We've all seen the ads on TV or in print showing the picture-perfect work environment of financial advisors and their clients. As soon as you step into the door, you're welcomed like a family member and immediately you have a sense that everything will be perfect. That's a nice image to conjure, but in reality it's more like walking into a doctors office. As the industry widely prepares to embrace the fiduciary standard, advisors are looking to milk more out of the cliches that are associated with wealth management in order to gain client trusts...but it's a bit forced.
Today, I was inspired by this Wall Street Journal piece, talking about the 10 worst cliches in wealth management, that to some extend consumers should be mindful of -- most of these cliches are designed to rope clients in and appease them. However, much of the time its part of a carefully crafted script and consumers should proceed with caution.
1. "We always sit on the same side of the table as our clients"
As much as you would like to think that is the case (literally and figuratively), it really is a lie. Generally, advisors sit across from clients at boardroom tables because they can't always sit at a round table. They should be upfront about their commissions and disclosures from the get-go.
2. "We win if you win"
No, you don't. The client might or might not make money on an investment. The advisor ALWAYS makes money on investments; if you charge fees, you win. There's a reason major brokerage firms have over $1 trillion in fee-based assets under management: fees mean steady, predictable returns. Generally speaking, so long as they produce higher returns than the prices charged on commissions, THEN their clients win, and that is a big gamble. However, if your advisor offers a retainer for specific services (such as retirement planning) this is a much more honest approach to pricing -- it forces them to work hard for that money.
3. "Thought leaders"
Don’t tell us how smart you are. Tell us exactly what you do that deserves to repeated. I bet clients want “thought listeners.” That is, advisers who pay attention to their goals and develop financial strategies that are on point. If everyone is a thought leader, then no one is a thought leader: if everyone is special, then no one is special. It just doesn't add up. Your advisor better be trying to differentiate themselves from the sheep -- and when it comes to finance, they shouldn't be cookie cutters in their thought processes.
4. "Our process..."
This is simply code for "we won't talk about performance." And why would they want to? In 2016, 88% of all money managers underperformed their benchmarks in the past 5 years...and the past 5 years have been a massive rally for the stock market too. There is no process to outperform the market, otherwise, they would all be using it by now. An honest discussion of process would just be "We try our best not to lose your money. We can't guarantee anything."
5. "Settling for average"
This takes us back to the talk of retainers: Why not wean your business off fees for assets under management? Retainers tied to specific expertise shield financial advisers from the serial underperformance of active management. They eliminate the need to pretend that sitcom lines about indexing, like “settling for average,” are legitimate investment advice. Don't believe the hype from salesmen that index funds are inferior to high-fee active funds...see the aforementioned item.
6. "We treat your assets as if they were our own"
Wait, what? You're using my money to pay your bills, take your vacations, and save for your children's college education? No, my money is MY money. Managing it should be a privilege, not a right. I worked as a bank teller one summer where a customer asked me why I don't just stuff my pockets with the hundreds of thousands of dollars that I handle everyday -- simple answer, it's not my money.
7. "We put client interests first"
This is what the fiduciary rule hopes to accomplish, however this meaning is always up for interpretation. Re-purposing the ethical foundation of financial advising into a sales pitch is simply disgusting. Don't just spew out nonsense, give PROOF. How exactly do you put client interests first? Do you have former clients who can confirm this fact.
8. "No conflicts of interest"
This is absolute bullsh*t, no matter who you hear it from."No" usually equals "Zero" which is indefensible. As far as I'm aware, there is no form of compensation that removes conflicts of interest that can result in billable hours.There is only disclosure...and this is the law. The Investment Advisers Act of 1940 states that: “Any material conflicts of interest shall be disclosed and may be consented to by the customer.”
9. "We are transparent"
Transparency became the new buzz word after the Great Recession caused a massive amount of distrust among financial services. Items may be disclosed in fine print, but most of the time investors only become aware of it when its already too late. Instead, make a list of all the disclosures and discuss them face-to-face with clients.
10. "We'll tell you anything you want to hear"
When did advisors become politicians? Telling clients that index-annuities are like 'elevators that only go up' sounds good to their ears, but how well will you handle that turning around and biting you in the butt? Be honest, for crying out loud. They can handle the truth, and if they can't, then they shouldn't be working with you.