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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4 Comments

  1. Marko Koskenoja on July 5, 2017 at 6:03 am

    Excellent article Marie. After decades of the poor advice and inattentive service I finally saw the light and went the DIY route with ETF’s. All the advisers I dealt with at TD, RBC and DFA where this type – “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.”

  2. Doug Boraas on July 5, 2017 at 6:48 am

    I agree and that is why I pay a yearly account nominal fee plus a transaction fee and I don’t have all that many transactions during a year! Most of the transactions also come from me and I just want their concurrence re balance sheets, credit rating, etc. I save at least $10,000 to $12,000 per year!

  3. Bill Silverberg on July 5, 2017 at 8:10 am

    I agree completely with your article
    It is very difficult to find an
    Advisor who has your best interest at heart
    I am tired of paying high
    Management fees for the minimal service provided
    Any suggestions?

  4. Wes Philips on July 5, 2017 at 9:47 am

    Mine weren’t but it was my own fault for not seeing the light during the tech bubble crash. His own portfolio escaped with minor damage ( he told me after when we had our yearly meeting ) but mine was down by as much as 50%.
    We parted company after the meeting and I started my own DIY dividend growth journey.
    Nobody else cares about your hard earned money but yourself.
    Thanks for the excellent write-up Marie.

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