RIAs Are Fighting A Rising Tide Of Negative Press By Reporters Who Know Nothing About Wealth Management

Tuesday, June 04, 2013 14:19
RIAs Are Fighting A Rising Tide Of Negative Press By Reporters Who Know Nothing About Wealth Management

Tags: competitors | online financial advice

Science and technology reporter Christopher Mims just posted a naïve piece about Betterment, an online financial advice app.

Mims is undoubtedly a bright guy. He’s a former editor at Seed, Scientific American, Technology Review, Grist and Smithsonian. But he clearly doesn’t know much about financial advice, much less behavioral finance.

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Writing in Quartz, Mims’ post quotes the CEO of Betterment saying that Betterment’s no-minimum investment account starts at 0.35% a year, adding, “According to Betterment, that is one-tenth of what traditional financial advisors charge.”
Anyone who knows anything about the financial advice profession knows that no advisor can charge 3.5% annually and be competitive. Most RIAs charge 1% a year for assets under management (AUM), and many charge less, and they the fee might decline to 35 or 40 basis points when an advisor manages $2 million or $5 million for an individual.

The post accepts Betterment CEO Jon Stein’s assertions without question. Like this one:

According to Stein, Betterment’s algorithms “implement the [financial] advice that almost everyone agrees on,” including having a diverse portfolio with a balance between stocks and bonds, and some exposure to international markets. Betterment’s software regularly rebalance the portfolio and manages automatic deposits from users

Mims’ does not know that most investors, if left to their own devices, will sell their stocks when the market declines and buy when the market is high. He does not know that wealth managers do much more than just advise on investments. He probably does not know about buy-sell agreements, insurance trusts, the 3.8% federal surtax, or other topics professional advisors must help people with every day. And you cannot expect it of him. He’s a tech writer.

But this kind of naïve reporting is now common in the tech press. Tech writers think personal finance is a technology problem when it’s really a people problem. They are covering online advice apps without any skepticism or understanding of the financial advice field.

Financial advisors are facing a rising tide of negative press in the tech press and that’s the reality you need to deal with. The public perception of what a financial planner and wealth manager does is being distorted and that distortion is a reality that advisors must deal with.

Comments (1)

Thank you for speaking up on behalf of all of us (as you always faithfully do). You're right, the advisory business is not just about technology. It is a relationship business, first and foremost. There are always going to be the do-it-yourself people out there that really don't want the relationship anyway. They are perfectly content to "do their own thing". They are the mavericks, the cowboys as one of my colleagues referred to them at a recent AAII meeting. They shun investment advisors and think we are a waste of money. That is sufficient for their own needs, but it most certainly doesn't cover everyone out there in the world. But as you alluded to, this is a "people" business more than anything else, and psychology, sociology and other such sciences come into play on a regular basis, as we know. We know what the problem is (bad press); the question is how to effectively deal with it. I know you don't feel that it should just be ignored and that we should speak up. I agree.
FamaFiduciary , June 04, 2013

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