The WSJ, Sendhil Mullainathan from Harvard and Markus Noeth from Hamburg University sent “mystery shoppers” to financial advisers to analyze the quality of financial advice commonly given. What they learned was highly troubling.
By and large, the advice our shoppers received did not correct any of their misconceptions. Even more troubling, the advisers seemed to exaggerate the existing misconceptions of clients if it made it easier to sell more expensive and higher fee products.In addition, advisers strongly favored actively managed funds over index funds. In only 7.5% of sessions did advisers encourage investing in index funds.This is exactly counter to insights from finance research, which suggests that the average investor should choose low-cost index funds over actively managed funds. If advisers did happen to mention fees, they usually downplayed their importance.