Investment Advisors (IAs) come in all different intellectual,
professional, and alphabetical varieties. They range in educational
qualifications from High School dropout to PhD, and can be
professional Accountants, Insurance Salesmen, Stock Brokers,
Investment Managers, Dentists, Lawyers, TV personalities,
and Gourmet Chefs. Anyone can be an Investment Advisor! It
seems reasonable that your trust should gravitate toward those
who have educational credentials, hands on experience with
their own money, and no direct financial benefit from the
advice provided. Stay safer by finding a fee only advisor
who has just one profession… and the ability to say NO.
Why do people become Investment Advisors? Call me skeptical,
but I don’t think it’s the ethereal glow they feel
after implementing your new Financial Plan. Actually (once
you appreciate that IAs are the primary delivery system for
Wall Street’s huge collection of one-size-fits-all products),
you’ll realize that it’s the money. No conspiracy
here, just a subtle brainwashing that has convinced you that
the Advisor’s primary objective is to protect your family.
In reality, the primary goal of commissioned advisors is to
protect their own families, and they accomplish this by selling
Investment Products. The Investment Advisor label has become
a euphemism for product salesperson just as Financial Planner
nearly always means Insurance salesperson. Stay safer by finding
a fee only advisor who has just one profession… and the
ability to say NO.
Serious IAs can be identified by acronyms following their
names (also by dark three piece suits and facial hair), RIA
and CFP being the most common. As professional as this seems,
designations do not create trustworthiness, for several reasons:
IAs must become RIAs to be licensed to sell investment products.
Most practitioners affiliate themselves with major Wall Street
Institutions to defray their start up costs and many are subsidized
in return for pushing their sponsor’s products. Finally,
most advisors will remain in bed with one company at a time
throughout their careers, constantly touting the present firm’s
products as “best”. Hmmm. Hundreds of companies,
thousands of IAs, convincing millions of shoppers (investors)
that they have just purchased the one very best product to
achieve their financial goals. From cradle to grave, most
IAs dance to a tune that’s not being played by their
clients.
Over the past several years, Wall Street has managed to invade
the once respected Insurance Industry by attaching Mutual
Funds to life insurance and annuity products, making them
far too speculative to achieve their once guaranteed objectives.
But the “variable products” scam dwarfs in potential
long-term impact to the more recent high crime against investors.
This is the one that ignores the (in-your-face-obvious) Conflict
of Interest when Accountants sell investment products! Many
professionals have multiple degrees; few have multiple practices.
You deserve a specialist. If your CPA/Lawyer/Doctor (who’s
next) can make a living in his primary practice, why sell
investment products? Greed? Hubris? And why does Wall Street
allow these non-professionals to push investment products?
Don’t be naïve, the more people out there pushing
Investment Products, the bigger the bonus for the Masters
of the Universe. Stay safer by finding a fee only advisor
who has just one profession… and the ability to say NO.
In spite of the fact that the “burn out” rate among
IAs compares with that of restaurants and Mutual Fund Managers,
and that the advisory business itself is a cut-throat, competitive
battlefield, the Financial Institutions that employ the majority
of IAs prosper, multiply, and produce more product for your
“eyes wide shut” consumption… because you,
your products, and the management fees remain! A caring and
successful Investment Advisor makes an excellent income and
should; a successful financial institution buys other financial
institutions!
The hierarchy of commissions paid to IAs can exceed 10% on
“private deals”, limited partnerships, and a litany
of speculative products and services. On the more controlled
substances (sic), Annuity commissions can run above 8% with
10-year lock up provisions common and Mutual Funds provide
a generous 4% to 6% whether you see them or not. New issues,
odd lot Bonds, and other securities that don’t show a
commission, include marketing fees and mark ups that can be
substantial. What ever happened to individual Equity portfolios?
It’s a combination of in-greed-ients… products are
less work and produce more money. Stay safer by finding a
fee only advisor who has just one profession, the ability
to say NO, and who knows something about individual securities.
Most people need Investment Advisors. Life Insurance protection
is vital; fixed annuities are helpful for people of limited
means; Mutual Funds are the only option (pity) in most self-directed
retirement plans. The vast majority of employed Americans
are Investors, actively or passively, with little time or
expertise to select securities and manage portfolios. (If
the Democrats would accept this, they just might win an election.)
But recent experience confirms that we all have a responsibility
to our own money, a responsibility that we should only delegate
to a professional if we know what the professional is supposed
to know. The fact that he or she is an XYZ Fund representative
just isn’t enough. You need an independent advisor that
has ideas rather than products and an understanding of markets,
not marketing. If you are willing to ask the right questions,
you can find an IA who might just be able to help you (and
herself) at the same time. Try these for starters: Do you
sell any products? Do you have a personal portfolio that I
can review? Do you provide a “fee only” advisory
service? How long have you been in the financial services
business, and is it your only business? (It’s not your
job to educate “newbies”!) Are you affiliated with
any other financial services companies? Do you have at least
five non-family clients who you have been advising for at
least five years… that I can contact directly? Will you
be compensated for referring me to someone? Stay safer by
finding a fee only advisor who has just one profession and
the ability to say NO.
The ability to say NO? An advisor will tell you not to do
something that he feels is inappropriate… a salesman
will do what you tell him to do.
Steve
Selengut
sanserve@aol.com
http://www.sancoservices.com
Author of: "The Brainwashing of the American Investor:
The Book that Wall Street Does Not Want YOU to Read",
and "A Millionaire's Secret Investment Strategy"
