Business

Keep your financial guard up against built-in conflicts of interest

Under acting director Mick Mulvaney, the Consumer Financial Protection Bureau has reversed its mission, making it harder for people who have been wronged to get a fair deal.
Under acting director Mick Mulvaney, the Consumer Financial Protection Bureau has reversed its mission, making it harder for people who have been wronged to get a fair deal. AP

As certified financial planner and owner of a wealth-management firm, I find much of financial services to be despicable. Achieving security requires most people to participate in the financial system, but this system often fails the Hippocratic oath to first do no harm.

There certainly are more good people than bad working in a flawed system. And there is important work to be done. But the list of misbehaviors across the industry is written on a never-ending scroll.

Financial products continually become more complex and highly engineered with more intent of generating corporate profits than personal financial security. This has allowed banks, brokerages, insurance firms and others in the financial ecosystem to mistreat customers who don’t know any better.

The other side of the table often marinates in conflicts of interest and moral bankruptcy. More than $300 billion in financial firm fines over the past 10 years have done little to improve this culture because the fines rarely amount to more than a few hours or days of revenue for these “too big to fail” monstrosities.

It is unfortunate that, as financial author William Bernstein has written, “The prudent investor treats almost the entirety of the financial industry landscape as an urban-combat zone.”

You need to arm yourself with the knowledge of an informed consumer, utilizing radar to detect questionable guidance that is as likely to benefit the seller as the buyer.

From annuities to mortgages, life insurance to investment funds, savers and investors must scout for conflicts of interest and understand how influential they are in the relationship with the financial services representative.

Unfortunately, nobody is immune from a sour experience.

WHO LOOKS OUT FOR YOU?

Financial services are highly regulated. But that regulation is often ineffective self-policing.

Brokers and insurance “registered representatives” who sell investment products are regulated by the Financial Industry Regulatory Authority. This used to be the National Association of Securities Dealers, but was switched to at least appear in name like it represents investors, not the dealers.

The organization does sanction bad acts but far too many ethically challenged financial reps have been allowed to offend and reoffend under this system.

Last month, amid a partisan leadership change, the Consumer Financial Protection Bureau reversed its mission from seeking resolutions and best practices that benefit consumers to protecting financial services providers, making it harder for people who have been wronged to get a fair deal.

The bureau’s new mission protects those who don’t need protecting.

The following description isn’t parody. It appears at the bottom of press releases describing the agency’s mission:

“The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations.”

Secondarily, it mentions “empowering consumers to take more control over their economic lives.” More like restricting control of their financial lives.

The story continues at the federal Department of Labor. Conflict of interest rules were passed in 2016 and supposed to be in effect now, policing retirement account abuses. They were instead postponed.

It’s one more reason you must approach financial services with a shield to deflect abuse until you find a transparent, consumer-friendly solution.

Regulation can be a burden. I don’t look forward to the work I do to keep our firm up to date on dozens of industry compliance tasks. But regulation is obviously necessary.

The problem is regulators are always a step (or several) behind financial product development. The benefit of regulation isn’t clear until enough people have been harmed and corporate profits have long since been taken.

FINDING PURPOSE

Why have I bothered to build a career and serve people in this environment with so many irritants and annoyances?

There are two interrelated reasons. I like to solve problems and many people – even bright, successful people – have financial challenges and opportunities that they need help to understand.

Nearly every day I get to put together an investment puzzle, create blueprints for a well-designed financial life or deeply understand a personal circumstance that requires a customized solution.

Much of the job is technical, but it also involves a lot of education and more psychology than you might imagine, given that money comes with emotion.

Applying these methods and strategies can give people clarity and confidence about their money. People who have clarity and confidence in their finances can afford to focus on more enjoyable aspects of life.

It’s unfortunate so much of the industry misses the opportunity to reduce stress, rather than create more of it, by not aligning with their customers’ best interests.

Keep your financial guard up, folks. Ask questions. Check backgrounds. Stick with simple solutions. Understand fees and risks.

Prevention now is better than treatment of a financial malady later.

Gary Brooks is a certified financial planner and the president of BHJ Wealth Advisors, a registered investment adviser in Gig Harbor. Reach him at gary@bhjadvisors.com.

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