Monday, June 28, 2010

Sidestep This Financial Regulatory Loophole

These days, pretty much every financial services provider claims to put a client’s interests first. It’s great advertising. It’s also shamelessly misleading.

Long-time personal finance author, Jane Bryant Quinn, sets the record straight in a recent blog post. She writes:

Senator Tim Johnson socked investors with what might be a knockout punch, during negotiations on the financial reform bill last week. Johnson, known as the “senator from Citibank,” habitually sides with the financial industry and against consumers. He’s the only Democrat who opposed last year’s legislation to curb credit card abuses.

A South Dakota Democrat, Johnson laughs at the concept of “fiduciary duty” — the idea that people who advise you on investments should put your financial interests ahead of their own.

At present, Registered Investment Advisers have a fiduciary duty toward you and your money. But there’s an exception for stockbrokers and insurance agents. They can—and do—advise you to buy financial products that benefit themselves more than they benefit you.

For example, it’s okay for them to offer you high-cost mutual funds when low-cost funds are available that invest the same way. It’s okay for them to sell you a high-cost, out-of-state 529 college savings plan when your own state’s plan costs less and gives you a tax deduction, too.

Johnson’s aggressive language might yet be watered down, but brokers and insurance agents won’t have to change their ways anytime soon.

Few consumers really understand what it means for a provider to put a client’s interests first. Try it, ask a friend or neighbor. Invariably they‘ll argue convincingly that their broker or insurance agent does precisely that.

How many of those people would also, at one time, have insisted that their mortgage broker was putting their interests first when he/she sold them a sub-prime or hybrid mortgage that now they can’t afford? How unfortunate…and preventable. We need to wake up!

Ms. Quinn’s examples of fiduciary duty, or lack thereof, make the concept easy to comprehend and recognize in practice. Being familiar with them can not only save you money…it can make you money. Read her full article here: Investor Protection Gets Knocked Out of the Financial Reform Law

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Thursday, June 24, 2010

We’re Feel’n Mighty Gloomy

Investing requires some optimism about the future and at the moment we’re not feeling it, according to National data reported today. Reports show that 62% of adults feel the United Sates is on the wrong track, and 57% of voters would prefer to elect a new person to Congress than re-elect their local incumbent representatives.

Glimmers of optimism that emerged in the spring have been snuffed out by frustration over the gulf oil spill. Wars in Iraq and Afghanistan drag on. The economy limps along on one leg. High unemployment persists.

Health care reform passed but left many unconvinced of its value. Wall Street is perceived to be little more than a casino with the odds stacked in favor of the house. Financial regulatory reform grinds slowly through Congress and whatever passes may be so watered down that it is as suspect as the healthcare reform bill. All the while, tougher regulation of the oil and insurance industries waits on the back burner.

Given our sour mood, few of us want to even look at our 401(k) or IRA accounts, let alone actively manage our investments or make additional contributions. It’s easy to procrastinate and rationalize doing nothing.

My advice is don’t give in. Refuse to give up. Yes, things might look bleak. As a country, we’re definitely discouraged. But throwing in the towel never won anything. Sometimes, the best we can do is just persevere. Times change & this too will pass.

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