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You Can Only Get the Right Answer If You Ask the Right Question

Recently, Jeff Ivory and I had an alarming meeting with a potential client, in which we found the prospect a victim of the industry. The most upsetting thing to Jeff is bad financial advice at the expense of the client. Possibly the only worse situation is when the average investor buys into that advice. With so many people looking for investment advice, you would think the most qualified, unbiased professionals would be the easy choice. Unfortunately, the talented advisors often get lost in a sea of salespeople. Typically, the most successful “advisors” in the world have been highly trained in sales, not investment management.

To help you understand the nature of the advisory business and make better decisions about your future, we need to expel some of the myths that are told to investors. The bottom line is: you need to ask the right questions to get the right answers.

Question 1: Are all financial advisors the same?

This assumption is among the most popular. However, the range in quality of advisors is extremely wide. Many investors are not aware that to become an “advisor” at a brokerage firm, all you need to do is pass a sales exam. There are no predetermined educational requirements to work in a sales organization. The challenge for investors is to identify the financial professionals that have taken the time and effort to achieve the highest level of training and experience. Reading The Wall Street Journal and putting on a suit does not make you qualified to manage money. As I look at my experience as an investor, or purchaser of the services, I thought that I had good financial advisors on three separate occasions, but in reality, I had three superb sales people. Now, there is actually a commercial where unsuspecting people “hire” a financial advisor only to realize he is a DJ in a suit.


Question 2: Do financial advisors must put my interests first?

Unfortunately, brokers may claim to put your interests first, but many times, they simply do not. Only Registered Investment Advisors (RIA) and Investment Advisor Representatives (IAR) are required to put your interests ahead of their own. In the above-mentioned meeting, the prospect’s financial advisor asked him to sign some documents that he claimed were for his best interest and they were required due to the DOL rule changes. However, salespeople at brokerage firms are simply required to provide “suitable” advice, not “fiduciary” advice. What is the difference? A fiduciary has an obligation to do what is in your best interest even if it conflicts with their profit. Ask your advisor to put in writing that he/she holds a fiduciary role in your relationship. If he/she does not, that advisor is not a fiduciary, but simply a salesperson selling you something “suitable.”


Question 3: Do financial advisors only get paid by the client?

There is an inherent conflict of interest for many brokerage firms. Investors can pay their advisor in the form of a fee or commissions. Yet, many investors do not realize that mutual fund companies and insurance companies also pay brokers in what is normally referred to as “revenue sharing.” Typically, brokerage firms do not disclose this relationship. These arrangements can be very lucrative for brokerage firms, but the question is: do they working in your best interest if they receive more money from Investment A versus Investment B? Only RIAs are required to disclose all fees to their clients.

Question 4: Since my advisor has many letters after his/her name and years of experience he/she must be qualified, right?

This is my favorite. Just because someone has letters after their name, it does not mean they are supremely qualified. There are many designations in the financial services industry. Some designations are extremely difficult to achieve and others can be handed out after a weekend seminar. Think of it like comparing a high school diploma to a Ph.D. in astrophysics. The most difficult designations in the advisory industry are the Chartered Financial Analyst (CFA) and the Certified Financial Planner (CFP) credentials. In fact, less than 1% of financial advisors have been awarded a CFA. Why? Most firms want advisors to focus on selling, not learning about investment analysis and management. In their opinion, as long as more assets are coming in than going out, they will continue to be profitable. At Gainplan, we have a veteran CFA and a CFA candidate – it is a long and incredibly demanding task. We also have three CFPs and a CFP candidate on staff.


Question 5: If my advisor is using software he/she must be qualified, right?

The financial planning software used by most firms is dependent on assumptions. It is based on historic returns, age, assets, retirement date, inflation, etc. All this data is thrown into the program and voila, there is your output. Not to say this is not important – it is – but planning is just the first step in realizing your goals. When life throws you a curve ball or the markets experience another 2008, will the output of a software program comfort you at night? Websites, brochures, and pretty graphs are just not enough. Working with an advisor can help you understand what has happened and what you need to do to get back on track.


We believe when you make a choice to work with an advisor, it is important to ask the questions that can affect your future. You need to know your advisor’s background, training, and experience; understand the firm’s structure and how they are compensated. The more information you have at the beginning, the better choices you will make for your future.



This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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