Being Smart with $$ -- Advisers Want Too Much of Your Money

“I WANT YOUR MONEY!” was what my new client heard from many financial advisers when he came into some new wealth.  Some wanted to sell him annuities which would likely generate commissions for the adviser of over $80,000.  Some had “great load funds” that would generate commissions for the adviser of over $50,000.  Some wanted to manage the assets for 1% per year which would likely generate fees for the adviser of over $50,000 in the next 5 years.  All of the above also usually have an additional $10,000 or more in annual fees inside the investments.  All these fees and commissions come right out of the client’s portfolio and severely restrain his long-term growth.  How is the poor guy going to make any money with all these commissions and fees?   Fortunately, a professional contact sent him to me where he gets advice on an hourly basis that is not affected by what product pays the highest commissions and where he doesn’t pay fees so large the adviser could buy a Tesla with it.  You may think doubling your money sounds good over 20 years until you learn that you could have tripled it without all the fees.  (Numbers above are based on a $1 million portfolio.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Roth or Traditonal IRA?

It’s tax day for most of the country. It’s the last chance to contribute to your IRA for 2018.  But should you choose a Roth IRA, where you don’t get a tax deduction for last year but all money grows tax free, or should you choose a Traditional IRA where you get a tax deduction now but all the money in the account will be taxable later when you withdraw it for retirement?  There are some different considerations but in simple math terms, it all depends on whether your tax rate will be higher or lower in retirement.  If your tax rate will decline, you may want to choose the Traditional IRA and get the deduction now.  If your tax rate might be higher in retirement, then you may choose to pay the taxes today and contribute to the Roth IRA.  But contrary to what people often tell me they believe, if your tax rate will be the same, then you come out equal.  It does not matter how long you own the assets.  If you assume the same investment in each account with the same returns, and assume that you can put the full pre-tax amount into the Traditional IRA but only the after-tax amount into the Roth IRA (because that’s all the cash you have left after paying taxes), then only the tax rate can cause a different result.  But hurry.  You’re almost out of time.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ - Firing Your Financial Adviser

When you fire your financial adviser, do you expect to be treated with respect and gratitude considering you likely paid him/her tens of thousands of dollars in fees over the last few years?  You may be surprised by the childish reaction you receive.  I have had multiple clients decide to work with me once they came to appreciate my hourly advice model where they are never sold a commission-based investment and they will not pay higher and higher automatic, annual adviser fees.  On multiple occasions when clients let their former adviser know they are moving to my client-friendly model, the adviser tells them to go…well, I can’t say it in polite company.   In some cases, these former advisers were considered good friends.  But if this is their reaction, are they really your friend or do they just like the $5,000 to $50,000 they take out of your account every year?  If you are paying thousands of dollars to have your account managed by a friend, but don’t think you are getting anything but average results, you may ask yourself whether you are maintaining this relationship just because you were classmates in high school.  But then ask yourself, how many other friends do you write a check to each year for $5,000 or more and since the answer is 0, you may consider that it’s time to move your account to a model that favors you rather than your adviser.  Then you will find out if this friend just sees you as an ATM machine.  And I promise you that if you fire me in the future, I will still want to be your friend.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Hourly Advisers Can Help You Manage Your Own $$

Most people manage their own money according to CNBC/Acorns/SurveyMonkey with no help from a professional or online tools.  I understand the hesitance when many advisers want to take $5,000 from your half million dollar portfolio every year or sell you some suspect financial product.  But what if you could self manage your portfolio but still get advice?  That’s one of the great benefits of working with an hourly adviser.  Many of my clients love maintaining control over their money but having someone who can answer their questions and keep them out of trouble.  Most people realize the benefits of getting financial advice from a professional are greater than they expected but that doesn’t mean they want to be “sold” something or pay exorbitant fees.

https://www.cnbc.com/2019/04/01/when-it-comes-to-their-financial-future-most-americans-are-winging-it.html

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart with $$ -- Top Performing Mutual Funds Should Often Be Avoided

Buying “Top Performing Mutual Funds” is often a way to lose money.  You might be tempted to buy the #1 name in large-cap stock funds for the last year listed in financial journals.  But wait, look closer at that fund listed as the top 1-year performer in Kiplinger’s 03/2019 issue and after some investigation you’ll find it did far worse than its benchmark over the last 10 years.  A $10,000 investment in this fund 10 years ago might have grown to around $30,800 today.  But if you instead just bought a low-cost S&P 500 fund (the benchmark it is tasked with beating), you would have over $45,000 instead.  A lot of funds can beat their benchmark for a year, but doing it over 10 years has proven to be very hard to do for the vast majority of actively-managed funds.  So ignore the exciting headlines and buy low-cost funds that keep you invested for the long term.  If you are going to take on stock-market risk, you shouldn’t have to add the risk that you won’t get stock-market returns.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- "I Don't Know" may be the best answer.

Where does your financial adviser think the market will be at year end? Here’s the answer you should be looking for: “I don’t know.”  Senior market strategists from major Wall Street banks disagree with each other every day on the near-term direction of the stock market.  And market prices reflect an equilibrium created by all those buyers and sellers.  Since the value of the stock market already reflects the views of all the bears and bulls, it really doesn’t matter if your adviser thinks the market is going up or down because he or she doesn’t know any better than all the other chief market strategists out there.  In fact, if your adviser is guessing on the direction of the market, then he or she may not be advising on an appropriate long-term investment plan, instead shooting for gains from market timing (which most research says is a losing strategy.)  So what’s a better answer from your adviser? He or she should advise you to stay invested in a portfolio suitable for your profile, add to it regularly and ignore all the so-called experts who as a group have a questionable ability to predict the short-term direction of the market.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ -- Get the Financial Advice You Pay For

“IGNORE YOUR CLIENTS” is the essence of messages I often get in marketing materials for how to be successful as a financial advisor.  Services offered let you automate and ignore all your clients except the ones who have at least a few million dollars.  After all, they ask, why waste time on small clients who “only” pay $5,000 per year when you can focus on clients who pay $50,000 per year?  Here are my questions: Doesn’t someone paying $5,000 deserve $5,000 of personal attention? (Yes, they do!)  If you are paying $5,000 or more per year, what are you getting for that money that could be in your portfolio growing to $65,000 over 10 years with 6% annual returns? (It better be a lot!)  Have you spoken to your adviser this year?  (Many will answer no or say they have spoken for less than an hour this year.)  Does he/she have you invested in mutual funds that have done worse than low-cost index funds?  (Too often the answer is yes and the cost to you over the years can be quite substantial.)  If this message hits too close to home, consider an hourly, fee-based financial adviser.  You will not pay to be ignored because the adviser only gets paid when actually providing you with service.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com