Step 1 to a Great Investment Portfolio: Ditch the Salesperson

Most people trust their financial advisor. Problem is, most advisors should not be trusted. I know that’s a strong statement, but after spending over twenty years in this industry, I know it’s true. I review investment portfolios all of the time. What is difficult for an untrained consumer to evaluate takes me only about 30 minutes with the help of today’s sophisticated technology and software. Much of what I see is an embarrassment to my profession. In many cases, it’s clear the advisor is not even trying optimize the client’s portfolio.

Why not?

It’s because they are not getting paid to optimize investment portfolios, rather they are getting paid to sell investment products. When you buy anything, whether it’s a car, a suit, or a mutual fund, whoever is selling it to you is working for a company that is seeking profit for its shareholders.

Profits are not bad, but the financial services industry deceptively hides its profit motives. Investments are sold using a consultative approach that sounds a lot like advice. Heck, securities salesperson even call themselves “advisors” so it’s virtually impossible to tell whether your being sold investments or advice.

Therefore; the first step to a great investment portfolio is to ditch the salesperson.

If your “advisor” has a license to sell investment products, then he’s not really an advisor, rather, he’s a salesperson. Because he has a license to sell securities for his company, (whether it’s a Wall Street firm, insurance company, or Independent Broker/Dealer, doesn’t matter) you’ll never be able to tell when he’s selling products and when he’s providing investment advice. I know, he’s a great guy and you like him. Doesn’t matter, he doesn’t work for you so even if he wants to, he can’t put your interests ahead of his employer’s interests. His success is directly tied to how well he performs for his company, not for you.

A Better Way

Fortunately these days, there are a number of fiduciary advisory firms like mine that are not affiliated at all with securities dealers: so at least you know what your paying for, who you are paying, and how much. I don’t sell mutual funds or securities, so the only way I can get paid is if I do a great job building your portfolio. Let’s be clear, fiduciary advisors like me ARE selling you something. Difference is, we are not selling any investment products. Rather, we are selling our expertise and advice.

Smoke him out.

By far the hardest part of all this is figuring out if your “advisor” is really an advisor, or a salesperson because they hide it well. Look for disclosures on their business card, letterhead, or website with words and phrases like “securities”, “broker-dealer”, or “member FINRA” as these are all tell-tale signs required by the regulators. I know, it’s hilarious, like the regulators think consumers have any clue as to what any of these terms mean in the disclosures supposedly required for their protection.

In addition, if your advisor’s website, letterhead or card lists the name of a broker-dealer, then they are most likely licensed to sell securities (nobody is allowed to sell securities unless it’s thru a broker-dealer). Here is a list of the largest broker-dealers for your reference: https://www.investopedia.com/investing/broker-dealer-firms/. Finally, if you are inclined towards internet resources you can go here and search by your advisor’s name on FINRA’s website. If your advisor pops up as “Broker, Regulated by FINRA” then he’s a salesperson, and you have successfully smoked him out!

Still confused? Just contact me and I’ll help you figure it out. I wish it was simpler to distinguish between securities salespeople and fiduciary advisors, but it’s not so you need to do your homework. Do it now. With the market at such high levels, it’s easy to be complacent but if your portfolio is not constructed properly, your financial goals will suffer.