What John Oliver Revealed About the Financial Services Industry

Your Life

John Oliver and his hit HBO show, Last Week Tonight, took aim at the financial services industry recently and the video has gone viral. He does a fantastic job of calling out many of the things that are inherently wrong with the financial services industry and today we wanted to highlight three of the main ones that are absolutely true!

In addition to highlighting a few of the key takeaways from Last Week Tonight, we’ll also breakdown a few tips on how to combat a number of the industry’s issues.

The Term “Financial Advisor” Actually Means Nothing (3:33)

As Mr. Oliver reveals, one of the biggest issues in the financial services industry is the simple fact that there is no common language for describing the individuals who help plan and invest individual’s money for a living. In fact, the Financial Regulatory Industry or FINRA—the industry’s self-governing body—warns customers to “be aware that Financial Analyst, Financial Advisor, Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are generic terms or job titles, and may be used by investment professionals who may not hold any specific credentials.”

This is a major issue because it makes it almost impossible for individuals to determine on the surface whether an advisor is qualified or at the very least has a certain level of knowledge and experience. Imagine for a second if anyone could call themselves doc, doctor, Dr., or physician and it was up to the consumer to determine if they were actually qualified.

The Lifewise Tip: To combat this issue look for advisors who hold the Certified Financial Planner (CFP®) designation, which guarantees the advisor has a minimum three years of industry experience, has a bachelor’s degree and has completed roughly two years’ worth of extensive training, adheres to a high standard of ethics (as outlined here), and has passed a comprehensive six to ten hour exam (depending on when they took it). You can look to see if your advisor is a Certified Financial Planner by clicking here.

Not All Advisors Have to Act in Your Best Interest (5:55)

Yes, you read that right, not all advisors are required to act in your best interest over their own. It’s almost incomprehensible to imagine a doctor not being required to act in your best interest over their own, but that’s the case in the financial services industry in many instances. Some individuals operate as brokers and are only held to the suitability standard (click here to understand), which means they only have to sell you something that’s suitable for you, not necessarily what’s best for you.

Complicating matters further is the fact that again there is no common language to identify the difference between those advisors held to a fiduciary standard and those that are not. The best thing you can do to combat this is simply be willing to ask questions and do your homework.

Read more: learn more about the evolving landscape of financial advice and the recent DOL changes.

The Lifewise Tip: Ask your advisor or prospective advisor—regardless of his or her title—if he or she is a fiduciary and whether or not they will put that fact in writing. If they say no, then in the words of John Oliver, “Run! And if they say yes but they are wearing a tacky super bowl ring, run!” Advisors that hold the Certified Financial Planner designation are held to a fiduciary standard, as are advisors that work for a Registered Investment Advisor (RIA) firm (click here to learn more).

 Fees, Are In Fact, Very Much Like Termites (7:02)

Minimizing fees is one of the best ways individuals can achieve investment success over the long-term. In fact, there is increasing research to support this claim. According to Morningstar, an independent investment research and data provider, “[fees] are still the most dependable predictor of performance.”

No advisor or investment company is volunteering their time as a non-profit. After all they are in the business of making money and have families to support. Charging clients fees for the services provided is not inherently a bad thing, no different than the fact that doctors getting paid is fair. However, it’s critically important to understand what you are paying and whether or not it’s too much. In short, make sure you aren’t paying Rolex prices for a Timex watch, especially when it comes to your investments.

The Lifewise Tip: In the words of Billy Eichner, “try to keep your [investment] fees like your milk, under 1%.” Be sure to fully understand what fees you are paying and whether or not they are appropriate for the services you’re receiving. Also, don’t be afraid to ask how an advisor’s fees compare to the industry averages.

Retirement Planning Tips (That We Absolutely Agree with) From John Oliver (18:05)

We’ve written before how managing your personal finances doesn’t have to be overly complicated. In fact, if you believe in the 80/20 rule—20% of effort usually results in 80% of the results—you improve the large majority of your personal finances by simply using an index card. John Oliver and his team outlined five tips for managing your money in preparation for retirement and all five of them are spot on.

  1. “Start Saving Now” Earn the right to invest by learning to manage your cash flow so you can consistently save money over the long-term. Ultimately consistent long-term savings is the single greatest contributor to your future financial success.
  2. “Low-Cost Index Funds” For the average person index funds will do just fine and help almost guarantee that you’ll keep costs low. Look for index funds from Vanguard and Blackrock, two of the most prominent low-cost index fund providers.
  3. “Are You a Fiduciary?” Don’t be afraid to ask your current or prospective advisor if he or she is a fiduciary. It might seem like an uncomfortable question, but when it comes to your money, you must be willing to ask the tough questions.
  4. “Shift from Stocks to Bonds” John Oliver oversimplifies this aspect of investing a bit, but in general the rule holds true. As you age—in most cases—it makes sense to decrease the amount of money you have in stocks.
  5. “Keep Fees Like Your Milk, Less Than 1%” As mentioned above, there are few things more important to investment success than simply minimizing your fees. Keeping fees less than 1% is great, but if you’re simply investing on you own, look to get them even lower. Think extra skim milk.

Lifewise was established to help young professional’s live profoundly great lives by bringing effortless and transparent financial planning to an underserved demographic. At Lifewise we are committed to transparency and your best interest at all times. Period. To learn more about our story and our commitments to you click here.

About Matt Cosgriff, CFP(®)

Minneapolis Financial Planner | Intrapreneur | Young Professional | Millennial Guru | Tech Aficionado | Traveler | Food Lover | Minnesota Wild Fan | Movie Quoter | Follow on Twitter| LinkedIn

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