Over the years, I have sat in front of dozens of Minnesota individual investors. Far too often, their experience with investment advice professionals falls into the same three categories.
First, there are the investment advisors who are more interested in providing financial products to individual investors. These advisors believe that the financial products they provide are better than their competition. These advisors also tend to not fully disclose the level of investment risk to individual investors.
The reality is that there is no chance that the “better and lower risk” claims are possible. In 2014, fully 85% of all actively managed stock mutual funds under performed their benchmark index. Said another way, an individual investor had only a 15% chance of being invested in a mutual fund last year that provided the investment performance that is was supposed to provide.
Second, most investment advisors make it a point to make claims based on their crystal ball investment return calls for the future. These advisors even have computers, pie charts, and historical investment returns to back up their claims.
The truth here is that no one knows the direction of the stock markets or interest rates. Any investment advisor who actually believes that he or she knows the future direction of the stock market and interest rates is a danger to an individual investor.
The most important part of any investment advice relationship is to establish a game plan to manage the investment risk when the stock and bond market change direction in the future.
Third, be very careful of an investment advisor that is quick to disclose how cheap his or her investment advisory fees are. Cheap rates should be kept to the lawn care and snow removal businesses.
Make the decision to work with an experienced investment advisor who has your best interest in mind. Then make sure that his or her compensation is based on the preservation and growth of your investment account. You should not worry about him or her being the lowest cost provider available to you.
As of yet, they don’t sell investment advice at Costco.
Ric Lager
Lager & Company, Inc.
