Top Ten Lies Financial Advisors Tell

What passes for investment advice is a pack of lies being told by a band of thieves. They keep telling the lies because you keep buying them. Here are ten perennial favorites, in no particular order:

 
1. "Buy and hold: You can't go wrong in the stock market if your time horizon is long enough." So … if my time horizon is thirty years, the last ten of which is a secular bear market, then what?

 
2. "You are diversified." Retail money managers are closet indexers, regardless of what their stated investment style is. Having a 10% return when the market goes up 25% because your "style" is not hot right now is death to a fund manager.

 
3. "Options are risky." Options can't be inherently risky. For every transaction there is one winner and one loser. The problem is not with options but with the way people are taught to use them.

 
4. "The S&P will be at x by year-end." Stock prices are random. No one can accurately predict where they will be tomorrow, next week, or next year. No one can consistently pick tops and bottoms either. It can't be done - except by liars.

 
5. "You can afford to take more risk while you are young." The days of being able to take market risk are gone forever. We now live in a world where we must all fund 30+ years of retirement. Capital losses, at any age, are no longer acceptable.

 
6. "Our analysts believe this company has great potential." That would be great if stock prices actually reflected the true value of a company. They don't.

 
7. "Defer taxes until later in life when you will be in a lower tax bracket." Tax deferred investments are a suckers bet. First, they convert tax advantaged capital gains into ordinary income. Second, most people are in the same or even a higher tax bracket once they retire, not a lower one. Third, you'll pay far more in fees to your advisor than you will in taxes to Uncle Sam. Why don't they tell you to focus on reducing those?

 
8. "Everything you need to know is in the prospectus." What a joke. Prospectuses are written by lawyers. Lawyers don't get paid to be clear and forthright or speak in plain English. They get paid to cover the firms' ass in case something goes wrong. Where do I read about all the stuff the firm isn't legally required to disclose?

 
9. "Leave the investing to an expert - in other words, us." Financial advisors are expert in one thing - selling.

 
10. "We pick the investments best suited to meeting your objectives." The one thing financial advisors are most expert at selling is the investment best suited to meeting their financial objectives, not yours.

 

I am sure you have heard these and many more. What lies have I left out? Help me complete the list. Leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.