The name Motley Fool comes from the one character in Shakespearean literature – the court jester – who could speak the truth to the king and queen without having his head lopped off.
More importantly, the Fool was never afraid to question conventional wisdom, particularly when popular thought was detrimental to the kingdom’s people.
When you’re plying your trade in the investment world, calling yourself Foolish (note the capital “F”) is normally inadvisable.
Not surprisingly, we think quite the opposite.
When it comes to the financial services industry, we’re here to tell you the truth.
It’s high time the Australian public were told the truth about The Great Rip-Off that has been going on for decades.
Our credentials are strong. In the US and UK, The Motley Fool has been questioning the so-called wisdom of the financial services industry for almost 20 years.
Although we’re but young here in Australia, we’re rich with experience, knowledge and plain simple common-sense. We know a rip-off when we see one…
Our Simple Foolish Message
Our four-pronged message to the people of Australia is simple…
1. You are the only person who truly has your best financial interests at heart. Not your financial advisor, not the fund management industry, and not your full-service broker.
2. You can and should take control of your own financial affairs.
3. Armed with just a little knowledge (and we’re here to help), you can make better financial decisions.
4. In the years and decades ahead, by following our simple advice, you could generate significant wealth.
What’s The Catch?
You might be thinking…what’s in it for The Motley Fool? Where’s the catch?
We are serious about the business of financial education and advice. But we are a commercial enterprise, we have investors, a board of directors, and goals, – just like many other companies.
Over in the USA and UK, we have services that we are proud to sell – primarily a suite of premium stock-picking services. Here in Australia, one day we plan to offer similar products and services. Today, we may have advertisers who pay us to get access to your eyeballs to pitch their services.
A Win-Win Situation
As you can see, there is no catch. If we can tell you the truth about the financial services industry, and you can improve your financial well-being by taking control of your own money, and that’s the last we see of you, it’s a win for us.
But you may decide to hang around here a bit longer, continuing your learning experience.
You’ll hopefully get some valuable advice and investing ideas from our free daily content, and we might generate some advertising revenue. You may even decide to subscribe to our premium share-picking services (coming soon!).
We look at it as a ‘win-win’ situation. If you win, we hope to win too. But rest assured, there are no tricks or catches here. They’re reserved for the fat, bloated financial services industry…
The Real Catch
You’ll often see us refer to the financial services industry simply as ‘The Industry’.
Here in Australia, ‘The Industry’ by and large, offers self-interested, conflicted advice to investors. Not only that, it charges them handsomely for the privilege of their so-called wisdom.
Our simple message to you: just say no to ‘The Industry.’
Let us explain some more…
Three Major Problems
Many financial advisors receive a commission from product providers when they advise you to invest in a certain fund.
What’s the problem in that, you might be thinking? After all, it’s not costing you anything?
Oh yes it is…
Those juicy commissions form part of the high charges many financial products charge you. And as you’ll find out in our 13 Steps To Financial Freedom, high charges make an enormous difference to your long-term investing wealth.
An illustration by John Bogle, founder of Vanguard Investments, in his excellent book The Little Book Of Common Sense Investing, might help put these charges into perspective.
The charges for the average US mutual fund are 2.5% per annum. In his illustration, Bogle shows how an investment of $10,000, growing at 8% per annum over 50 years, compares to one growing at 5.5% per annum, the difference being those pesky yet somewhat hidden charges.
And the difference is…
The $10,000 investment growing at 8% turns into $469,000 over 50 years. But the same investment growing at 5.5% turns into just $145,400.
That $323,600 difference is a cost to you. And we think you’ll agree, it’s rather a high price to pay for a little piece of advice from your financial advisor.
These charges, the 1%, 2% or in some cases even more, are one of the main reasons why the majority of actively managed funds fail to beat the returns of the index.
Over in the US, the Motley Fool has been rallying against the financial services industry for past 15 years, calling it a racket.
Not surprisingly, the same under-performance happens here too in Australia. It’s the dirty little secret the local ‘Industry’ doesn’t want you to know about.
In the US, the Motley Fool has lead what they call an investor revolution. Together, we can do the same here in Australia.
Rather than support an ‘Industry’ that runs roughshod over individual investors, what if we band together to manage our own portfolios and take control of our financial destinies?
Just as in the US, the battlefield can be tipped decidedly in our favour. It’s time to seize the day.
Assume your financial advisor is tossing up whether to advise you to invest in Product A or Product B.
Product A pays the advisor a trailing commission of between 0.4% and 1.2%, every single year.
Product B pays the advisor nothing. Index tracking funds, for example, generally don’t pay commissions to advisors.
Which product do you think your financial advisor is more likely to recommend to you?
Most financial advisors are paid on a commission-only basis. They have a strong financial incentive to advise you to invest in Product A, even if Product B, the index tracker, for example, is the better product.
Many financial advisors are highly conflicted salespeople. As such, they may sell you the product that pays them the most commission, not necessarily the one that is most suitable for you.
Of course, not all financial salespeople are unscrupulous rip off merchants.
Some try to advise the very best products for their clients, regardless of the commission structures.
Some charge you a per-hour fee for their services, the only true way to ensure your advisor is free of conflict. But many are simply financial salespeople, where the selling comes way before the advice.
One Giant Gravy Train & One Giant Rip Off
We’re not the only ones to notice this, by the way.
In April 2010, the government announced that financial advisers are to be banned from taking commissions on products they sell, saying…
“These reforms will see Australian investors receive financial advice that is in their best interests, rather than being directed to products as a result of incentives or commissions offered to the financial adviser.”
Whilst we applaud the moves, we note…
1) The ban is slated to take effect from July 2012.
2) The government will allow the continuation of percentage-based fees, also known as assets-under-management fees.
Assets-under-management fees are another gravy train for financial advisors.
Let’s say you have $250,000 in assets. For the privilege of advising you, your financial advisor might charge you an annual fee of say 2% per annum, or $5,000, which works out to around $100 per week. And this fee comes on top of all the other fees you’re already paying!
If you think ‘The Industry’ might be taking you for a ride, you’re thinking right.
For ‘The Industry’, it’s one giant gravy train. For consumers like you, it’s one giant rip-off.
So, what’s the solution?
In a nutshell…education.
Investing and managing your own money is not rocket science. But most people seemingly don’t have the interest, and don’t make the time, to take control of their own money, and therefore their financial destiny.
The Motley Fool is here to help. We’re here to tell you what you can do to take control of your money, take it out of the hands of ‘The Industry’, and likely earn better returns and generate greater long-term wealth too.
What could be simpler? And better?
Never Give In
We don’t expect we’ll make many friends in ‘The Industry’. In fact, we’re quite sure we’ll lose some.
That’s fine by us, because we are Fools, we tell the truth, and even if ‘The Industry’ tries to lop off our head, we’ll never deviate, never budge.
We’re in your corner, fighting for you, the millions of Australians who are not part of ‘The Industry’
But you have to help yourself too.
You have to be willing to change the status quo.
Take the time to review your finances. Are you invested in funds? Why did you invest in them?
Who, if anyone, advised you to invest in them? Are they appropriate funds for you today? Have the funds performed better than an index tracker, or other funds with lower costs?
Stand up to your financial advisor. You can and should take control of your own finances, and therefore better control your own financial destiny.
As we said, the Motley Fool is here to help.
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