As an In-House Tax Strategist for a “Wealth Management” workplace, I had the exceptional perspective of observing and celebrating that the gyrations a wealth advisory team will undergo to be able to “land a client”. My job, of course, was to bring value added services into the existing and potential clientele. Well, not precisely. I had the mindset of the purpose but in truth, it was just yet another way for the “financial planner” to get in front of another new prospect. In fact, that one purpose “get in front of another prospect” has been the driving force in each decision. Consider it like this. A Financial Advisory Firm will make tens of thousands of bucks for each new customer “they land” versus a couple of hundred bucks more for doing a better job with their present clientele. You see, depending on the way the financial advisory company is assembled, will dictate what’s important to them and the way that it will greatly affect you as the client. This is one of the numerous reasons why Congress passed the new DOL fiduciary legislation this past spring, but more about that in a latter article.
When a financial advisory company concentrates all their resources in prospecting, I can assure you that the information you’re receiving isn’t entirely to your benefit. Running a successful wealth management office takes a lot of cash, particularly one that must potential. Seminars, workshops, mailers, advertisements along with service staff, rent and the newest sales training can cost any size firm hundreds of thousands of dollars. So, as you are sitting across the glistening conference table from your adviser, simply know that they are thinking of the dollar amount they need from the acquisition of your assets and they’ll be allocating that into their own budget. Maybe that is why they get a bit ‘huffy’ if you let them know “you have to think about it”?
Focusing on closing the purchase instead of allowing for a natural development would be like conducting a physician’s office where they invest all their resources how to bring in potential patients; how to reveal prospective patients just how fantastic they are; and the best method for your physician’s office staff to close the offer. Can you imagine it? Oh, I can just smell the freshly baked muffins, hear the noise of the Keurig in the corner and grabbing a cold beverage out of the refrigerator. Fortunately or unfortunately we do not experience that if we walk into a physician’s office. In reality, it’s quite the opposite. The wait is long, the room is just above uncomfortable and a friendly team isn’t the norm. That is because Health Care Providers invest all their time and resources into understanding how to take care of you since you are walking out the door rather than inside.
As you are browsing for financial information, there are a hundred things to think of when growing and protecting your wealth, particularly risk. There are dangers in getting the incorrect advice, there are dangers in receiving the right advice but not requesting enough of the ideal questions, but most importantly, there are risks of not knowing the real measure of wealth management. The most common overlooked risk isn’t understanding the internet return on the expense of receiving good financial information. Some financial advisors believe that should they have a nice office with a pleasant staff and a working coffee maker they’re providing excellent value to their clients. Those same financial advisors spend their resources of time and money to put their prospective customers through the ‘pain funnel’ to make the sense of urgency that they must act today while preaching construction wealth takes some time. In order to minimize the danger of terrible information is to quantify in real conditions. Among the methods to understand whether you’re getting value for your financial advice would be to measure your return backwards.
Normally, when you return to an agreement with a financial adviser there is a ‘management fee’ generally somewhere between 1% and 2%. In fact, this management fee are found in each mutual fund and insurance product that has links or investments to indicators. The trouble I observed over and over again as I sat through this carnival action, was that management fees, although said, were merely an after-thought. When presenting their comprehensive portfolio audit and audio recommendations, the sentence used to the unsuspecting client was that the marketplace has provided an average of 8 percent (but we’re going to use 6 percent because we would like to be ‘conservative’) and we are just going to charge you 1.5 percent for a management fee. No big deal, right?
Let’s discover why understanding this administration fee ‘math’ is so important, and how it can actually save your retirement. This could actually save you from going broke using a financial adviser simply by measuring your financial information in inverse. Let’s look at an example to best demonstrate a better way to check at how good your financial adviser is doing.