Feb 14 Unhappy Investment Clients Part2

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.