Mistakes to Avoid When Investing Through a Financial Advisor

Mistakes to Avoid When Investing Through a Financial Advisor

The financial futures of many Americans are being fretted away by brokers and banks.
 

A recent article by author Dan Solin titled The Average Returns Myth describes the hysteria of active mutual fund managers as they continue their mission of selling investors what might be called “The Black Box Hoax”. That is, brokers and banks want you to believe that they have” special knowledge”, i.e. a “black box”, and they are willing to let you in on this knowledge via their expensive packaged investment products.

The premise is that through superior financial analysis, their firm can identify which asset categories, (and fund managers), will provide stellar returns in the future and which won’t. It’s a huge fairytale with disastrous long-term consequences for many investors.

Indeed, even with the weight of evidence strongly favoring passively managed funds, majority of investors still allow themselves to be victimized by what Solin calls “a desperate lie”. The cost of these errant choices to the investing public is almost unfathomable.

Just last year, the White House Council of Economic Advisers estimated that conflicted advice (the kind brokers and banks provide), cost retirement account investors $17 billion per year! Brokers and banks push their “black box” actively managed mutual funds despite scant evidence that this works. Sure, it works for them through excess fees and commissions, but not for investors.

Losing both time and investment returns are core reasons for the growing percentage of Americans who are poorly prepared for retirement.

The Center for Retirement Research at Boston College publishes the National Retirement Risk Index (NRRI). The NRRI measures the percentage of households at risk of being unable to maintain their standard of living in retirement, (what we call “shortfall risk”). Their most recent study states that 52% of households are “at risk”. Sure, lack of savings, behavioral mistakes and other issues contribute to this equation, but falling prey to “The Black Box Hoax” is a big part as well. “Shortfall risk” is arguably the most daunting financial issue facing Boomers and those on the shoulder of the Boomer cohort.

There is a better way. Don’t follow the crowd, but instead follow the long-term evidence and invest that way. Instead of relying on “sales advice”, seek out and establish a long-term relationship with a fiduciary advisor. 

James E. Wilson
Advisor
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James founded South Carolina’s first fee-only financial planning firm in 1982 and is a pioneer in the financial planning field. He has advised hundreds of successful individ ... Click for full bio

Most Read IRIS Articles of the Week (February 20-24)

Most Read IRIS Articles of the Week (February 20-24)

Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, February 20-24, 2017 


Click the headline to read the full article.


Enjoy!



1. Cyborgs Are the Future for Advisors


Becoming cyborgs is the way to go for financial advisers…blending robotics and humans into one organism. You see, I am convinced that robo-advice models will succeed and prosper. — Tony Vidler

2. Building a Better Index With Strategic Beta


With the global economy warming up, but political uncertainty remaining a constant, it’s more important than ever for investors to position their global portfolios to navigate long-term market volatility. That’s where the power of diversification comes in ... — Yazann Romahi

3. Reinvigorate Your Financial Life With Laser Focus on Market Risk and Shortfall Risk


The financial world is noisy and it’s easy to become distracted from your most important long-term goals. One way to cut through the noise is to focus on just the two factors that ultimately determine your approach to everything else in your financial life; namely, Market Risk and Shortfall Risk. — James E. Wilson

4. When it Comes to Your Money, Does the Truth Hurt?


It’s important to admit the truth behind our actions in order to rectify past and future mistakes or regrets. Living in denial only perpetuates making decisions that could potentially lead to financial disaster. — Michael Kay

5. A Skill for Advisors to Master to Keep Clients for Life


There's one key approach that makes you invaluable to your clients so they want to stay with you for the long-term. You have to genuinely be interested in people. — Paul Kingsman

6. Relationships & Money: 6 Stories to Share With Your New Partner


When you start dating, you usually start off sharing stories. Tales of your childhood, your previous relationships and your college days. Those stories help explain to your partner who you are and how you act. — Mary Beth Storjohann

7. Great Leaders Don't Talk About Revenue


It runs counter-intuitive to what we have been led to believe business is all about: make more money and everybody wins, surely? Talk about revenue so that everyone knows what’s important. What’s the problem? — Barry Chandler

8. Trump's Tax Proposals Could Cost You (and What to do About It)


In the wake of President Donald Trump’s stunning upset victory, however, muni investors were forced to readjust their expectations of fiscal policy going forward. Because Trump had campaigned on deep cuts to corporate and personal income taxes, equities soared while munis sold off, ending a near-record 54 weeks of net inflows. — Frank Holmes

9. Sometimes Doing What’s Best for Customers Isn’t Always Going to Make Them Happy


What does it mean to be a customer-centric company? That seems to be the question of the week. It started off with one of our subscribers emailing in the question, followed by two reporters wanting my take on this now-popular phrase for their interviews. — Paul Laughlin

10. Why We Solve the Wrong Problems


Everywhere I look I see organizations and people investing heavily in new initiatives, transformation, and change programs. And in almost every case the goals will never be met. One of the most crucial causes of the failure? The right questions were never asked at the outset. — Paul Taylor

11. Private Equity Head Tapped to “Fix” US Intelligence Apparatus. Why?


Why should we think the head of a private equity company could effectively “fix” US Intelligence? It is not apparent that this individual is even remotely qualified to fix the US intelligence apparatus. — Kathleen McBride​​​​​​​

Douglas Heikkinen
Perspective
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IRIS Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues to ... Click for full bio