Have you ever had a conversation with your investment advisor asking why the market went up 20% in a year, and your money only made 5% after fees? You get an answer where they talk about diversification, long-term investment strategies, and safe investments with lower returns.
This continues into the next year when you realize that you’re simply being left behind. You have the same conversation with your money manager who gives you the same answer again and again.
At this rate, you might never be able to have the money necessary to retire. But a recent article in the Wall Street Journal might shed some light on why, and it all comes down to money.
The article can be found at the following web address.
https://www.wsj.com/finance/investing/what-you-dont-know-could-sting-your-portfolio-6c095df2?mod=finance_lead_pos2
Investment House Income
In the article, an investment advisor from New York, received a communication from the investment house holding all of his client’s investments advising him that he would need to move a substantial portion of the money into other investments so that the investment house could make more money.
The communication said that they would need to make an additional $90K per year and even gave examples of how he could achieve this goal. Each of the recommendations from the investment house was good for the house and bad for the clients, moving the their money into products with higher fees and lower returns.
Please understand that if your investment advisor is a Certified Financial Planner, they’re what’s known as a fiduciary. That’s a fancy way of saying that they must work on the behalf of their clients and do whatever is in their client’s best interests.
If the money manager in question had done as the investment house had suggested, it would have been a clear cut conflict of interest and they could have lost their license as a result. But in my career, I’ve seen lots of other hustles, which include…
Churning
This is when you have an investment advisor who only makes money based on the commissions you pay when they trade your money. Normally this will happen when they’re dealing with a client who is quite elderly or simply too uninformed to have any idea what is happening.
I get the 1099-B Form at the end of the year, and there are multiple trades either daily or weekly, increasing the earnings of the money manager. In all my years of doing tax returns, I’ve never seen this sort of investing make money.
The only thing that happens is that the Broker makes the client more broke.
Extremely High Commissioned Products
I normally see this with money managers who don’t have a license to protect. They put their clients into mutual funds that pay very high commissions.
In some instances those money managers are getting sideline passes to Bears Games and $1K lunches at Gibson’s. And it all comes out of the return on investment paid to the client hence their lousy returns.
Let me leave you with this…
I’ve sat down to write this column several times in the past year and never got to it, expecting the ire of the entire investment management world. But I’m here to help my clients, not just milk other financial people for referrals.
In other words, I’m faithful to my license and my oath. I’m here to serve you, not just build my practice.
This is just three of the problems that can occur. It’s important that you recognize these potential pitfalls when dealing with your savings.
But the biggest problem of all also comes down to money. It’s the problem that until you have $20M or $30M to invest, the really good people won’t even look at you because they can’t earn enough money to make it worth their while.
Again, it all comes down to money.
I’m not suggesting to any of you that you should manage your own retirement and savings. Doing that would require an education that you probably don’t have, an enormous amount of time that you probably can’t spare, and the guts and sleepless nights involved in investment management.
We all have businesses to run. Do we really want to worry about this as well?
Managing your own money isn’t easy, so you may need to put up with these lower returns. But if you do, at least you should know what might be happening in the background so you’ll have a chance to correct it.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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