80% or more of the population still rely on brokers rather than advisors for financial advice. Let’s examine some of the reasons and risks. Perhaps the most overwhelming risk investors usually don’t understand is asymmetric information. The broker (or insurance person or banker), has far more knowledge of investing in general, and the products being pushed in specific, than the investor. This creates a space for abuse and an uneven playing field.
Rookie vs. Pro
Years ago, I had a physician friend tell me that regardless of how much general medical knowledge I might have, there was really no way to match that with any physician, good or bad. That is so true, yet when it comes to financial planning and investing, many investors think they know enough to understand the pitch from the broker. I wish that were true. Remember, brokers don’t have a fiduciary duty (like we do) and therefore don’t have a duty to protect you (like we do).