Oct. 31, 2006 - A Step in the Right Direction

I've written before about how the financial services industry makes things very difficult for the average consumer to find and work with an adviser who places the client's interests over his own.

Part of the problem is with the regulatory environment that allows bad practices and part of the problem is with financial services firms taking advantage of the regulations to put their interests ahead of their clients.

One of the ways this charade is maintained is through the ubiquitous "disclosure" documents clients receive when signing up to turn their hard-earned money over to a financial services firm.  These documents are notoriously long, full of legal mumbo-jumbo, and designed to please regulators and avoid litigation rather than inform clients.

Some of that is about to change.

Today's Wall Street Journal ($ subscription only) reports that many of the big brokerage firms are taking steps to make their disclosure documents smaller and easier to read.  The hope is that clients will actually read the documents and understand what they're reading.

Gee, what a novel idea!

This is great news for the investing public.  My hat is off to those firms mentioned in the article who are taking these steps -- Morgan Stanley, Bank of America, Wachovia Securities, and Smith Barney.  Hopefully others will follow suit.

The bad news is that potential clients are still going to have to wade through a lot of legalese just to learn that, in fact, their financial adviser is NOT obligated to act in their best interests.  That hasn't changed.

For example, the article notes that Morgan Stanley is going from 14 documents totalling 136 pages down to a single document with 48 pages.  That's a huge improvement but I have to wonder just how many people are really going to read through a small book just to open an account with a financial adviser.  Not many.

Think about it.

How many of you read completely through those software license agreements that pop up on your computer screen?  I'll bet 99% of us just click "I Accept" and go on with life, never fully understanding or caring what we just agreed to.  In my experience, that's how most folks approach financial service firms' disclosure documents.  

It's one thing to accept blindly the terms which affect only your computer and quite another thing to do the same with your life savings.

My opinion is that all of this is unnecessary.  The only reason the industry has these goofy regulations and convoluted disclosure documents is because there are businesses which want to make as much money as possible off of their trusting clients.  They put their interests ahead of their clients because there is big money to be made by doing so.  The regulatory environment empowers companies to make that money just as long as they "disclose" that fact to their clients.

Your best defense is to read the disclosure documents, review in detail all contracts or other paperwork you must sign, and pay attention to what you're getting into.

It's your money.  You have the power.

Nov. 7, 2006 - What to do with money?

Nov. 20, 2006 - Reply to "What to do"

Dec. 1, 2006 - Thank you!

Dec. 1, 2006 - Reply to Renee

Dec. 25, 2006 - Untitled Comment