Where’s The Beef? A Good Question for Financial
Advisors
Don’t pay ‘prime rib’ prices for ‘cube steak’ service
from financial advisors
By Jeffrey D. Voudrie, CFP
May 19, 2008 - There’s nothing better than a hot
and juicy steak, especially one from your own grill. But can you
imagine going to the grocery store to pick up a few prime ribs, only to
get home and realize you ended up with cube steak instead? Talk about
injustice! Of course, this doesn’t happen to most of us, because grocery
stores package their meat in clear plastic wrap, so we can see exactly
what we’re buying. If only we bought financial services the same way.
True transparency is sorely lacking in an industry
that packages itself with imposing-sounding credentials, slick
advertising and carefully orchestrated seminars. Many inve
stors are
convinced they are receiving the ‘prime rib’ service they’re paying for,
without realizing all they’re getting is some chewy cube steak.
That was the case with ‘Bill’, an investor I talked
with recently. Bill had two million dollars in investable assets and
was using a number of different advisor services to manage his wealth.
Some of them were commissioned based while one was fee based. But all
of them were using mutual funds exclusively, and none of them were aware
of Bill’s total financial picture.
The firms that Bill was using were very
professional sounding and had nice offices. Their credentials were good
and they were obviously successful, at least in gathering new clients.
Each had convinced Bill to trust them with hundreds of thousands of his
hard-earned dollars and invest in their unique strategies.
The problem was their strategies weren’t that
unique. They were basically just splitting Bill’s money between
different mutual funds. One commission advisor convinced Bill to also
use a timing service to get in and out of the mutual funds he had at his
firm. Bill had to pay dearly, with a 3 ½% commission on the initial
investment, then an additional 2% a year just for the timing service.
The other advisors’ fees weren’t much better. One,
a local franchise of a national mutual fund supplier, charged 1 ½% per
year. But all they had done was help Bill with the initial fund
selection. They hadn’t made any adjustments since, even though the
markets had dramatically changed in the mean time.
To make matters worse, some of the advisors had
Bill in the exact same funds. He should have paid a reduced or no
commission on the some of the mutual funds he was buying. But because
the right hand didn’t know what the left hand was doing, Bill wasn’t
given the advantage of the breakpoints he was entitled to.
All of Bill’s advisors had one thing in common:
sub-par performance.
When you add up all the fees and commissions,
including each fund’s underlying internal management fees, Bill was
paying ‘prime rib’ prices of 3% to 4% a year, and only receiving below
average returns and cube steak service from his advisors. They weren’t
managing Bill’s money. They were of the ‘set it and forget it’
mentality. And Bill’s wealth suffered as a result.
The same can be said about another investor I
know. ‘Sam’ had his money with a very large national investment firm.
Sam was very impressed with the slick sales material they sent him,
including a “free” and very professional DVD. The salesman that
followed up with a phone call was very persuasive, and Sam was glad to
be investing his money was such a large and prestigious firm. Sam also
liked that they were fee based and he didn’t have to pay any
commissions.
Sam was promised customized strategies with
superior results. But over time, he realized the performance he had
hoped for wasn’t materializing. He was paying 1 ½% a year for average
performance.
His money wasn’t being individually managed as
initially promised, but lumped in a group with everyone else. At the
beginning, Sam thought investing in a firm with $40 billion in assets
was a good move. But in the end, he realized that he was getting lost
in the shuffle and his nest egg was being put on ice.
These stories are not unique. The majority of
investors are overpaying and receiving below-average performance and
service. Next week I’ll show you the right questions you must ask any
potential advisor so you can get beyond the packaging and find out
exactly what kind of steak they are really selling.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
Keep up with the latest news for senior citizens, baby
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May 19, 2008 - There’s nothing better than a hot
and juicy steak, especially one from your own grill. But can you
imagine going to the grocery store to pick up a few prime ribs, only to
get home and realize you ended up with cube steak instead? Talk about
injustice! Of course, this doesn’t happen to most of us, because grocery
stores package their meat in clear plastic wrap, so we can see exactly
what we’re buying. If only we bought financial services the same way.