Would you pay your mechanic if he didn’t fix the faulty alternator in your car? Then why are you paying for financial advice?
Financial advisors get paid whether you make money or not. If you make a profit or if you lose money they get paid. That doesn’t sound fair.
Financial advisors run with the same Wall Street crowd that includes mutual funds, ETFs, and hedge funds that all make money whether you make money or not. They don’t have to make you money but typically rake in 1%-2% of the value of your portfolio every year in fees.
To ensure their pockets are always lined, financial advisors rely on a variety of fees, including management fees (based on a percentage of assets under management), fixed fees, and commissions (based on a per-transaction fee from the buying and selling stock and bonds).
The typical all-in costs paid to financial advisors typically range between 1.5%-1.75% of assets under management for portfolios of $1m or less and range between 1.3%-1.5% for portfolios of $1m-$5m.
Here’s the kicker:
By their own admissions, as well as on a recent survey, financial advisors admit that only a percentage of the fees that they earn goes towards paying for investment management.
Who knows what else your fees are paying financial advisors to do. Play golf?
Here’s a better model. Call your financial advisor today and ask them this:
“I want new terms. Rather than just paying you a commission or even a flat fee, I want you to participate in the profits I make based on your advice.
So here’s how it works:
You can trade my account, and I do not pay any commissions, and I am not obligated to pay any flat fees during the entire year.
You’ll share a percentage of the profits I make each year. You see, it’s more like a partnership that you do not have to buy into. That seems fair, right?
I mean, your job is to get me to my destination of financial independence. I don’t pay my Uber driver if they don’t get me to my destination, so why should I pay you if I don’t make any money?”
I’m not going too far out on a limb here, but I am going to bet the farm your “advisor” will not take you up on those terms.
I’ll tell you why they would never agree to a performance-based compensation arrangement. That’s because they know that they can’t predict the market and meet performance benchmarks they’ll need to meet to get paid.
That’s because of market volatility that’s vulnerable to economic and sociopolitical factors beyond their control.
It’s ludicrous to entrust someone with your financial future who gets paid even if you lose money. What makes more sense is to partner with experts in the field who have skin in the game and only make money if everybody makes money.
Here at Four Peaks, this is how we work with our investors: We partner with them, and not only do we not make money unless our investors make money, but our investors get paid first.
We do this because we are confident in our business model, execution, and a market that is insulated from the volatility of Wall Street. We believe that that’s the way it should be with all investments.
To ensure you have a team with financial goals and objectives aligned with your own, choose preferred partnerships over the flat fee and commission-based advisors.