When considering the big purchases in life, such as homes and cars, we typically spend time shopping, doing research, evaluating the pros and cons of different options, and carefully scrutinizing the costs of those options. Think about the last time you “locked in” a mortgage rate. You likely compared rates from various lenders, and got heartburn over the long-term financial impact of a fraction of a percentage point.
If you bought a car, you probably did some research and test drives, compared prices from different dealerships, and spent time haggling over a couple of hundred dollars. You may have shopped for a car loan as well, focused on interest rates, and the payment.
When it comes to investment management, very few people take the same approach. Let’s face it, when it comes to our portfolios we don’t see them as having the same comfort and beauty factors like we do with a car or home.
Obviously, I love investments and finance, or it wouldn’t be my chosen profession, but I’ve noticed many people would rather go to the dentist than really dig into their investments, even when they’re paying someone else to manage the portfolio.
If you step back, and look at the costs of investing over a lifetime, you’ll quickly see the amount at stake can be staggering. Let’s look at a basic example:
If you’re paying an investment manager or broker 1% to manage a $300,000 retirement nest egg, over 25 years you might end up paying around $70,000 – $80,000 in fees. Is this starting to look like a larger purchase than you might have assumed? And as we know, this is a low fee, sometimes fees can end up exceeding 2% with the client unaware of the actual “all in” costs.
The next issue is quality of advice. Many firms typically charge as much as they can, and this is not to say that there aren’t excellent firms and professionals out there; however, many times what gets missed is how the slick sales process unfolds.
The dentist joke wasn’t all tongue in cheek. When you walk into a big-name shop, you’re probably at a disadvantage. They’re going to throw around concepts and terms you may not understand, while giving the appearance of being masterful at this stuff. In reality, you may be dealing with someone of limited experience that just does sales, and the actual “product” is simply what the firm is trying to sell in bulk.
Somehow trust quickly develops because you just want to be done, and the idea of going through this with two or three firms seems impossibly tedious. The process is also complicated because it often lacks transparency. While fees may be mentioned during the sales process, there is lots of fine print, and it’s set up so you don’t “feel” the fee. Rather than fees being clearly detailed like you might be familiar with in a mortgage or car loan statement, some fees are often buried, and the advisor may be hesitant to discuss what these fees add up to over time, even if you ask directly.
There are various types of search engines and websites that will make “recommendations,” but know that on the other side of those websites they’re selling leads to firms that pay subscription fees. These websites and services approach people like me constantly to sell you as a lead. This can create an implied competence that’s simply not there, it’s in the fine print…
Managing investments is serious business, and the industry is full of firms that are just ok or worse. People are often attracted to this profession because of the potential compensation. You owe it to yourself to shop around, learn how these services are offered, and find someone that will take the best care of you possible.
The good part is that when you do find the right fit, you’ll probably be with that firm for a long time. Nothing is set in stone, if you’re in a situation where you think you might be better served elsewhere, make the change! Accounts are very easy to transfer, and firms are more than happy to make that happen. This is all well worth the investment of your time.
If you have questions about this stuff please don’t hesitate to reach out. I love to answer questions about the differences between brokerages, investment advisors, & insurance companies, how these firms charge you, and how to cut through the noise of the various types of credentials they often tout.
While I may or may not be the right professional for you, I’m happy to help you navigate these waters as an educated consumer, and we’ll keep it less painful than a root canal!
Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request.