The Case Against Financial Advisors: Putting Profits Over Clients’ Best Interests
Boston University economics professor Laurence Kotlikoff is making waves in the financial advising industry with his bold claims that financial advisors are not acting in the best interests of their clients. In a recent interview with ThinkAdvisor, Kotlikoff argues that advisors are more focused on maximizing their profits rather than providing sound financial planning advice.
Kotlikoff points to the use of “conventional” financial planning methods by advisors, rather than what he calls “economics-based” planning. He believes that this approach leads to clients saving too little for retirement, leaving them with a 20% chance of being destitute apart from Social Security benefits.
The professor, who was a member of Ronald Reagan’s Council of Economic Advisers, is the founder of Economic Security Planning, a firm that specializes in software for calculating Social Security benefits. His latest book, co-written with journalist and RIA Terry Savage, is titled “Social Security Horror Stories.”
Kotlikoff is a vocal critic of the 401(k) system, which he labels as “an abject failure.” He proposes scrapping the system along with Social Security and other retirement plans that provide tax breaks, as he believes they all encourage spending rather than saving.
Instead, Kotlikoff advocates for a new government-provided retirement plan with compulsory saving contributions. He envisions a system where all workers under 60 would be required to contribute 10% of their wages to Personal Security Accounts, which would be globally invested in a diversified manner.
Overall, Kotlikoff’s controversial views on financial advising and retirement planning are sparking a debate within the industry. As more investors become aware of his arguments, it will be interesting to see how the financial advising landscape may shift in response to his criticisms.