As being 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, obviously, 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 Fraud 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. You see, depending on how a financial advisory firm is made, will dictate what is most important to them and how it will greatly affect you as the client. This is one of the many reasons why Congress passed the new DOL fiduciary law this past spring, but more about that in a latter article.
When a financial advisory firm concentrates all of their resources in prospecting, I can assure you the advice you happen to be receiving is not 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 along with support staff, rent and the latest sales training could cost any size firm thousands and thousands of dollars. So, when you are sitting throughout the glossy conference table from the advisor, just know that they are thinking about the dollar amount they require from the procurement of your assets and they can be allocating that to their own budget. Maybe that’s why they get a little ‘huffy’ once you tell them “you have to consider it”?
Centering on closing the sale rather than making it possible for an organic progression will be like managing a doctor’s office where they spend their resources how to usher in prospective patients; the best way to show potential patients exactly how wonderful these are; and the best way for that doctor’s office staff to seal the sale. Could you imagine it? I bet there could be less of wait! Oh, I will just smell the freshly baked muffins, hear the sound of the Keurig inside the corner and grabbing a cold beverage from the refrigerator. Fortunately or unfortunately, we don’t experience that when we go to a doctor’s office. In fact, it’s quite the opposite. The wait is long, the room is merely above uncomfortable as well as a friendly staff is not the standard. That is because Medical Service Providers spend all their some time and resources into understanding how to care for you since you are walking out the door as opposed to in it.
As you are interested in financial advice, there are a hundred things to think about when growing and protecting your wealth, especially risk. You can find risks in getting the incorrect advice, you will find risks to get the right advice although not asking enough of the correct questions, but most importantly, you can find hazards of not knowing the true way of measuring wealth management. The most frequent overlooked risk will not be understanding the net return on the cost of receiving good financial advice. Some financial advisors believe that should they have a great office having a pleasant staff as well as a working coffee maker they may be providing great value for their clients. Those same financial advisors also spend their resources of time and money to place their potential customers through the ‘pain funnel’ to produce the sensation of urgency that they have to take action now while preaching building wealth takes time. So that you can minimize the potential risk of bad advice is to quantify in actual terms. One way to know in case you are receiving value to your financial advice is to measure your return backwards.
Normally, when you arrived at a contract having a financial advisor you will find a ‘management fee’ usually approximately 1% and 2Per cent. In fact, this management fee can be found in every mutual fund and insurance item that investments or links to indexes. The hassle I observed repeatedly 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 utilized to the unsuspecting client was the market has historically provided an average of 8% (but we’re planning to use 6% because we want to be ‘conservative’) and we’re only planning to charge 1.5% as a management fee. No big issue, right?
Let’s discover why understanding this management fee ‘math’ is so important, and how it could actually save your valuable asjoir. This could actually prevent you from going broke employing a financial advisor by simply measuring your financial advice in reverse. Let’s examine an example to best demonstrate an improved way to check out how good your financial advisor is doing.