As being 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, needless to say, 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 Arrest to get in front of another new prospect. In fact, 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 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 truth is, depending on how a monetary advisory firm is made, will dictate what is most important to them and how it will greatly affect you as the client. This is among the many reasons why Congress passed the new DOL fiduciary law this past spring, but a little more about that in a latter article.
Whenever a financial advisory firm concentrates all their resources in prospecting, I can guarantee you that the advice you are receiving will not be entirely in your benefit. Operating a successful wealth management office takes a lot of money, especially one that has to prospect. Seminars, workshops, mailers, advertising in addition to support staff, rent and the latest sales training may cost any size firm tens of thousands of dollars. So, when you are sitting across the glossy conference table out of your advisor, just know they are considering the dollar amount they require from your procurement of your assets and they can be allocating that to their own budget. Maybe that’s why they get yourself a little ‘huffy’ whenever you tell them “you must consider it”?
Concentrating on closing the sale rather than allowing for an all natural progression could be like managing a doctor’s office where they spend all their resources how to usher in prospective patients; how to show potential patients exactly how wonderful they may be; and the most effective way for the doctor’s office staff to seal the sale. Can you imagine it? I bet there could be a smaller amount of wait! Oh, I will just smell the freshly baked muffins, hear the noise 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 contrary. The wait is long, the area is merely above uncomfortable as well as a friendly employees are not the standard. That is because Health Care Providers spend their time as well as resources into understanding how to take care of you since you are walking out your door instead of within it.
As you are looking for financial advice, you will find a hundred things to think about when growing and protecting your wealth, especially risk. You will find risks to get the wrong advice, there are risks in getting the right advice although not asking enough of the best questions, but a majority of importantly, there are perils of not knowing the true measure of wealth management. The most common overlooked risk is not really comprehending the net return on the price 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 coffeemaker these 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 generate the sense of urgency that they have to take action 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. One way to find out if you are receiving value to your financial advice is always to measure your return backwards.
Normally, whenever you visit a binding agreement with a financial advisor there exists a ‘management fee’ usually somewhere between 1% and twoPer cent. In reality, this management fee are available in every mutual fund and insurance product which investments or links to indexes. The problem I observed repeatedly 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 likely to charge 1.5% as being a management fee. No big issue, right?
Let’s discover why understanding this management fee ‘math’ is so important, and just how it may actually keep your asjoir. This could actually prevent you from going broke using a financial advisor just by measuring your financial advice in reverse. Let’s look at an example to best demonstrate an improved way to check out how good your financial advisor is performing.