This post is part of a series on problems I’ve encountered with financial advisers and my day 3 blog post for the #YourTurnChallenge. Disclosure: This article is written for entertainment purposes only and should not be construed as financial or any other type of professional advice.
Several years ago, I was considering hiring an investment professional who could help manage my money. I envisioned this person providing insights on the selection of mutual funds, ETFs, and individual stocks; explaining the rationale for making these selections; and dealing with administrative tasks associated with managing a portfolio.
During a business meeting, I met someone who I believed could help me, followed by a predecessor with similar skills. They seemed to have a working knowledge of investing as well as confidence and a sense of calm. They were registered representatives with securities licenses and were employed by a local financial institution; I liked the idea of working with friendly folks who I could meet in person if needed.
At the time, I found certain investing tasks daunting, most likely because I had young children, and doing much more than handling day-to-day obligations seemed overwhelming. So, personalized help seemed important.
Also, online brokerage firms had not yet come on the scene. [As an aside, these brokers had (and still have) phone representatives who could walk me through the steps associated with opening an account, funding an account, and investing money. Generally, these basic services are available at no cost. However, broker-assisted trades via the telephone can be expensive so I’ve avoided those conversations.]
Anyway, to test the local advisers’ skills and integrity, I worked with my initial contact to execute the rollover of a 401(k) plan to an IRA; and then make investment recommendations that I either approved or rejected. Based on recent successes, the adviser seemed confident in recommended investments and their superiority over other choices.
I didn’t mention to the sales rep that I had a significant amount of money in an IRA in a separate account, possibly available for management for the right person. Again, my goal was to evaluate the adviser’s integrity and knowledge and then possibly expand our relationship.
Initially, I was pleased with the service. The rollover was completed and funds were invested. But when another adviser replaced my initial contact, a new and improved recommendation was made. I was happy to test this new person’s investment savvy. But later I felt that the change in investments may have been contrived just to generate a sale. The investment did not seem superior and the adviser did not maintain the relationship.
Here are lessons from my experiences with these (and similar) advisers:
- Financial advisers (and clients) may believe that wealth grows based solely on expert investment recommendations. But the truth is that when the market grows, individual portfolios typically grow also. This growth is largely a result of being in the market, not necessarily excellent investment picks.
- Commission-based advisers need to generate sales in order to generate commissions; therefore, they may recommend changes in your portfolio (that may not be necessary) to get a commission.
- It may be a good idea to test a relationship with a small amount of money before handing over a large amount. Also, I want to be sure that I can easily withdraw money invested without pain or penalty if I happen to change my mind about a financial adviser.
- Low-cost, no-load, no-transaction-fee funds keep costs down, which is especially important during periods of market declines and sluggish growth. I don’t want to pay investment fees when returns won’t cover my costs.
Now that I’ve learned more about investing, I see that I can handle the logistics of investing my own money. Some of the initial steps are still daunting but doable, especially if I concede to asking questions using live chat or telephone. The number of investment choices can be overwhelming but I can use mutual fund and ETF screening tools to find low-cost selections.
Portfolio management can be outsourced, generally for an assets-under-management (AUM) fee. I’ve learned to be careful who I trust with my money because my money is more important to me than any financial adviser.