Get Smart or Get Screwed – How To Select The Best and Get The Most From Your Financial Advisor

Summary of “Get Smart or Get Screwed – How to Select The Best and Get The Most From Your Financial Advisor”: This book provides an overview of the different types of financial advisor, the services they offer, and how to choose one who is both competent and ethical while also avoiding being taken in by those who market bad products.

By Paul A. Merriman, with Richard Buck, 102 pages, 2012

Note: This is a guest review written by Antonin of the Alti Patrimoine website.

Review and Summary of Get Smart or Get Screwed – How To Select The Best and Get The Most From Your Financial Advisor

Introduction

The aim of this book is to help you find a first-rate financial advisor who actually works for you, and who will maximize the likelihood of you achieving your short- and long-term goals.

This book is for you if:

• You are looking for a financial advisor who can guide you to financial success during your life and beyond.
• You already have a financial advisor, but you want to get the most out of them and make sure you’re on the right track.

People looking to lose weight are witnessing a struggle between their emotions and the laws of biology.  For those looking to invest, the struggle pits their emotions (hope, fear, greed) against the laws of mathematics and probability.

To lose weight, it’s easier to get help from a coach/dietitian than by reading magazines or browsing the diet aisle of supermarkets, which is evidence that the food industry seeks to exploit the struggle of weight loss.

Investors also face a huge industry (Wall Street), made up of companies whose aim is to deliver advice that proves more lucrative for them than for their clients.

The good news is that there are many highly qualified advisors who can meet our needs at a reasonable cost and without conflict of interest. The bad news is that there are also many advisors who operate with poor ethics and conflicts of interest. A study by Cerulli Associates showed that 44% of high-net-worth households (those with more than $10 million in investable assets) fired their main financial advisor following the 2008 crisis and that 2/3 of them had at least 4 different financial advisors!

So, if it’s hard for the wealthy to find a financial advisor they can trust, how could it be possible for you?

This book is the answer. The most important step for an investor is often to find a competent, trustworthy advisor who:

• Ensures that you’ve set realistic goals.
• Helps you build a diversified, low-cost portfolio to achieve those goals while managing risk.
• Helps you make the right choices in terms of loans, insurance, retirement, social security, and inheritance.

The first part of this book is a practical guide to finding and working with the right advisor for you. The second part goes through the various ways in which you can get screwed by investors.

I hope you choose an advisor who is ethical and competent … I hope you invest in low-cost, tax-efficient products that have the best combination of expected returns and risks. If you do these things, I think you’ll be smart and won’t get screwed.

Part 1: Get Smart

Chapter 1: What Kind of Advisor Do You Have?

In investing, far too many people seek advice casually. In medicine, every problem requires the help of a specific specialist: nobody would go to a heart specialist for an eye problem.

And yet, too many investors choose their financial advisor thoughtlessly, out of kindness, on the advice of friends, or purely on the basis of sympathy.

However, friendship has nothing to do with competence, and when it comes to your financial future, the best path isn’t necessarily the easiest. Being smart means taking the time to think carefully.

In the past, a family financial advisor was simply the stockbroker, the life insurance salesman, or the banker.

Today, the professionals who want to help us in our financial lives have many titles: financial planners, registered representatives, chartered accountants, financial advisors, wealth management advisors, financial consultants, etc.

Some of these titles require little more than filling out a registration form while others require rigorous training. In fact, according to one study, only one in five professionals is accredited.

To avoid wasting unnecessary time figuring out what’s behind these different titles, there are only two key criteria for spotting advisors you can consider:

• Legal responsibility: your advisor must demonstrate strict legal responsibility towards you.
• Method of remuneration: your advisor must be paid solely by you.

Competence is a favorable combination of knowledge, experience, and judgment. That’s what you look for in an advisor.

A Certified Financial Planner (CFP) guarantees such knowledge and experience.

As for good judgment, this cannot be guaranteed by a title, but you’ll learn to recognize if your advisor has any.

However, when you hire a CFP, you can be sure you’re dealing with someone who is committed to a strict code of ethics. Ethics are an essential factor in your search for a suitable advisor.

