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The Problem Of Small Accounts

ByDavid Merkel
Published 07/18/2013, 04:01 AM

We all want financial advice. Good advice. And we want it for free. That’s why we come to the Aleph Blog, where advice is regularly dispensed, and at no cost.

But… I can’t be personal, and give you advice that is tailored to your situation. And in my writing here, much as I try to be highly honest, I am not acting as a fiduciary, even though I still make my writings hold to such a standard.

Ugh. Here’s the problem. Good advice costs money. Really good advice costs a lot of money, and is worth it, if you have enough money to spread the cost over.

But when you have a small account, you have a problem in getting advice. There is no way for someone who is fiduciary (like me) to make money addressing your concerns. That is why I have a high minimum for investing: $100,000. With that, I can spend time on clients, even helping them with assets from which I make no money.

How can you get advice to those who will not actively seek it? From those who are commissioned to sell to them. It may not be the best advice, but it *is* advice. For the lazy, investment advice is sold not bought.

And so, I give you the following articles, most of which disagree with me:

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First, on financial advice, you should always be skeptical, even with me. There is no one who is truly disinterested who has smarts, and so “ya pays yer money and ya takes yer chances.” If you don’t pay money, your odds are worse. I write this as one who only makes money off of assets under management. Most people are better off hiring a CFP, and getting tax savings. They might not be great on investing, but they may make up for it by lowering your tax rate.

I’m a CFA, and an old-style RIA. I make money by finding undervalued stocks and buying them. I focus on value. That is my sole focus. I am out to beat the market regularly, and I do it over market cycles.

It is expensive to be a fiduciary. It takes time and effort, and there are many who will pay you to push products. If we require all investment professionals to be fiduciaries, those who are less well off will not be served.

And, as an aside, this is why you should study the economics of any policy question. It will tell you what will naturally happen.

Much as I want all people to get good investment advice, there are no incentives to make that take place. If we try to force it by law, then few will get quality advice. It will go into hiding.

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