Thursday, January 27, 2011

Using Financial Advisors

I use an online discount stock brokerage.  Discount brokerages do not offer stock picking advice.  The reason I don't want their advice is because I have not found one which adds value to what I can do for myself.  That does not mean I don't seek professional advice in areas such as estate planning, asset allocation, risk analysis, and tax strategies.  I also realize that I am the exception.  I have managed part, and then all of my own stock market portfolio for more than a decade.

When I do go to see the professionals, it is to get specific questions answered.  If they tell me I need to allocate a percentage of my portfolio to bonds, then I research ways of doing that.  I listen to product suggestions, but choose my own.  Needless to say, a Financial Advisor, in my case, needs to charge me for a plan, because there won't be any product commissions.

Obviously, I am not the best person to ask about what to look for in an advisor, but I do have two additional tests for my advisor that are not often discussed in the media.  For the rest of the questions that must be answered, my suggestion is to google "Questions to ask your financial advisor".  I would never consider doing business with someone who cannot address all my questions to my satisfaction.  Otherwise, I would just keep looking.

I want my advisor to discuss their sell strategy.  Sell strategy?!?  Okay, if not a sell strategy, then let's call it an exit strategy.  The stock market goes up, down, and sideways.  Most people who bought mutual funds ten years ago have very little to show for it.  I believe there are good times to buy and times when it is necessary to sell.  If my broker doesn't know the difference, then I don't feel they are providing any additional value.

It makes no sense to me to just keep pouring money into a market which is either due for a correction, or in the middle of one.  We can make contributions to our investment account without immediately having to divide and allocate the funds.  I recently spoke to a friend whose advisor put him into a pile of bonds.  Now, bonds are something most of us need in a balanced portfolio, but have you noticed what's happening to them lately?  Why not wait for them to bottom for awhile or even break the downtrend before throwing away all that money.

Secondly, I try to be more than modest when filling out any risk assessment tool.  Under no circumstances would I leave such a matter to my advisor to complete on my behalf.  They may suggest it is just a routine formality, but the only way they can cheat and put my money into schemes I don't understand is if they have the paperwork that says I am more experienced than I actually am, and that I am willing to take more risk than I actually want to.  I can not overstate the importance of this one issue.  I would rather have my advisor talk down to me and think they have to explain everything than the alternative.

Too many people have thought they would be protected from brokers who illegally traded their account and put them into products they didn't want, or understand.  Only afterwards did they find out that the company's successful defence was that the products were consistent with the risk assessment documents signed by the client (and later filled in by the advisor).

By no means am I saying every Financial Advisor is out to scam people, but history has shown the really good scam artists can be hard to spot.  As for needing a stock broker, I have learned to make more money mostly without one.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.