This past weekend I enjoyed family time during my mother’s birthday and eventually the conversation turned to investing and ‘the market’. Of course my passion to freely educate took over and I found myself on the podium for a few moments spilling financial industry secrets to a very interested crowd.
I explained hidden mutual fund fees and historical data manipulation, the child insurance scam and why it was important to have a self-directed account. As impressed with how much everyone agreed, I realized they are simply fed up with their financial professionals. The economic downturn has done wonderful things opposite of everyone losing a healthy portion of their portfolio: it has made people realize the advice they were given three years ago, six months ago and yesterday is questionable.
I was told they were advised on moving from one strategy to another so they can keep ahead of the market. Huh? Keep ahead? When I spoke of our boring, predictable double digit returns sheltered from the volatility of the market I could see a light bulb turn on in their minds.
I continued to explain how our advisers, even though they may be some of the best people we personally know, may not be the best choices for investing our money. I inquired “have you seen their portfolio?” The response is always “no, it’s none of my business to ask them, and even if I did…I’m sure if they had a million dollars in it they would not want me to see that.” “Why not?” I asked, “if they don’t want you to see their portfolio for whatever reason, that is a huge red flag”.
I strongly pointed out they are trusting this person to control their hard earned money – should they not have some idea in what the adviser him or herself is invested? To give a simple equivalent…if I walked into a BMW dealership and the salesperson selling me all the benefits of the car ends up driving off in a Lexus, I would want to know why. Maybe there is a simple explanation but I would still ask. Why don’t we do that with our investments?
It’s simply because the financial industry continues to make us believe they know more than we do and know what is best for our money. They position themselves as experts and we are afraid to step out of the box and start asking questions in fear of offending them. But think about it, it is OUR money for which they have NO TROUBLE offering suggestions; when they have to invest their own money, it is completely different and that is what we need to know. It’s kind of like an old saying from my parents: “Do as I say, not as a I do”. Did THAT make any sense?
This is why it is important to get a financial professional that is not tied to the outcome of your investments. Pay an independent adviser to help develop a professional plan specific to your individual financial position, risk tolerance and goals. If your investments do not perform as promised, you can always swap him or her out to a more qualified individual without any penalties.