Less Nonsense

WALL STREET has changed remarkably during my three decades of writing and thinking about money—mostly for the better. For instance, financial advisors now earn an estimated 64% of their compensation from asset-based fees, rather than from commissions. That eliminates many of the worst conflicts-of-interest, including the incentive to churn a client’s account and sell products that pay the highest commission. Today, you also see many advisors making heavy use of index funds.

Along the way, I’ve stopped hearing some of the nonsense that financial advisors used to spout. This nonsense went far beyond the unsubstantiated boasts that, with their help, their clients regularly beat the market.

Examples? In the late 1980s, advisors used to claim that load mutual funds (those that charge a commission) were inherently superior to no-load funds. They’d argue that you got what you pay for—and that low mutual-fund annual expenses were a sign of a second-rate product.

I even remember advisors claiming that the load on a mutual fund created an incentive for the fund’s manager to perform better. Three decades later, I’m still puzzling over that one.

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