Money spent on car repairs can be as dubious as investment fees. Both tend to be confusing, deceptive, and often unnecessary.
The amount of money spent on unnecessary car repairs is mind boggling. The National Highway Traffic Administration estimates that automotive service consumers are scammed out of tens of billions of dollars every year.
This is not much different from the number the Department of Labor estimates that investors pay in bogus fees each year to financial advisors and money managers.
I recently had firsthand experience with the car repair industrial complex. In a rush, I went to Morgan Merrill Jones Full Service Car Repairs (pseudonym) for a state inspection and was told my power steering fluid was leaking like Niagra Falls. It would cost $500 to repair this gusher.
Instead, I went to Vanguard Index Thrifty Repair (another alias) for a second opinion and told Mr. Rip-Off to back off .
Sure enough, nothing was wrong with my power steering. I was also told by this trusty mechanic that the other chain was notorious for this type of behavior. Shockingly they have been accused of breaking perfectly good parts and charging their customers to repair them!
This got me thinking about how this industry compares to the seamy side of financial services.
The similarities are fascinating. Most people know nothing about how to repair a car. Regrettably, I am near the top of this lengthy list.
Car repair operators often use fancy jargon and bait-and-switch tactics to lure unsuspecting, uneducated consumers. Free oil changes and inspections are often the hook to get people in the door. Once the hood is opened, expensive defects are uncovered and the free oil change often ends up costing hundreds of dollars.
This is very similar to free dinners for educational financial seminars. The conductors of these schemes use free food as the bait to peddle expensive and unnecessary financial products like equity-indexed annuities and other financial weapons of mass destruction..
Consumer ignorance is the enabling catalyst for both types of fraud. Most people can’t even parallel park let alone understand how their transmission works!
The average consumer’s grasp of financial concepts is even worse. In a global survey, a five question quiz resulted in an average score of 57%! This puts the United States in fourteenth place globally, even though we have the world’s richest economy.
The solution to both of these enormous problems is to find a provider that will look out for your best interests.
Regarding car repairs, consumers should look for shops that have the Automotive Service Excellence or ASE designation.
For financial repairs, one should always consult a fee-only RIA, preferably a Certified Financial Planner (or C.F.P.) who has limited conflicts of interest regarding your finances.
While people often get ripped off by car maintenance, this problem is easy to solve because of the immediate effect of a hefty bill.
After receiving an outlandish bill for thousands of dollars for questionable services, a consumer only has himself to blame if he continues to use these services.
The financial industry is much more deceptive. Fees are often skimmed right off the top of the principal invested. This gives the illusion of “free” services while the true costs can go undetected for decades.
These hidden costs can run into hundreds of thousands of dollars and, more importantly, jeopardize plans for a secure retirement. A one percentage point lower return could reduce your savings by more than a quarter over 35 years.
I am lucky enough to have two brothers-in-law that could put a car together blindfolded. I just follow their advice. My ignorance is protected.
Unfortunately many consumers don’t have someone they can trust regarding both their auto issues or their finances.
My takeaway from this experience is the following:
- Don’t pay for anything you don’t understand. Educate yourself.
- Nothing is “free.” This includes complimentary seminars and oil changes.
- Find someone who is looking out for your best interests. They must have the proper certifications and clean record to handle anything that is important to you and your welfare.
Not changing you decision-making concerning these items will lead to big complications down the road. Paying for replacing perfectly good brakes will end up being the least of your problems.