Why you should never go to your bank for investment advice

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When you think of investing, do you immediately think about getting investment advice and buying investments through your local branch of a giant monster mega-bank?

There are a few compelling reasons why money expert Clark Howard says you shouldn’t!

RELATED: 4 ways to protect yourself in case there’s a cyberattack on your bank

Banks are the last place that should handle your investments

Clark has had a longtime bias against our nation’s largest financial institutions — Bank of America, Chase, Citi and Wells Fargo — when it comes to traditional banking. Well, the same holds true for investing.

In a nutshell, he says the underlying cost of the investments you get at traditional banks is padded with fees. Investments bought through the brokerage arm of your big bank are just plain expensive compared to the discount investing houses he prefers: Vanguard, Fidelity Investments and Charles Schwab, among others.

Moreover, the “free” investment advice you get from banks may have an unexpected price tag attached to it.

Here are 3 reasons why you shouldn’t do your investing with a bank

Stock trades are expensive at the brokerage arm of the big banks

If you’re a self-directed investor, you’ll pay an arm and a leg each time you want to buy or sell a stock at one of the big banks:

Bank Commission per trade
Bank of America (Merrill Edge) $6.95
Chase $2.95*
Citi $4.95-$12.95
Wells Fargo $2.95 – $5.95

*  Your first 100 trades are commission-free within one year of opening a ‘You Invest by J.P. Morgan’ investment account. But after that, you pay $2.95 per trade. 

Compare those commission to what a couple of popular online stock trading apps charge:

Service Commission per trade
Stockpile $0.99
Robinhood Free

The difference is clear to see!

Fiduciary duty may be lacking at a bank’s brokerage arm

Years before Bank of America bought Merrill Lynch (now Merrill Edge), the full-commission stockbroker got into trouble for gaming the markets by making trades against their retail customers (the little guy) before executing trades on behalf of their giant institutional investors.

That’s just one example of a breach in what’s called “fiduciary duty.” And before we define that, let’s just be perfectly clear that the lack of fiduciary duty it is not limited to Bank of America’s Merrill Edge! It’s a more systemic problem as we’ll explain in a moment.

So just what does fiduciary duty entail? It’s a fancy way of saying that a money manager you hire must work in your best interest, not steer you toward investments that pad their own pockets.

Unfortunately, fiduciary duty is not the norm when you’re dealing with full-commission stockbrokers, insurance companies that may sell investments or traditional banks that have brokerage arms.

As a general rule, if you want to find a fiduciary to manage your money, you have to hire a fee-only financial advisor. For more on this topic, and to learn how to hire a fee-only advisor, read this article about the Fiduciary Oath.

The cost of investments matters

For years, we here at Clark.com have been beating the drum encouraging you to invest in low-cost index funds through any of several discount investment houses favored by money expert Clark Howard.

In Clark’s philosophy of investing, low costs are one of the key things you should be looking for when it comes to investments. And banks generally don’t do a good job offering low-cost investments.

According to one recent report, banks generally charge anywhere from two to four times in underlying investment costs on average versus a low-cost brokerage like Fidelity.

Speaking of Fidelity, why pay anything at all to invest? The Boston-based company actually offered an industry first when it launched two groundbreaking index funds with no fees and no minimums required in early August 2018.

Fidelity has since added two more no-fee funds to the roster that are available to anybody with an Internet connection.

It doesn’t get any cheaper than free!

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Theo Thimou About the author:
Theo has co-written several books with Clark Howard, including the New York Times #1 bestseller Living Large in Lean Times. As a single widowed parent of two young children, he strives to bring unique savings tips to men and women like him who must face life without their spouses. He can be reached at [email protected]
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