As long as there is no mandatory disclosure for financial advisors, Wall Street is free to determine what is communicated to you and how it is communicated (verbal versus documented). And, it would be naïve on your part to assume Wall Street will volunteer any information that damages its revenue and profitability.
A great New Year’s resolution for Wall Street would be to come clean with you and the millions of other investors who depend on its competence and ethics. For the first time, financial advisors and their firms would voluntarily provide the facts you need to make informed decisions. But, don’t hold you breath. Wall Street, like the tobacco and pharmaceutical industries, cannot afford to adopt business practices that include full disclosure. Continue reading →
On August 30, 2012 401k plan sponsors (companies, trustees) are required to disclose all plan expenses to plan participants. Expenses are a very big deal because every dollar of expense is one less dollar participants have available to reinvest for their retirements. It is in participants’ best interest to understand ALL of the expenses that are deducted from their accounts for three reasons:
1. Expenses may be excessive in relation to investment performance.
2. Expenses reduce participants’ net performance.
3. Participants may have to defer retirement dates due to high expenses and poor net performance. Continue reading →
In a recent Investor Watchdog survey we uncovered an investor belief that could badly damage their financial interests. Investors did not believe they had a right to ask their current financial advisors specific types of questions.
Investors did not ask these questions for two primary reasons. First, they consider their advisors to be friends and friends do not ask friends certain types of questions. Second, they did not believe they had to ask questions because that was the responsibility of the regulatory agencies. If something flagrant happened, the advisor would be kicked out of the financial services industry. Both of these perceptions are wrong. Continue reading →
Most investors trust their financial advisors. They may even consider their advisors to be friends. They fail to recognize advisors want to be liked. Advisors know investors will tolerate bad results a lot longer if they forge a friendly relationship.
The bottom-line is advisors do not volunteer information that would cause investors to reject their sales recommendations or terminate relationships. It is not in their best interests to provide this information. And, investors who don’t know what they don’t know do not ask critical questions that impact their advisors’ recommendations and results. They have a hard time believing friends will take advantage of friends for money. Continue reading →
Most financial advisors report gross performance because the number is always higher, perhaps two to three percent higher. And, most investors accept the numbers because they do not know they should be asking for performance reports that are net of all expenses. The higher the expenses, the more likely the advisor is to report gross results.
There are several layers of expense that you should be aware of. If you know all of the expenses, you can add them up and deduct them from your performance yourself. Or, you can use a free tool that resides on the Investor Watchdog website (http://www.investorwatchdog.com/) that will obtain expense data for you. Continue reading →
What if you could have gone through school without taking any tests. Would you have worked as hard? No tests mean no accountability for learning the material. Unmonitored advisors are less accountable for the results they produce.
What if an advisor has two clients. One monitors the advisor and one does not. Which client is going to get more attention? The client that monitors is going to have information that may cause him to terminate an under-performing advisor. The advisor knows this. So the client that monitors and increases accountability gets more attention.
Will increased accountability improve your investment results? There is no guarantee, but increased attention certainly can’t hurt. You would hope that the more time an advisor spends on your portfolio the better your results will be.
Monitoring also provides an additional benefit. It will be easy to spot advisors who sell you products, but provide no ongoing services or advice. This gives you the opportunity to change advisors which can also improve future results.
Watchdog is launching a new quarterly monitoring service for advisors in February 2012.