As an In-House Tax Strategist for a “Wealth Management” office, I had the unique perspective of watching and observing the gyrations a wealth advisory team will go through in order to “land a client”. My job, obviously, was to bring useful services to the existing and potential clientele. Well, not exactly. I had the mindset of that purpose but in truth, it was just one more method for the LPL Financial Broker to get in front of another new prospect. Actually, that one purpose “get in front of another prospect” was the driving force in every decision. Think about it this way. A Financial Advisory Firm will make thousands of dollars for each new client “they land” versus a few hundred dollars more for doing a better job with their existing clientele. The truth is, depending on how a financial advisory firm is constructed, will dictate what is most essential to them and how it will greatly affect you as the client. This is one of the many reasons why Congress passed the new DOL fiduciary law this past spring, but a little more about that in a latter article.
When a financial advisory firm concentrates their resources in prospecting, I can guarantee you the advice you happen to be receiving is not entirely in your benefit. Managing a successful wealth management office takes a lot of money, especially one that has got to prospect. Seminars, workshops, mailers, advertising in addition to support staff, rent and the latest sales training can cost any size firm thousands and thousands of dollars. So, when you are sitting throughout the glossy conference table from the advisor, just know they are thinking of the dollar amount they want from your procurement of your own assets and they will be allocating that to their own budget. Maybe that’s why they get yourself a little ‘huffy’ whenever you let them know “you need to think it over”?
Focusing on closing the sale as opposed to allowing for a natural progression would be like operating a doctor’s office where they spend all of their resources how to bring in prospective patients; how you can show potential patients precisely how wonderful they are; and the best way for that doctor’s office staff to close the deal. Can you imagine it? I bet there will be a smaller amount of wait! Oh, I will just smell the freshly baked muffins, hear the sound of the Keurig inside the corner and grabbing a cold beverage out from the refrigerator. Fortunately or unfortunately, we don’t experience that whenever we go to a doctor’s office. In reality, it’s quite the contrary. The wait is long, the space is just above uncomfortable as well as a friendly staff is not the standard. This is because Medical Service Providers spend their time and resources into learning how to deal with you as you are walking out the door instead of in it.
As you are looking for financial advice, there are a hundred things to take into account when growing and protecting your wealth, especially risk. You can find risks to get a bad advice, there are risks in getting the best advice however, not asking an ample amount of the best questions, but a majority of importantly, you will find risks of being unsure of the true way of measuring wealth management. The most typical overlooked risk is not knowing the net return on the cost of receiving good financial advice. Some financial advisors believe that if they have a good office using a pleasant staff as well as a working coffeemaker they are providing great value with their clients. Those same financial advisors also spend their resources of time and expense to place their prospective clients with the ‘pain funnel’ to create the feeling of urgency that they must take action now while preaching building wealth will take time. So that you can minimize the chance of bad advice would be to quantify in real terms. A good way to know in case you are receiving value for the financial advice would be to measure your return backwards.
Normally, when you visit a contract having a financial advisor there is a ‘management fee’ usually anywhere between 1% and twoPercent. Actually, this management fee are available in every mutual fund and insurance product that investments or links to indexes. The hassle I observed over and over again because i sat through this carnival act, was that management fees, although mentioned, were merely an after-thought. When presenting their thorough portfolio audit and sound recommendations, the sentence used to the unsuspecting client was the market has historically provided around 8% (but we’re likely to use 6% because we wish to be ‘conservative’) and we’re only planning to charge you 1.5% being a management fee. No problem, right?
Let’s discover why understanding this management fee ‘math’ is so important, and how it could actually save your valuable asjoir. This could actually stop you from going broke utilizing a financial advisor by simply measuring your financial advice in reverse. Let’s examine an example to best demonstrate a better way to check out how good your financial advisor is doing.