Misconceptions of the Financial Advisor Role: Would You Want Your Heart Surgeon To Be Your Lawyer?

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As most would agree, the most important quality in selecting the doctor to operate on your heart is, “Is she the best? Is she technically qualified? Does she have my best interests in mind? Do I also want this amazing doctor to become my partner in life to coach me to do what is in my best interest…to help me with my home purchase, prepare my will or help me with my taxes?

As one well knows, the qualities that make your heart doctor the best in saving your life and operating on your heart—his years of experience and professional training are why you selected this doctor. You want your doctor to be continually focused on advancements in heart surgery, not advising you on how to structure a business venture.

The “wealth management” or “financial planning” industry has crafted the message that they are there for everything you need, insurance, budgeting, and expert investment advisor without professional training in any of these fields.

What are the Factors That Barron’s Uses to Rank the Top Advisors?
Barron’s Top Advisors – 2013

“Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance isn’t an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking abilities”, according to this Barron’s article.

Here is the Red Flag: Investment performance –returns – is not a component in the rankings!

What does this survey tell you about the people managing your life savings?

1. The industry has decided for you the top advisor is the one who is best at sales and marketing. The top advisors are those advisors who have amassed the most assets under management and brought in the most revenue for the firm. Your results and the growth of your savings is not the most important issue.
2. There are no uniform professional standards for the “advisors” managing your money. No education requirements, no experience necessary – high school diploma, nice; but not necessary, college degree; the same. Yes, there are NO professional standards for who is managing your money. There are no government regulations on who can manage your retirement savings.
3. Is a CFP a trusted professional standard for managing your money? No. The CFP has but one basic course on “Investments”. A CFP is not a professional in managing investments or selecting the best investments for your retirement savings.
4. There are absolutely no performance standards for the investments that the financial advisor chooses which is why Barron’s provides no rankings for the MOST important criteria, audited quarterly performance.

Who Are the Professional Investment Managers?

SEC registered investment firms that manage your retirement savings, actively managed mutual funds, are the professional managers that you must place your money with directly so you can have audited professional results of your performance. Over $2 trillion dollars was lost in retirement savings during the last financial crisis. Why? Professionals were not managing retirement savings. Sales personnel were and they are paid less if they move your life savings out of the equity markets, even temporarily.

What Do I Need To Select the Top Investment Manager, Portfolio Manager?

• Audited, professional results compared against an agreed upon index
• 5, 10, 20 Year track record
• What is the professional background of the portfolio manager: Is his style consistent?
• Does the firm operate in my best interests and the interests of society overall?
• Are the investment management fees reasonable?

There are many claims today that active management is no longer viable. The problems with going with strictly passive management are several:

  • Who is going to choose the passive Exchange Traded Funds to put your retirement savings in? Are they professionals? What is their experience in doing so?
  • There are no audited statements and five and ten year histories on the selections of the multitudes of permutations and combinations of ETF’s. Most of the selections are based on computer algorithms that failed miserably in the 2008 financial crisis.
  • The new Target Date funds have high fees and are performing very poorly compared to the track records of the top active managers.

What is the Most Conservative Strategy Given the Failures of the Financial Services Industry?

Place your money directly with a professional money manager, who files regular reports with the SEC and who has multiple ratings from numerous rating services including Morningstar, Lipper, Zacks and Not On My Nickel.

Look at the audited performance returns against the relevant index before you place your money with this manager – Does this manager outperform the index over time? 5 years? 10 years?

Never trust a salesman, a “financial advisor” to select where you will place your retirement savings.

The Lesson

When selecting where to place your retirement savings, only trust the true professional:

Who provides you with quarterly audited performance statements

Whose only focus is on managing your money and watching the ever-changing global capital markets to determine how best to adjust your savings?

The myth that you need a “financial advisor” to hold your hand is not only a waste of money it is preventing you from placing your money directly with the top professional money managers.

Next Week’s Blog Post: Learn How to Compare Fund Manager’s Performance: How It is Audited and Regulated by the SEC, unlike Advisor’s Investment Selections, which are not audited or do not conform to any uniform indices for measurement.


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