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, 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 method for the LPL Financial Broker 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. You see, depending on how a financial advisory firm is constructed, will dictate what is most significant 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 more about that in a latter article.
Each time a financial advisory firm concentrates their resources in prospecting, I will assure you that the advice you might be receiving is not entirely in your benefit. Operating a successful wealth management office takes lots of money, especially one that has got to prospect. Seminars, workshops, mailers, advertising in addition to support staff, rent as well as the latest sales training can 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 that they are thinking about the dollar amount they require through the procurement of your assets and they will be allocating that to their own budget. Maybe that’s why they get a little ‘huffy’ whenever you tell them “you must think about it”?
Concentrating on closing the sale as opposed to making it possible for an all natural progression could be like running a doctor’s office where they spend all of their resources how to bring in prospective patients; the best way to show potential patients precisely how wonderful these are; and the most effective way for that doctor’s office staff to close the offer. Could you imagine it? I bet there will be a smaller amount of wait! Oh, I could just smell the freshly baked muffins, hear the sound of the Keurig in the corner and grabbing a cold beverage out from the refrigerator. Fortunately or unfortunately, we don’t experience that whenever we walk into a doctor’s office. In fact, it’s quite the contrary. The wait is long, the space is merely above uncomfortable as well as a friendly staff is not the standard. That is because Health Care Providers spend their time as well as resources into knowing how to care for you when you are walking out the door as opposed to inside it.
As you are searching for financial advice, there are a hundred things to think about when growing and protecting your wealth, especially risk. You will find risks in obtaining a bad advice, there are risks to get the right advice however, not asking an adequate amount of the right questions, but a majority of importantly, you will find perils 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 think that should they have a nice office using a pleasant staff as well as a working coffeemaker they are providing great value for their clients. Those same financial advisors also spend their resources of money and time to put their potential customers with the ‘pain funnel’ to generate the feeling of urgency that they must take action now while preaching building wealth needs time. To be able to minimize the risk of bad advice is to quantify in actual terms. One of the ways to find out if you are receiving value for the financial advice is to measure your return backwards.
Normally, whenever you arrived at a contract having a financial advisor you will find a ‘management fee’ usually somewhere between 1% and 2Per cent. In reality, this management fee can be found in every mutual fund and insurance product which investments or links to indexes. The hassle I observed again and again 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 used 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 a management fee. No big issue, right?
Let’s discover why understanding this management fee ‘math’ is very important, and how it could actually save your asjoir. This could actually keep you from going broke utilizing a financial advisor simply by measuring your financial advice in reverse. Let’s take a look at an illustration to best demonstrate a much better way to look at how good your financial advisor is performing.