Financial Advisors with a Conscience


Scrupulous financial advisors building and managing a client's portfolio can easily be worth the performance fee they charge. Unfortunately, such advisors are a bit like ninjas themselves. They exist, according to legend, but you have probably hardly come across one.They won't stomp into your place of employment or cold-call you looking for business. They don't advertise. They're just like.

We can hear what you are thinking. Why would any financial advisor bypass massive commissions? You shouldn't have to ask. Not every financial advisor succumbs to the dark side. Only scrupulous advisors charge a performance fee! Salesmen charging commissions contend with a conflict of interest. Instead of providing the best products for clients, they climb into bed with firms that satisfy their own needs.

Some advisors shun actively managed mutual funds, but claim they can pick individual stocks to beat the market. Do that. Most stock pickers underperform indexes over time. Remember, 70 percent of actively managed corporate pensions underperform the market. We are not talking about the offshore donkeys based in Isle of Man, Guernsey, Cayman Islands, Mauritius etc., we are talking about stallions: corporate pensions unavailable to retail investors, charging razor-thin costs to firms. If they can't beat the market, how can your high-cost sales man? Not only do stock-picking salesmen underperform, but they fail to adequately diversify.

Full diversification, of course, isn't just limited to stocks of different sizes. It also includes international exposure. Unless your advisor is going to add hundreds of foreign stocks, you won't receive a broad representation of the global markets and your advisor can't predict the movements of hundreds of different stocks from multiple countries, so you are better off with indexes.

Ensure that your prospective advisor charges 0.5 percent (or less) each year to manage your portfolio. If he charges as much as 1.25 percent, you should demand exceptional ongoing service. This would be a $1,250 annual for $100,000 portfolio. As you know, costs add up. Paying 1.5 percent instead of 1.25 percent could cost tens of thousands extra dollars over time when calculating the effects of compounding interest.

Speak to prospective advisors about their investment philosophy. Avoid advisors who alter portfolios based on economic predictions. They may sound sophisticated while referencing soothsaying economists, but don't fall for it. If forecasting (whether the advisor's or the firm's) is the order of operation, plug your ears and walk. Most economic predictions are making them very costly indeed. If your advisor can't build a portfolio while charging you a performance fee, you are dealing with a charlatan!

If you are an expatriate working overseas and the above has resonated with you then please get in touch for an informal and confidential chat: If you are already working with a 'financial salesman' then we will happily give you a second opinion to highlight whether or not your current plans are suitable for your needs.