It’s no mystery why there are so many mutual funds out there today. It’s not necessarily because investors like them. It could be because their advisor recommends them.
In the brokerage world, if you don’t recommend investments that actually do their job and provide better results than the market alone, your client fires you and move on. In the independent world, a lot of advisors don’t have a background in investment analysis. Often they are accountants or tax professionals who’ve started offering investment advice in addition to the other services they provide.
There’s a reason mutual funds were invented and used for all these years. There are some really good ones that serve their purpose well, and provide diversification and prudent investing that works. Advisors should guide their clients to the best quality products, helping them to weed out the fluff.
Helping clients to diversify and rebalance are not our only purpose. They are important parts of maintaining healthy portfolios, but that’s only part of our purpose. We need to know the nuances and differences between funds with the same allocations even if they’re offered by the same company. It concerns me when advisors put too much trust into a program or rating system and stop doing their own critical analysis. If we aren’t diligent, it’s difficult to ascertain what funds are the real deal, and which ones simply have deals worked out with a platform or marketing agency. Remember advisors, just because you don’t collect commissions doesn’t mean the people you chose to listen to won’t benefit from your recommendations.
There are many poor investment products on the market today not because investors are fools. It’s because their advisor is.
I’ve been told that researching investments in detail is too much work. That my approach is not necessary and a waste of time by independent investment advisors and CFPs alike.
Outperforming the market isn’t what’s being debated. What’s important is that investment advisors be aware that they are gateways to their clients’ assets. That mutual funds know that some advisors look at allocations instead of market performance when selecting recommendations. Mutual funds are marketing themselves to look good to you, not your client.
Clients, to make sure you work with an advisor who’s not afraid to look deep into investments, here are a few questions to ask in your next meeting:
- Pick a fund from your allocation.
- Ask your advisor how that specific fund helps your portfolio. Don’t settle for the excuse that it fills an allocation and provides diversification.
- Ask for specifics about what makes that fund a better fit than another fund that fits the same allocation. Getting a good rating on Morningstar isn’t a complete response. Go deeper.
The good advisors know, and will tell you. They also won’t take your question personally, and may welcome the chance to prove their expertise and value to you! I look forward to creating stronger relationships with my clients that are time tested and sound. I welcome opportunities to show my expertise by answering questions about how I chose investments. I also feel proud of my work when my clients show interest in the details about what I do, not just the results!
Ultimately, clients, your gut instincts are your best resource. If your advisor and you have a good relationship and you’re confident in the work you do together, that’s a thing of beauty! But if you keep pushing aside a feeling that you’re not getting the whole picture, or your advisor isn’t being genuine with you when you ask about investments, you might consider shopping around for one that you have a better connection with.
About Laurel Hardy:
Mrs. Hardy is an investment advisor representative of and offers investment advisory services through Bespoke Wealth Management, LLC, a registered investment adviser offering advisory services in the State of Connecticut and other jurisdictions where registered or exempted. Main Office: 1476 Poquonock Ave, Windsor, CT 06095. Tel: 844-245-7135. Additional disclosures are available by visiting the disclaimer page of bespokenwealth.com.