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, needless to say, was to bring useful 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 means for the Financial Advisor to get in front of another new prospect. In fact, that one purpose “get in front of another prospect” was the driving force in every decision. Consider it this way. A Financial Advisory Firm will make hundreds and hundreds of dollars for each new client “they land” versus a few hundred dollars more for doing a better job with their existing clientele. The thing is, depending on how an economic advisory firm is made, will dictate what is most important to them and how it will greatly affect you as the client. This is probably the many reasons why Congress passed the new DOL fiduciary law this past spring, but much more about that in a latter article.
When a financial advisory firm concentrates all their resources in prospecting, I can guarantee that the advice you are receiving is not really entirely for your benefit. Managing a successful wealth management office takes a lot of money, especially one that has got to prospect. Seminars, workshops, mailers, advertising along with support staff, rent and also the latest sales training may cost any size firm tens of thousands of dollars. So, when you are sitting throughout the glossy conference table out of your advisor, just know they are thinking of the dollar amount they want through the procurement of the assets and they can be allocating that to their own budget. Maybe that’s why they get yourself a little ‘huffy’ when you tell them “you have to think about it”?
Focusing on closing the sale rather than permitting an all natural progression will be like operating a doctor’s office where they spend all their resources how to bring in prospective patients; how to show potential patients precisely how wonderful they may be; and the easiest way for that doctor’s office staff to close the deal. Could you imagine it? I bet there could be a smaller amount of wait! Oh, I could just smell the freshly baked muffins, hear the sound 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 fact, it’s quite the opposite. The wait is long, the area is simply above uncomfortable as well as a friendly employees are not the norm. This is because Health Care Providers spend their time and resources into understanding how to care for you when you are walking out your door as opposed to within it.
As you are looking for financial advice, you can find a hundred things to take into account when growing and protecting your wealth, especially risk. You will find risks in obtaining the wrong advice, you will find risks to get the correct advice although not asking an ample amount of the right questions, but most importantly, you will find perils of being unsure of the true way of measuring wealth management. The most common overlooked risk is not really understanding the net return on the cost of receiving good financial advice. Some financial advisors believe that if they have a good office using a pleasant staff as well as a working coffee maker these are providing great value with their clients. Those same financial advisors also spend their resources of time and expense to put their prospective customers from the ‘pain funnel’ to produce the sense of urgency that they have to act now while preaching building wealth needs time. So that you can minimize the chance of bad advice would be to quantify in real terms. One of the ways to find out in case you are receiving value for the financial advice is always to measure your return backwards.
Normally, whenever you visit a binding agreement using a financial advisor you will find a ‘management fee’ usually somewhere between 1% and twoPercent. In fact, this management fee may be found in every mutual fund and insurance product which investments or links to indexes. The hassle I observed repeatedly when 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 used to the unsuspecting client was that 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 going to ask you for 1.5% as being a management fee. No big deal, right?
Let’s discover why understanding this management fee ‘math’ is really important, and just how it might actually keep your asjoir. This might actually keep you from going broke using a financial advisor by simply measuring your financial advice in reverse. Let’s take a look at an illustration to best demonstrate a much better way to look at how good your financial advisor does.