NO – A Thousand Times – NO
SHOULD YOU USE AN INVESTMENT ADVISOR.
What’s Wrong With Using a Professional Investment Advisor?
Whose pockets do you think provided the $84,220 AVERAGE BONUS paid to “industry employees”?
Answer: Anyone who used an investment “Advisor”.
No Added Value
Almost every advisor will
- sell the HOPE of superior returns for the guarantee of high fees.
- require that you have some minimum (as low as $10,000, as high as $250,000).
- give you a questionnaire to determine your “risk tolerance”.
- recommend 3-11 funds/ETFs based on your “risk tolerance”.
Often the funds are provided by vendors who pay the advisor to pimp their funds.
- charge a bundled fee (buried in the current price of the fund/etf) which includes the firm that builds or provides models, the cost of purchasing or selling the ETFs in the models, and the advisor.
- charge you one or more of the following:
- a front-end-commission; 4 – 5.5% off the top of what you give him
- a percentage of your “assets under management”
- a flat hourly fee
The median income for a professional Investment Advisor is $90,00 (Bureau of Labor Statistics), $67,950 (Wikopedia), $81,060 (Money, US News), $90,000 (CNN Money). Every dollar of this income comes from your pocket.
What “added value” do they provide for this income?
None! Here’s Warren Buffett’s take on the value of an investment advisor:
“No consultant in the world is going to tell you just buy an S&P index fund and sit for the next 50 years,” he said. “You don’t get to be a consultant that way and you certainly don’t get an annual fee that way.”
Click HERE to see the unconscionable advice that Amerprise Financial did to one of it’s clients, a 32 year old, single male. This example should be sufficient to turn you away from financial advisory firms.
Investment Advisors are likely to show you their “fund du jour” and show you how their fund out performed VTI.
Here is what they leave out of the comparisons:
- Their investment advisor fee.
- The high front end load (5.5%) just to get into a fund.
For every $100 you “invest” maybe only $94.50 of it actually gets invested into the funds THEY select for you. This inconvenient fact never gets put into the comparisons.
- The high management fee (typically 1.3%) embedded in the funds price
- The fact that they won’t even talk to you if you have less than $100,000.”
Don’t believe it? Watch this…
Did you hear that? And we also will work with the client who has $100,000 instead of a larger balance and the price is the same.
So, Mitch Tuchman (a BIG name in the investment advisor world) is proud of the fact that his reBalance IRA company will deign to take on clients who only have $100,00! Goodie for him.
- The long term performance of their recommendation. Usually comparisons are short term (<= 5 years) and the “compared to’s” time frames are carefully selected. The date that is used as the start date for comparison can significantly change the conclusions one reaches based on the comparison.
See How A Start Date Changes Everything.
Investment advisors do not have a legal responsibility to do what is best for you! In fact they fight legislation that would require them to put your interests before theirs. You don’t believe it. Read this article “How Wall Street is fighting to rip off your retirement money“.
Often do more harm than good.
They charge you a percentage of your assets every year, they put you in high cost, high front end commission funds, ad infinitum. If you haven’t read all that I present in prior pages, at least check out these articles that confirms what I have been teaching throughout –
Retirees Suffer As 401K Rollover Boom Enriches Investment Advisors.
OH MY GOSH….If you think that one is bad read this.Wall Street Fights For Our Right To Pay 5% Fees – In this article, a strong fiduciary rule, requiring all advisers to put clients’ interests first is rejected by financial advisors!
Yet another article that
5 Investing Myths May Stop You From Retiring On Time
So much for financial advisors. I swear to you, they can not, will not give you better advice than you have received from me. I have the proof.
This Issue Has Reached the Supreme Court
The case was instigated by current and former workers at Edison, a California-based utility, who claimed that the retail-class mutual funds selected as investment options by plan fiduciaries were imprudent because they charged higher fees than identical institutional-class funds available to larger investors.
This of course comes back on the advisor who put the employees in the higher fee funds. Let’s try to guess why.
And Finally, Warren Buffet Says …
“It’s so obvious and yet all the commercial push is telling you you ought to do something different today than you did yesterday,” he said. “You don’t have to do that. You just have to sit back and let American industry go to shop for you.”
“The performance of the Vanguard 500 – (or better yet, VTI) which simply tracks the performance of the S&P 500 index – backs up what research has shown in the years since the recession: that people who kept their money in the market have fared much better than those who cashed out and stood on the sidelines.
He blasted investment advisors who try to convince clients otherwise.
Million Dollar Bet
In fact, eight years ago, Warren Buffet made a $1 million bet with a renowned Hedge Fund Manager, Protege Partners, LLC, a New York City hedge fund with $3.5 billion in assets under management. that the simple Vanguard S&P 500 (VFINX) fund would, after 10 years, outperform whatever concoction the Protege Partners could develop. To date, with two years left on the bet’s time period, VFINX has delivered returns more than 40 points higher than those of Protege Partner’s personally selected portfolio. “I believe this is the most important investment lesson in the world,” Buffet said.
From Yahoo Finance: This is the most important investment lesson in the world
None other than The Executive Office of the President of The United States
slams the effectiveness of professional investment advisors. Here is the executive summary:
- Conflicted advice leads to lower investment returns.
- The aggregate annual cost of conflicted advice is estimated to beabout $17 billion each year.
A retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years.The full report can be seen here: The Effects of Conflicted Investment Advice.ad
Typical “Advisor Speak”
“Having a long term perspective, appropriate diversification, and an asset allocation that aligns with their risk tolerance and goals can help investors remain disciplined enough to ride out the storm. A financial advisor can play a critical role in helping to work through these issues and in counseling investors when things look their darkest. ”
Real Investing Journal, pg 8, Fall, 2017
What’s Wrong with Advisor Speak
- “appropriate diversification”
implies that there is some level of diversification that is “appropriate”; there is no such thing as “appropriate” diversification.
- “asset allocation”
again implies that there is some “asset allocation” that must be discovered or your portfolio is sub optimal.
- “their risk tolerance”
“risk tolerance” is a learned reaction to phony contrived situations. Education (read IFR) will change the investor’s concept of risk.
What’s Right with Advisor Speak
- “long term perspective”
That is correct – the investor needs a really long term perspective; 50+ years or more.
- “counseling investors when things look their darkest”