Why Comedian John Oliver Would Love PFS

*Warning:  the video link in this post contains some foul language and content.

A client recently alerted us to an episode of comedian John Oliver’s “Last Week Tonight,” in which he discusses the role of the financial services industry in helping individuals save for retirement.  While delivered with much hilarity (and a bit of profanity), Oliver actually provides an insightful analysis of some of the potential pitfalls in choosing a financial advisor.  We provide an overview of them here, along with a brief explanation of why PFS scores very well on the John Oliver test for financial services.

Many Financial “Credentials” Are Completely Meaningless.  Oliver points out that, according to the Financial Industry Regulatory Authority (FINRA), the titles of “financial advisor,” “financial analyst,” “wealth manager,” and others are generic terms that do not convey any particular credential.  In fact, he offers a “financial advising” certificate, which you can print out from his show’s website, as essentially all you need to start offering your services as a financial advisor.  (From a legal perspective, to actually give financial advice, you would need to pass the Series 65 exam, but who are we to correct John Oliver?  And, in any case, the Series 65 by itself is not a particularly high bar, so the spirit of his remarks is more or less on point.)

Are PFS’s Credentials Meaningless?  No.  Glenn and Mike are Certified Financial Plannerâ„¢ professionals (and Renee is a year from completing her CFP^® certification as well).  The requirements for becoming a CFP^® professional involve education (including coursework on retirement, investment, tax, estate, and insurance planning), a comprehensive exam, work experience in the field, as well as continuing education–essentially, what you would hope and expect from anyone advertising themselves as a financial advisor.

Many Financial Advisors Are Looking Out for Their Own Interests First.  Oliver points out that many–in fact, most–advisors are not fiduciaries, meaning that they are not bound to put a client’s interests above their own self-interest.  This sometimes results in an advisor pushing products, such as variable annuities or actively-managed mutual funds, that involve high fees for the client and large commissions or other perks for the advisor.  He notes that these fees can be like termites–tiny, barely noticeable, but steadily eating away at your future.

Is PFS Putting Its Own Interests First?  No.  PFS is a registered investment advisory firm, which, as we discussed in a prior post, means that we have a fiduciary responsibility to our clients and are legally required to put their interests first.  In line with this, we do not receive commissions for any investment products that we recommend, and we use only low-cost mutual funds.

A Cat Named Orlando Can Pick Stocks Better Than Active Fund Managers.  Oliver explains that actively-managed mutual funds generally cost more and provide lower investment returns (taking into consideration the impact of their fees) than passive investment strategies.  He cites, for example, a stock-picking experiment in which a cat named Orlando, by throwing a toy mouse at a list of stocks, outperformed a group of financial professionals.

Can a Cat Named Orlando Outperform PFS?  Maybe.  At PFS, we are smart enough to know that we won’t beat the market–or the cat (in other words, random chance)–every time.  And, since we are fiduciaries and hope to have long-term relationships with our clients, we would rather not just roll the dice and give it a try.  We believe, as John Oliver suggests (as does Warren Buffett), that the most effective way to build wealth over the long-term is to use passively-managed investments, rather than trying to pick the next “hot” stock.  We’ll leave the embarrassing head-to-head challenge with Orlando to someone else.

What sort of financial advisor should you choose?  Take it straight from John Oliver.  We couldn’t have said it better ourselves.