June, 2008
The Second Opinion: AdvisorSEARCH
Second Opinion Launches New Service (and website!)
Second Opinion Investor Services has launched it’s new website, which is still found at www.secondopinions.ca. There is a great new feature on this site—the ability to sign up for our brand new service, AdvisorSEARCH Workshop. If you want expert advice on how to find a new financial advisor that will save you thousands in fees than this service is for you! The long term savings from this workshop can easily result in your retirement account having an additional $100,000. Let me tell you how.
Most investors are currently paying 2% to 2.5% in mutual fund fees. Investors who attend our workshop will be able to reduce their fees to about 1.5%. This means that the average investor can save 1% per year in fees and thus improve their net return by 1% per year. To understand the impact of this, lets recall Warren’s Tip # 72 from The Unbiased Advisor—Don’t Underestimate the Impact of a 1% Improvement in Net Return. Take an investor who saves $1,000 per month starting at age 35 and retires at age 60, then lives off that retirement account until age 85. If you do the math, a savings of 1/4 of 1% will save $380,000 in this example.
You might ask yourself how Second Opinion can help negotiate such a fee discount when the AdvisorSEARCH only costs $295—surely, this is a deal too good to be true. FALSE! This deal is true. Here is how we can do this.
Firstly, it is important to understand that advisors already offer 1% fee discounts to their clients with millions to invest. However, investors with “only” $100,000 or $200,000 to invest cannot get that same fee discount. That is, until now. Basically, advisors participating in our AdvisorSEARCH workshop view Second Opinion as a multi-million dollar account, and charge our clients accordingly. Since this fee discount is passed on directly to you, you can save thousands. This concept is explained further in Warren’s book, under Tip #71: Don’t Just Accept Fees, Negotiate Them. This can be modified slightly—if your not willing or able to negotiate a lower fee than let us negotiate a lower fee for you!
A lower fee is not the only benefit of the AdvisorSEARCH Workshop. Being able to interview three advisors in a single location at a single time is a worthy advantage. Having unbiased experts to pre-screen those advisor is another clear advantage. Read Warren’s Tip #5: Use The Right Strategy to Select a Financial Advisor, found below, and our information page on the AdvisorSEARCH Workshop to learn how AdvisorSEARCH can help you.
Use the right strategy to select a financial advisor
by Warren MacKenzie
Why this is important: You are unlikely to achieve financial peace of mind if your financial advisor does not understand or agree with your goals and is unwilling to consider or discuss your investment concerns.
Investors looking to choose or change a financial advisor usually decide to go with the first prospective advisor they interview. After the first meeting, they are sold on the financial advisor’s abilities, personality, and knowledge. There should be no surprise here; financial advisors have to be effective salespeople or they would soon go out of business. Naturally they are going to be skillful in addressing your concerns and making you feel comfortable about opening an investment account with them.
To give yourself a fighting chance of finding a financial advisor who will match your needs, you should interview at least three candidates. Look at each advisor’s educational background. Is the prospective advisor qualified at only the minimum level, entitling him to sell only mutual funds? Does she have a financial planning designation, or a more advanced financial certification such as Certified Financial Planner (CRP), Canadian Investment Manager (CIM), Certified Financial Analyst (CFA), Chartered Life Underwriter (CLU), or Certified Investment Management Analyst (CIMA)? All things being equal, the more degrees and educational certificates, the better.
Examine the advisor’s level of experience. Ideally, you want an advisor with at least 10 years of experience. It takes about that much time for advisors to learn from the mistakes they will make early in their careers. Only experience can train an advisor to keep a cool head in the midst of market turmoil, to resist the sales pressure during the weekly visits from mutual fund and hedge fund wholesalers, and to understand how highly touted packaged deals can backfire. Don’t choose an advisor who’s going to learn the ropes with your money. (I can say for certain that the advice I give my clients today is better than the advice I was able to give when I was new to the industry.)
Avoid choosing a financial advisor who is too successful to find time for you. This might mean a person who only handles accounts much larger than yours or one who already has over 500 clients.
Find out what size of accounts the advisor specializes in and how many clients she has. Keep away from someone who is so new she is desperate to start generating enough income to keep her job. Financial advisors sometimes are exposed to temptations to earn commissions in ways that may not be in the client’s best interest. The desire to earn commissions may result in recommendations that benefit the advisor more than the client.
Education and experience are more important than the advisor’s personality. You are not selecting an advisor to find a new friend. Rather, you want one who will manage your funds to earn the rate of return you need while taking no more risk than necessary.
Bad Advice Has Consequences
One of the most common questions I receive is "what clues are there that I might have a bad advisor?" That is inevitably followed by the question "what is it costing me?" The answer is that bad advise may cost you a few dollars in fees and a few dollars in lost performance during a strong market, or it may cost you a substantial portion of your portfolio and a lot in fees in a soft market, or it may cost you your retirement lifestyle, your savings and your hard earned retirement in a tough market. The above is not a scare tactic. A bad advisor becomes readily apparent in rough markets when earlier decisions made in a strong market are exposed to the negative market forces. When investors take the "flight to safety" you will quickly know if you are holding "safety" or excessive risk. Warren Buffet expresses this concept by stating "only when the tide goes out can we tell who was swimming without a swimsuit". In investor language that is what is known as "naked risk exposure". Lessons are very expensive for investors who discover that their advisor is a great talker but not much of a portfolio architect.
This article The Cost And Consequences Of Bad Investment Advice by Ken Hawkins may help you diagnose some of the challenges in your own situation:
