Do You Need a Financial Advisor? Are They Trustworthy?
Investors are understandably worried!
Quality bonds and Certificates of Deposit are paying almost negative interest rates. Bonds defaults are rising. The stock market and economy are shaky. The Fed is printing money faster than the world has ever seen. We have Great Depression levels of unemployment.
What else could possibly go wrong?
Pundit Bill Bonner predicts:
“Stocks will rise…and then give up another 50% of their value.
…. Secretary of the Treasury, Steven Mnuchin, says that upwards of 20% of the workforce could be unemployed.
The feds will print…trillions to rescue the situation.
…. The feds will face a terrible choice. Printing more money may bring a hyperinflation, like Weimar Germany, Zimbabwe, or Venezuela.
But not printing will risk a deep depression…a “throw out all the bums” shock in the next election…or even a revolution.
The feds will make their choice… the same choice made by von Havenstein in Germany and Gono in Zimbabwe. They will print.”
Peter Schiff chimes in, “Americans Are in For a Rude Awakening”:
“Most Americans who are already retired, well, they’re going to have to go back to work. And the people who were planning on stopping working, well, they’re just going to have to keep working until they’re dead, basically. Unless you can do something now to protect yourself.” (Emphasis mine)
Can anyone afford to retire?
It hit me like a bolt of lightning! I’ll never forget the day I retired. I am no longer working. I have to manage our nest egg and make it last the rest of our lives. If we lose money now, I can’t earn it back. I had a knot in my stomach. It’s scary!
No matter how we made our money, once we retire, we are all money managers now. If you were an aviator, zoo keeper or anywhere in between, the day you take control of your retirement savings, your new job is money manager – whether you like it or not. Part time job? Maybe, but your most important job is money manager!
I’ve heard many horror stories from seniors losing money, downsizing and having to go back to work because they did not pay attention.
What is the average working person, without a juicy government pension, going to do? Unless your career was related to investing, who wouldn’t want to have competent professional help? It could be a simple once a year financial checkup to full blown fee based financial advisor; or somewhere in between.
| Millions of people are scared and need competent, professional help, and who can blame them! |
These fears present a marketing opportunity for financial advisors. Caveat Emptor (let the buyer beware) cannot be underestimated.
The challenge investors face
The internet is full of advertisements from financial firms hawking their wares:
“Don’t make these mistakes when choosing a financial advisor.”
“Why it is important to have a financial advisor in trying times.”
“How to find a financial advisor near you.”
One Facebook ad proclaimed, “7 Mistakes People Make When Choosing A Financial Advisor.” It concluded:
“Follow these steps to get matched with the right advisor for you.
- Enter your ZIP code.
- After you enter your ZIP code and answer questions about your financial goals, you can compare up to three top advisors local to you and decide who to work with.”
I added this comment:
“Mistake number 8. Don’t choose a financial advisor based on who pays the biggest referral fee to the advertiser.”
The next morning my comment was gone. Just for fun I posted it again. Within minutes it disappeared.
They request financial information so they don’t waste their time on small investors. If you qualify, expect a sales pitch to persuade you to turn over your life savings, so they can earn never-ending fees off your money.
Management fees are BIG business
When the Glass-Steagall act was repealed, major banks and brokerage houses merged. The top five banks control 47% of banking assets. The top 1% of mutual funds have 45% of total assets. Despite having paid hundreds of billions in fines for their misdeeds, these same five banks total assets exceed $15 trillion.
Many investors rely on the brokerage arm of these companies for their investment advice. They send their life savings to a stock broker with a title like “Senior Investment Specialist”. Brokers are rewarded for putting your money in their company’s ongoing fee-based products.
| Expect them to look after THEIR BEST INTEREST with your money. |
Fees come in many ways.
Some independent fee-based managers offer a one time “consultation fee” to review your investments and make recommendations; similar to an annual checkup with your doctor.
Others charge a percentage of the money they manage for you. Be wary of fee-based advisors submitting your data to their affiliate (favorite fund house) which provides your personal computer analysis.
Buy the funds and you’ll pay fund fees and financial advisor fees. After they take their cut, you are lucky if there is any profit left; unless they take undue risks with your money. Some may receive commissions, creating a real conflict of interest.
Brokerage firms offer free computer analysis, why pay an advisor to hand it to them?
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All financial advisors are not equal
Government agencies and professional associations established two levels of responsibility.
Fiduciary Responsibility – The advisor is required to put your interests first, even at their own expense. They must serve their client above all other interests. They must seek out the BEST investment for their clients even if it pays them less commission or fees.
This is the highest standard of responsibility. Those who have CFP (Certified Financial Planner) designation are held to this standard.
