"Sending people to discounters should be done with caution. No more than 5% of investors really do a good job on their own."
And what proportion do well under the tutelage of frequently self-interested FAs?
My 5% figure is not scientific but anecdotal based on 20 years of dealing with client and fellow advisors. The bad portfolios I see from other advisors are not nearly as poor as the ridiculous stuff I've seen from misguided DIYs. And the sharper DIYs I've met have good portfolios but not as good as those designed from good advisors. Again, all in my 20 years of experience.
Advisors are no picnic and there is a wide variety of skill and competence, but that's the case with any occupation/profession - i.e. lawyers, doctors, etc.
I'm not sure what ethics standards you folks are required to adhere to, but I've been privy to enough horror stories just from immediate family and friends experience.
I am bound, first and foremost, by my own ethical standards which I consider to be rather high. Second, as a CFP licensee I am bound by the FPSC code of conduct and standards of practice - i.e. letter of engagement, certain levels of disclosure, defined process, etc. As a licensed salesperson with a MFDA firm, I am regulated by both the OSC and the MFDA. Finally, my activities are further overseen by my dealer, which governs based on its obligations as defined by the MFDA and OSC - but many dealers more strictly interpret those obligations thereby setting a standard that is somewhat above the industry.
This would be similar for most advisors.
For one, not being totally up-front about what proportion of the investor's money ends up in their pocket seems like a big one. Most people have no clue that a full quarter (and often more) of the return on their investment gets eaten away by fees.
You have a point here since most are not up front about what clients are charged and how much the advisor gets. For most of my career (12 years), I've been showing clients those figures, in percentage and dollars. It's an estimate based on trailing year MER figures but it's close enough in my mind. This was not an easy thing to get by my compliance folks - even though I started this before they cared - but we agreed on an adequate disclaimer that basically tells clients that this is my own estimate and is not official or approved by anybody and that it's just provided to give them a better idea of what they pay.
But I agree that most people don't put this in writing. Many advisors do talk about this but it's forgotten by the client within 48 hours. That was my experience, which is why I started putting it in writing.
All for dispensing advice that can't even consistently beat an index fund. It should be criminal.
Even if all you're doing is giving investment advice there is more to it than that, which is why you don't assign much value to it. As an example, I saved - yes saved - at least a dozen investors who became new clients of mine between 2006 and 2007. These clients had been invested 85-100% in equities (funds, ETFs and stocks). Since stocks were doing well and bonds were not, they reasoned that stocks were the way to go.
I worked long and hard to convince these people that they were on the wrong track regardless of where the markets were headed because sooner or later - as happened in past bears - markets get hammered with big losses. So, before even talking about whether I'm picking the best fund or whether the MER is higher than it should be, my advice saved these people from losing significant amounts of money. They still lost, but instead of 50% they lost 20% because I positioned them in fixed income. Now, they're close to their peak values instead of still being down 25%.
So don't assume that we're all a bunch of idiots screaming "cha-ching" every time we come back from a client meeting to celebrate the next commission. Our industry still has many of those but most of us try hard to do right by the client.
Tax, retirement and estate planning are great--and should be done on a fee for service basis. That way investors are more likely to spot a shark when their FA asks for tens of thousands of dollars in fees to dump their money in an unremarkable fund.
I don't think the compensation method helps at spotting a shark. But tens of thousands of dollars in fees would require $500k-$750k portfolio just to approach $10k and millions to hit "tens of thousands" in fees. Not exactly the industry's typical client but these clients also have a bit more complexity and much higher client service demands.