Unreal Expectations, No Trust Lead Investors to Failure Read

Written by Jeff Mount

October 01, 2020

Registered representatives. Wealth consultants. Investment advisor representatives. Financial planners. These are all names that describe people who are in the financial services business. They differ in that each has a slightly different tilt, but all have one thing in common: Most Americans have chosen not to work with them.

That is partly due to people not having enough savings to warrant an advisory conversation. For these people, financial literacy is sorely needed before it is too late to fulfill their family obligations and leave a lasting legacy.

Others, however, have the money but have a deep level of mistrust of people in the financial services business. Those issues center around poor client service experiences, an inadequate level of education in the advisor, or fear of being subjected to unethical behavior which is usually inspired by high commission products.

There is no shortage of evidence that each of these experiences could potentially exist depending upon the advisor who is chosen. However, it is very important to note that those who are a fiduciary are accepting a level of responsibility that is to be admired. Those who are a fiduciary promise to act in the best interest of their client with no conflicts of interest (commissions).

There are certainly circumstances where a commission-based product is the only solution to a problem that was identified in the planning process. In these circumstances, it is certainly acceptable for the advisor to explain why the product was chosen and to fully disclose how much the commission will be as a result of choosing that product.

Too often investors judge their success or failure with an advisor on the return on investments that were chosen by the advisor. Often, the “acceptable” level of return is based on a passive benchmark like the Dow Jones Industrial Average or the S&P 500 indices.

These are unfair and irrelevant in almost every circumstance. Very few investors have the confidence to put their entire life savings into stocks for their entire lives. I am a huge fan of “aging” portfolios which allows the investor to allocate towards equities at a high level when the distribution date is far away.

However, as each year passes and the distribution date nears, the risk is gradually reduced by first moving to income producing asset classes and eventually to highly liquid asset classes so that a market downturn doesn’t negatively impact the money available on that distribution date.

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