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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 naďve, 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
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