Chapter 2: Legal Responsibility

Legal responsibility is the main dividing line … between advisors you should hire and those you shouldn’t.

Unlike brokers, registered investment advisors must adhere to a strict code: they are acting in the best interests of their clients, putting them ahead of their own, and must publicly disclose any potential situations (often related to their compensation) that could lead to a conflict of interest.

Those subject to this legal responsibility are called fiduciaries (a common name in the USA).

You’re probably wondering how to find an advisor with legal responsibility. If an advisor is able to state, in writing and on his or her behalf, that he or she has a legal obligation to act in the best interests of his or her clients, to avoid conflicts of interest, and to publicly disclose those he or she cannot avoid, then you’re dealing with someone you can hire.

Chapter 3: Follow the Money

How your advisor is compensated often determines how your money is invested.

When you pay for financial advice, there are only two choices:

• Choice #1: You pay the advisor, and they work for you.
• Choice #2: Someone else pays the advisor, so they work for someone else.

In other words, if you don’t pay your advisor, he or she will be working primarily in the interests of the person signing the cheque.

Advisors who receive commissions on the products they sell you are in a conflict of interest, even if they try to convince you otherwise.

There are three ways advisors can be compensated:

1. Commissions: The broker/advisor earns a commission on the products he/she recommends to you. It is therefore in their interest to steer you towards products that will earn them an attractive commission. Their services often appear to be free, but this is not the case because, one way or another, the payer is always the client.
2. Fees: Advisors who avoid conflicts of interest charge by the hour and accept no commissions. They will direct you to no-load funds with the lowest management fees. This will result in a higher return for your portfolio. An advisor who charges fees has no incentive to recommend one investment over another, and his or her choice is based on what’s best for you.
3. Asset-based fees: Advisors charge you fees based on the amount of assets they manage for you. For example, 1% of the amount in your portfolio each year. This seems to be the best solution since your advisor is not motivated by commissions, but by making your money grow. Generally speaking, their services are not limited in time, and they will be able to offer you a wide range of services.

Chapter 4: If Your Advisor Is Paid by Commissions

Commission-paid advisors are like brokers.  The primary role of brokers is to facilitate transactions by acting as intermediaries between buyers and sellers. When you want to buy financial securities, you’re bound to go through a broker.

However, brokers, like commission-based advisors, share a common interest: encouraging you to multiply your transactions. The former charge a fee for each transaction, while the latter receive a commission for each purchase of a financial product.

With most brokers, you can act alone. But sometimes, a personal broker may be assigned to you and may contact you by telephone to “advise” you.

These brokers may present themselves as “financial consultants” (they don’t have the title of investment advisor), for example, but your personal interest won’t be their primary concern, which is why it’s a good idea to use a low-cost brokerage firm that will let you invest in peace.

Here are three ways brokers take advantage of their clients:

• Financial churning: Your broker encourages you to buy and sell in order to generate commissions or transaction fees. However, in most cases, investors have a vested interest in choosing their investments well and then holding them for the long term. This is a clear conflict of interest between the client and the brokerage firm.
• Emotional appeal: Brokers know how to appeal to your emotions, by telling you about the trust other investors (even their own families, or famous people!) have placed in the products they want to sell you. In any case, even if it’s true, it’s not a relevant argument.
• Trust: Don’t assume that a broker who treats you as a friend and whom you trust will discourage you from doing something that goes against your best interests if it can earn him commissions. In most cases, he’ll just say it was your idea if things go wrong.

Fortunately, there’s good news. You have a choice, and you can do business with advisors who don’t have such sales incentives.

Chapter 5: If Your Advisor Charges by the Hour

Compared to a broker or commission-based advisor, who is incentivized to sell you products; a fee-based advisor can do much more for you.

He or she can help you set short- and long-term goals, determine the risks you should take, plan for your retirement, and anticipate how your family will be cared for in the event of your premature death.

He or she can also provide you with a comprehensive written financial plan, and help with tax issues, your loans and other debts, financing your children’s education, employee benefits, savings, etc.

