This article describes one of the more frequent ways financial advisors manipulate track records that are supposed to document their investment performance.
There are two reasons why investors must be very cautious when they select financial advisors based on investment track records. First, advisors know most investors will select the financial advisor with the best track record. Second, unscrupulous advisors will provide fake track records or they will manipulate track record data to make themselves look better than they really are.
Track records are one way investors can evaluate competence. Reviewing advisors’ education, experience, and certifications is the other way. Given a choice, most investors are biased towards track records because advisor comparisons are easy – just select the one with the highest track record. Continue reading →
There is only one way to know if you are getting competitive investment performance. You have to select a relevant benchmark and hold your advisor accountable for beating the benchmark’s return. If your advisor consistently outperforms your benchmark you should sleep better at night.
The returns that are produced by your advisor are impacted by the performance of the securities markets. If the markets go down, there is a good chance you will lose money. If the markets go up, there is a good chance you will make money. Continue reading →
Every investor who relies on financial advisors to help them achieve their financial goals should be asking themselves how they can increase their advisor’s accountability for investment performance. Why ask the question? Most advisors go to great lengths to avoid accountability.
Here is an example. You select an advisor who convinces you to invest your assets in five mutual funds. You buy the recommended investments and you experience very poor performance over the next two years. Who is responsible for the bad performance, the funds or the advisor who recommended the funds? The advisor wants you to blame the funds so he can retain his relationship with you. He says it is not his fault the funds failed to deliver competitive performance. I disagree. The funds and the advisor who recommended them are both accountable. You should sell the funds and terminate your relationship with the advisor who sold you the funds. Continue reading →
You have seen the TV advertisements. Wall Street markets competence, trust, and services that help you achieve your financial goals. You have also seen the headlines documenting Wall Street abuses that have cost investors hundreds of billions of dollars. Which one do you believe, the ads or the headlines?
Wall Street is trustworthy or its not. I believe the headlines because regulatory agencies (SEC, FINRA, states) have documented one Wall Street abuse after another. When the most prestigious firms on Wall Street (Goldman Sachs, Citigroup) are ripping off investors you know the industry is not the trustworthy source of advice and information that its advertisements say it is. Continue reading →
There is a one-page document that would stop Wall Street’s most deceptive sales practice in its tracks. Investors should ask for this document every time they select a new financial advisor. However, most investors don’t know what they don’t know. In this case they don’t know they can require the one-page document from advisors who want to control the investment of their assets.
What is Wall Street’s most deceptive sales practice? 75% of all so-called advisors are really sales representatives who are paid commissions to sell investment products. However, they are not required to disclose this fact to investors. They claim to be financial planners, financial consultants, and even financial advisors to camouflage their actual role of sales rep. Why hide this role? Investors do not want sales reps investing their assets. Consequently, there would be increased sales resistance if they knew the truth. Continue reading →
You are interviewing an investment advisor who can help you achieve your financial goals – in particular, retirement goals that will determine when you retire and your standard of living during retirement. What could be more important than that? You really like an advisor’s personality and communication skills. He understands your needs and says what you want to hear when you select an advisor.
How do you know this advisor is not a skilled sales person who knows how to develop relationships and develop trust so people buy what he is selling? You don’t know and you may not know for several years when you have the benefit of 20/20 hindsight. By then it is always too late. The advisor has earned thousands of dollars of income from your assets and you have a lot less money than you should have.
How real is the problem? More than 50% of investors terminate new advisors within three years when expectations do not match what they were sold. Following are five tips that will reduce your risk of selecting the wrong advisor. Continue reading →
The media calls them “alphabet soup”. Investor Watchdog’s record is reviewing the credentials of an advisor who had 28 letters after his name. The soup I am referring to is the letters that represent certifications, designations, and accreditations that appear after advisors’ names.
We are all familiar with the well-known CPA® (Certified Public Accountant™) designation. Less well known is CFP® (Certified Financial Planner™) designation. And, even lesser known is CFA® (Chartered Financial Analyst™), a very highly regarded designation that can take three years to obtain. Continue reading →
Two years ago the most important concern investors had about financial advisors was their ethics. Could investors trust advisors to provide complete and accurate information that was free of any potential conflicts of interest? Major losses in 2008 and continuous headlines documenting scams and deceptive sales practices fueled their concerns.
Now, the biggest concern is the advisors’ ability to produce competitive performance for reasonable amounts of risk and expense. This new #1 concern is also not surprising. Four years after the 2008 stock market crash, investors are still trying to win back their losses. And, performance is their principal way of getting their assets back. Continue reading →
Advisors know you want the highest possible investment returns that are consistent with your tolerance for risk. If you are in your 30’s this could be an all equity portfolio of aggressive growth stocks. If you are retired your portfolio could consist of securities that produce the greatest amounts of income. Most advisors believe performance is the key to winning new clients.
On the other hand, financial advisors do not have track records. Only money managers have track records because they provide the same services to multiple clients. Advisor services vary by client so they do not have track records or at least they don’t have legitimate track records. So how do they market their services to investors who put a major emphasis on performance? Continue reading →
Misrepresentation does not sound like the onerous business practice that it really is. It is lying for personal gain and it is endemic in the financial services industry.
Financial advisors are supposed to tell the truth. But, what if the truth causes investors to reject their investment recommendations? What if the truth caused you to terminate your relationship with them? They may pay a hefty price for telling the truth. Their alternative is to lie, by providing false information, and hope you don’t find out. This is a pretty safe bet for the advisors because very few investors have a process for gathering and evaluating advisor data. They let the advisors control their selection and investment decision processes because it is easier. Continue reading →