Money managers – just like your broker, banker, and insurance agent – make their money by selling you a service. If you don’t know what exactly they’re doing for you or how much they’re charging you, you’re vulnerable.
And yet, most investors, probably 8 out of 10, don’t know these things.
If you hire a plumber to fix a leaky faucet, you know exactly what they’re doing and how much you’re paying them. But when your money manager recommends something – some sort of amazing new investment that guarantees your principle while simultaneously giving you an upside equal to the market – you probably only vaguely understand the transaction. And you may have no idea that they’re being paid multiple times for selling you that deal.
The financial industry is very, very good at three things:
- Inventing financial products that are difficult to understand
- Hiding the fees they charge their clients
- Making sure they get paid even if their clients lose money
There are plenty of regulations in place that are supposed to make such costs transparent. But most of the disclosures are in small print and peppered with legal terms.
I’m not suggesting that all fees and charges are unfair. In fact, decades of consumer advocacy have reduced the number and types of tricks brokers, financial advisors, and money managers use to fleece their clients.
But there are still things to watch out for…
Some money managers and financial advisors don’t offer much to their clients. They’ll scratch the surface but, in the end, provide only a narrow range of financial services. Make sure what they offer fits your needs and includes diverse asset allocation, stock and bond recommendations, reporting, and so on.
Most of them will also charge you a fee for any financial advice. And some will collect commissions on any transactions. All of a sudden, it’ll start costing you to do anything with your managed money – including just talking about it.
Another problem is that they have a predisposition for mutual funds. They like mutual funds because they are easy. But as you know, mutual funds are very expensive.
And that’s not all… READ MORE