[Jay’s at the beach all week chasing his silly boys around, so today enjoy a fun (and feisty) article by his friend Shannon McLay – a financial advisor and blogger behind Financially-Blonde.com. She not only makes some serious points, but she lives and breathes this stuff daily. Enjoy!]
I will never forget the first client who entrusted me with investing her money, and the day that money was delivered into my firm for me to manage. I will never forget it, because that was the day that I stopped sleeping.
Why did I stop sleeping? I felt the weight of hers and other client’s hopes and dreams falling on my investing shoulders, and it felt like the weight of the world. After all, I spent days and weeks getting to know this person, to understand what she wanted from life, to find out about her kids, her job, her retirement goals. And now the decisions that I was making for her could mean that Billy couldn’t go to the college he wanted or Suzie wouldn’t have the wedding of her dreams. Or, worse, Mrs. Smith would now have to work until she was 80 instead of 65 to achieve her goal of retiring to Florida.
I may be exaggerating a little, but I would want a financial advisor who lost sleep at night over my money rather than the alternative. And having worked in one of the largest financial advisory firms in the country, I can assure you that most advisors don’t lose a minute of sleep over your portfolio. In fact, many advisors I worked with told me that I was “too emotional” when I would share my fears. I didn’t understand how they couldn’t get emotional about money?
In order to better control my emotions, and get some sleep as a financial advisor, my best solution was in my very own investing strategy. I invested my client’s money the same way I invested my own money to varying degrees of asset allocation. And unfortunately that practice is not the norm.
Advisors all have what I call their “secret sauce” or their investment portfolio that they utilize for clients. Most advisors guard their secret sauce as much as Bush’s guards the secret to their baked beans. In fact, when I started out and was in the process of developing my own sauce, it was very difficult for me to get any sound advice from the senior advisors. This always surprised me because I wondered why they wouldn’t want to share the secret of their success with others?
After some finagling and threats by my manager, I became privy to the secret sauces of many advisors and what shocked me the most was how different their client’s sauce was compared to their own. How could you invest one way and do something different with client money?
Unfortunately, the basic answer to that question is that you make more money selling some investments over others, and money is a highly motivating factor in investing decisions. However, there are certainly other reasonable responses that are not quite as nefarious as this one. The only way you can really know, though, is to ask.
On just about every financial website available, there are many articles about the questions you should ask your financial advisor. And typical questions include the following:
- What is your investment philosophy?
- How do you get compensated?
- How much money do you have under management?
- What services does your firm offer?
- How frequently should I expect to hear from you?
And let me let you in on a little secret, most of these questions were created by financial advisory firms and they specifically train their advisors on how to best answer these questions. In fact, we had weekly role-play dialogues where we were trained in the best responses to these questions. So if your advisor has a great answer to your question, it is because he or she has been trained to answer it.
Here is the question you REALLY need to ask your advisor:
“How do you invest YOUR money, and can I see your portfolio?”
You will get lots of responses, I am sure, and here is how I would respond to some of them:
Advisor Response: “My compliance would not allow me to share that with you.”
My Response: “BS, that’s a lame excuse and you are just a chicken. What are you hiding?”
Advisor Response: “I don’t have money invested right now.”
My Response: “Really? Is it because you don’t have money or you are sitting on the sidelines with cash?”
If they don’t have money, run away. I don’t think an advisor has to have millions of dollars but just like I wouldn’t hire a pediatrician who doesn’t have kids, I wouldn’t hire an advisor who doesn’t have any money. Even a little in a 401k or IRA is better than nothing. If they are sitting on the sidelines with cash, why are they advising you to jump in when they are sitting out?
Advisor Response: “All of my money is tied up in real estate.”
My Response: “You just talked about asset allocation for 30 minutes, do you not take your own advice?”
Advisor Response: “Well I have different goals for my money than you.”
My Response: “Yes, and different goals would just suggest different percentages of asset allocation not completely different assets.”
Advisor Response: “I will gladly provide you with a statement of my holdings and I will white out the dollar amounts.”
My Response: “You are hired.”
Hedge fund and private equity investors require that their fund managers have money invested in the fund before they commit to investing in it. If this is a good rule of thumb for people with millions of dollars to invest, why shouldn’t it be a good rule for people with thousands of dollars to invest?
Advisors will tell you that no one should care more about your money than you. These are the advisors you want to invest alongside with because he or she clearly cares for their portfolio the most. Your relationship with your financial advisor is similar to that of your spouse, and if you can’t trust them and feel comfortable knowing you are on the same team together, then why get married to begin with?
Keep this in mind the next time you sit down with an advisor. It may feel a bit awkward asking at first, but remember – it’s your money. And nobody cares about it more than you.
Have any of you ever asked to see your advisor’s investments before?
Shannon McLay is a financial planner who left a “traditional” financial services firm to start her own company, NextGen Financial, to help clients in their 20s and 30s get financially fit. Through her blog, Financially Blonde, her book and her partnership with Money Saving Pro, Shannon is committed to making financial fitness fun, easy and accessible for others.
[Photo cred: stevendepolo]
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