Never Ever Invest Through A Bank

Have you ever had to make a trip to the bank to cash out a matured CD or known somebody that has?  Chances are, if it was more than a few thousand dollars, you were quickly intercepted by a bank representative encouraging you to schedule an appointment with an “investment counselor.”  Once your bank’s “investment counselor” has you in their office, they’ll tell you how unfortunate it is that you’re earning “just a few percent” on your savings.  Fortunately, they will exclaim, they have just the investment opportunity for you!

Sound familiar?  Chances are, you’re being being pitched an over-priced, poorly-performing fund with a big upfront sales charge.  You aren’t likely to make much money from this investment, but your bank is.  Why?  Because you’ve been scammed.  Most “investment counselors” at your local bank branch are nothing more than salesman out to take your money.  They generally have little training in the financial products they sell and act only in the bank’s best interests, not yours.  You’re far better off opening an account with one of the best discount brokers than with a bank.

Just Say No

Unlike most fee-based financial planners, your bank has no legal or moral obligation to keep your best interests in mind when deciding which investments to recommend.  That is, they aren’t under any legal or contractual fiduciary duty to you to act in your best interests.  Consequently, you are quite likely to be sold an investment that achieves the bank’s objective of squeezing every cent they can out of you but that is unlikely to help you achieve your financial goals.

Indeed, many banks peddle mutual funds having expense ratios over twice the industry average in addition to a hefty upfront sales charge.  Variable annuities are also are popular product.  While annuities definitely have their place, they get a bad rap because they are so often pushed on unsophisticated investors merely because they carry a fat commission for the salesman, despite the fact they may be completely inappropriate for that individual’s circumstances.  Adding insult to injury, most annuities carry surrender penalties to keep investors locked into expensive, inappropriate annuity products even after they find out they’ve been duped.

Stick To Certified Financial Planners Associated With Reputable Financial Institutions

Unlike the salesmen at the bank, many independent financial planners are certified and competently trained in a wide variety of financial topics and products, including mutual funds, annuities, insurance, taxes, and estate planning and, most importantly, are legally bound to act as your fiduciary.  While I am of the opinion that most reasonably-intelligent people can do a fine job managing their investments by themselves, there’s nothing wrong with getting help.  Since financial advice isn’t cheap (they’ve got bills to pay, after all), it’s very important to do your own due diligence to make sure your financial advisor really is acting in your best interests.

While the process of choosing a financial advisor is outside the scope of this article, I will say three things:

1. Do a background check before making a final decision.
2. Find out exactly how your planner will get paid before handing over any money.  Depending on your circumstances, it may make sense to choose one compensation arrangement over another.  Besides, you wouldn’t buy a car without knowing how much it cost first, would you?
3. Make sure they are certified and competent.  The Certified Financial Planner (CFP) designation is probably the most popular, but there are several other equally-demanding certifications out there.

One blog I will recommend is Good Financial Cents, written by an actual financial planner by the name of Jeff Rose.  It contains a lot of basic information on how pick an advisor and what to expect once you’ve chosen one.

Remember, when you invest through a bank, nobody but the bank makes any money.