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 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 Oklahoma Ryan 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. Think about 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 truth is, depending on how a monetary advisory firm is made, 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 a little more about that in a latter article.
Each time a financial advisory firm concentrates their resources in prospecting, I can assure you that this advice you are receiving is not really entirely for 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 also the latest sales training could cost any size firm thousands and thousands of dollars. So, as you are sitting across the glossy conference table from the advisor, just know that they are considering the dollar amount they require through the procurement of the assets and they can be allocating that into their own budget. Maybe that’s why they get a little ‘huffy’ whenever you let them know “you must consider it”?
Centering on closing the sale rather than permitting an organic progression could be like managing a doctor’s office where they spend all of their resources how to bring in prospective patients; how to show potential patients just how wonderful they may be; and the best way for that doctor’s office staff to seal the deal. Can you imagine it? I bet there will be less of wait! Oh, I will just smell the freshly baked muffins, hear the noise of the Keurig in the corner and grabbing a cold beverage from the refrigerator. Fortunately or unfortunately, we don’t experience that whenever we go to a doctor’s office. In reality, it’s quite the exact opposite. The wait is long, the room is just above uncomfortable as well as a friendly employees are not the standard. This is because Medical Service Providers spend all their time as well as resources into knowing how to take care of you as you are walking out your door instead of in it.
As you are searching 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 wrong advice, you will find risks in obtaining the right advice but not asking enough of the best questions, but many importantly, you can find perils of being unsure of the actual way of measuring wealth management. The most common overlooked risk is not really comprehending the net return on the cost of receiving good financial advice. Some financial advisors think that if they have a great office using a pleasant staff along with a working coffeemaker they may be providing great value with their clients. Those same financial advisors also spend their resources of time and expense to set 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 risk of bad advice would be to quantify in actual terms. A good way to learn if you are receiving value for your financial advice would be to measure your return backwards.
Normally, once you arrived at a contract having a financial advisor there exists a ‘management fee’ usually approximately 1% and two%. Actually, this management fee can be found in every mutual fund and insurance product that investments or links to indexes. The trouble I observed again and again because 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 this market has historically provided typically 8% (but we’re likely to use 6% because we would like to be ‘conservative’) and we’re only planning to charge you 1.5% as a management fee. No big deal, right?
Let’s discover why understanding this management fee ‘math’ is really important, and exactly how it may actually save your asjoir. This could actually prevent you from going broke using a financial advisor just by measuring your financial advice in reverse. Let’s examine an illustration to best demonstrate a better way to look at how good your financial advisor is doing.