Apr 11

Financial Planning Etiquette: Clients First!

by Patrick Rohe, CFP®

“The interests of the client continue to be sidelined in the way the firm operates and thinks about money.”  This is a direct quotation from Greg Smith’s recent op-ed that he penned after stepping down as a senior executive of Goldman Sachs.  Holding himself up as a man of integrity, Mr. Smith couldn’t stand working there any longer because “the environment now is as toxic and destructive as I have ever seen it,” and he no longer had personal beliefs that aligned with the firm he had once so passionately supported.

However, this news should not come as a big shock to everyone.  Goldman Sachs, Bear Sterns, Merrill Lynch, Wells Fargo and the many other large financial institutions alike have a priority to their shareholders, and that is to make a profit.  Greg Smith stated “if you make enough money for the firm you will be promoted to a position of influence” and later went on to add that the most common question he received from junior analysts was, “how much money did we make off the client?”  Mr. Smith claims that clients are referred to as “muppets” by senior staff, suggesting that those clients are oblivious to their sole purpose of providing profit for the firm!

According to a study by Harvard and MIT economists, many financial advisors are often more likely to give advice that will lead to higher fees for them than higher returns for their customers.  These economists sent hundreds of actors to financial advisory firms and found that in many cases those advisors steered their clients away from a logical investment and instead into one that produced more fees.

Former Bear Stearns CEO Alan Greenberg once said that he would not hold an M.B.A. against prospective hires, but that he much preferred job candidates with a P.S.D. – his term, which is short for Poor, Smart, with a Desire to be rich.  After graduating from Cornell University with a degree in Economics, I was eager to put my newfound love for finance to the test in my first job with a well-known national investment firm.  However, much to my surprise, the three-week training that came with the position was spent solely on sales techniques.  A few weeks later, after bringing in several clients, I then realized that I had no clue what to do next in regards to investing their money!

So what can individual investors do to avoid being a “muppet” for the firm they decide to work with?

Here are a few qualities to seek:

Fiduciary.  They act only in your best interest; a fiduciary relationship means we’re legally obligated to do so.  Registered Investment Advisory firms are held to a fiduciary standard.  This is not the case with others such as insurance companies or broker/dealers.

Fee-only.  Their compensation is fully disclosed, fairly priced, and paid strictly by you, their client.  Fee-only advisors accept no commissions or other types of incentives from outside sources to distract them from serving as your fiduciary.

Having worked at a brokerage firm prior to my time here at Rockbridge, I personally understand Mr. Smith’s frustration.  This is one of the reasons that I am so passionate about our firm’s investment philosophy and the fiduciary standard that we hold ourselves to as fee only investment advisors.  At Rockbridge, we have a strong desire to do right by our clients and carry forward the belief that the “Golden Rule” applies to all that we do, including financial planning!

About the Author

Patrick Rohe CFP is a Certified Financial Planner at Rockbridge. “Upon graduation from Cornell University, I was recruited by a large brokerage firm. After months of sales training and minimal help in understanding even the basics of investing, I quickly learned that the brokerage firm model was not for me. I then made the transition to Rockbridge, a fee-only financial planning firm, where I truly enjoy helping people and making a difference in their financial lives!”. Patrick is a graduate of the Applied Economics and Management and Animal Science (B.S.), Cornell University, and the CERTIFIED FINANCIAL PLANNER™, (CFP®) program. Learn more and/or Contact Patrick.


You Might Also Like

Other articles filed under Family Finances

Investment Committee Thoughts from Friday 4/27/18

May 8, 2018
Last week, we introduced you to our weekly Investment Committee meetings. When we met for class on 4/27/18, we began our discussion on the subject of an "optimal portfolio." The centerpiece of investment management is portfolio construction. Alongside financial planning,...
Continue Reading

Investment Committee Thoughts from Friday 4/20/18

May 4, 2018
Introduction People from all across the world look forward to Friday.  Friday marks the end of a (usually long) work week and the start of what is supposed to be a relaxing weekend.  At Rockbridge, we look forward to Friday’s,...
Continue Reading

Market Commentary – April 2018

April 23, 2018
Stock Markets Returns from various stock market indices over several periods ending March 31, 2018 are shown to the right. Here are a few highlights: While not observed in these graphs, volatility seems to have come back, which is normally...
Continue Reading

Tax Scams: What to Look For and How to Avoid Them

April 19, 2018
As another tax season comes to a close, we wanted to draw attention to a number of scams and schemes to defraud unsuspecting taxpayers. We think it is important that our clients be aware of how these scams work, and...
Continue Reading

The Value of a Financial Plan

April 17, 2018
It’s common for investors to feel nervous when looking at investments by themselves. Are you saving enough? Are you saving in the right place? Are you holding the right mix of investments? Should you own individual stocks or funds? Are...
Continue Reading

‹ Back to Blog Home

getting started is simple

315.671.0588 info@rockbridgeinvest.com Schedule a meeting Sign Up for Our Newsletter