Take commissions away, and false expertise disappears, too.
Don't let clients or journalists discount the value of your professional expertise. In a world where fans think nothing of a $10 million bonus for their favorite football player, it's ridiculous to suggest that investment experts offer little value.
In fact, this variation of the old do-it-yourself argument just doesn't hold water anymore. Journalists who say consumers should avoid advisors and select and manage their own investments are full of fear--fear that a consumer is easy prey for a trained salesperson. Unfortunately, this has real consequences for those of us who work as independent, fiduciary advisors. Our expertise has been devalued because so much of what consumers have received has been false expertise. For much of the financial services industry, expertise is just a ruse to sell products.
Think how commissions distort expertise: What if your medical doctor earned commissions from the medicines prescribed? What if doctors gave away free office calls, but kept half of the cost of each prescription? What if one antibiotic paid a higher commission than another? What if one hospital paid your doctor $1,000 cash for each admission, while a different one paid $500?
Investing doesn't have to be this way, either. Take the commissions away and the false expertise disappears, too. The professional now lives or dies by what he or she knows. False expertise won't survive in a competitive marketplace. Like an accountant or lawyer, bad reputations kill bad professionals.
Expertise is an overused word that almost lacks meaning today. Still, it's a very real concept, and necessary for investment success.
You'd not know it from the consumer press, but investing is extremely complex. There are thousands of choices, with variations of each. No one person can know everything that's necessary. So all of us, even professionals, rely on people with specialized knowledge.
Just think about some of the cross-discipline areas with impact on personal finance--accounting, tax, law, insurance, home and automobile loans, and banking, just to name a few. To be successful, we need more than just a smattering of knowledge in each of these areas. When a critical situation occurs, we may require substantial knowledge in one or more of these areas.
Consider the geometric progressions in personal finance. Take the subject of retirement planning, and consider some variables. A person's age, income, health, spouse's health, genetics, children, geographic location, and lifestyle are important. Add in the level of investment sophistication and risk tolerance and you've created a very complicated matrix for decision-making.