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As an In-House Tax Strategist for a “Wealth Management” office, I had the unique perspective of watching and observing the gyrations a wealth advisory team will go through in order to “land a client”. My job, needless to say, was to bring useful services to the existing and potential clientele. Well, not exactly. I had the mindset of that purpose but in truth, it was just one more method for the LPL Financial Broker to get in front of another new prospect. In fact, that one purpose “get in front of another prospect” was the driving force in every decision. Think it over this way. A Financial Advisory Firm will make hundreds and hundreds of dollars for each new client “they land” versus a few hundred dollars more for doing a better job with their existing clientele. The truth is, depending on how a monetary advisory firm is made, will dictate what is most significant to them and how it will greatly affect you as the client. This is one of the many reasons why Congress passed the new DOL fiduciary law this past spring, but a little more about that in a latter article.

Each time a financial advisory firm concentrates their resources in prospecting, I can guarantee you the advice you are receiving is not entirely in your benefit. Managing a successful wealth management office takes lots of money, especially one that has got to prospect. Seminars, workshops, mailers, advertising together with support staff, rent and the latest sales training could cost any size firm hundreds of thousands of dollars. So, when you are sitting over the glossy conference table from the advisor, just know they are thinking about the dollar amount they require from your procurement of the assets and they will be allocating that within their own budget. Maybe that’s why they get a little ‘huffy’ once you tell them “you must consider it”?

Focusing on closing the sale rather than making it possible for a natural progression would be like running a doctor’s office where they spend all of their resources how to bring in prospective patients; how to show potential patients precisely how wonderful these are; and the easiest way for your doctor’s office staff to seal the offer. Could you imagine it? I bet there could be less of wait! Oh, I will just smell the freshly baked muffins, hear the noise of the Keurig inside the corner and grabbing a cold beverage from the refrigerator. Fortunately or unfortunately, we don’t experience that when we enter a doctor’s office. Actually, it’s quite the contrary. The wait is long, the area is just above uncomfortable and a friendly employees are not the norm. That is because Health Care Providers spend all of their some time and resources into understanding how to take care of you when you are walking out your door rather than inside it.

As you are looking for financial advice, you can find a hundred things to take into account when growing and protecting your wealth, especially risk. You will find risks in obtaining the wrong advice, there are risks to get the correct advice although not asking an adequate amount of the best questions, but most importantly, you can find hazards of not understanding the actual measure of wealth management. The most frequent overlooked risk will not be understanding the net return on the cost of receiving good financial advice. Some financial advisors feel that if they have a good office having a pleasant staff along with a working coffee maker they may be providing great value to their clients. Those same financial advisors also spend their resources of money and time to put their prospective customers through the ‘pain funnel’ to produce the feeling of urgency that they must take action now while preaching building wealth needs time. To be able to minimize the chance of bad advice would be to quantify in actual terms. One of the ways to know in case you are receiving value to your financial advice is to measure your return backwards.

Normally, once you visit a binding agreement with a financial advisor you will find a ‘management fee’ usually approximately 1% and 2%. Actually, this management fee may be found in every mutual fund and insurance product which investments or links to indexes. The hassle I observed over and over again because i sat through this carnival act, was that management fees, although mentioned, were merely an after-thought. When presenting their thorough portfolio audit and sound recommendations, the sentence employed to the unsuspecting client was that this market has historically provided an average of 8% (but we’re likely to use 6% because we want to be ‘conservative’) and we’re only likely to charge 1.5% as a management fee. No big deal, right?

Let’s discover why understanding this management fee ‘math’ is so important, and just how it may actually save your asjoir. This may actually stop you from going broke using a financial advisor simply by measuring your financial advice in reverse. Let’s look at an example to best demonstrate an improved way to look at how good your financial advisor does.