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, needless to say, 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 means for the Arrest 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 truth is, depending on how a financial 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 a little more about that in a latter article.
Each time a financial advisory firm concentrates all their resources in prospecting, I will guarantee that the advice you are receiving will not be entirely to your benefit. Managing a successful wealth management office takes a lot of cash, especially one that has to prospect. Seminars, workshops, mailers, advertising along with support staff, rent and also 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 that they are thinking about the dollar amount they require through the procurement of your own assets and they can be allocating that to their own budget. Maybe that’s why they get yourself a little ‘huffy’ when you let them know “you must think it over”?
Focusing on closing the sale as opposed to allowing for an organic progression could be like running a doctor’s office where they spend their resources how to bring in prospective patients; how to show potential patients exactly how wonderful they are; and the most effective way for that doctor’s office staff to close the sale. Can you imagine it? I bet there could be a smaller amount of wait! Oh, I could just smell the freshly baked muffins, hear the sound of the Keurig within the corner and grabbing a cold beverage out from the refrigerator. Fortunately or unfortunately, we don’t experience that when we walk into a doctor’s office. In reality, it’s quite the exact opposite. The wait is long, the room is just above uncomfortable and a friendly employees are not the norm. That is because Medical Service Providers spend all their time as well as resources into learning how to care for you when you are walking the door instead of inside it.
As you are looking for financial advice, you can find a hundred things to think about when growing and protecting your wealth, especially risk. You can find risks to get the incorrect advice, you will find risks in getting the correct advice although not asking an adequate amount of the correct questions, but a majority of importantly, you can find perils of being unsure of the actual way of measuring wealth management. The most typical overlooked risk is not really understanding the net return on the price of receiving good financial advice. Some financial advisors feel that when they have a good office using a pleasant staff along with a working coffee maker they are providing great value for their clients. Those same financial advisors also spend their resources of money and time to place their prospective clients from the ‘pain funnel’ to produce the feeling of urgency that they must take action now while preaching building wealth will take time. In order to minimize the chance of bad advice is to quantify in real terms. One way to find out in case you are receiving value to your financial advice would be to measure your return backwards.
Normally, when you arrived at a contract with a financial advisor there is a ‘management fee’ usually somewhere between 1% and twoPercent. In reality, this management fee can be found in every mutual fund and insurance item that investments or links to indexes. The hassle 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 this market has historically provided around 8% (but we’re planning to use 6% because we want to be ‘conservative’) and we’re only planning to ask you for 1.5% as being a management fee. No big deal, right?
Let’s discover why understanding this management fee ‘math’ is really important, and exactly how it could actually save your valuable asjoir. This might actually prevent you from going broke employing a financial advisor simply by measuring your financial advice in reverse. Let’s look at a good example to best demonstrate a much better way to check out how good your financial advisor is performing.