4 Ways Clients Get Screwed That Should Be Illegal

By: Larry Miles

I was in a client meeting recently. Great family. The types of folks advisors really want to help succeed and be happy. We manage a portion of the client’s assets, as do 3 large, well known wirehouses. In addition, we (try to) oversee these brokers and architect the estate plan. Our reporting technology allows us to see every fund, fee, trade and recommendation these brokers implement in the client’s portfolio. It’s horrific.

  • Wake the F*** up! The amount of failed tactical recommendations is amazing. Underweight emerging markets in 2017? Check (great call, fellas). Did they chase yields by investing in Puerto Rican bonds that blew up after Hurricane Maria? Of course they did. The placement fee was too appealing. These so called experts cost this client millions. Tactical bets do not work. Please stop. Now.

  • Stop selling your investment expertise – you don’t have any! According to SPIVA data, most active managers across all asset classes consistently underperform their benchmark. To make matters worse, these active managers charge fees up to 10 to 20 times higher than passive index funds. The managers do worse, yet charge more. How in the world are they still in business? Oh that’s right, brokers get paid to sell products.

  • Fees will kill ya. Our advisory fee for this client is a fraction of the fee the big wirehouses charge. And still, our investments meet the benchmark returns (because we index), we actively harvest tax losses (unlike the brokers who lack the technology) and we focus on estate planning (which the brokers ignore). Brokers rarely add value. And yet they are paid handsomely. That cannot go on.

  • Blah, blah, blah. When I met these clients, they had just heard the chief strategist at one of their brokerage firms talk about what to expect in 2018. After sharing with me what the strategist had said, the clients asked me what I thought. My response was something like, “you know he doesn’t know s***, right?” I am so sick and tired of these so-called experts and their predictions. They lull clients in to a false sense of security. At best it’s manipulative, at worst it’s purposely lying to a client. You don’t know what’s going to happen! So sit down.

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