This tends to be one of those times of the year where we collectively do a lot of navel gazing into our financial lives. Will we have enough for retirement? What do I invest in now? How come my mutual funds perform so badly? Undoubtedly, as part of this internal dialogue, those of us with investment advisors begin to ask ourselves if we have the right advisor and whether they can really help us. There are a lot of horror stories about investment advisors but remember that the good ones never get press- only the bad ones attract attention.
There has been a lot of ink (bytes?) split on selecting a financial planner and/or an investment advisor (including my own two part piece on finding a good lawyer/accountant/financial advisor) but here’s the hard truth: you get what you deserve in life. Crying to the heavens that you have a bad investment advisor really isn’t going to help your portfolio’s performance. You have to take pro-active action.
Having said that, there seems to be a general perception that all investment advisors are bad. I would disagree. The individuals in the industry who actually advise and plan are key professional allies to have; they can, in some instances, be literally worth millions to you. The individuals who are nothing more than salesmen are bad since their primary motivation is to sell and not advise. How can you differentiate the two?
In the movie “Wall Street,” perhaps the seminal movie on the inner workings of 1980′s corporate greed, Martin Sheen’s character is a blue collar worker who keeps calling his son (played by his real life son Charlie Sheen) a “salesmen.” This really irritates Charlie Sheen’s character since he works on Wall Street, wears nice suits and talks the talk. But before he hatches an illegal insider trading scheme, his character is a salesmen- he works the phones selling to the vulnerable. Remove the suit and the ritzy office and his job was no different than selling encyclopedia sets (with all due respect to encyclopedia sales people).
The moral of the story is that it is not the looks, its the actions that define advisors from salesmen…
ADVISORS HELP you pick a long-term strategy and attempt to determine whether a particular product fits into that strategy.
SALESMEN SELL you product without regard to an over-arching strategy. This is how a portfolio ends up with 10 different mutual funds with over-lapping holdings and no regard to asset allocation.
ADVISORS REVIEW your portfolio at least once a year with the intention of seeing whether you are on the right track and not to sell you more product (if you don’t do this now- demand it. If they balk, you know if they are advisors or salespeople).
SALESMEN IGNORE you until they need the next commission and then they call to pitch you the product du jour. Thus, you either end up selling in a down market (since sales are drying up for your investment advisor and needs a quick commission) or buying in an up market (since the advisor is just piling on sales at that point).
ADVISORS DISCUSS the risks and rewards of each investment decision with you in order for you to gain a greater understanding of what exactly you are doing.
SALESMEN SAY “trust me, this product will be great” and attempt to sell on your emotions rather than on an analysis of the product (if there was truly a trusting relationship between two persons, why would someone say “trust me”? Wouldn’t it be implicit between the parties that one would look out for the other?).
ADVISORS CALL you during uncertain times (like now) to reassure you to stay the course and not to react emotionally and to keep the long term in mind (the best piece of advice I got this year was from my investment advisor who told me to stop over-thinking, stick my money in a high interest account and wait until whether the market is definitely going up or down).
SALESMEN HAVE disappeared because they sold you junk during good times (and are now hiding) or trying to create additional panic in order to induce you to do something (which will make them a commission). Be concerned if an investment advisor has moved cities several times in their career without a good explanation- they could be running from a mess they made somewhere else.
…it is said that a true mark of character is what someone does during bad times. This year may be a good litmus test for investment advisors everywhere on whether they are truly advisors or salesmen. But, to reiterate my initial point, it is your life and your money, take responsibility for it. An advisor is there to help you not to run your financial life for you.
Anyone care to share stories (good or bad) about investment advisors?
February 18th, 2008 at 11:02 am
I am so happy I DIY these days. I definitely had a “salesperson” and not an advisor. My “salesperson” would only contact me by snail mail, with a reminder (and return envelope) to contribute to my RRSP. I get very annoyed just thinking about it.
February 18th, 2008 at 2:13 pm
We had our wake-up call a couple of years ago. Before that our RRSPs had been investing in a balanced fund with an MER in the neighborhood of 2.5%. We went into the bank to see our ‘advisor’ about switching the balanced fund into a portfolio of separate index funds. He not only strongly suggested this was a bad idea, but he managed to work in a sales pitch for a couple other high fee products at the same time. We ignored his advice, disregarded the sales pitch and have been happy with our portfolio ever since.
February 19th, 2008 at 8:02 pm
As an “advisor” I applaud the fact that you are pointing out the difference between advisor and salesperson. I would add that a true advisor will also offer tax advice, mortgage planning tips, make sure you have adequate life and health insurance, have a will and living trust etc.
February 20th, 2008 at 12:27 am
The Pursuit of Happyness shows Will Smith being trained as a salesman to push investment products to meet quotas.
“Advisor” seems passive. Once the advice is given, is not the work done? If the client does not act, subtle sales tactics might get employed. In contrast, “coach” suggests a responsibility to coax the client into acting in their own best interest. A higher level of performance.
Tom points out that advice encompasses more than investments. Can one advisor or coach realistically have expertise in all the areas suggested? That role sounds like more of a quarterback for a support team.
February 20th, 2008 at 12:59 am
Thanks for this post. I think I’ve been overly cynical about the financial industry. In the past three years I have met a handful of committed, caring professionals who know their stuff and are in it for the right reasons. Sometimes what happens is the clients don’t take ownership of educating themselves enough to have informed conversations with their advisors. Not sure where the onus lies – on advisors to learn to speak (non condescendingly) in layperson’s terms, or on us average joes to read a few books/take a few basic courses.