An advisor who can offer you hourly assistance on these subjects has the status of a Certified Financial Planner (CFP).

These are often independent financial advisors, who accept no commission and are committed to a code of ethics. They use low-cost funds, such as those offered by Vanguard (Vanguard is mainly present in North America).

These hourly professionals can be a great source of objective advice, enabling you to make the most of existing investment possibilities, and periodically reviewing your portfolio to keep it well balanced.

Paying for financial advice by the hour will probably cost you less than paying commissions on products, or paying on the basis of the assets you own.

Chapter 6: If You Have an Asset-Based Advisor

Advisors who base their fees on the amount of assets may be the best way to get financial help.

In most cases, these advisors charge between 1% and 2% per annum of the total amount of assets under management. However, their services are often reserved for portfolios of several hundred thousand euros (or dollars).

Unlike the previous types of advisors, an asset-based advisor is likely to spend much more time with you. And the better they know you, the more effectively they can help you.

The main difference is that your money will be managed directly by your advisor, on your behalf. As such, he or she will send you regular reports on the status of your investment portfolio.

Just make sure your advisor commits your money to low-cost, no-load funds, rather than individual stocks and bonds.

Chapter 7: What to Ask Before Hiring an Advisor

Most people spend more time planning their annual vacation than looking after their financial future.

Investors who choose their advisor carefully will almost always achieve better results than those who choose randomly, without using their critical thinking skills.

Most advisors offer free introductory sessions, to see if there’s a good mutual fit. The advisor is likely to ask you a number of questions about your investment objectives, needs, and experience.

You should also take the opportunity to ask him or her some questions; from among those suggested in the following list. These questions will help you select the right advisor for you.

• Are you a Certified Financial Planner?
• Can you give me the contact details of a few clients who know your company well?
• What is your investment philosophy?
• What types of products do you recommend to your clients, and why?
• If I were to become a client, how would you determine my risk tolerance? How would you translate this into an appropriate asset allocation for me?
• How would you determine the right investment strategy for me?
• What are all the areas in which you can help your clients?
• If I were to become a client, how often would we be likely to meet? How do you communicate with your clients?
• Do you offer help to other members of your clients’ families at no extra cost?

Chapter 8: Finding the Ideal Financial Advisor

I believe you can and should do more than just find a good advisor. I believe you can find one who could be described as “the best” advisor.

As a first step, you can check whether the advisor is registered with: the National Association of Personal Financial Advisors (for the U.S.), ORIAS (for France), or AMF (for Quebec).

Beyond these initial considerations, here’s a list of some things you should look for in an ideal financial advisor:

• He/she believes in building properly diversified investment portfolios, based on academic research, not sales pitches, or whatever the latest trends may be.
• He/she is a Certified Financial Planner.
• The ideal financial advisor accepts no commissions and derives all his/her income from client fees.
• He/she has a legal responsibility to you.
• He/she has access to a network of other professionals to help you with tax, estate planning, insurance, legal matters, and more.
• The ideal advisor is available at short notice if needed.
• He/she takes the time to get to know you as thoroughly as possible.
• He/she treats your time and money with respect as if you were his/her most important client.
• The ideal financial advisor is someone you enjoy talking to.

At the end of the day, you’re the boss, and the advisor is your employee.

Chapter 9: What You Can and Should Get from an Advisor

If you choose your advisor very carefully and use him or her well; you’re likely to get more than your money’s worth.

You should consider working with your advisor for at least a year; to see if he or she is right for you. That way, the time you spend looking for him or her will be worthwhile.

Generally speaking, your advisor should enable you to live your life without having to worry about your investments.

He or she should be sincere and honest with you; and readily available to answer any financial questions you may have.

