Mapping a Path Through the Financial Services Minefield

-- Investing successfully is an extremely difficult and complex undertaking. Those who do well at it are aware that many financial services companies make huge profits for themselves at the expense of their investors' interests. It's hard enough to get good total investment returns when you're aware of this issue; it's nearly impossible if you aren't.

The investment products and services landscape is a treacherous minefield designed to transfer your money to the gate-keepers of the capital markets and hinder your chances of investing success. This is why it's critical to know where the bombs are buried and to find the best routes around them — or to hire an advisor focused on your interests to help you navigate this terrain.

Many investors aren't aware of the minefield, nor are they concerned as a result of overconfidence in their inadequate skills. Most of these investors tend to be men. By contrast, women tend to be less confident and more risk-averse, so they may be less likely to charge across the minefield. However, once they enter that terrain, they may face gender-linked risk from the inclination of some financial salespeople (most of them men) to take advantage of what they assume to be a lesser degree of financial knowledge among women.

Yet, if you're a woman, your self-protective intuition for risk may help you navigate this perilous terrain. Further, if you become better educated in finance, this risk aversion will be better informed, possibly enabling you to discern the motives of the "guides" who offer to show you through the terrain they have helped to make so treacherous. By becoming financially empowered through education, you're more likely to find a safe path.

READ MORE: HOW WOMEN CAN CLAIM THEIR FINANCIAL POWER

The reason this is so difficult is that the financial industry is generally set up to make investors fail. Large public financial service companies are run to perform for their shareholders above all else. This goal is often at odds with the goal of helping clients achieve good returns.

For example, large companies that run mutual funds are constantly incubating new funds, taking considerable risk, and operating in a manner that resembles a bait-and-switch scheme. When they guess right, they use the resulting funds to attract investors while leaving the failed prototypes to die a quiet death. After the "successful" funds gain many investors, the managers become risk averse because they already have investors. As a result, these funds start to resemble index funds — only you shouldn't have to pay managers high fees to get index-fund returns. After all, high fees are for active management, and there's no active management involved in index funds.

Thus, mutual fund companies do quite well from these fees while their investors fail to get the potential for results they thought they were buying. This selective incubate-and-pump strategy is designed to benefit shareholders at the expense of funds' long-term investors.

This is part of the larger issue of how the financial people you're dealing with are compensated. You should always find out. None of these people are working for free, and you can't know where their potential conflicts of interest lie until you learn precisely how they're paid.