by Jack Waymire
There are three topics that financial advisors do not like to talk about because they may cause you to reject their sales proposals or terminate current relationships. They do not bring up the topics and they hope you don’t either.
The three topics impact the achievement of your most important retirement goals: Retire when you want to, live the way you want to during all of your retirement years, and having financial security late in life when you need it the most.
Financial advisors do not like to talk about risk because it is a negative topic. Risk equates to losses that undermine the achievement of your retirement goals. Instead, advisors like to use general statements like conservative, moderate risk exposure, and market risk. The statements are vague and potentially misleading. Risk exposure creates losses in down markets. For example, your investments are riskier than the market so you lose more than the market during periods of negative rates of return. You may be exposed to substantial losses and not know it.
Tip: Require your financial advisor to document in writing how he will manage risk in 2014 and your exposure to substantial losses.
The next big negative topic is investment expense. Every dollar of expense is one less dollar you have available for reinvestment. It stands to reason the higher your expenses the more money your advisor and his firm make. This is one big reason why advisors prefer to withhold this information from you. The other big reason is expenses impact your net performance. Advisors prefer to talk about gross performance.
There are layers and layers of investment expenses. In fact, there can be more than five types of expenses that are deducted from your assets. You may be paying less than 1% in combined expenses or more than 3%. The determining factor is the type of advisor you selected and the firm the advisor works for.
Tip: Require your advisor to document every penny of expense that is deducted from all of your accounts. You also want to know who gets the money and what services you receive for the expense.
Financial advisors like to talk about years like 2013 when the market produced a substantial double-digit return. In fact, they want to take credit for your total performance even though you could have achieved a market return without them. The reality is advisors should get credit for performance that was in excess of the market return. And, they should be held accountable if their advice exposed you to more risk than the market and their performance lagged market returns.
Tip: If you do not receive a quarterly performance report there is a good chance your financial advisor is a sales representative who is masquerading as a financial advisor to lower your sales resistance.
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