In addition to his or her interpersonal skills, he or she should be able to provide the following services:

• Help you allocate your investments between equities, bonds, and cash, and find the right mix within each asset class.
• Determine your risk tolerance, and explain how it will affect your asset allocation.
• Help you minimize your costs.
• Gather all your financial data to help you see the big picture.
• Help you discuss sensitive matters with your children or parents, such as inheritance.
• Give you access to excellent funds that are not publicly available to individual investors.
• Help you determine the right account type and tax wrapper for you.
• Consider the tax implications of your portfolio and how to be as tax-efficient as possible.
• Help your parents or other family members manage/preserve their assets.
• Help you determine whether your savings rate is likely to be sufficient for your retirement.
• Determine how much you can safely withdraw from your savings to avoid running out of money for retirement.
• Conduct “stress tests” on a retirement portfolio, to determine how well it will hold up over your lifetime, based on variable returns and periodic withdrawals.
• Refer you to competent, cost-effective professionals on issues beyond their expertise (legal, estate planning, insurance, banking, etc.).
• Help you prepare for and get through the inevitable market downturns.
• Choose the best options when it comes to saving for your children’s education.
• If your advisor is not a lawyer, he or she should be able to help you determine your best course of action.

Chapter 10: Getting the Most from Your Financial Advisor

If your financial advisor is a broker

The ideal solution for you is to invest using ETFs. They will enable you to invest in all asset classes, at low cost, with minimal buy/sell fees.

ETFs will prevent you from falling into a conflict of interest with your broker (who may be likely to take advantage of you: a broker is still a salesman).

In particular, no matter what your broker tells you, don’t buy shares in any company going public. Numerous studies have shown that they tend to underperform the market in the first year.

If your broker seems to be trying to stir up your greed or fear, consider this a red flag.

By the way, if necessary, once a year, hire a CFP to give you an objective opinion on the advice you receive from your broker.

If your financial advisor charges by the hour

As this is an “à la carte” service, determine in advance the areas in which you are seeking advice, then take things one step at a time, so that you can assess the quality of the service you receive.

If you have any doubts about the quality of the service you receive; hire an objective financial professional (a CPA or CFP), who can judge for you. The extra cost is worth it if it gives you peace of mind.

If your advisor charges on the basis of the assets he/she manages for you

With no sales pressure and no hourly billing, you can call on your advisor as and when you need to. Once your portfolio is in place, if you’re concerned about anything, let him/her know.

In any case, to get the most out of your relationship with your advisor; share all your financial information, and make sure he or she understands what your concerns are.

Being the ideal client

Start by making sure your expectations are realistic.

Your advisor can’t control the market, know the future, or eliminate unforeseen risks. Nor can he or she turn a loss into a gain or eliminate all taxation.

The trust you place in your advisor is essential. Do not hesitate to do your due diligence when seeking a trustworthy advisor.

Once you’ve invested your money; you need to have a certain degree of faith in the market economy and in the future.

In phases, the market may disappoint you. Your advisor is not to blame and can help you through these periods. Investing requires patience, and short-term results should not influence your actions.

After all, if the objectives set with your advisor are realistic, you should get what you’re looking for.

Part 2: How to Get Screwed

The aim of this part is to help you avoid being taken in by the highly organized and sophisticated brokerage industry; by the brokerage firms and the products they sell, which generate huge profits on the backs of their clients.

The best way to avoid falling into the trap is to educate yourself to recognize behavior; and products that are not in your best interest.

Note: The term “broker”, often used in this second part, refers both to brokers; who act as intermediaries in transactions, as well as commission-based financial advisors.

Chapter 11: Getting Screwed Through Sales Pressure

Commercial pressure comes from sales commissions, which “drive” the brokerage industry.

More than two-thirds of securities are sold by brokers working on commission. These brokers are trained in aggressive tactics based on sound psychological principles that work against naïve and vulnerable investors. – Paul Farrell

Imagine if doctors were paid via commissions on prescribed drugs! It turns out that commission selling is no more better in finance than it is in medicine.

Some countries, such as Australia and the UK, have made it illegal to sell financial advice on commission. In the USA (as in France and most other countries), however, the practice remains legal.

