Do financial advisors practice what they preach?
Portsmouth, N. H. (PRWEB) February 11, 2015 -- Do Advisors Practice What they Preach?
By Tom Sedoric
Even the smartest people can fool themselves into thinking they have more money than they actually do. This can be particularly evident for the “captains of finance” that pervade the financial services industry. This came into focus recently through a pair of 2014 studies about the financial advice industry that raised a critical question: do advisors truly practice what they preach? If they don’t, should their clients listen to them?
One survey of 117 financial advisors compiled by CLS Investments, LLC, found that only 19 advisors had completed a formal succession plan for their own businesses. This lack of a long-term plan may explain why half of the advisors in the study say they will not retire until at least age 71, if at all. Financial advisors without a succession plan for their practices put both themselves and their clients at risk.
The study also revealed that “most expect the sale of their businesses to fund the majority of their retirement, with 41 percent saying the sale of their business will be between one quarter to one half of their retirement assets, and another 14 percent expecting a sale to make up half of all of their retirement assets.” This suggests that prudent savings and sound investing during their careers may not have been adequate or didn’t occur at all.
Another survey of 771 independent financial advisors by FP Transitions found that “99 percent of independent financial services and advisory practices go out of business when their founder retires.” In addition, the survey found that too many advisors were viewing succession planning as their retirement nest egg creation, and not a strategy for the future growth or investment in the business. Basically, they were all hoping to win the lottery.
Clients should also be aware of the incentives that financial advisors receive when changing firms. Though the self-regulatory body FINRA is discussing greater transparency, little has been accomplished thus far and many advisors take advantage of the lucrative deals available from firm swapping because they are either greedy, or have failed to adequately manage their own resources. Like many, these advisors may have considered themselves immune from consequences of their own financial inadequacies, and hoped that another ‘big bonus’ jump to another company, or a sale of their firm will save the day.
A key distinction between “great” and just “mediocre” professionals of any type is often honesty and transparency. I’ve been asked over the years by our clients about my personal balance sheet, and don’t hesitate to discuss such a private topic. I have earned every cent of my nest egg and I manage my resources in the same fashion as I do many of my clients. In many cases, our objectives are aligned perfectly and my portfolio looks a lot like that of our clients. It is diversified, there is proper asset allocation, it is maximally tax efficient, and it reflects my values on risk management. Basically, I do for myself what I do for my clients, which I believe is not only a sound policy, but the most honest one. Why shouldn’t we eat our own cooking?
I am an investor of patient capital, including my own, and have never taken a step down the slippery slope of speculation or firm swapping to improve our family’s circumstances. Many financial “professionals” seem destined to damage their own balance sheets by actively, and often unsuccessfully, trading their own portfolios – sometimes with leverage. The activity often occurs without an honest assessment of their results. Sometimes, and most sadly, it is done to generate revenue so that they can keep their jobs.
Though the 2008-2009 debacle sobered a number of financial professionals (particularly those living on leverage), investment gurus, and regulators, we know that memories are short and transparency is often lacking. Ask a few questions before giving your money to anyone. The retailer Sy Symms said “an educated consumer is my best customer” and I agree. Today, the first discussion with any new advisor should begin with “So, tell me - how do you manage your money, and how do you get paid?” With increased transparency, measurable client outcomes and success could be soon to follow.
Tom Sedoric is the Managing Director-Investments of The Sedoric Group of Wells Fargo Advisors in Portsmouth, N.H. (http://www.thesedoricgroup.com) Sedoric is a nationally-recognized wealth manger and his team manages in excess of $300 million in assets for successful families and individuals. The views expressed by Sedoric are his own and do not necessarily reflect the opinion of Wells Fargo Advisors or its affiliates. 0914-05500
Michael McCord, Independent PR, +1 (603) 793-2692, [email protected]
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