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Article Archives: 05/05/2004

Does Your Advisor Fill The Gap?

There is a wide gap between what many investors expect from their advisor and what the advisor actually delivers. This gap is a great source of frustration, anger and ultimately sleepless nights. Read on to find out how to recognize the gaps, fill them, or better yet, avoid them altogether.

“Frank” called me one day from sunny California. He was frustrated and upset and didn’t know where to turn. He’d recently entrusted his local broker with his life’s savings and naturally had certain expectations. He expected the broker to invest his money wisely, closely monitor his account and to take action when necessary to keep it from losing value. You probably have the same expectations—and rightly so. After all, isn’t that what you pay an advisor to do?

Frank’s broker recommended dividing his precious eggs into several baskets. And Frank simply followed his advice. Frank went home thinking all was as he expected. But just a few months later the account began to drop in value, losing over 3% in just one month. That’s when the problems started.

Frank immediately went to his broker and said, “Hey, I’ve lost 3% in the last month. You need to do something!” His broker’s response was typical. “Just hang in there. You just need to give it some time. Let’s get together in 3 months or so and we’ll review your account then.” It became painfully obvious to Frank that his broker was not actively monitoring nor managing his account.

Frank recognizes that investments change value (sometimes quickly) and can be affected by world events. He is comfortable with a limited amount of fluctuation. But he wants to know that someone will take action to limit those losses when necessary. Frank wants a safety net and his current advisor isn’t providing it.

There was a huge gap between Frank’s perception of what his broker would do and reality. The vast majority of brokers, advisors and insurance agents merely act as middle-men between various money managers and the consumers who use them.

Money managers are the ones who make the buy and sell decisions at the mutual fund or the insurance company. They are responsible for large pools of money, sometimes numbering in the billions of dollars. They don’t watch over your money specifically; they watch over the entire pool. They’re concerned about the return on the entire pool over a period of time, not your specific investment in it. They may even be required to stay fully invested which means their pool can lose significant amounts of money in down markets.

So who monitors how well the money manager does with your money? It should be your advisor, but the typical advisor’s job is to sell investments. They get paid on the sale so they are motivated to focus on that. They help you put your eggs in several baskets, choose the money managers for those baskets and then put the responsibility for watching your eggs with the money manager. If one of your eggs gets dropped, it will be offset by another egg that did well—hopefully.

The frustration gap occurs because neither your advisor nor the money manager actively monitors your money. Neither will take action to prevent you specifically from losing money. The problem isn’t the type of investment; it’s the type of advisor.

How can you avoid this frustration? First, find an advisor who will accept the responsibility of closely and actively monitoring your investments; taking action if one moves outside predefined parameters.

Secondly, don’t take their word for it—find out the specific systems and procedures they have in place to do it. For instance, my clients know I have proprietary software that monitors a multitude of factors in their account over 4,000 times every day. If the numbers begin to fall outside the pre-set ranges, alarms are triggered and we take action. For investors like Frank, this gives them the safety net they are looking for.

Finally, hold your advisor accountable. If your advisor doesn’t perform, find someone who will. The right advisor will fill the gap, exceed your expectations and allow you to sleep at night. Don’t rest until you’ve found one.

Mr. Voudrie is a Certified Financial Planner™ Professional, a nationally syndicated columnist and the President of Legacy Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN. He can be reached by calling 1-877-827-1463 toll-free, by email at jeff@guardingyourwealth.com or by going to www.guardingyourwealth.com.

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