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 however in truth, it was just one more means 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 about it 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. You see, depending on how a monetary advisory firm is built, 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 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 will not be entirely in your benefit. Operating 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 also the latest sales training could cost any size firm thousands and thousands of dollars. So, when you are sitting across the glossy conference table from the advisor, just know that they are thinking of the dollar amount they require through the procurement of the assets and they will be allocating that within their own budget. Maybe that’s why they get yourself a little ‘huffy’ whenever you make sure they know “you must think it over”?
Focusing on closing the sale as opposed to permitting a natural progression would be like operating a doctor’s office where they spend their resources how to usher in prospective patients; the best way to show potential patients exactly how wonderful they may be; and the most effective way for the doctor’s office staff to close the offer. Could you imagine it? I bet there would be a smaller amount of wait! Oh, I can 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 when we enter a doctor’s office. In reality, it’s quite the exact opposite. The wait is long, the space is just above uncomfortable along with a friendly staff is not the standard. This is because Health Care Providers spend all of their time as well as resources into understanding how to take care of you when you are walking the door as opposed to inside it.
As you are interested in financial advice, you can find a hundred things to consider when growing and protecting your wealth, especially risk. You will find risks in getting a bad advice, you will find risks in obtaining the right advice although not asking an ample amount of the best questions, but most importantly, there are perils of not understanding the actual 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 should they have a nice office using a pleasant staff and a working coffeemaker they are providing great value to their clients. Those same financial advisors also spend their resources of money and time to put their potential customers from the ‘pain funnel’ to produce the sensation of urgency that they have to act 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 learn should you be receiving value to your financial advice is to measure your return backwards.
Normally, whenever you come to an agreement with a financial advisor there is a ‘management fee’ usually anywhere between 1% and 2%. In fact, this management fee can be found in every mutual fund and insurance product that investments or links to indexes. The problem I observed repeatedly when 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 utilized to the unsuspecting client was that the market has historically provided around 8% (but we’re planning to use 6% because we wish to be ‘conservative’) and we’re only going to ask you for 1.5% being a management fee. No big deal, right?
Let’s discover why understanding this management fee ‘math’ is very important, and exactly how it might actually save your valuable asjoir. This might actually keep you from going broke utilizing a financial advisor just by measuring your financial advice in reverse. Let’s examine a good example to best demonstrate a better way to consider how good your financial advisor does.