Wall Street Thrives on Your Confusion
The Securities Exchange Commission awarded a contract to the Rand Corporation to determine the level of confusion for investors who use the services of financial professionals. Rand found that most investors were extremely confused. In fact, most investors didn't know the difference between a stockbroker and a financial advisor. This confirms research that PDR has been conducting since 2000 to document the processes investors use to select financial advisors.
What Confusion?
Investors don't know the difference between stockbrokers who are paid to sell them products and "real" financial advisors who are paid to help them achieve their financial goals. Consequently, millions of investors follow the sales recommendations of reps believing their reps are competent, ethical advisors. The consequences of their confusion is staggering.
Why This Confusion Exists
This confusion is the result of a sales tactic that used by sales reps so they can sell more investment and insurance products to unsuspecting investors. Confusion allows new reps, incompetent reps, and unethical reps to sell more products than they would if they told the truth. This is an old, deceptive sales tactic: telling investors what they want hear. Investors want advice from competent, ethical experts.
To make sure this deceptive sales practice works, companies make sure there are no mandatory disclosure requirements for sales reps. Consequently, there's no easy way for investors to know who's telling the truth and who's making false sales claims. These claims sound real because reps use their personalities and sales skills to convince investors to buy products from them because they are experts.
No wonder investors are confused. They are up against the Wall Street marketing machine.
Winners and Losers
Stockbrokers and their companies create confusion so it stands to reason they are the beneficiaries. Companies produce more profits and reps earn bigger incomes than they would if they told investors the truth. Two other industries have used similar sales tactics: tobacco and drug companies when they consumers their products were safe even when they were not.
How to Eliminate Confusion
Investors can eliminate this form of confusion if they limit their advisor selections to:
- Independent professionals who aren't required to meet sales quotas
- Professionals who are Registered Investment Advisors or Investment Advisor Representatives.
- Professionals who are acknowledged fiduciaries
- Professionals who are compensated with fees
- Professionals who provide full disclosure for potential conflicts of interest and compensation
- Professionals who are willing to provide written documentation for their credentials, ethics, business practices, and services
