What You Need To Know To Ensure Your
Financial Advisor Isn’t Ripping You
Off
Provided By:
offshoreinvestmentadvice.net
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Do
you know what your financial
advisor is doing with your
money? Don’t think that’s a
rhetorical question: a little
over a year ago, an elderly
couple came to see me. They had
$100,000, which they had
entrusted to their financial
advisor over the past three
years. When asked how their
money had done, the couple
laughingly told me that they
still had the original amount.
After examining the advisor’s
paperwork, I noticed that he had
actually achieved a return of
$2,000 per year – all eaten up
by his fees. That alone seems
criminal but then I showed this
couple an investment vehicle
that offered 24% per annum with
a capital guarantee – meaning
the original investment couldn’t
be lost. Applying the 24% per
annum over the three years, we
came to a total of 72%, which,
when we factored in the compound
interest, amounted to a 100%
return. In short, the advisor
cost the couple $100,000 – or
$33,000 per year.
So, I ask again: do you know
what your financial advisor is
doing with your money? This
article will tell you what you
need to know to make sure you’re
not being done out of your
savings by the very person you
trust to help you.
In theory, financial advisors,
also known as financial
planners, take all of your
investment needs and goals into
consideration. In practice,
however, this is not always the
case. The problem with financial
advisors is twofold: the first
often occurs when the investor
puts total trust and faith into
their advisor without knowing
the latter’s success as an
investor. The second problem is
that the financial advisor will
profit regardless of the quality
of investments recommended for
the client, as many advisors
work on either an up-front
commission or fee – neither of
which is dependent on
performance. Some unscrupulous
advisors have even been known to
recommend investments for a good
commission or a little extra
cash, rather than trying to
decide the client’s best
interest.
So how does one become an
advisor? The channels vary from
jurisdiction to jurisdiction,
but have many similarities.
We’ll use the United States for
the purposes of this article.
Government regulations attempt
to define the differences
between the people who provide
investment-related services. For
example, money managers who
handle money for, or sell
fee-based investment advice to
more than 15 people must
register with the SEC as an
investment advisor – regardless
of whether or not they are
actually brokers. This
requirement was established by
the Federal Investment Advisors
Act of 1940, which officially
defines an investment advisor as
any person who, for
compensation, engages in the
business of advising others,
either directly or through
publications or writings.
An investment advisor that
registers with the SEC is not
required to have any particular
educational or professional
achievements. The legislators
are apparently of the belief
that no amount of education or
professional experience can
prove the competence or
incompetence of anyone who
claims to have the ability to
manage money or give investment
advice. Only a nominal fee is
required to be officially
recognized by the US government
as a registered investment
advisor. However, all registered
advisors must disclose any
conflicts of interest, as well
as details about their
background. The registration
form is a public document
available to anyone for review.
As you have probably gathered,
it is not that difficult to
become a financial advisor. In
Australia, they are attempting
to make it more difficult to
become a registered financial
planner. Due to a loophole in
the system, a person with enough
money could buy a financial
planner’s practice – and then
work under that license without
ever having to become a
financial planner!
The only sure way to know how
good a prospective financial
planner or advisor may be is to
ask them if you can see a list
of their assets. After all, if
they can’t make money for
themselves how will they ever be
able to advise you?
By finding all you can about
your financial advisor’s
practices and assets, you’ll
ensure that your money is in
good hands, working for you and
not your advisor.
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