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If we look back at our post time-stamps, it’s hard to believe the Millennial Revolution has only been around for like two months. Since then, the response has been beyond our wildest imaginations. Our inbox is filled with email after email thanking us for peeling back the layer of mystery surrounding their money, and people (including our real-life friends and family members) have sat down, figured out their balance sheets and turned things around. People who have spent years constantly living paycheck to paycheck, worried about their next rent payment and never getting ahead are now, for the first time, seeing their bank account actually go up every month. It’s been so rewarding to see that, and it’s why we get up every morning and write these articles.
Unfortunately, that’s where the good news ends.
Because as we know, savings is only half the equation. Once you have that part down pat, you have to then figure out how to invest it to grow your net worth, as well as turn it into an infinite stream of income. So eventually, our budding Revolutionaries have to talk to some bank person to open up an investment account.
And that’s when shit gets annoying real fast.
Over and over again, we keep getting stories of people being misled, tricked, and outright lied to by the financial industry when all they want is to invest using low-fee Index Funds or ETFs. They’re told that Index Investing only gets average returns, while their funds can beat the market (they can’t), they’re told that high-fee funds are better because their managers have better analysts working for them (they don’t). In one case, one reader was outright lied to by someone saying the fund she wanted to invest in didn’t exist, even though it’s listed right there on their own website!
And don’t think I’m picking on any one bank. They all do this.
First, let’s back up a little. When you walk into a bank and ask to speak to someone about investments, the person you’re speaking to may have some fancy sounding title like “Investment Advisor,” but their internal classification is a PBO, or Personal Banking Officer. And PBO’s are not required to have any training or certification whatsoever when they’re hired. In fact, many are bank tellers that got promoted one level up.
Secondly, PBOs are paid a relatively low fixed salary and then compensated based on commissions. You may recognize this is similar to the compensation structure of a used car salesperson, and that’s because that’s pretty much what they are. They aren’t “Advisors,” they’re “Salespeople.” This is an important distinction.
True Investment Advisors are supposed to advise you on how to manage your money. Salespeople just sell you shit.
I’ve gone ahead and created a detailed mathematical model to describe how bank salespeople view you, the client.
On the vertical axis is your perceived level of knowledge (“how much they think you know about money”), and on the horizontal axis is how much money you have.
On the bottom-left quadrant is the person who walks into a bank with zero knowledge and very little money. The majority of people who these Salespeople meet are in this category. We will call these people “The Idiots.”
Banks love idiots, because they can tell them whatever the Hell they want and they’ll just believe them. Why not? They’re Idiots!
So step 1: Shove them into high-fee mutual funds. Favorites include bank-run “wrap” funds that just own their own high-fee mutual funds, and then charge an MER on top of that for shits and giggles. I’ve seen some of these have up to 3% in fees when you add them all up.
And step 2: Shove them into the biggest mortgage they qualify for. Because The Idiot doesn’t know anything about money, they’re easily susceptible to arguments like “rent is throwing money away” and “houses always go up!” Neither statement is true, but who cares? They’re Idiots! Once they’re locked into a jumbo mortgage, the bank has basically got them for life and will siphon cash off of them year after year until they wake up in their 50’s and wonder why they don’t have any money and where their lives went.
For those scant few readers who aren’t familiar with 1960’s era grifter lingo, a “Mark” is what con-men call their intended victim, especially a fat juicy one with a lot of money. We experienced this first hand when we were interviewing financial advisors. This was back in 2012, and we had accumulated about $500,000. Back then, in order to find someone we could trust we would tell them how much money we had, act really stupid saying stuff like “I don’t know much about investing” and “what does GIC stand for again?” Then we would sit back and see if they tried to take advantage of us.
And Holy SHIT, did they try.
One person had a bunch of “hot IPOs he wanted us to get in on.” Another wanted to put it all into options (whatever the Hell that means). Another started selling us individual equities like Gap and Denny’s. And another wanted us to convert it all into Yen and buy gold with it on the Japanese commodities market.
It was fun to pretend to be The Mark (and we DID get a lot of free booze out of their sales sessions, so that was fun), but I feel for anyone who actually said yes to any of these bozos.
The Insider knows their shit and, as a result, is intensely annoying to the PBOs. Because The Insider knows all about Index Investing using low-cost ETFs and knows anything else sucks as an investment, the PBO can’t trick the Insider into doing what they want.
See, there are two ways to make money off a client. Either shove them into a mutual fund that pays the PBO a commission, or become their portfolio manager and make a fee based on their total portfolio size. The Insider knows not to sign up for any shitty high-fee mutual funds, so they can’t make any money off them that way, and because they’re just starting out in their investment journey, they don’t have a big enough portfolio to manage. Basically, the PBOs have no way of making any money off The Insider, and once they realize that they treat you like shit.
One of our readers and fellow Revolutionaries experienced this just recently. She went into a bank trying to open up an investment account that would allow her to own the low-cost Index Funds she wanted, and got a barrage of bullshit spewed at her. At one point the Salesperson outright lied and told her these funds she speaks of don’t exist! But she stuck to her guns and, after insisting for the 20th time that she wanted a portfolio consisting of low-cost Index funds in a 75% equity/25% fixed income allocation, eventually the PBO relented, gave her what she wanted and, in an ironic twist, then proceeded to complain to her for the remainder of the meeting about how much he hated his job because he had to lie to people all day long.
The Shark has a lot of money and knows what they’re doing. PBOs are terrified of The Shark. Obviously, they want their business, but when it quickly becomes obvious that The Shark knows more than them, they turn into spineless yes-men.
“Should I do this?”
“Or should I do that?”
And while it’s fun being called a genius every 3 seconds, it becomes scarily obvious how little these PBOs actually know. At one point I pointed out during their sales presentation that the trade commissions generated by keeping a portfolio of 35 equities outweighed even a bank-run mutual fund, and it sent them into a flop-sweaty panic. And these are the people we’re supposed to be trusting with our money?
So that’s how the big banks see you. Impressed? I wasn’t. And while I eventually did find a Financial Advisor that I could trust, it was by no means easy and we had to look outside the big banks to find someone who wasn’t compromised by their corporate overlords.
The lesson here, educate yourself. You need to work with bankers and PBOs sometimes, if for no other reason than to open the right accounts. Read books, read finance blogs (like this one) and never sit down with a PBO and ask for their advice. Treat them like you would a used car salesman: Research the Hell out of the thing you want, Insist on seeing it and only it, and Immediately get up and walk out if they try to bullshit you.
In their business, they have a saying “You eat what you kill.”
Don’t be the one that gets killed.
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