Here are some of the ways in which investors fall prey to the sales pressure culture:

• Fraud, trickery, or deliberate deception to gain an advantage (which wouldn’t exist if all brokers had a legal responsibility to their clients).
• Unsolicited telephone calls.
• Incentives to multiply transactions. Yet several academic studies have shown that you’re more likely to make money by holding on to what you’ve got than by selling it to buy something else.
• During IPOs, brokerage firms commit to selling a certain quantity of shares and put pressure on their brokers to pass on as many shares as possible to their clients.
• Brokers who haven’t reached their monthly commission amount may contact you at the end of the month with “new ideas” for your money (One study concluded that many brokers produced two to five times more daily commissions in the last week of a month than at the beginning of the month).
• Brokerage firms train their salespeople to use a sales script, which is designed to overcome all your objections.
• Psychology has shown that optimistic people make more friends and more money. This means that over-optimistic brokers can influence and encourage investors to take on more risk. We know, however, that overconfidence can lead to speculative bubbles (as in the Internet bubble of 2000).
• Brokers may tend to minimize, or even hide, the risks of an investment. Recognizing the full extent of the risk is sometimes a disincentive to selling.
• Discouraging you from “thinking it through” (which is detrimental to the sale), and encouraging you to make up your mind on the spot.
• Discouraging you from reading the mandatory Key Investor Information Document (KIID), which outlines the costs and risks.
• Paying to appear in “best broker/advisor of the year”rankings in articles or magazines, as a selling point.
• Presenting themselves with impressive titles that have no meaning, such as “Wealth Management Specialist.”
• Taking advantage of investors’ emotions, encouraging them to buy when greed is at its peak and the market is at its highest.

There’s a big difference between a broker (salesman) and a legitimate investment advisor. A good salesman is one who generates a lot of commissions. A good investment advisor, on the other hand, is one who knows how to maximize your long-term financial success.

Chapter 12: Getting Screwed through Conflicts of Interest

A broker who accepts commissions to sell you products has an inherent conflict of interest.

Conflicts of interest between commission-based advisors and their clients can arise in several ways:

• Competition between brokers, who may feel that if they don’t try to resell products that pay them high commissions, others will do it for them.
• The highest commissions go to the products that are hardest to sell because they are the most complex and riskiest.
• When you have no money to invest, your broker will lose interest in you because he/she can’t recoup commissions and will look for his/her next client.
• Elderly/retired people are easy targets for clever salespeople: they have more money to invest, which means more commissions. Based on reported incidents in the U.S., the number of elderly victims of investment fraud is estimated at 7.3 million.
• Assigning exaggerated credentials or skills in order to win clients’ trust. According to one study, only one in five planners is a Certified Financial Planner (CFP), although many present themselves as such even though they have not met all the requirements for the title. And yet, the CFP and CPA designations require rigorous training.
• Commissions are sometimes so high that it takes several years for clients to recover their costs.
• Some products are presented as “commission-free.” In fact, the commission has simply been factored into the price of the product.

Chapter 13: Getting Screwed by Unethical Practices

In the brokerage industry, unethical or questionable ethics are unfortunately very common. Here are some examples:

• Selling products designed to produce poor performance and high commissions.
• Brokers owe their allegiance to the company they work for, not to you. In order to keep their job, they will always put their company’s interests first.
• Following the crowd by giving “easy-to-sell” and “fashionable” advice, sometimes out of sheer laziness (instead of taking the time to propose thoughtful strategies and educate their clients).
• Managers turn a blind eye to the unethical practices of some brokers when they are good salespeople.
• Some companies have a long history of dissatisfied clients and court-ordered fines (a simple Google search for a brokerage with the words “complaint” or “fraud” should tell you).
• Many sales pitches are based on outright lies. An article in the Wall Street Journal reported that children start lying at the age of 2. Between the ages of 9 and 11, they manage to deceive their parents three times out of four. If young amateur liars can be so successful, how do parents cope with their brokers’ well-honed lies?

Chapter 14: Getting Screwed by Bad Information

It’s pretty easy to be fooled by bad information, which can range from lies and misrepresentations to partial truths that work against your interests.

