Post by Conrad Alvin Lim on Aug 29, 2006 21:26:10 GMT -4
When advisers don't listen, investing can go very wrong
Marketwatch - August 29, 2006 8:04 PM ET
SANTA MONICA, Calif. (MarketWatch) -- A friend recently sought advice from one of the country's top wealth advisers. He was referred to this man, who manages the affairs of billionaires and celebrities, and was placed into a financial plan-- the wrong financial plan for him. Story number one.
Story number two: A friend recently paid $2.8 million in cash for her house. The money had been sitting in her savings account, where many millions more are still deposited. She doesn't like the stock market, doesn't understand the bond market, and dealing with financial advisers makes her nervous.
Both of them had called me and asked for advice. I never render it. I tell people to seek out the advice of a licensed financial professional, which I am not. In the case of story number one, this turned out to be bad advice. In the case of story number two, it's still wait-and-see depending on the fate of the real estate market in Southern California.
Here's what went wrong in the first case: my friend was referred to this adviser by two people, a multimillionaire and a celebrity. The adviser took on my friend as a new client, even though my friend had much less money than the adviser usually required as an investment minimum.
My friend, in his late 40s, was then put into a series of mutual funds, allocated 60% stock and 40% bonds. Most of the stock allocation was put into funds that invest in large-cap growth companies with a 10% allocation to international stocks. For this, a fee was charged rather than a commission on each of the individual products.
So far, so good, right? I mean this isn't the scenario of some commission-based stockbroker at a Wall Street brokerage placing assets in small-cap growth stocks and churning away. No, this is a by-the-book financial planning asset allocation that looks very good from the outside. The mutual funds into which my friend was placed are all highly ranked by Morningstar, and the adviser took a relatively small fee.
What was wrong with this scenario is that the adviser didn't listen to my friend, who is, well ... neurotic. The second day after he gave the adviser all of his money he called me, freaking out because his mutual funds were trading down in price. "It's only been a day," I reminded him. A couple of days later he called me again, freaking out even more. "They're worth even less!" he exclaimed. "Stop looking," I said. Curious, I asked how many times he had looked at his securities prices. "Ten times," he said ..."a day."
Yipes. Obviously the adviser hadn't given my friend what he needed most: good advice based on his financial personality. Instead, he gave my friend good advice based on a financial theory of his personality. Big difference.
Studies of high net worth individuals show that the biggest thing they want from an adviser is communication. Now I can see why. Their particular behavior leads to what we all really want at the end of the day: to be able to sleep at night.
The house is paid for, but ...
My other friend, the one who paid cash for her house, sleeps soundly. She's earning 5% on her savings, and can easily afford to live off that income for many years.
As she is in her early 40s, however, her money won't last forever given her lifestyle: She jets around the world and spends indiscriminately. So, even though her financial portfolio may look extremely conservative, it really isn't. She is essentially betting her portfolio gains on a 100% real estate play. Many people are like her. They have taken their money out of stocks and bonds and allocated 100% to real estate. Given the recent drop in home sales and economists' predictions of a wide scale downturn in the market, pure real estate may be a risky investment.
What both of my friends really need are financial advisers who will make them feel safe and secure and worry about returns later. There aren't many who listen first and act based on those findings.
The adviser to whom my friend turned used to be this way. I knew him when he was first starting out and he ascribed to a "listen first" attitude. Now that he has more clients and more money than he knows what to do with, his attentiveness has certainly waned. I imagine this happens a lot with successful financial advisers. The more successful they become, the less they need you.
Unfortunately, that leaves a whole lot of people out there left hanging. When my friends ask my advice now, I still just listen, but I'm learning that I should tell them to seek out investment professionals who do the same.
Listen up financial advisers. People really need you to.
Marketwatch - August 29, 2006 8:04 PM ET
SANTA MONICA, Calif. (MarketWatch) -- A friend recently sought advice from one of the country's top wealth advisers. He was referred to this man, who manages the affairs of billionaires and celebrities, and was placed into a financial plan-- the wrong financial plan for him. Story number one.
Story number two: A friend recently paid $2.8 million in cash for her house. The money had been sitting in her savings account, where many millions more are still deposited. She doesn't like the stock market, doesn't understand the bond market, and dealing with financial advisers makes her nervous.
Both of them had called me and asked for advice. I never render it. I tell people to seek out the advice of a licensed financial professional, which I am not. In the case of story number one, this turned out to be bad advice. In the case of story number two, it's still wait-and-see depending on the fate of the real estate market in Southern California.
Here's what went wrong in the first case: my friend was referred to this adviser by two people, a multimillionaire and a celebrity. The adviser took on my friend as a new client, even though my friend had much less money than the adviser usually required as an investment minimum.
My friend, in his late 40s, was then put into a series of mutual funds, allocated 60% stock and 40% bonds. Most of the stock allocation was put into funds that invest in large-cap growth companies with a 10% allocation to international stocks. For this, a fee was charged rather than a commission on each of the individual products.
So far, so good, right? I mean this isn't the scenario of some commission-based stockbroker at a Wall Street brokerage placing assets in small-cap growth stocks and churning away. No, this is a by-the-book financial planning asset allocation that looks very good from the outside. The mutual funds into which my friend was placed are all highly ranked by Morningstar, and the adviser took a relatively small fee.
What was wrong with this scenario is that the adviser didn't listen to my friend, who is, well ... neurotic. The second day after he gave the adviser all of his money he called me, freaking out because his mutual funds were trading down in price. "It's only been a day," I reminded him. A couple of days later he called me again, freaking out even more. "They're worth even less!" he exclaimed. "Stop looking," I said. Curious, I asked how many times he had looked at his securities prices. "Ten times," he said ..."a day."
Yipes. Obviously the adviser hadn't given my friend what he needed most: good advice based on his financial personality. Instead, he gave my friend good advice based on a financial theory of his personality. Big difference.
Studies of high net worth individuals show that the biggest thing they want from an adviser is communication. Now I can see why. Their particular behavior leads to what we all really want at the end of the day: to be able to sleep at night.
The house is paid for, but ...
My other friend, the one who paid cash for her house, sleeps soundly. She's earning 5% on her savings, and can easily afford to live off that income for many years.
As she is in her early 40s, however, her money won't last forever given her lifestyle: She jets around the world and spends indiscriminately. So, even though her financial portfolio may look extremely conservative, it really isn't. She is essentially betting her portfolio gains on a 100% real estate play. Many people are like her. They have taken their money out of stocks and bonds and allocated 100% to real estate. Given the recent drop in home sales and economists' predictions of a wide scale downturn in the market, pure real estate may be a risky investment.
What both of my friends really need are financial advisers who will make them feel safe and secure and worry about returns later. There aren't many who listen first and act based on those findings.
The adviser to whom my friend turned used to be this way. I knew him when he was first starting out and he ascribed to a "listen first" attitude. Now that he has more clients and more money than he knows what to do with, his attentiveness has certainly waned. I imagine this happens a lot with successful financial advisers. The more successful they become, the less they need you.
Unfortunately, that leaves a whole lot of people out there left hanging. When my friends ask my advice now, I still just listen, but I'm learning that I should tell them to seek out investment professionals who do the same.
Listen up financial advisers. People really need you to.