As an In-House Tax Strategist for a “Wealth Management” office, I needed the unique perspective of watching and observing the gyrations a wealth advisory team will go through in order to “land a client”. My job, of course, 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 Mugshot 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 it over this way. A Financial Advisory Firm will make hundreds and hundreds of dollars for each new client “they land” versus a few hundred dollars more for doing a better job with their existing clientele. The thing is, depending on how an economic advisory firm is constructed, will dictate what is most important 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 more about that in a latter article.
When a financial advisory firm concentrates all their resources in prospecting, I will guarantee the advice you happen to be receiving will not be entirely in your benefit. Running a successful wealth management office takes a lot of cash, especially one that needs to prospect. Seminars, workshops, mailers, advertising together with support staff, rent and the latest sales training may cost any size firm hundreds of thousands of dollars. So, since you are sitting over the glossy conference table from your advisor, just know they are thinking about the dollar amount they need from your procurement of your assets and they can be allocating that into their own budget. Maybe that’s why they obtain a little ‘huffy’ whenever you make sure they know “you must consider it”?
Centering on closing the sale instead of allowing for an all natural progression could be like managing a doctor’s office where they spend all their resources how to bring in prospective patients; how to show potential patients precisely how wonderful they are; and the best way for the doctor’s office staff to close the offer. Could you imagine it? I bet there could be less of wait! Oh, I could just smell the freshly baked muffins, hear the sound of the Keurig inside the corner and grabbing a cold beverage from the refrigerator. Fortunately or unfortunately, we don’t experience that if we go to a doctor’s office. Actually, it’s quite the opposite. The wait is long, the space is merely above uncomfortable as well as a friendly staff is not the norm. This is because Health Care Providers spend all their some time and resources into understanding how to take care of you when you are walking out your door rather than inside it.
As you are interested in financial advice, you can find a hundred things to take into account when growing and protecting your wealth, especially risk. There are risks in getting the wrong advice, there are risks to get the correct advice however, not asking enough of the best questions, but most importantly, there are hazards of not knowing the real way of measuring wealth management. The most common overlooked risk is not comprehending the net return on the expense of receiving good financial advice. Some financial advisors think that when they have a nice office using a pleasant staff as well as a working coffee maker they may be providing great value for their clients. Those same financial advisors also spend their resources of time and expense to place their prospective clients from the ‘pain funnel’ to produce the sense of urgency that they have to take action now while preaching building wealth needs time. So that you can minimize the risk of bad advice is to quantify in real terms. One of the ways to know should you be receiving value for the financial advice is always to measure your return backwards.
Normally, whenever you arrived at a binding agreement having a financial advisor there is a ‘management fee’ usually somewhere between 1% and twoPercent. In fact, this management fee may be found in every mutual fund and insurance product which investments or links to indexes. The problem I observed over and over again as 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 employed to the unsuspecting client was that the market has historically provided typically 8% (but we’re likely to use 6% because we would like to be ‘conservative’) and we’re only planning to charge you 1.5% being a management fee. No big issue, right?
Let’s discover why understanding this management fee ‘math’ is so important, and just how it might actually keep your asjoir. This may actually stop you from going broke employing a financial advisor by simply measuring your financial advice in reverse. Let’s examine an example to best demonstrate a much better way to look at how good your financial advisor is performing.