Here are some examples:

• Failing to inform you that the additional fees incurred by certain products will have a huge impact on your portfolio in the long term. Paying 1% more in fees per year can reduce your capital by tens or hundreds of thousands of dollars (or euros), over the course of your investing life.
• Telling you what you want to hear, rather than what you need to hear (for example, that “high yield” bonds provide a high return, without specifying that such bonds are very risky).
• Steering you towards funds with high fees, deliberately without mentioning that there are also funds with extremely low fees.
• Presenting a marketing pitch full of misleading and meaningless statistics. For example, highlighting funds rated 5 stars on Morningstar. This rating is based on historical performance, which is in no way indicative of future returns. A Vanguard study published in 2009, which looked at hundreds of funds over 20 years, concluded that a 1-star-rated fund was even more likely to outperform its benchmark than a 5-star-rated fund.
• Presenting risky comparisons between different asset classes that are in no way comparable, in order to claim false merit.
• Emphasizing very short-term performance achieved during favorable periods, which in reality is of little significance, instead of focusing on long-term performance (that which clients will obtain). No study has ever established a link between recent short-term performance and long-term performance.
• Misinformation has far-reaching repercussions: according to a study by Schwab, 75% of investors have a portfolio that doesn’t suit their situation and objectives.
• Presenting an impressive, trustworthy title that hides an entirely different reality. A study by CEG Worldwide concluded that over 94% of professionals who present themselves as “wealth managers” were more focused on selling products than managing their clients’ financial affairs.
• Any broker can find a fund with an impressive 10-year track record to impress his/her clients, but he/she can only claim this so-called track record if he/she recommended the fund in question 10 years ago, which is often unverifiable (and therefore probably untrue).
• Many financial product salespeople have very little investment training or experience. What matters most is that they are, above all, good salespeople.
• Many brokers present themselves as analysts who can select the right stocks for you, arguing that a portfolio containing 10 stocks is sufficiently diversified. They’ll never tell you about the studies that show that a portfolio of 10 to 20 stocks is far riskier than a portfolio of 200 stocks, even though both have similar expected gains.

Chapter 15: Getting Screwed by Bad Products

The majority of financial products are designed primarily to make money for the people who manage and sell them.

Many products can be described as unethical, not only because of the fees and commissions that go with them but also because they are often sold in a misleading way.

Here are some examples of bad products:

• Exclusive products: bank advisors advise only one product family, that of their bank. The same goes for insurance brokers, who offer only their insurance company’s products.  However, it is always possible to obtain similar products elsewhere, and for much less.
• Products sold by bankers and insurers, whose core business is not investing. These professionals have only limited knowledge of investment, and are incapable of recognizing a good product for the client (if they put the client’s interest first), such as index funds. In fact, some insurance brokers only sell investment products in order to attract clients and then sell them exorbitant insurance policies.
• Indexed annuities, sold as a guaranteed investment. They pay very high commissions, are very complex to understand, and are hard to get out of.
• Illiquid assets, which you can’t resell at a decent price, or without paying huge penalties. The Key Investor Information Document (KIID) clearly indicates whether an asset is subject to liquidity risk.
• Trendy products: during the technology bubble of 1999-2000, several “Internet” funds were launched and quickly raised several billion dollars. Two years later, they had lost 80% of their value. Never invest in a fund that does not have a sufficiently long track record.
• Non-listed REITs (Real Estate Investment Trusts).  InvestmentNews.com reported that over a 7-year period, the 8 largest unlisted REITs barely managed to avoid losing money, by reinvesting their dividends.  Very high commissions (7-15%) and hefty annual management fees (1.9%) are behind the catastrophic performance of non-listed REITs. Meanwhile, Vanguard’s listed REIT (with very low fees) has appreciated by +50%.
• Variable annuities. While they guarantee a minimum capital sum in the event of death and deferred taxation, they also come with high fees and commissions, compulsory insurance, few investment options, and a potentially heavy tax burden. There are far better ways of preparing or passing on capital, such as with life insurance, which also offers deferred taxation, without the disadvantages of variable annuities.

Chapter 16: Getting Screwed by Emotional Appeals

Securities salespeople have developed many ways, some of them quite devious and underhanded; to manipulate investors into doing things that will make money, but not necessarily for the investor.

