The Common View of Financial Advisors
Financial Advisors have a terrible reputation. I realized this quickly when I started working in the financial world. However, it’s an interesting dichotomy because when someone has a financial advisor that they trust, they LOVE them. Their advisors have made a significant positive impact in their lives and they can’t envision where they would be without them. I would say most people have this experience with their advisors. Yet, the consensus in our country is negative about advisors. So how does this happen?
Negativity is always louder than positivity.
It reminds me of fraternities. I am a member of Delta Tau Delta Fraternity. I was involved in many events and leadership programs through the Fraternity. My experiences had a significant positive impact on my life. Unfortunately, most people have a terrible opinion about fraternities. Why? The fraternity stories in the news are about hazing, alcohol abuse, and sexual assault. It’s awful. Fraternities do great things, but no amount of philanthropy, community service, and leadership training will change the public opinion until those horrible things stop happening across the country.
Here are the negatives that you see from financial advisors.
Client Base – Many financial advisors won’t accept clients unless they have over $100,000 in assets that the advisor can manage. For those of you with 401k’s, that money doesn’t count because the advisor can’t manage it. Let’s imagine walking into a doctor’s office and getting your blood pressure and heart rate tested. The doctor then says, “Sorry, I can’t accept you as a patient yet. Your blood pressure needs to be 120/80 and a resting heart rate below 80 before I can help you. Start dieting and exercising and maybe in a few years we will be able to work together.” As you walk out, dejected, you see a marathon runner walk in and the doctor treats him like royalty.
Fees/Commissions – The typical advisor charges 1% of your assets. Is that all you pay them? It depends. Some advisors can make commissions from the funds they invest in. Some can get paid a referral fee for referring you to another professional (Real Estate, Lawyer, etc.). The hard part is that you don’t know these things unless you ask. Always ask your advisor this question, “How much money do I pay you, and how else do you make money from me as a client?”
Expectations – Managing expectations is hard. Everyone wants to make as much money as possible with as little risk as possible. It doesn’t work like that. Investments need to match goals and sometimes those goals won’t allow you have your account fluctuate as much as the stock market. Advisors fail when they can’t communicate the balance between a client’s goals and the investment decisions, and how those investment decisions will affect performance in the account.
Communication/Focus – What is always on the list of reasons people fire their financial advisor? Communication! They can’t get a hold of their advisor when they have questions. Financial advisors can determine the value of each client based on the size of his/her account. They wind up treating clients that way. Some client’s may not have as much money, but I guarantee you that the money in their account means just as much to them as a client with an extra zero on their account.
Advisor’s Interests – This goes along with fees and commissions. Who is your advisor serving first? It could be you. It could be their firm. You need to ask these questions. Advisors who are Fee-Only Fiduciaries are legally bound to put your interests first. It’s not that other advisors don’t care about their clients. It is that their employer can have the ultimate say on some of the investment decisions they make.
Well, if you didn’t have a bad opinion about financial advisors before, maybe you do now! Luckily, there are amazing advisors out there. They are taking on all types of clients. They are putting the client’s interest above all else. They are changing lives. I’m not trying to be corny here. I have talked to them and read their stories. Advisors have the opportunity and ability to help clients achieve their life goals, and a lot of them do!
You just don’t hear those stories. You hear about the advisors who ripped off their clients and opened credit cards for them without consent. You see the advisors who only take on clients who have already had success financially. There are great people in this industry. Don’t let the news fool you. If you think you could benefit from having a personal financial expert in your life, there are many who break the mold of the group.
Mike Zeiter, CPA/PFS