Good investment advice is valuable. Top advisers at the best investment firms can earn 8-figure salaries. I know this because I was in the business of advising “high net worth” clients for many years. So, what exactly do these wealthy investors get in return for paying top-dollar for advice?
For one thing, they get the adviser’s full and focused attention. Top advisers only handle a small number of relationships because clients at that level demand what one of my former employers called “high-touch” service. They get pampered with “concierge” services – everything from floor seats at the NBA games to private lunches with industry luminaries like Buffett and Gross.
They expect high quality market advice, winning stock recommendations, frequent contact, and access to private stock deals and hot new issues. Most investors never see or even hear about these kinds of perks, because most investors deal with advisers who have too many clients. Every adviser I know is trying to break into the top echelon, and the way to do that is by constantly upgrading their “book” of clients.
Advisers compete for the biggest clients they can find, and when they land a big account, they shed some of their smaller clients to make room for the new relationship. This culling-of-the-herd process creates an environment where small- to medium-sized clients are repeatedly being shuffled from one adviser to the next. Experienced advisers who are moving up the food chain pass them to less experienced ones who are usually just fighting for survival.
I’m often asked to give free advice. I do, but I have to be selective about it because my time, like yours, is limited. In addition to my immediate family, I sometimes offer free advice to prospective clients on this website with the hope that some of them will one day become coaching clients.
So, how much is free investment advice really worth? It depends on how well you understand where to find the right information for the task at hand. The advice I offer for free on this site is valuable, but unless it’s used in the context of an overall investment strategy, it’s usefulness is limited. For example, a prospective client recently asked me to help her choose a bond fund from the list of choices in her 401k plan. I did the research, and based on criteria such as quality, diversification and fees, I made my recommendations.
The following month she became a client. After looking over all of her investments, and placing everything in the context of her financial “big picture,” it was apparent that she should not have purchased any of the bond funds on her list. She already had too much of her money invested in bonds, and what she needed was more exposure to stocks.
This is a case where the advice I gave for free was honest and correct, but it was out of context. So why I didn’t ask her earlier about the context? I did ask, and she chose not to disclose her financial information out of a concern for privacy. That’s fair enough, but it meant that the good advice I gave her actually made her financial situation worse. It caused her portfolio to be even more unbalanced than it already was. This is something to consider when you search the web for advice about how to invest your money.
How valuable is your time? Like so many other complex issues in life, managing your investments is time consuming. In my coaching seminars I provide a step by step plan on how you could do your own investing work. Given enough time, anyone can read and learn how to invest, and use a combination of online calculators and excel spreadsheets to set up a retirement portfolio. But is that the best use of your time?
Although I know I am capable of doing my own tax return, it is not worth my time. I pay my CPA to know the rules, use them to my advantage, and save me the hassle of doing it myself. I am also much more likely to make costly errors than she is, and doing taxes is not my profession. I pay her fee because it’s worth it to me. I save time, avoid frustration, and undoubtedly pay less to the IRS than I would if I did it myself.
When I was younger I used to do my own home repairs and remodeling projects. I had more time than money. I learned from scratch, and I enjoyed all of it. But when I got older, I had less free time for those things. Now I would much rather hire a competent professional to do things that require more time and effort than I’m willing to put forth.
If you have the time, and you enjoy doing your own research, you can do very well with your investments. Free advice and information is out there, but you have to know what to look for, where to find it, which sources you can trust, and how to use it in the proper context. Each of these steps in the Do-it-yourself process introduces a potential for error or misjudgment. You have to get it all right in order for free advice to have any value.
Finally, here’s a suggestion that works for many of my clients. Instead of thinking of advice as an either/or proposition, consider hiring a professional for some of the tasks on a limited basis. I have a number of clients who use me to evaluate how they’re doing now, make suggestions about how they can improve, and help them through the transition. These limited engagements can last from 3 months to one year, but they do come to an end. Once the client is up and running, it’s much easier to maintain a well-designed portfolio than it is to build one from scratch on your own.
If you would like to find out more about limited engagement coaching, click here.