by John Lohr
I write for and contribute comments for a high profile investment website which has 7 million investor subscribers. We have been having a pointed discussion among the contributors and investors as to the value of financial advisors. Some don’t think advisors add no value to the
performance, net of fee. Performance is a big talking point, even though some contributors have tried to point out that there are hand-holding and other psychic services advisors provide.
Some investors are just lost. Some are playing the adult version of gaming. Whatever the reason, there is a high percentage who just do not want to deal with an advisor.
Now, we can argue whether we should or ever could attempt to convert these investors to an advisor model. I personally think it is folly to try to do so. Some people just want to do what they do, and that’s OK. Some advisors think an advisor’s value is in preventing the client from blowing themselves up, but do they really? Some advisors think the advisor value lies in preventing a client from bailing out at the wrong time. But, I will contend, that’s wrong. What these advisors fail to realize is that investors have a real reason for making decisions as weighty as bailing out. It is the basis of psychological behaviorism. Fear, Comfort, Sleep at night, remembering a past event that had perhaps drastic consequences, Volatility nightmares. Did you ever consider that maybe your client is not psychologically equipped to watch their portfolio or their stock go up one day and down the next. Ask Oprah. So, while you’re trying to motivate that investor to “stay the course” you may be making a mess out of his or her mentality. It may sound radical, but its Ok for the client to make a mistake. Another error in judgement some advisors make is believing so strongly in their investment strategy and philosophy, that they believe it is the only “right” way. A black box, monte carlo simulations, liability management, free cash flow analysis, technical momentum plays.
Some advisors can’t understand why ALL investors don’t see the world the way they do. Well, investors have preferences: maybe one likes “name stocks: (Disney, Coca Cola, Apple). You can see, touch feel them and read about what they’re doing (Cedar Fair just opened a new roller coaster—biggest on 3 continents.) They like the “touch and feel”. Some investors favor sectors: techies like techs; healthcare professionals like healthcare or biotech; soldiers like defense stocks; financial professionals like good stories, and on it goes.
Which brings me to the point. Investors have something to say. Listen to them. Don’t try to sell them your “best” method, because it won’t be for many of them. The ones who will like your “best” method will be those who don’t really care about investments. They see investments as a
Gil Weinreich, senior editor of Seeking Alpha says Financial Planning may be the single most important component of the investment process. Teresa Schafer says every Financial Advisor should be required to take the CFP exam. Pause there a second. The exam goes deeply into
tax and estate planning, retirement planning, real estate and a host of other things that Advisors should know to help their client create an investment plan. Len Reinhart says today’s investor spends more time in planning a vacation that planning their financial life. Media advice on
investing is terrible. Reinhart says today’s technology and tools can enable an Advisor to engage in “Aspirational Investing.” It’s all about goals, objectives, lifestyle choices and being able to do what the investor really wants to do.
Listen to your investors. Here’s what some of them have actually said:
“If financial regulators were more sophisticated and less afraid of offending powerful political lobbyists (and future employers), the regulators would recognize that the act of charging clients
a percentage of AUM is a breach of fiduciary ethics.” “When you are left with your entire retirement savings on your lap, buying a few books on
Amazon doesn’t really do it. The market was crashing, our holdings were dropping rapidly and we had no one to help us. Should we have bought some books or taken a few courses during that period….?…maybe, but we didn’t. We were facing our savings going down the tubes. We didn’t know where to turn.” “We met with this very nice woman and let her manage it. We signed a contract with her that it would be invested in very conservative investments. 60% bonds.
Long and short, a year later, the market started going down and down. We couldn’t reach her as the market crashed. I called, called. I was told she was away and no one else could access the account. Well, we eventually threatened UNNAMED FIRM with a lawsuit if we couldn’t access our account. This advisor never appeared again. We finally were able to access our account after 5 months of threats. We lost almost 60% of our IRA. We also found that the portfolio was invested in a ‘high risk’ portfolio. Mostly stocks, many companies do not exist today.” “I asked a number of retired people, friends and family if they were happy with their investments. They all said they were, they got their payments each month. When I asked if they knew what they were invested in, the resounding answer was ‘no, I have no idea.’”
“To clarify, I did not post here to find an advisor. I am trying to educate myself to possibly handle things myself.” “I guess ‘buyer beware’ but I didn’t know that back then. I wouldn’t even know that my current
broker was not working for our best interest. We trusted him very much. We had no involvement in our portfolio. That was the mistake, but I wonder how many other people have no idea what they are invested in.”
“Sometimes life takes quick, unexpected turns where one does not have the time nor ability to stay on top of the portfolio. You trust who you hired and trust he/she is looking out for you.” “If it’s true that long term market returns are relatively predictable and that there is no value
added by active management, it makes no sense to give RIAs a rising income that’s turbocharged by the (passive) compounding of inflation and market returns.” “This is a new world to me. There is so much I do not understand, but I’m working on it.”
Advisor or Investor: How would you respond?