Purchasing decisions are much more often made emotionally than rationally. Salespeople are perfectly aware of this and seek to enthuse you so that your emotions take precedence over your reason.

Here are some examples:

• Your broker may use a variety of strategies to make you think of him/her as a friend: superficial smiles, friendly calls with no sales pitch, with the sole aim of forging ties, etc. He/she knows that he/she will have more contact with you than you do with him/her. They know they’ll have an easier time selling to you if you consider them a friend.
• Many brokers form deceptively friendly relationships and see themselves as superior to their clients. This is reflected in the terms they use to talk to each other about their clients. Wall Street Journal columnist Jason Zweig noted several: “morons, dummies, targets, baby seals, pigeons, sheep, lambs, etc.”
• Selling you products with a glowing pitch: “This is the next Apple or Google.” The reality is that if a company is really promising, savvy investors are already in, and the share’s upside potential is already well underway. In 2012, Facebook raised a gigantic amount of money for its IPO. Yet, just a few months later, the stock had plummeted by almost 50%.
• Appealing to your greed: “I recommend this because I feel the price is going to go up.” Unfortunately, prices reflect the opinions of millions of investors, some of whom may have a different view from that of your broker. It is therefore impossible to predict price trends.
• Encouraging you to act quickly, with a sense of urgency (also known as “scarcity”): “This stock is in limited supply, so decide now!” Unfortunately, this gives no certainty as to its future performance.
• Appealing to your vanity, by offering you products “designed to beat the market,” because you’re special, and deserve better than an average return. This pitch is often used to sell you actively managed mutual funds. That’s without counting the dozens of studies that have shown that very few active funds actually beat the market and that they have well above-average fees (unlike index funds, which are passively managed).
• Appealing to your impatience, so that you’re constantly offered new, ever more exciting investment opportunities. It’s the hunter’s mentality: head into the unknown with excitement, taking risks. Unfortunately, the road to investment success is much more boring: finding a good strategy, then applying it over a long period of time: it’s the farmer’s mentality: plant a seed, then let nature take its course. A broker will probably have a hunter’s mentality towards you, while a credited investment advisor will have more of a farmer’s mentality.
• Appealing to your sense of self-importance, by offering you “penny stocks” (shares quoted at less than 1 Dollar, or 1 Euro). You might feel flattered to own thousands of shares in the same company. However, owning 10 shares worth 200 euros or 10,000 shares worth 20 cents is the same thing. What’s more, the low price of penny stocks will enable your broker to charge higher commissions on sales.
• Giving you a false sense of security: “Don’t worry, your portfolio is worth much more than today’s prices, just be patient.” The aim here is simply to retain you as a client for as long as possible so that they can continue to sell to you.

If you invest in an index fund, you are virtually guaranteed an above-average return. If you buy an actively managed fund, your return is very likely to be below average.

Conclusion to Get Smart or Get Screwed – How To Select The Best and Get The Most From Your Financial Advisor

I have chosen to summarize this book because choosing a financial advisor can be difficult for those who wish to do so.

Many people who have used the services of a CFP (Certified Financial Planner) or a CPA (Certified Public Accountant) are dissatisfied with the quality of the service they received. If you put yourself in the shoes of someone looking for a trustworthy financial advisor, you’ll find that there are very few resources available in French (online, or in book form) that explain how to go about choosing a financial advisor.

On the other hand, there are some excellent resources in English. This book is one of them: it was written by a former advisor and fund manager, now retired, who, at the time of this article, heads a foundation for financial education in the USA. Although there are differences in the investment culture between France and the USA, the main types of financial advisors remain the same: non-independent commission earners, and independent fee earners.

In France, it’s difficult to grasp the ins and outs when choosing a particular type of advisor. There’s little clarity. Get Smart or Get Screwed has the distinction of explaining how the different types of advisors work, as well as their advantages and disadvantages: things that are often poorly explained (or not explained at all) in France.

