I usually pre-write my posts Sunday morning. Thus, in a completely unplanned companion post to Canadian Capitalist’s comments on this article about the investment industry not being empathic to a retired investor, I look at whether financial advisors are truly the enemy or whether we have seen the enemy and it is us. Canadian Capitalist looks at this situation from the perspective of poor asset allocation. I address the larger point of whether we are pushovers to our financial advisors.
Most readers know that I use to be a lawyer (cue the jokes now…). If there is one professional that is more disrespected and despised right now than the lawyers, it is the financial/investment advisor (IA)- although its a close race. Good, bad or indifferent, the IA is being blamed for many of the ills of people’s portfolios. But, ultimately, having answered a lot of questions from friends on how to deal with their lawyers, your professional is yours to instruct. Even if you give crazy instructions (assume your instructions are for a legal act), the professional either has to carry it out or resign due to a fundamental disagreement with your strategy.
In other words, professionals work for you and not the other way around. The tail should not be wagging the dog. But some of us let our professionals, especially IA’s, get away with so much, holding their use of jargon and fast-talking circle-speak as signs of expertise.
Then we complain when we do poorly and blame it on the IA. But who’s really at fault? The person carrying out the instructions or the instruction giver?
Are we, in fact, pushovers with our IA’s?
Here are 5 signs that you may be a pushover:
- You let the IA act without instructions. “You do what you think is best” gives your IA carte blanche to do anything they want which may include putting you in unsuitable products. Alternatively, the IA trades on your account without seeking instructions- a huge no-no- but you don’t say anything (whether you made money or not on an unauthorized trade is not the point; it would be like praising your 10 year old son for taking the car and driving it down the street without hitting anyone).
- You never meet with your IA regularly. Yes, we are all busy but out of sight is out of mind and out of mind means they are inattentive to your account so they do not call you when the market or your life circumstances dictates some correction in your financial strategy. Make yourself heard so you know you should be treated as an important client no matter how big or small your account is.
- You never question their rationale for their advice. Little kids would make wonderful clients- they ask “why”, “what else is there to look at” and “why” (again and again) a lot. They make you justify their decision. If an IA says buy “ABC” don’t automatically assume that is the best product. Ask them how it fits into an overall strategy, whether there is an XYZ equivalent to ABC, how much they are making off the sale etc. Make them walk through their thought process so you know how they arrived at product (product is product; its the strategy that is important).
- You do not want to be seen as pushy. Polite but poor is a better alternative. I use to chuckle when clients referred to me as “Mr.” especially when I knew they were much more successful in life than me. You are paying for your IA’s time, directly or indirectly, be assertive (but not abusive) if you must to get a point across.
- You don’t call them on the fact they made a mistake. My IA has on occasion missed something which he catches or I catch (looking at your statements monthly in detail helps as a safeguard against unauthorized transactions or signs that your IA is indifferent to your account). It is usually something minor like he didn’t put my contribution into a money market fund when I asked him to. In every occasion, he corrects the error even if he pays out of it out of his own pocket (he gives me the interest lost). My IA and I have a good friend in common so there is more than just a professional relationship for him to keep. But the point remains, I do see the error and ask him to correct it. If you don’t, you are implicitly telling your IA that he/she can get away with larger errors (the whole slippery slope argument which lawyers are so famous for…).
There are good IA’s and bad IA’s (or really salespeople). But even the good ones can treat you poorly if you don’t stick up for yourself. The barrier to entry to become an IA is relatively low so don’t hold a large degree of deference to them (or any professional) and don’t let the size of your portfolio determine your importance to your IA. You are only negotiating against yourself if you think that way. Be proactive with your finances. It is your money after all.
February 19th, 2009 at 8:29 am
If you’re a pushover with your advisor, that simply means you aren’t in control of your money. I personally don’t use advisors for advice, their job is to simply execute the adjustments to my portfolio the way I tell them to.
February 19th, 2009 at 11:23 am
If you are going to use an advisor, find a CFP (Certified Financial Planner). They will know a hell of a lot more about all aspects of your finances, be able to counsel you regarding taxes, insurance, estate issues, budgeting, mortgages, banking etc. (as opposed to the “salespeople” you refer to, particularly in the banks). Ask for references, ask for an investment statement. Any good advisor will state up front how they get compensated. I sit down with every new client and explain MERs, trailers, DSCs and FE loads, mutual funds and indexing. I also offer them the choice of fee based financial planning. So far, not one client has taken me up on the offer.
February 19th, 2009 at 12:34 pm
Finance Matters- any reason why no one takes the fee based planning?
February 19th, 2009 at 12:59 pm
I think everyone should take control of their investments, whether they are DIY or not. The vast majority of advisors are simply mutual fund salespeople. Also, investors with advisors should demand a financial plan document and an Investment Policy Statement. It is astonishing how many don’t have one.
There are two sides to Finance Matters comment. When I spoke to advisors last summer, IIRC, only one (out of 10) volunteered that she also does fee-only planning. I had to specifically ask the others if they offered fee-only as a choice.
February 19th, 2009 at 1:09 pm
There are IA’s than there are Sales people, as you pointed it is fairly easy to enter the market, but much harder to stay in it for the long term and be successful. the ones that are successful are client service focused, call clients at least every 6months right now I would say call every 2 months. If you do not hear from your IA on regular bases that is a sign to leave him/her. I think it is every IA’s obligation to discuss MER’s and mutual fund sales fees with client BEFORE buying anything and that goes with ANY investment.
February 19th, 2009 at 10:38 pm
Not all CFPs are created equal. We employ many of them at my bank and they work on commission. There is an organization called NAPFA (national association of personal finance advisors) that requires all members to work on a fee basis. Whether it is % of assets or by the hour, they don’t have a vested interest in selling something you don’t need for their bottom line.
February 20th, 2009 at 11:05 am
[...] Thicken My Wallet made a creative list of signs you’re a pushover with your financial advisor. I find this to be very important because many advisors get away with bullying you into products you either don’t understand or don’t want to be in. That isn’t the way your investments should work. [...]
February 20th, 2009 at 11:22 am
Wow those are great and very true reasons people are pushovers, I would say this is the biggest for people in general.
1.You never question their rationale for their advice.
let me explain, people go around listening to others and doing it without asking, they pretty much follow the herd of sheep and usually never think or do otherwise.
February 20th, 2009 at 2:10 pm
Thicken My Wallet,
A most informative blog. I always learn something from your comments. Keep them up, please.
I do have one quibble here. It’s a bit of a pet peeve of mine. Twice in today’s blog you said “use” where you should have said “used”. I will reproduce them with the offending word asterisked:
“Most readers know that I *use* to be a lawyer (cue the jokes now…).”
and
“I *use* to chuckle when clients referred to me as “Mr.” especially when I knew they were much more successful in life than me.”
Although I see this error more often than I like, it particularly grieves me when it’s someone whose English (a former lawyer) should be better than mine. I admit whenever I see this misuse, the person drops a bit in my estimation. OK, mini rant over. I hope I’m not coming across as overly nit-picky. As I say, I enjoy reading your blog and, in spite of my issue with this particular one, I found it most informative.
Cheers,
Rob
February 20th, 2009 at 2:23 pm
[...] – Thicken My Wallet gives you 5 tips on how to recognize if your Investment Advisor is pushing you [...]
February 20th, 2009 at 4:43 pm
[...] Thicken My Wallet gives tips on what to look for in an Investment Advisor [...]