Suitability Responsibility – Advisors (like traditional stock brokers) held to this standard may guide you to investments deemed SUITABLE for your investment objectives, risk tolerance, age, net worth, etc.
SUITABILITY allows them to guide you toward their high profit products. Brokers are paid to channel client’s money into their fee-based products, regardless of how poorly they perform.
| Forget the catchy title on their business card. Ignore what they claim to be; focus on the behavior they are legally required to adhere to. |
There are many grey areas, even for those held to the Fiduciary standard. Investment companies may offer “soft” money like trips, prizes and other incentives creating potential conflict of interest. Ask how they are compensated.
Trust me?
The Motley Fool reports on a 2016 poll (with my emphasis):
“65% of respondents said they mistrust the financial services industry to some degree. …. Only 2%…claim to trust financial professionals “a lot,” while 15%…trust them “a little.”
…. Between 2005 and 2015, an estimated 87,000 financial advisors were found guilty of some form of misconduct. These transgressions ranged from unsuitable advice, unauthorized activity, and to outright fraud. (Emphasis mine)
…. (That represents)…just 7% of the total…which means most financial professionals didn’t engage, or get charged with misconduct.”
Whoopee! – 93% of the financial professionals were not found guilty of some transgression. Many investors are unaware of the transgressions while others may just fire their advisor and choose not to pursue legal action.
It is estimated that $17 billion in “investor harm” is caused annually by brokers putting their interests ahead of their clients.
No matter how hard governments may try…
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A person’s sense of ethics, values, right and wrong are their core values. No certificate or regulation will change that.
“Is Your Money Manager Really Listening” recounts subscriber Rick G. firing his money manager after discovering investments in his account they agreed not to buy. You always have to manage them.
When searching for someone to look after your life savings, proceed with patience and caution. Some firms take great pride in competence, trust and ethical behavior. Know exactly what you are looking for. Don’t settle for anything less than a fiduciary standard of behavior; good ones are out there.
If you need professional help, don’t ignore it, a mistake can be expensive.
A competent, honest financial advisor is worth their weight in gold.
If you want more information, we have prepared a 60+ page special report, “How To Find A Financial Advisor To Meet YOUR Needs.”
This comprehensive report asks, “Are you a candidate for a Financial Advisor?” It helps guide you to the type of help you need, how to find it, the interview process, and most importantly, how to keep your financial advisor on track.
Hiring, and firing an incompetent financial advisor is very expensive, not only in fees, but money you may have lost along the way.
| Subscriber Lee C. says:
“This is the first report I’ve seen that IS NOT written by someone wanting to manage my money, or looking to sell my name for a nice referral fee. It is strictly educational, with no hidden agenda. Many financial advisors will NOT want their clients to read this report. Their hidden sources of fees and income are exposed.” |
When a financial manager makes a mistake, they lose a client, YOU lose YOUR money!
Get it right the first time.
Regular readers know we use the special reports to help offset the cost of our FREE articles. To reward our subscribers for their loyalty we are offering an early bird special, a 25% discount. Use the coupon code “Dennis25”. This offer expires on May 15, 2020. For more information click HERE.
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Disclaimer. I am NOT a financial professional. I am NOT licensed or qualified to give individual, personal investment advice. UNDER NO CIRCUMSTANCES do I recommend any financial advisor or firm. Everyone’s needs are unique. When it comes to good, competent, honest financial advisors, there is no “one size fits all.” |
On The Lighter Side
What the heck happened to spring? We had a couple weeks in the high 70’s with cool nights, followed by 5 days in the 80’s. The Weather Channel predicted 90’s to 100 this week. I hate to turn on the AC because I know it is likely to run continuously until October.
We are concerned as there are still many flowers yet to bloom. Desert plants are expensive so we built a 4′ x 8′ flower box and planted small plants from Home Depot. They are now growing like mad and need to be replanted. This plant came in a 4″ planter and is now sprawled out almost 3 feet.
We asked the landscaper to move the plants last fall and he said to wait until spring. Since the lockdown, we have not seen him. Hopefully we can get it done before it is too hot. Replanting cactus is not something a novice should try.
Jo decided to stick a tomato plant in the box and it is performing well.
And finally…
Boyhood friend Tom G. shares some tee-shirt wisdom.
- If you can’t laugh at yourself, let me do it.
- I’m so confused, I don’t know whether I’ve found a rope or lost a horse.
- My wife says I have two faults. I don’t listen and something else…
- At my funeral take the bouquet off my coffin and throw it into the crowd to see who is next.
And my favorite…
- The best thing about the good old days was that I wasn’t good and I wasn’t old.
Until next time…
Dennis Miller
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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