Feb 14 Unhappy Investment Clients Part2

Written by John D. Buerger, CFP®.

In a recent blog (Unhappy Investment Clients) I commented on the following statistic from a new survey.

60% of investment advisor clients are expecting to change advisors in the next year.

In that blog post, I suggested four problem areas for most investment advisors: Independence, Experience, Depth of Knowledge and Accessibility. I also mentioned Ethics as being critical (which it is).

But there is one HUGE piece to this puzzle that I missed - probably the most important part of the work I do as a Wealth Coach and CERTIFIED FINANCIAL PLANNER™ professional that most investment advisors (regardless of whether they call themselves "investment advisor" "stock broker" or "financial advisor") don't do ...

The Investment Management Process

Investment management is a pretty linear process:

You start with a sum of money.
The investment advisor develops an investment strategy.
The strategy is implemented (either by you or the money manager).
Every once in a while the portfolio is rebalanced and/or the strategy is modified.

Whether you employ an active or passive strategy, the basics are the same - and there isn't a whole lot to this process. It is logical and linear. The steps have to be executed in order and that order cannot be changed.

The Traditional Value Proposition

What do you get in return for your fee (on average, well over 1%)? Most of the money pays for Step #2 - the development of the investment strategy where the five factors I cited (independent, experienced, wise, accessible and ethical) come in to play.

The greatest added value comes from the fact that someone else is there to keep the investment strategy in place rather than letting the cycle of emotion take over and commit you to buying and selling at all the wrong times. Dalbar and Morningstar have done studies that show that independent investors (working on their own) on average see portfolio performance about 6% below the market average.

Paying 1% to improve results 6% is a good value proposition - a net 500% return on your money.

A Monkey Could Do This

Dan Ariely is a well-known behavioral finance and psychology expert. He got into a lot of hot water recently when he wrote in the Harvard Business Review, “Highly trained monkeys could do the same basic job” as an investment advisor ...

... and he's right. Not only monkees can be trained to do it, computer programs ARE doing it.

More and more web-based programs are coming online where you can have a portfolio constructed for you by a computer using the same sophisticated software and tools that I use to construct a portfolio - all for a fraction of that 1% fee. Wealthfont is just one such example and there are many more.

Missing Context

But there is something important missing here ... and frankly it is missing from what most investment advisors offer. That missing component is "context."

Investing your money is an admittedly linear process.

Managing your personal finances is NOT.

You don't live your life in a vacuum. Jobs change. Relationships change. The economy changes. You get married, have kids or get divorced. People get sick. Some of them die before their time. This is all stuff (often emotionally charged) that is going on around you and it all affects the choices you make with your money.

Why They're Unhappy

I would bet that 60% of financial advisor clients are unhappy because their financial advisor is addressing the completely non-linear, fuzzy and emotional process of managing personal finances with a simple and linear investment advisor approach.

This is like trying to put out a fire with liquid air. At first, it may cool down the heat of the fire (which would be good), but in the end you are just giving it more of the fuel it needs to burn out of control.

What most people need is something far more artistic and creative - a framework through which they can see the world a little more clearly and make better choices with their money. They need a guide who can help them navigate the waterways of their financial life and design their voyage to avoid the rocks while getting to wherever it is they want to go.

A monkey can't do that ... nor can a computer program.

That is the work of Real Financial Planner.

John

Interested in a different approach to helping you with your personal finances?
Call me for more information on our Wealth Health Snap-Shot™ ($150 value - available for just $47) - a 30 minute review of your personal financial situation with a CERTIFIED FINANCIAL PLANNER™ Professional and Wealth Coach.

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Feb 10 Unhappy Investment Clients

Written by John D. Buerger, CFP®.

60% of investment advisor clients are expecting to change advisors in the next year.

That is according to a new survey done by ByAllAccounts (data aggregation firm) and Paladin (research firm).

Clearly there are a lot of people who are unhappy with the person and/or firm that is giving them investment advice ... and this is no insignificant little issue. Investment services businesses manage trillions in personal wealth with 68% of those in the survey saying they work with one or more investment advisors.

For me, the results of this survey are both surprising and what I expected. Let me explain ...

Why Am I Surprised

I have been an investor all of my life, but I have only been managing other people's money since 2004 so I was a client long before I was an advisor.

When I made the shift to the advisor side of the desk, I wanted to build a practice that would treat my clients the same way I enjoyed being treated. I also wanted to create a practice that treated clients the way they wanted to be treated (in case what I was looking for wasn't what everyone else was looking for). The following is a list of top-level factors of the experience that my firm needed to provide based on my personal beliefs as well as my research.

While I knew that some firms may not have this same list of priorities, I figured that most companies would address these important factors:

What (I Think) Clients Want

--- Independence - The big, "well known" firms are always selling products and programs which I learned early on in life made them more money than they made me as a client (if I made any money at all). As I started the transition from client to advisor, I became more aware of exactly how much emphasis is put on "selling products" in the big name firms as opposed to "helping people" so being truly independent went to the top of the list.

--- Experience (part 1) - It's always good to have an advisor who has weathered a few storms. I didn't want somebody "going to school" with my money.

--- Experience (part 2) - It's also good to know more than just the basic, bread-and-butter portfolio of stocks and bonds. There are lots of investment tools out there that can reduce risk while improving the chance of hitting your target returns - real estate, options, futures, etc. While a client may not always want to employ these more advanced strategies, the advisor needs to understand how they work and what they can (and cannot) do.

--- Accessable - Nothing infuriated me more as an investor than being told by an advisor, "you don't have enough money to work with me" ... or never being able to actually speak to my advisor when I had a question or needed advice.

The Big Surprise

I look at this list above and figure most of these are no-brainers, right? (Please comment on this post below if you think I'm on track here or way off base. I want to hear from you.) Sure, there are always some businesses who have survived even though they are no longer servicing the basic needs of their clients.

But for a survey to come out and show that 60% of clients are unhappy to the point they are going to go through the time, energy and hassle to find a NEW investment advisor ... the size of that number (60%) is very surprising, even to me (and I'm notoriously cynical about these things).

Not So Surprised

Then again, I'm not so surprised. I've been through the training sessions that teach an advisor how to close a sale. I've watched as newbies are told to create a list of everyone they know (including college acquaintences) and then to call them and "show them the presentation." I've been a prospect on the other end of those presentations. I've been sold products I didn't need and couldn't afford.

I've met lots of really "good" people in this profession who don't mean anything bad by it but the only way they know to "help" people is through product sales. Their families need to eat. They have to hit their quota. They must make the sale. It's a matter of survival and it is ingrained in them.

I've read the stats. I know that the big-name firms still do a majority of the business in the investment advisor world. I know how these firms operate and how they got to be big-name firms in the first place - they sell a lot of products.

What This Means to You

If you happen to work with an advisor that does everything you want them to do and doesn't push products on you (remember, products never solve problems), then stick with that person.

If, on the other hand, you are NOT happy with your investment advisor, at least now you know that you are not alone. A vast majority of your friends and neighbors are in the same boat. I am here to tell you that there ARE investment advisors out there who do understand you and what you want. While we may not be in the majority (and likely we are lesser known names and don't do a lot of advertising compared to the big-name firms), we are out there and we are ready to help.

For more information on what ALTUS Wealth Solutions has to offer, check out our Investment Advisor - Portfolio Solutions page.