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Today’s investors are more savvy and
sophisticated than ever. Unfortunately, as your expertise and
expectation levels have increased, the traditional advisor/client
relationship has changed very little. Many of you haven’t felt
comfortable with your advisor relationship for some time. If you’ve
got a sneaky suspicion that your advisor isn’t delivering all he or
she should be, then this article is for you.
Foremost among the complaints I hear from investors is that they’re
tired of being sold. You can smell a sales pitch a mile away. You
know when you sit down with an advisor that you’re getting a
well-practiced spiel given countless times before. You know this
advisor is getting paid on commission, but how much is this
influencing their recommendations?
When you are being pitched an insurance product like an
equity-indexed annuity or a variable annuity, remember most advisors
are paid on commission, they have to sell a large number of
investments every month or they no longer have a job. And if they
have the choice of offering a mutual fund with a 2% commission or an
equity-indexed annuity with 10% commission, which will they
recommend?
This brings us to a second investor complaint. Besides knowing
they’re just being sold, investors are also beginning to realize
they’re all being sold the same thing! Each advisor promises to meet
your unique needs, but you have this uneasy feeling that this
advisor has cookie-cutter solutions for all his or her clients. You
feel like a square peg being forced into a round hole.
Once again, your suspicions are true. The traditional advisor/client
relationship is built on trying to deliver pre-packaged products
designed to appeal to the masses. You soon recognize that regardless
of what the advisor says and in spite of your unique needs, you are
being sold the same ‘solution’ as everyone else.
Many investors confuse the attention they receive during the selling
process with the attention they’ll receive afterward. In most cases,
the two are entirely different. Before the sale, you’re treated as
special. After the sale, you’re just another face in the crowd. You
soon realize that the advisor isn’t monitoring or managing your
money the way you expected. All that warm fuzzy attention has been
replaced with indifference. What happened?
Once you pass the ‘courtship’ phase of the advisor relationship and
you become a client, your advisor moves on to repeat the procedure
with the next prospect. Starting with a monthly paycheck of zero
tends to do that with people. Besides, they aren’t getting paid to
service your account. They’re getting paid to sell you. Once you’re
‘tapped-out’, it’s time to find another ‘cherry’.
If you’ve been a serious investor over the last decade, you probably
discovered something else about your commission-based advisor. When
times got tough, as they did back in 2000, you expected your advisor
to manage your money and take steps to prevent losses. Remember
their sage advice? “Just hang in there. The market will come back.”
And they sat on their hands and did nothing while your nest egg
dropped 10%, 20%, or 30% in value. What kind of advice is that? Many
of you still haven’t recovered those losses several years later. You
probably would have done better on your own!
You’ve also discovered that most commission-based advisors aren’t
the financial experts they market themselves to be. Most of the
training they receive revolves around how to be better salespeople,
not how to manage their clients’ money. They cling to the buy and
hold strategy because it doesn’t require much effort on their part.
So what should you do? First, find an advisor whose financial
incentives are aligned with your success. You should only have to
pay them for the period they manage your money. Remember that you
aren’t going to know if an advisor is the right one for you until
after you’ve worked with them for several months, so don’t pay
up-front commissions or allow yourself to be locked-in by surrender
penalties. Do your homework. Make sure your advisor is acting in
your best interest, not just their own.
Want my take on your situation? For free, clear, unbiased advice
call or submit your question at www.guardingyourwealth.com/askjeff.htm. I will
respond to them personally. Also, see answers to questions other
readers have asked on the Q&A page at www.guardingyourwealth.com.
Mr. Voudrie is a Certified Financial Planner, nationally syndicated
newspaper columnist and President of Legacy Planning Group, Inc., a
Private Wealth Management Firm in Johnson City, TN. He can be
reached toll-free at 1-877-827-1463 or at jeff@guardingyourwealth.com
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