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, 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 method for the Stockbrokerfraud Tulsa to get in front of another new prospect. In reality, that one purpose “get in front of another prospect” was the driving force in every decision. Consider it this way. A Financial Advisory Firm will make tens of 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 thing is, depending on how an economic 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 much more about that in a latter article.
Each time a financial advisory firm concentrates all their resources in prospecting, I will guarantee the advice you are receiving is not entirely to 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 the latest sales training could cost any size firm thousands and thousands of dollars. So, when you are sitting throughout the glossy conference table from your advisor, just know that they are thinking of the dollar amount they want through the procurement of your own assets and they can be allocating that to their own budget. Maybe that’s why they obtain a little ‘huffy’ when you let them know “you need to think it over”?
Centering on closing the sale instead of allowing for an all natural progression would be like managing a doctor’s office where they spend all their resources how to bring in prospective patients; how you can show potential patients exactly how wonderful these are; and the most effective way for the doctor’s office staff to close the offer. Could you imagine it? I bet there could 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 from the refrigerator. Fortunately or unfortunately, we don’t experience that if we go to a doctor’s office. In fact, it’s quite the exact opposite. The wait is long, the room is simply above uncomfortable and a friendly employees are not the standard. That is because Medical Service Providers spend their time as well as resources into knowing how to deal with you since you are walking out the door instead of within it.
As you are searching for financial advice, you will find a hundred things to take into account when growing and protecting your wealth, especially risk. You will find risks to get the incorrect advice, you will find risks to get the right advice however, not asking an adequate amount of the best questions, but many importantly, there are hazards of being unsure of the real measure of wealth management. The most frequent overlooked risk is not knowing the net return on the expense of receiving good financial advice. Some financial advisors believe that when they have a good office with a pleasant staff and a working coffeemaker they may be providing great value to their clients. Those same financial advisors also spend their resources of time and expense to set their prospective clients with the ‘pain funnel’ to create the sensation of urgency that they have to take action now while preaching building wealth will take time. So that you can minimize the risk of bad advice is always to quantify in actual terms. A good way to know in case you are receiving value for your financial advice is always to measure your return backwards.
Normally, once you visit a binding agreement with a financial advisor you will find a ‘management fee’ usually somewhere between 1% and two%. In fact, this management fee are available in every mutual fund and insurance item that investments or links to indexes. The problem I observed again and again 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 an average of 8% (but we’re likely to use 6% because we want to be ‘conservative’) and we’re only going to charge 1.5% being a management fee. No big deal, right?
Let’s discover why understanding this management fee ‘math’ is very important, and just how it may actually keep your asjoir. This may actually keep you from going broke employing a financial advisor by simply measuring your financial advice in reverse. Let’s examine an illustration to best demonstrate a much better way to look at how good your financial advisor is performing.