Over the years, I’ve collected many cautionary tales from clients about their experiences with other advisors — true horror stories from real people. One client, a nurse, brought in a six-inch-high stack of confirms from her former broker, and told me, “I don’t understand a thing that guy says.” It turned out the broker was overtrading her account.
Another time, an engineer told me he was investing based on the rantings of a TV guru. His justification? “He’s on TV so he must be legit, right?” Then there is another woman whose advisor told her to put half her assets into a variable annuity — a totally inappropriate investment for her with high fees and little benefit. There were so many stories I was able to fill a book with them. “Bozos, Monsters and Whiz-Bangs: Bad Advice from Financial Advisors and How to Avoid It” is a warning to investors to be very careful about the advisor they choose.
It’s also a reality check for advisors. If you see yourself in the anecdotes, it may be time for a change. There are plenty of opportunities to do well as advisors while doing what is right for others.
One of the big problems for advisors and investors alike is the rise of hourly and standalone planning. This approach is touted as an alternative to comprehensive planning and asset management, but it’s misguided. Planning without the oversight and control of investment positioning and management is an abandonment of an advisor’s fiduciary duty.
I have done fee-only planning in the past to later discover that clients handled their investments poorly because they did not understand what to do.
I have offered these types of planning in the past to later discover that clients handled their investments poorly because they did not understand what to do.
Hourly planning without ongoing, regular assistance, along with asset management, creates a nickel-and-dime relationship with clients. For clients to get help solving problems, they must pay another fee. They often hesitate to pay and that can lead to poor financial decisions.
Standalone planning also limits the advisor’s ability to increase what they earn. It’s a transactional business — not unlike charging commissions to buy and sell securities. Planning is time consuming. There are only so many plans a person can complete in a year.
But, it’s difficult to convince clients to change from a fee-for-plan approach to a more inclusive offering. That’s why my firm only offers a comprehensive wealth management oversight program. It is intended to guide clients through life’s never-ending changes. It goes beyond standalone planning and asset management to include much of what retirees and pre-retirees need.
Unfortunately, the industry is moving away from this holistic approach to a do-it-yourself method — even as the world becomes increasingly complex. From robo investing to fee-for-planning only, financial help is becoming more fragmented.
Perhaps it’s the availability of financial information at clients’ fingertips that creates the illusion of competence, but online advice and media gurus do not understand an individual’s circumstances and the advice is often inappropriate.
Only an experienced advisor who works to understand clients’ values, situations and goals can truly guide those investors in managing their financial lives.
