Choices Unlike most goods & services, the decision process in choosing a financial consultant is largely driven by perception—not price.The perception of safety and trust is often applied to the size (or brand) of an organization, or the likeability of the employee/agent/broker.Those who use the aforementioned criteria as a basis of their decisions, though, might find themselves disappointed—often years after the start of their relationship. There are four places people can choose to get financial services:
A commercial bank like Wachovia.
A large brokerage house like Merrill Lynch.
A discount/web broker like E*Trade.
An independent financial consultant.
Bank
Of all the places to go for financial advice, the easiest to dismiss is the banks.Sophistication and talent are often low and many of these programs are driven primarily by annuity sales and proprietary products.Many of their brokers only have a series 6 license, which limits their solicitations to mutual funds and variable annuities. Wall Street Legacy The traditional brokerage houses like Merrill Lynch have many years of experience, large internal research teams and conveniently located branch offices.There are a few criticisms of the large brokerages to consider:
Their system rewards good salesmanship rather than sound consulting practice.
Their pursuit of investment banking fees from the same companies they are covering for their investors breeds conflict of interest.
Their service to accounts under $2 million can be very impersonal.
Their stock brokers are required to obtain little formal education in finance beyond qualifying for a series 7 license.
Using a large brokerage house is based on the premise of being “connected.”Investors are figuring out that they are paying a lot of money to be “connected”, but to what has become suspect. On-Line Discount brokers were the first challenge to the traditional broker by emphasizing ‘ease of trading.’They adequately serve the needs of a very targeted niche of investors.They typically do not offer advice, but those who do use a “network referral” system that often places investors with outside practitioners.While this service is useful for some, it does not relieve the investor from exercising extreme prudence in selecting a financial advisor. The referral or “partnering” systems claim to provide “one-to-one advice,” which, in our opinion, causes a false sense of security.The cause of our cynicism stems from the marketing of such services.The “advice” has very little to do with money management and financial consulting and everything to do with marketing and delivery of perception.These models place clients at the end of a poorly integrated system that fails to deliver best in class service. (Qualified) Independent Financial Consultant There are three principal reasons to use an independent financial consultant who is a Registered Investment Advisor:
An RIA firm is a fiduciary.
Professional services are hourly and/or fee based.
All fees are transparent.
High level of personal service.
Education & experience is often above average.
The key, as is the case with any professional, is with the people. The first thing institutional investors ask when interviewing money managers is, “Who is going to watch my money every day?”The reason this is the first question is because everything else – investment choice, diversification, fees, tax considerations – are secondary to who is doing the work every day.Wall Street’s best know brands – Merrill Lynch, J.P. Morgan Chase, Morgan Stanley, and Citigroup – are only as good as the people they provide to you – their foot soldiers. Unfortunately this is where things break down.Watching investments, continuously updating financials, tracking tax liability and reviewing portfolios is a daily grind and people – professionals and individuals – don’t like to do it.When the markets are roaring, laxity goes unnoticed, but when things are tough, laxity means you will still be losing money when others are recovering and moving forward. While a traditional brokerage house or bank may be perceived as a better choice for investors, reality suggests investors should place more emphasis on the individual, not the brand, who is engaged in managing your assets. If the above five criteria are important attributes in what you expect from a financial advisor, we urge you to call, 703-913-7701, or email, info@xerxesfinancial.com for an interview.