Here’s a wise “formula” we don’t talk about much:
“What you expect” minus “What you get” equals “How disappointed you feel”
I see this all the time in the realm of finance.
For example, someone will complain, “I get NO attention from my broker! I know my account is small, but I always have to call him to suggest changes. And that’s IF I can even get him on the phone. Isn’t he supposed to advising me, not the other way around?”
Actually, that’s not a broker’s job.
A broker is licensed to buy and sell stocks and other investments. They perform a valuable service in the financial system. The problem—and disappointment—come when investors expect a broker to perform the functions of a financial planner.
When you expect frequent financial guidance and advice from a broker, but all you get are stock transactions (that you have to request), you’ll likely feel disappointed.
Is that because the broker did something wrong? No. It’s because you had unrealistic expectations. Let me explain.
Brokers make their living this way: They get commissions on the stocks they buy and sell for investors. This means if you have an investment account, but you make very few transactions from that account, a broker does not earn commissions for his/her firm.
So, honest question: If you were Joe Broker, and you had a client with a BIG investment account and traded often…and you had another client with a smaller account who rarely bought or sold stocks, which one do you think you’d talk to more often?
Okay, what about advisors? How do they make their money? Usually, they’re compensated by a smaller fee arrangement. This charge is either billed directly to a client (as a retainer or hourly fee), or it’s paid out of the client’s account as a management fee. The average AUM (assets under management) fee charged by financial advisors can range from .25% to 1%.
Complicating all this is the fact that many financial experts these days wear both hats, that of advisor and that of broker.
The good news is that advisors are held to a high standard by regulators. Their investment recommendations can’t merely be “suitable” (or OK). Their recommendations must meet the “fiduciary” standard. That means they must always be in the “best interest” of the client.
Bottom-line? If you’re making occasional investments on your own and seldom make changes to your portfolio, a broker may be all you need.
On the other hand, if you want someone to “mind the store” and keep up with all that is going on in your portfolio—and your life—in order to make appropriate and timely recommendations, you need an advisor.
In the end, you’ll likely pay more to work with an advisor. But you should also get more in terms of advice and attention.
Our financial system includes both brokers and advisors because both serve useful roles.
Make sure you know which one you’ve got and which one you need. Keep your expectations in line with reality and you’ll avoid unnecessary disappointment.
All this discussion about investing raises a question…what’s your plan to turn your investments into steady retirement income so that (a) your money lasts as long as you do and (b) you’re able to fulfill your financial goals in life’s next chapter?
If you don’t yet have a plan, I’ve got a free tool that can help you get started. It’s called the RISA (i.e., Retirement Income Strategy Assessment). In just a few minutes it can show you what kind of retirement income plan best aligns with your personality, goals, and lifestyle. There’s no obligation, and you can access it by emailing me (bmoore@argentadvisors.com).
Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.
