Getting a Financial Consultant - Three More Tips For Finding the Right One

· 5 min read
Getting a Financial Consultant - Three More Tips For Finding the Right One

If you're frustrated from having one financial consultant after another financial consultant give you inadequate returns on your stock portfolio, then I hope you read my first article "Three Strategies for Finding a Superior Financial Consultant." In the following paragraphs, I'll drill down some more to essentially hammer home those points.

Getting a superior financial consultant, isn't always concerning the financial consultant. It is sometimes also about you. Are you willing to also make the commitments to find a superior financial consultant? In this posting, I'll discuss yet another crucial behavior about financial consultants and two concerning the behavior of you, the investor.

Three more tips:

(1) Don't hold mutual funds;

(2) You shouldn't be stingy if you discover an excellent advisor; and

(3) Be patient and ask plenty of questions in your visit a superior financial consultant.

Don't Hold Mutual Funds

Without a doubt why I'm not just a fan of mutual funds. Mutual funds have so many hidden fees that it's often difficult to learn just what your costs are. Besides upfront costs that may be upward of 5% for a few funds, there are 12b-1 advertising , marketing and distribution fees that range from 0.25% to 1 1.0%, administrative fees that range from 0.20% to 0.40% not to mention management fees paid to the mutual fund manager of 0.50% to a lot more than 1.0% annually. This doesn't even include undisclosed "soft" costs of trade commissions that can add another 2.0% to 4.0% in costs. And yes you didn't incorrectly browse the first section of that last sentence. Many mutual funds charge you 12b-1 expenses they incur from advertisements and commercials that urge one to buy their funds, and when you're buying no load funds, it’s likely that that your 12b-1 fees are greater than average.

Increase this, intangible costs like the performance that's sacrificed to maintain the necessary level of liquidity to fulfill share redemption, and your costs become even greater. For a fund that turns over 100% of its assets annually, Roger Edelson of the University of Pennsylvania Wharton School estimated this sacrificed performance to be 1.5% of returns annually. Lastly to include salt to the wound, sometimes fund managers sell out of these biggest winners to meet liquidity needs, generating a capital gains tax for you personally, the investor, even though the mutual fund lost money that year.


But this isn't even where the negative traits of mutual funds end. For those who have one of the numerous financial consultants that merely try to join the hot emerging market bandwagon by buying mutual funds in China, India, or any country, I help you to exercise extreme care. When pullbacks happen in these country's economies as will inevitably happen, you are at risky of losing profits quickly. Why? In a mutual fund, you are susceptible to a herd mentality that generally, will induce panic upon the release of bad news, and cause millions of investors to redeem their shares over a brief period of time. If this happens, fund prices will plummet before you even knew what hit you.

But if you choose to own just the very best stocks in the best industries in these countries, probably your stock prices will undoubtedly be much more insulated and less volatile in that scenario. While these stocks may still decline, they will most likely decline not nearly as expensive the fund will. Strong companies' stock prices tend to weather country-wide economic downturns superior to fund prices, and if they are in the right niche, they may even continue to flourish.

Be Ready to Pay Fees for Superior Advice

Superior advice is superior just because a lot of effort and time go into producing that advice. I recall speaking with a potential client one time that had a million dollars in the stock market and was adament about not paying fees. He just wished to pay commissions on stock trades. When he showed me his statements (incidentally he was with a significant Wall Street firm that I will not name), there appeared to be no structure or investment strategy in his portfolio. He owned a variety of mutual funds and individual stocks, and several times those stocks were traded when there is a nominal 5% gain in virtually any of these. Furthermore, the statements by his financial consultants were misleading. The consultant handwrote on his statements he was doing great because he was up 6% that quarter (that i believe nearly matched the S&P 500's performance that quarter). He told me that annualized, that the 6% translated into 24% returns.

However when I explained that his net returns would be much lower because his portfolios quarterly 100% turnover rate produced excessively high capital gains taxes that could undercut his net returns, he didn't appear to understand. I guess his financial consultant didn't bother explaining this small detail to him. Still, he insisted on paying no fees no matter what. I could tell he was the sort of person who was blindly loyal to his financial consultant, therefore i moved on without wanting to schedule a second meeting.

Superior advice costs money. And when your financial consultant is superior, he or she will undoubtedly be transparent about his fees as well as your costs, so that you won't be confused in what your true gains really are. Avoid being stingy. After what you just learned all about mutual funds, why can you not be ready to pay even up to 2% annually for superior individual advice and management when you're almost certain to be paying a lot more than that a year merely to own a mutual fund?

Be Patient and Ask Lots of Questions

In the event that you persistently ask the three questions I mentioned partly one of this article, you may get frustrated after talking to ten financial consultants, none of whom can answer those questions. My advice would be to just be patient. Don't give up and don't settle for a salesperson that is trained to answer those questions to cause you to believe that she or he has answered your questions when that is not the case at all. What do After  Click here for more ?

For example, when you begin drilling down about specific stock picks, a standard sales technique to avoid your question is an answer like the following: "I'm not just a stock picker. But don't worry. I understand how to find the very best money managers in the country to manage your cash for you, so you're in great hands." Avoid being misled by smokescreens like this. Understand that if your financial consultant truly understands how to get you the best money managers, he then or she must necessarily have discussions about geographical preferences, industry preferences, and specific stocks with those money managers. How do a financial consultant claim to choose the best money managers for you but have no knowledge of what stocks you own and what makes those stocks special?

To conclude, buy individual stocks over mutual funds, be willing to pay fees for a fantastic advisory should you be so lucky as to find one, and remember, the luckiness of finding a fantastic advisor is not really luckiness at all. It originates from your hard work, tough questions, and your unwillingness to be led astray by the professional smoke screens of financial consultants.

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