Many investors don’t have the time, inclination, or ability to handle their own investing. Once their portfolios reach a certain level they decide to rely on an investment adviser or wealth manager. After all, these “experts” are supposed to have superior knowledge.

What do you get from these advisers? Are your best interests in mind?

You may be surprised to learn that your investment adviser does not make proactive investment decisions for you. There is no minimum to maximum range for each asset class to properly align a portfolio with the current economic conditions and stock market cycles.

All too often, the service provided is merely the sale of actively managed mutual funds and allocating these funds to a predetermined “cookie cutter” asset allocation mix.

80% of investors who hold mutual funds outside of employer-sponsored retirement funds own them through an adviser. These are often within proprietary wrap accounts and funds of funds with names such as “Managed Income and Moderate Growth.” You may have several pages of different funds – but many hold the same investments!

Often this comes with a hefty fee. You may pay a fee of 1 – 2% of the total of your portfolio.

This is not management. What are you paying that asset management fee for?

Asset Management

Indifferent service

Too many advisers deliver indifferent service and bad advice while charging way too much.

I’m not talking about loading your portfolio with unsuitable high-risk investments or leverage, or out and out fraud – although that happens all too often. I mean the lazy advisers who stick you into a portfolio of funds during your first-time meeting and you never hear from them again.

These advisers tell investors what they want to hear and assume that they only focus on short-term potential returns. They will choose an investment strategy that minimizes downside risk in order to retain clients.

How does your investment manager add value?

You want an adviser who is experienced working with people who have similar goals and similar account sizes.

A good advisor will help keep your portfolio diversified and will rebalance when needed.

To get added value for the fees you are paying you don’t just want an investment plan. You may not necessarily receive a full written financial plan, but you should be getting some personalized advice that guides you towards your life goals.

Perhaps the greatest benefit you receive is an adviser who will keep you on your plan through good market conditions and bad.

Final thoughts

What clients need and should get is real advice that will benefit them, rather than glib marketing phrases and jargon.

Lack of investment flexibility, combined with frustration over high management fees and poor performance are the main reason that the discount brokerage industry has exploded in recent years.

If you just meet once a year to update your profile, you can get the same allocations at any bank branch and save with their index mutual funds. If your adviser merely rebalances your portfolio once a year, you may as well use the services of a robo-advisor.

There is no justification for paying 1% or more to an investment adviser unless you are getting other advice. Evaluate the overall value you are receiving for the fees you are paying.


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