Excessive fees - "a tax on smart people who don't realise their propensity for doing stupid things"

I highly recommend the recent episode of the Freakonomics podcast, "The Stupidest Thing You Can Do With Your Money"

It talks about the exorbitant fees that many investment advisers (and some financial advisers) charge clients.

These fees are characterised as "a tax on smart people who don't realise their propensity for doing stupid things". A Nobel laureate explains that many organisations are "charging people for stuff [they] can't deliver". This message is close to my heart, because I see one of my roles as a financial adviser is to ensure clients don't pay unnecessary fees.

The podcast includes excerpts from Eugene Fama, Ken French, and Jack Bogle. It also includes a cameo from Anthony Scaramucci. 

The only criticism I have of the episode is that it confounds the roles of financial advisers and investment managers. As I explain often, picking stocks (investment management, which is what this podcast is really about) and developing strategies to help clients achieve their financial and lifestyle goals (which is what a good financial adviser does) are very different things.

I'm a huge advocate of low-fee, index-based funds. I advise clients to put the money into funds like this. I help clients work out which of these funds to use, and how much they should expose themselves to the different asset classes that these funds allow them to invest in. But at the end of the day, where you put your money is only part of the equation of organising your financial affairs to ensure you meet your financial and lifestyle goals and manage your risks. 

Financial adviser as bouncer

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.