recently wrote, the Government Accountability Office (GAO) has warned about fiduciary lapses in managed accounts and the failure to provide benchmarks and performance. Yes performance reporting and benchmarks matter. The GAO has called the Department of Labor to task for not mandating performance and benchmarks for firms such as Ritholtz Wealth Management that seek to manage retirement assets in 401k plans. Without SEC-filed performance reporting, yes, the industry is a scam, that media is actively promoting to the detriment of every retirement investor.
Not On My Nickel subscriber’s know the danger of no benchmarks and performance, which we have written on many times. The media has allowed the scam, that Dilbert describes, to perpetuate as we have detailed here:
McGraw Hill Financial/Education published the Reformed Broker’s two books, Backstage Wall Street and Clash of the Financial Pundits. McGraw is owned by Apollo Global Management LLC, a private equity fund, that also owns S&P. No surprise that Josh and his partner, Barry Ritholtz, who writes for Bloomberg, are now actively pushing passive investments, on CNBC and at Bloomberg, as this Tweet from McGraw yesterday, indicates:
Why would one ever hire a “money manager” without five year’s performance history? Probably because CNBC endorses and promotes them, without any financials and performance reporting, to back them up. Passive investing, with an additional advice fee, is indeed a scam, as you are guaranteed to underperform the index. It matters which passive funds are chosen and how they are managed. Why go with an unproven management style, unknown performance, guaranteed below the index, when there are excellent, but very few, active managers, that outperform the index, after all fees for over 15 years?
The “investing revolution” that Wall Street is promoting, such as in this McGraw Hill Financial Tweet, is a scam and not in the best interest of retirement investors. McGraw Hill’s unit, S&P is still being investigated for their conflicts in ratings during the financial crisis, as this July 23rd Press Release describes: S&P’s July 22, 2014 Wells Notice from the SEC. The trust is gone, one must see the hard facts, in terms of published performance.
However, NOMN disagrees with Dilbert. There are a few money managers that have withstood the test of time and deliver excellent value to retirement investors. There is a genuine societal need for professional money managers. There are a few that add value. There need to be more.
End the Wall Street created “learned helplessness” and dependency on conflicted “advisors”. Simply cut out the noise and allow free markets to take over, where retirement investors have the tools and transparency to access the best passive or active portfolio manager—on the first independent, non-conflicted soon- to – be released retirement platform, Not On My Nickel.
End the Wall Street-created “passive revolution” nonsense.
(1) With passively managed accounts, there is no accountability for performance. Wall Street does not file any returns with the SEC for their new “passive” investing revolution. Chances are the retirement investor is losing more, than in the old model, one simply does not know. Frauds and Ponzi schemes are proliferating at record rates in retirement accounts due to lack of performance reporting at the SEC.
(2) Wall Street is pushing trillions of dollars of retirement assets into dark pools, detracting from investor returns through poor trade execution and taking the daily trading revenue on retirement ETFs, for their own account and not passing the savings on to the retirement investor.
(3) Earning fee income on the $10 trillion dollar retirement account, where firms such as Wealthfront, Betterment, Ritholtz Wealth Management slap an assets under management fee on a few passive investments and head to the Hamptons, without a worry on investment selection, is hardly revolutionary.
Dilbert is correct-there is a scam— a fake, Wall Street created revolution….that pretends to be helping the retirement investor.