Dream Architects Serving Up Pie in the Sky
It’s amazing what the Financial Advisory industry will do to get more clients and/or generate more revenue. I started in the days when a manager would walk around with the stock of the day and brokers would dial for dollars. Meaning they would call both clients and non-clients with the next great tip to generate commissions. Thank goodness those days are over, however there is a new approach which in my opinion is just as dangerous to the average investor out there.
I’ll call it “Marketing”, as I don’t have a better name for it. A financial Advisor today can go by many things, Financial Planner, Investment Manager, Portfolio Manager, Financial Consultant, Registered Representative, just to name a few. This makes it very hard for the average investor to know what anyone of them actually do. Today there is a new breed, or should I say new titles that perceive to make you believe that somehow, they will make your life remarkable.
Family Counselor, Goal Achiever and my new all-time favorite Dream Architect. What the heck is that??!!! If you read some of the marketing material you could easily believe that by working with these folks, that the Captain of your Yacht will be sailing you around the Mediterranean.
I’m yet to find a get rich scheme out there that doesn’t involve substantial risk to your wallet or freedom. And believing that somehow a financial advisor (no matter what they call themselves) can somehow make your life so much better is asking to be swindled.
So, what should you be looking for?
Planning
You can’t start any journey without a road map. That’s what the financial plan does for you. It should document your current situation (net worth etc.), and your goals for the future (when you want to retire and on how much). The result of the financial plan should be to determine what amount of risk is appropriate for you to help achieve your goal. You should not pay a percentage of your assets for this. A plan is a document like a will or a tax return. You should pay for the document the same way you pay your CPA or your attorney, an hourly fee.
Investing
Once your plan is complete you need to implement your investment strategy. Now there are many ways to do this, either yourself or with the assistance of an advisor or money manager. If you need the assistance, then determine if your advisor is managing the assets him/herself or purchasing funds. Understand that if funds are purchased they likely have a fee inside the fund, which would be in addition to what your advisor charges to select those funds. I’m not saying that buying funds is necessarily bad, rather I’d prefer you to know exactly what and how much you’re paying.
Investor Education
Now the advisor for the fee you’re paying should be providing you with some ongoing financial education. If they manage money themselves, they should be educating you on their process and advising you on the discipline that you will need to have during both good and bad markets. If they’re purchasing you funds, then they should be educating you on the role that each fund plays in your strategy.
Review and Reporting
Given all the rules that have finally come down in the Financial Industry I would be amazed if you don’t meet with your Advisor at least annually. In that meeting, the first thing you should be reviewing is how you performed against your respective benchmark. Yes, benchmark. When your plan is written, it should’ve showed you how aggressive you need to be to help achieve your goal…Conservative/Moderate/Aggressive etc. Once your benchmark is established you should be measuring yourself against it each year (if not each quarter). Now our goal as money managers should be to beat the benchmark with less risk. It’s a very hard thing to achieve, yet it should be our goal. By measuring this on a periodic basis, you’ll spot the trends. (i.e., consistent underperformance or outperformance). You should be concerned if you consistently outperform as it could mean you were taking too much risk.
Responsiveness
Lastly, I’ll tell you that if you’re paying an advisor, they should be there to advise. If you have a question or concern you should be able to call and get an answer quickly.
In my relatively short 20 years advising clients, I’ve seen this industry change a lot. No doubt it will change further in the future. I just hope that it stops allowing the marketing to promote pie in the sky.
Any opinions are those of the financial advisor and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.