For example, a commission-based advisor has the advantage of not charging any fees. On the other hand, his advice will be limited to his partners’ range of products and will probably not include any low-fee products such as ETFs.  Furthermore, the existence of commissions introduces the risk of a conflict of interest between advisor and client.

Conversely, an advisor who is paid by his clients (via fees) is free to advise his clients on the most efficient products and is more likely to deliver objective advice, with no potential conflict of interest. However, this type of advisor charges fees. In several countries (Australia, the Netherlands, the UK, and some Nordic countries), there is only one type of advisor: the fee-charging advisor. In these countries, it is forbidden for advisors to earn commissions on the products they advise. However, in France, as in the United States, it remains legal.

Get Smart or Get Screwed also provides precise instructions on how to find a good financial advisor: where to find one, what questions to ask, what to check before hiring one, and how to work effectively with one.

While the first part of the book is a practical guide to finding an advisor, the second part gives an insight into the pitfalls that await investors who choose their advisors at random.

The many examples described in the book show that not all brokers and CFPs have high regard for their clients and that some engage in unethical practices. By highlighting these pitfalls, the book gives us a warning and makes it easy to identify behavior and products that are not in our best interests.

For me, then, this is an essential book for anyone wishing to find a good financial advisor.

Antonin from Alti Patrimoine

Strengths and Weaknesses of Get Smart or Get Screwed – How To Select The Best and Get The Most From Your Financial Advisor

Strong points:

• A practical, step-by-step guide to finding and recognizing a good financial advisor.
• What you need to know in order to work as effectively as possible with your advisor.
• The second part describes a large number of pitfalls, with the aim of recognizing and avoiding them.

Weak points:

• The chapters in the second part, in the form of detailed lists, are sometimes a bit long.
• If you are non-American, you will have to find the equivalent terms and titles applicable to your own country.

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The Handy Guide to Get Smart or Get Screwed – How To Select The Best and Get The Most From Your Financial Advisor by Paul A. Merriman with Richard Buck.

The two main parts of the book

1. Get Smart
2. Get Screwed

Frequently Asked Questions (FAQs) concerning Get Smart or Get Screwed – How To Select The Best and Get The Most From Your Financial Advisor

1. How has Get Smart or Get Screwed been received by the public?

It’s often difficult to choose an excellent advisor without being duped by those who know nothing about the field. That’s why the Get Smart or Get Screwed has become such a popular reference for investors.

2. What has been the book’s impact?

This book has impacted many investors around the world by helping them find a top-notch financial advisor who can work to help them achieve their short- and long-term goals.

3. Who is the target audience?

This book is particularly aimed at do-it-yourself investors, amateur and professional traders of all kinds, and anyone looking for an excellent financial advisor for their business.

4. In what three ways do the authors believe brokers take advantage of their clients?

According to the authors, brokers take advantage of their clients in three ways, namely: financial churning, emotional charm, and trust.

5. What are the criteria for identifying a good financial advisor listed by Paul A. Merriman and Richard Buck?

The two essential criteria for identifying advisors, according to the authors, are:

1-Legal responsibility

2-Compensation method

Here are tips for finding a good financial advisor vs Tips for getting stuck with a bad financial advisor

Tips for finding a good financial advisor	Tips for getting stuck with a bad financial advisor
Take the time to think carefully	Choose your financial advisor carelessly
Select your financial advisor based on legal responsibility	Choose your financial advisor out of sympathy
Choose your financial advisor based on competence	Select your financial advisor based on advice from friends
Base your decision according to the method of compensation	Base your decision on sympathy alone

Who is Paul A. Merriman?

Having retired in 2012 from the wealth management company he founded in Seattle in 1983, Paul A. Merriman is busier than ever. Driven by a passion for financial education, he created his Financial Education Foundation. Since then, Paul and his small home-based team have produced hundreds of weekly podcasts, MarketWatch articles and videos, as well as books, expert articles, and unique research to support and explain knowledge, investment strategies, and recommendations. We are educators, not financial advisors. Much of our work is aimed at do-it-yourself investors, but we always recommend that you seek out qualified, ethical professionals to discuss your life, your goals, your risk tolerance, and the consequences of different investment decisions.