Ask 100 people what they want from a financial advisor and nearly all would say, “Um, advice?”
Too bad that’s not what most financial advisors do. In fact, most are not even qualified to give advice.
Sure, they take exams to be licensed as advisors. But those exams are not designed to test knowledge of real-life problems.
Mostly, these tests are designed to ensure that financial advisors understand the limits of securities law. The idea is to prevent fraud.
That’s great, but the fact is most people actually do need advice. They don’t need someone to pick a mutual fund for them or to recommend stocks once in a while.
Increasingly, there’s not much to know about mutual funds. Data going back decades shows that picking among funds is a fool’s errand at best.
That’s because this year’s winning funds often turn into next year’s dogs. The vast majority of mutual funds today struggle to keep up with the indexes they are supposed to beat.
The reason is fees. Once you subtract the cost of employing mutual fund managers, lawyers and marketing people, there’s not much left from the investor.
Most people go with whatever fund is recommended to them and forget about it. Then they look at a statement 10 years later and wonder why their portfolio hasn’t grown.
It’s the fees. Plain and simple.
A true financial advisor recognizes the problem of fees and, in the view my firm, sticks instead to low-fee index funds that simply track the total market.
Direct and honest
Yes, you could do that yourself. Many investors do. Hundreds of millions of dollars has moved from actively managed mutual funds to index funds over the past few years.
But you still might want, or need, some advice. How you should think about risk, for instance. Or ways to deal with taxes, kids and, eventually, retirement and Social Security.
Try asking your stock broker about Social Security sometime. You’ll get no answer, just waffling. They aren’t trained to answer these questions, but they want to keep the high-free gravy train going.
What you need in a financial advisor is actual advising, as I explain in this week’s MarketWatch column. Our advisors at Rebalance are exactly those kind of folks, direct, honest and thoughtful.
Because we are fiduciaries, your interests always come first, ahead of our own. If you have a question about your money future, we can help you find the answer and take action.
It’s what people think they need from their financial advisor, but only some advisors are in the business of providing it.