As an In-House Tax Strategist for a “Wealth Management” office, I needed 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 value added services to the existing and potential clientele. Well, not exactly. I had the mindset of that purpose but in truth, it was just one more means for the Mugshot to get in front of another new prospect. Actually, that one purpose “get in front of another prospect” was the driving force in every decision. Think it over 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 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 a little more about that in a latter article.
Whenever a financial advisory firm concentrates all their resources in prospecting, I will guarantee that this advice you are receiving is not really entirely to your benefit. Running a successful wealth management office takes a lot of cash, especially one that has got to prospect. Seminars, workshops, mailers, advertising together with support staff, rent and also the latest sales training can cost any size firm thousands and thousands of dollars. So, as you are sitting across the glossy conference table from your advisor, just know they are thinking about the dollar amount they need from the procurement of your own assets and they can be allocating that to their own budget. Maybe that’s why they get a little ‘huffy’ when you tell them “you need to think about it”?
Concentrating on closing the sale as opposed to making it possible for an all natural progression will be like managing a doctor’s office where they spend all their resources how to bring in prospective patients; how you can show potential patients precisely how wonderful these are; and the best way for the doctor’s office staff to seal the deal. Are you able to imagine it? I bet there would be less of wait! Oh, I will just smell the freshly baked muffins, hear the noise of the Keurig inside the corner and grabbing a cold beverage out of the refrigerator. Fortunately or unfortunately, we don’t experience that when we go to a doctor’s office. In reality, it’s quite the exact opposite. The wait is long, the room is just above uncomfortable along with a friendly staff is not the norm. That is because Health Care Providers spend all of their some time and resources into understanding how to care for you as you are walking out your door instead of within it.
As you are interested in 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 a bad advice, you will find risks in getting the best advice however, not asking an ample amount of the correct questions, but many importantly, you can find perils of being unsure of the actual way of measuring wealth management. The most frequent overlooked risk is not understanding the net return on the expense of receiving good financial advice. Some financial advisors believe that if they have a nice office using a pleasant staff as well as a working coffee maker they may be providing great value to their clients. Those same financial advisors also spend their resources of time and money to put their prospective customers through the ‘pain funnel’ to generate the feeling of urgency that they have to act now while preaching building wealth will take time. To be able to minimize the chance of bad advice would be to quantify in real terms. One way to know should you be receiving value to your financial advice is always to measure your return backwards.
Normally, whenever you visit a binding agreement having a financial advisor you will find a ‘management fee’ usually somewhere between 1% and two%. In fact, this management fee are available 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 around 8% (but we’re planning to use 6% because we would like to be ‘conservative’) and we’re only likely to charge 1.5% as being a management fee. No problem, right?
Let’s discover why understanding this management fee ‘math’ is really important, and just how it may actually save your valuable asjoir. This might actually prevent you from going broke employing a financial advisor simply by measuring your financial advice in reverse. Let’s look at an illustration to best demonstrate a better way to check out how good your financial advisor is performing.