The Informed Investor

It would seem that hiring a financial advisor to manage your assets should be relatively simple. Unfortunately, that’s far from reality. Why? Because you have an entire industry — Wall Street — that benefits when you stay confused. So, let us help you choose the right financial advisor.

Let’s say your investments have grown, and you are ready to get help. Be careful who you hire. You probably want an asset manager, but it is easy to end up instead with someone else we will refer to as an “asset gatherer.” To keep you guessing, both probably use the same title, maybe “financial advisor” or “wealth manager.” But once you look past the titles and examine what they do and how they actually work, you will find little similarity between an asset manager and an asset gatherer.

WHAT IS AN ASSET MANAGER?

When you hire someone, you probably hope they will be an asset manager. A fiduciary investment (or asset) manager’s goal is to give you the best risk-adjusted return on your investments, meaning they will strive to help you build wealth prudently. A fiduciary advisor puts your best interests first, with the same objectives.

WHAT IS AN ASSET GATHERER?

First, we realize you’ve probably never heard this term. There is a reason for that. In many of the large Wall Street firms, advisors may not be compensated according to the results they achieve for clients. Instead, they are often measured by the total value of assets they gather. So, their goal can be to simply add clients and encourage those clients to invest more assets with them.

“PRODUCER” OF THE YEAR

Of course, their business cards won’t say “asset gatherer.” But inside the company, among corporate levels, these types of wealth management firms specifically award the best gatherers. Or they may refer to these individuals as “producers.” Look around and you may see awards such as “producer of the year” for an advisor at an insurance company or large Wall Street brokerage firm.

Even worse, up until recent legislation has frowned on it, it has been commonplace for these firms to even go so far as to hold regular sales contests.[i] Here the best “gatherers/producers” are rewarded with all-expense-paid luxury trips. The winners are the advisors who bring the most investments through the door; not necessarily the ones who best serve their clients well or help them achieve their financial goals.

DIFFERENT SKILL SETS ARE REWARDED

Let’s look at the skills required for each type of financial advisor. An asset manager whose goal is to help you build wealth needs the skill set to accomplish that. So that means financial planning, investment allocation, and investment management experience backed up by a thorough knowledge of the markets and always abreast of economic conditions. In addition, this person probably also has other skills (or teammates who possess them), such as tax planning and estate planning.

The successful asset gatherer probably has a different skill set. To attract more clients, what works best? Great sales skills. The focus is up front, getting people to sign on.

As a result, asset gatherers sometimes will lose clients more frequently, but it may not be that disruptive for them because they are aggressive salespeople who bring in new clients all the time. They know what to say at the right time to convince clients to let them manage their money. The unfortunate thing is that the relationship they develop may be superficial, as they don’t have the time to invest in the clients they have, as their focus is on adding new ones and being a top producer.

WHO IS SITTING ON THE SAME SIDE OF THE TABLE?

As you can probably see, one type of asset management is aligned with your interests, your performance and striving to help you achieve your goals. Unfortunately, many people end up with an asset gatherer without knowing it. Often these advisors are skillful salespeople, and as a result, are often referred to friends and family.

That is why you need to hire a financial advisor very, very carefully.

HOW CAN YOU AVOID THE ASSET GATHERER?

Here are two quick tips to avoid them.

Only consider financial advisors who are full-time fiduciaries. Ask if the financial advisor will act as your legal fiduciary. And be sure to ask them if that is all the time, not just part of the time. A legal fiduciary needs to put your interests first, at all times. If they don’t, you have legal recourse.

Then, when they answer, ask for it in writing. (If you get pushback on that, that is a very important clue that you should look elsewhere, since financial advisors with your best interests in mind are usually impressed when you ask these questions and are willing to show you that they are fiduciaries).

Look for a fee-only financial advisor. That means he or she receives compensation only from you, the client. Their motivation isn’t tainted by commissions or third-party perks from selling you one thing over another.

Again, ask for it in writing. Be sure it says “fee-only” and not “fee-based,” as “fee-based” means you’ll sometimes be charged fees, but can still be charged commissions, as well.

WHY FEE-ONLY?

When you pay a financial advisor on a fee-only basis, you’re paying for one thing: investment advice, similar to how you pay your accountant or lawyer. This is very different from a financial advisor receiving commission for selling you products.

Fee-only advisors charge you an asset-based fee. This is usually some percentage of the assets under management. In this situation, the advisor is motivated to help you grow your assets. When you do better they do better.

This puts you clearly on the same side of the table as your advisor… which is usually the safest one.

GET STARTED WITH FINANCIAL ADVISORS AT ICC 

ICC specializes in wealth management services in Las Vegas, NV. with a mission to provide clients the independent, unbiased, transparent service they deserve. Contact us today to get started and learn more about growing your wealth safely.

[i] Wenik, Ian. “SEC Best Interest Rule Will Stop Sales Contests, Clayton Says.” Citywire USA, Citywire, 7 Aug. 2018, citywireusa.com/registered-investment-advisor/news/sec-best-interest-rule-will-stop-sales-contests-clayton-says/a1144851.

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