In journalism, “burying the lead” means the main point is “buried” in the middle or end of the article.
That’s how I felt about a recent story in The New York Times. It recounted the sad tale of Tracey Dewart, who uncovered evidence of broker misconduct in an account set up at J.P. Morgan to benefit her aging parents. Specifically, she found a disturbing pattern of “churning,” which occurs when excessive trading takes place for the purpose of generating outsized commissions.
J.P. Morgan settled the case. The broker involved is still employed there.
Missing the point
The article discussed the standard of care brokers owe their clients. Currently, they’re not required to put the interest of their clients first.
Here’s the point.
Why would you entrust your money to people who don’t have to put your interest above theirs?
It’s actually worse. They have an economic incentive to engage in misconduct. When they’re caught, they reach a settlement and continue business as usual.
The headline of the New York Times article is, Caring for Aging Parents, With an Eye on the Broker Handling Their Savings.
It should have been: Don’t Entrust Your Money to Brokers.
Prevention is cheaper than cure
Every registered investment advisor (RIA) is legally required to disclose all conflicts of interest and to always put your interest first.
I don’t mean to suggest all brokers are dishonest and all RIAs serve their clients well.
You need to do due diligence on RIAs as well.
Prevention is less onerous than cure.
Suggestions for selecting an RIA
I’m going to give you two suggestions for selecting an RIA. There are many competent RIAs who you will not find if you follow these suggestions, but I want to make it really easy for you.
- Use Vanguard’s Personal Advisor Services. You’ll get a qualified advisor who will recommend Vanguard’s low management fee funds. One caveat: Insist that all funds in your portfolio are Vanguard’s index funds.
- Find an advisor authorized to place clients in mutual funds managed by Dimensional Fund Advisors. These advisors are all RIAs. The way they invest is influenced by overwhelming academic evidence.
If you follow these recommendations, you’re very unlikely to suffer the fate of Ms. Dewart’s parents.
Resource of the Week
This article on Nerdwallet reviews Vanguard’s Personal Advisory Services.