There is a large number of investors who believe anything their advisors tell them because they have personal relationships. They like their advisors and they inherently trust people they like. And, investors do not question the advice of people they trust. This is a license to steal for unscrupulous advisors who take advantage of investors who trust them to maximize their own incomes.
It is unfortunate, but a lot of investors have trouble believing people they like will take advantage of them to make more money. Ask yourself this question. Do you really believe your current advisor would voluntarily provide information that would get him fired – for example, bad performance, high expenses, excessive risk, or conflicts of interest? The answer is absolutely not! His income would stop and you might file a complaint with one of the regulatory agencies. If the abuse was bad enough, it could cost the advisor his job. It is much safer and rewarding for the advisor to withhold this information from you. Continue reading →
If your answer is yes, you may be in serious financial trouble and not know it. Read on if your answer is no. You are about to learn some nasty tricks of the trade that have been engineered by Wall Street.
A high percentage of investors believe financial advisors have to tell the truth because they work in a regulated industry. It’s true, they are supposed to tell the truth, but there is no way the regulatory agencies (FINRA, SEC, State Securities and Insurance Commissioners) can protect you from unscrupulous advisors. Continue reading →
Did you know there are financial advisors who read the obituary columns every day and call on recently widowed women? Or, how about the advisors who call on hospice care workers to get the names of women whose husbands have suffered catastrophic illnesses. And lastly, there are the advisors who call on attorneys to obtain the names of recently divorced women.
These sales practices win the prize for sleaze. You have to wonder how these advisors sleep at night? Or, they may sleep really well because they have control of your assets. So what is really going on here and what can you do about it? Continue reading →
Investment performance measurement is a service that has been used by institutional investors since the 1960’s. It refers to the process of measuring the investment performance of institutional assets. Since the 1970’s this data has helped the trustees of pension plans meet their post ERISA obligations for monitoring the performance of their plans’ investments.
However, trustees did not manage institutional assets. They hired money managers to invest the assets for them. This brought another fiduciary requirement into play. Trustees were responsible for monitoring the performance of the managers they selected. This made sense. It would have been imprudent to select managers and ignore their investment performance. Continue reading →
Individual investors are notorious for being emotionally involved with their money. This may be why money is one of the leading causes of divorce in this country. The two primary emotions are greed and fear.
First, there is greed, which is based on how much money you will make if you are right. Greed causes investors to take substantial amounts of risk in the hope of capturing higher returns. Greed even causes people to invest in scams because they promise exceptional returns. How many scams have you read about that touted 40% to 70% returns? Continue reading →
A high percentage of investors have been conditioned to believe investment performance is determined by their willingness to invest a significant percentage of their retirement assets in the stock market. Consequently, they are exposed to substantial risks when they are in their latter years of accumulating assets for retirement or in their early retirement years with 20 or 30-year investment horizons.
According to an Investor Watchdog (www.InvestorWatchdog.com) survey 64.2% of investors are becoming very concerned about their ability to recover from stock market crashes. Their immediate concern is a crash between now and their retirement dates or within a few years after they retire. They have figured out how the math of falling and rising markets works against them. Bill and Ann Smith, our hypothetical investors, illustrate the problem.
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 →
Financial advisors are responsible for helping investors achieve their financial goals. They help them develop financial plans and investment strategy. They help them determine allocations to the various asset classes. They help them select money managers. And, they provide performance reports that document monthly or quarterly investment results.
What if advisors do not provide these services? There is a 95% probability the “advisor” is really a “sales representative” who is paid commissions to sell investment and insurance products. Their responsibilities stop when investors sign their contracts. The advisors’ next steps are collecting their commissions and moving on to the next sale. These advisors are clearly not accountable for results because they have already been paid and do not provide ongoing services. This is the number one reason why investors should not rely on sales reps to help them invest their assets – no accountability. 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 →