As being 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, of course, was to bring value added 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 way 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. Consider it this way. A Financial Advisory Firm will make 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 important to them and how it will greatly affect you as the client. This is probably the many reasons why Congress passed the new DOL fiduciary law this past spring, but more about that in a latter article.
Each time a financial advisory firm concentrates all their resources in prospecting, I could assure you that this advice you might be receiving is not entirely for your benefit. Managing a successful wealth management office takes lots of money, especially one that needs to prospect. Seminars, workshops, mailers, advertising together with support staff, rent and also the latest sales training may cost any size firm hundreds of thousands of dollars. So, when you are sitting across the glossy conference table from your advisor, just know they are considering the dollar amount they want from the procurement of the assets and they can be allocating that within their own budget. Maybe that’s why they get yourself a little ‘huffy’ when you let them know “you must think about it”?
Focusing on closing the sale rather than permitting an organic progression could be like managing a doctor’s office where they spend all their resources how to usher in prospective patients; the best way to show potential patients precisely how wonderful they are; and the most effective way for the doctor’s office staff to close the deal. Can you imagine it? I bet there could be less of wait! Oh, I could just smell the freshly baked muffins, hear the noise of the Keurig in the corner and grabbing a cold beverage out of the refrigerator. Fortunately or unfortunately, we don’t experience that if we enter a doctor’s office. In reality, it’s quite the contrary. The wait is long, the room is just above uncomfortable along with a friendly staff is not the norm. This is because Medical Service Providers spend all their some time and resources into understanding how to take care of you as you are walking out the 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 in obtaining the incorrect advice, you will find risks in getting the correct advice but not asking an adequate amount of the right questions, but a majority of importantly, there are risks of not knowing the true measure of wealth management. The most frequent overlooked risk will not be understanding the net return on the price of receiving good financial advice. Some financial advisors believe that should they have a nice office having a pleasant staff as well as a working coffee maker these are providing great value with their clients. Those same financial advisors also spend their resources of time and expense to put their potential customers through the ‘pain funnel’ to produce the feeling of urgency that they have to act now while preaching building wealth needs time. To be able to minimize the risk of bad advice would be to quantify in actual terms. A good way to learn should you be receiving value for your financial advice is always to measure your return backwards.
Normally, once you visit an agreement with a financial advisor there is a ‘management fee’ usually anywhere between 1% and two%. In fact, this management fee are available in every mutual fund and insurance product that investments or links to indexes. The hassle 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 the market has historically provided around 8% (but we’re likely to use 6% because we want to be ‘conservative’) and we’re only going to charge 1.5% as a management fee. No problem, right?
Let’s discover why understanding this management fee ‘math’ is very important, and just how it might actually save your valuable asjoir. This could actually stop you from going broke employing a financial advisor just by measuring your financial advice in reverse. Let’s take a look at an illustration to best demonstrate a better way to check out how good your financial advisor does.