How Wall Street is taking advantage of mom and pop investors
Americans have handed over trillions of dollars in savings to financial institutions and money managers. But are they getting their money's worth?
Probably not, says Bobby Monks, author of the new book, Uninvested: How Wall Street Hijacks Your Money and How to Fight Back. “The average investor is being systematically taken advantage of by the financial services industry,” Monks tells Yahoo Finance in the accompanying video. By "average investor," Monks means anyone who has a 401(k), a retirement plan or is in a mutual fund.
So how are retail investors getting taken advantage of? A lack of transparency, a tangled web of fees and an evolved complexity in the investing process, he says.
Monks was previously chairman of Spinnaker Trust, managing over $1 billion in assets. He is a serial entrepreneur and a real estate developer as well. His father, Robert A. G. Monks, co-founded Institutional Shareholder Services and The Corporate Library. Bobby Monks served as chairman of ISS for several years until 2007.
For the book, Monks interviewed the likes of Vanguard founder Jack Bogle, legendary activist investor Carl Icahn, and former congressman Barney Frank, co-architect of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Monks is particularly critical of the money manager role calling it “the only job in the capital system where you get paid even if you lose people money.” He says the whole industry is set up based on assets under management not individual portfolio success. “That’s how you get compensated rather than focusing on what’s a good product for the client," says Monks.
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Very few investors enjoy the financial success of their money managers, he points out. Fees are often obscured, he says, and sometimes they are not even shown. Monks says the goal of his book is to demystify the system for the average investor and help them regain control over their investment process.
But many Americans don’t have the background in finance to take complete control of their investments-- let alone the time to devote to managing their own money. And Monk's book comes out at a time when so-called roboadvisors are disrupting the business of financial advice, making it easier for investors to put their investments on autopilot with software aiming to deliver individually tailored recommendations. A handful of start-ups like Betterment and Wealthfront are leading the space. Charles Schwab (SCHW) has rolled out its own version.
Monks says the jury is still out on these options. But even if investors chose to go this route, the key is to stay alert and engaged.
Monk's tips for investors include:
Be aware of the contents of your portfolio
Get to know your money manager if you have one
Make sure you are getting conflict-free information
Add up the fees you pay
“We’re not saying that every money manager is a boogey man," says Monks. "But what we are saying is the system is broken.”
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