Cutting Through the Maze of Investments

It's a difficult landscape for investment advisors - once upon a time known as stock brokers - to navigate through these days. Clients in general have come to regard IA's with some amount of distrust. In fact, some question the competence and relevance of an investment advisor out right. Too bad. A proven and responsible broker you can trust can help out enormously with your finances.

Is the criticism fair? Like anything else, the answer lies somewhere in the middle but more likely to be unfair. During the rise of the market up to 2001 there indeed existed brokers who did not apply their better judgment as the circle of greed got the better of everyone. Everyone wanted a piece of the action. There is no worse feeling than not feeling a part of something exciting. Especially when it translates to increased values on your statements - aka paper gains.

The media did a swell job of pointing out that a monkey could do a professional mutual find money managers job. Of course, this was a ridiculous claim but it got its point across.

While the media decided to scrutinize the industry further, things got a little out of hand when people were quitting their jobs to day trade or became 'financial planners' on the side. Engineers would present 'full proof' option calculations only to be blown to bits by the awesome unpredictable realities of the market. This is not like building a bridge. Human nature is not neatly structured. Call it the technology wave. Suddenly, the gap between being clueless about investments and being properly informed narrowed.

Word of advice. One simple way to determine if the person in front of you is qualified is if he or she works for a reputable firm and has the proper licensed credentials. Also, above all, if you like the person give them a shot. Accountants or insurance brokers moonlighting as consultants are not going to cut it. They may possess knowledge and a general understanding but they do not have the technical and fundamental expertise of an advisor. You will not convince me otherwise.

Too often, I have met clients who allowed such professionals to manage their money. Only to later find the portfolio poorly managed. Accountants are busy being, well, accountants and simply do not know the intricacies of the investment world.

So, how does one explain tactfully to such a client and prospective client that their affairs are not being properly managed? Simple. Be honest.

Unfortunately, investment advising is not a professional vocation and this leaves it open to any Tom, Dick, Harry, Moe, Curly and Larry taking a stab at it. "How hard can it be" and "I can do it myself" attitudes usually prevails. This is fine if you have the time but if you don't you will fail. One of the tangibles of having an outside advisor is the certain level of objectivity they bring to the table.

Society in general has come to accept a certain blurring of job lines and this has made things more confusing. In politics, we see it everyday - celebrities passing off as political pundits is a prime example.

A question posed to me from time to time is 'do I need a Financial Planner?' The answer is usually a definite no. Planning of this sort is for more complex portfolios with substantial assets - a rough rule of thumb is an amount above $500 000. If you have $100 000 and brag that you have a FP, don't. You're probably getting the same products and services found in a bank.

Too often the media feeds people with the notion that they need to be treated like they have $1 million dollars. That's nonsense. A million dollar account simply demands more attention for obvious reasons. Don't be fooled by investment advisors who promise you premium service at all cost. Unless they have the resources and team to back them up it isn't going to happen.

Most important, keep your eyes and ears open. Never turn down an opportunity to hear someone else's perspective. It's the best way to learn. And it may save or make you some money.