Investment Advisors 101. Ask These Questions.
By Steve Selengut
Professional Investment Portfolio Manager since 1979
BA Business, Gettysburg College; MBA Professional Management
Sanserve[at]aol.com
http://www.sancoservices.com
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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 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: http://www.sancoservices.com/
"The Brainwashing of the American Investor: The Book that Wall Street
Does Not Want YOU to Read" and “A Millionaire’s Secret Investment
Strategy”.
Steve has operated a private Investment Management service since 1979,
using
no Mutual Funds or other investment “products”. Every account is different
and handled personally.
Published - January 2006
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