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There is a wide gap between
what many investors expect from their advisor and what the
advisor actually delivers. This gap is a great source of
frustration, anger and ultimately sleepless nights. Read on
to find out how to recognize the gaps, fill them, or better
yet, avoid them altogether.
“Frank” called me one day from sunny California. He was
frustrated and upset and didn’t know where to turn. He’d
recently entrusted his local broker with his life’s savings
and naturally had certain expectations. He expected the
broker to invest his money wisely, closely monitor his
account and to take action when necessary to keep it from
losing value. You probably have the same expectations—and
rightly so. After all, isn’t that what you pay an advisor to
do?
Frank’s broker recommended dividing his precious eggs into
several baskets. And Frank simply followed his advice. Frank
went home thinking all was as he expected. But just a few
months later the account began to drop in value, losing over
3% in just one month. That’s when the problems started.
Frank immediately went to his broker and said, “Hey, I’ve
lost 3% in the last month. You need to do something!” His
broker’s response was typical. “Just hang in there. You just
need to give it some time. Let’s get together in 3 months or
so and we’ll review your account then.” It became painfully
obvious to Frank that his broker was not actively monitoring
nor managing his account.
Frank recognizes that investments change value (sometimes
quickly) and can be affected by world events. He is
comfortable with a limited amount of fluctuation. But he
wants to know that someone will take action to limit those
losses when necessary. Frank wants a safety net and his
current advisor isn’t providing it.
There was a huge gap between Frank’s perception of what his
broker would do and reality. The vast majority of brokers,
advisors and insurance agents merely act as middle-men
between various money managers and the consumers who use
them.
Money managers are the ones who make the buy and sell
decisions at the mutual fund or the insurance company. They
are responsible for large pools of money, sometimes
numbering in the billions of dollars. They don’t watch over
your money specifically; they watch over the entire pool.
They’re concerned about the return on the entire pool over a
period of time, not your specific investment in it. They may
even be required to stay fully invested which means their
pool can lose significant amounts of money in down markets.
So who monitors how well the money manager does with your
money? It should be your advisor, but the typical advisor’s
job is to sell investments. They get paid on the sale so
they are motivated to focus on that. They help you put your
eggs in several baskets, choose the money managers for those
baskets and then put the responsibility for watching your
eggs with the money manager. If one of your eggs gets
dropped, it will be offset by another egg that did
well—hopefully.
The frustration gap occurs because neither your advisor nor
the money manager actively monitors your money. Neither will
take action to prevent you specifically from losing money.
The problem isn’t the type of investment; it’s the type of
advisor.
How can you avoid this frustration? First, find an advisor
who will accept the responsibility of closely and actively
monitoring your investments; taking action if one moves
outside predefined parameters.
Secondly, don’t take their word for it—find out the specific
systems and procedures they have in place to do it. For
instance, my clients know I have proprietary software that
monitors a multitude of factors in their account over 4,000
times every day. If the numbers begin to fall outside the
pre-set ranges, alarms are triggered and we take action. For
investors like Frank, this gives them the safety net they
are looking for.
Finally, hold your advisor accountable. If your advisor
doesn’t perform, find someone who will. The right advisor
will fill the gap, exceed your expectations and allow you to
sleep at night. Don’t rest until you’ve found one.
Mr. Voudrie is a Certified Financial Planner, a nationally
syndicated columnist and the President of Legacy Planning
Group, Inc., a Private Wealth Management firm in Johnson
City, TN. He can be reached by calling 1-877-827-1463
toll-free, by email at
jeff@guardingyourwealth.com or by going to
www.guardingyourwealth.com.
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