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The Greatest Job Ever...

By Mike Minter, CFP®

Since 1982-2007 (with the exception of 2000-2002), one of, if not the best job in this country, was being a financial advisor. Why?

Because the period of 1982-2007 was the greatest bull market in US History!

Advisors could have believed in just about any system or model, put their client’s money there and made a whole lot of money for them. The result…Clients viewed their advisors as geniuses (and the advisor probably started believing it too). They told a bunch of their friends and colleagues about their advisor, which meant the advisor didn’t have to spend time finding new business. They would rarely question what the advisor charged them or what other services were being provided since the client’s accounts continued going up. Ahhh, it must have been nice…

Clients would have made over 12 times their original investments in these indexes over that time period without including dividends (which I will focus on another time).  

In the previous 20 year period before 1982, the Dow Jones Industrial Average traded most of that time between a range of approximately 500-1000, and the Standard and Poor’s 500 traded most of that time between a range of approximately 50-100.

The game changer - 2008

The financial sector is currently going through some major changes, but I believe the practices of financial professionals must also change. In my opinion, now that the easy returns are behind us, clients are not going to tolerate paying big commissions or a percentage of assets under management to financial advisors who simply manage their money.

The first order of business for most people should be to identify what fees they are paying and what services they receive as a result. For many, getting a clear answer will NOT be easy.

For the most part, it isn’t what you pay that is bad, it is what you get. As a rule, but especially when returns are lower, your advisor should be providing other critical services to justify the fees you are paying. 

Here are a few questions you should be asking yourself to see if you are getting those services: 

• Do you know your net worth?
• Have you calculated when you can retire or is your advisor helping you with this? 
• Does your advisor even know your retirement goals? 
• Have you had a conversation with your advisor about how down markets could significantly change your situation, especially if they occur in the first few years of retirement? 
• Do you know the difference between compounding returns as compared to simple or average returns and how volatility affects them both? 
• Has your advisor asked you about your estate plan and reviewed your insurance policies to make sure you are adequately covered without the incentive of selling you a new policy? 
• Have you discussed what type of mortgage you own and the rate so when interest rates decline you can determine whether it makes sense to refinance into something better?
• Does your advisor provide compelling reasons for why you should make each investment or are they putting you in a cookie cutter asset allocation model that you could do yourself?

Bottom line...

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