A friend who shares her honest opinion with you is more valuable than a friend who agrees with everything that pleases you.
We met a prospective client a few days ago and enlightened him about our 0% commission, conflict-free advisory model. The client deals with a wealth manager from a reputed bank. In a display of confidence, he told us how he does thorough due diligence before purchasing a product and does not completely rely upon the recommendations of his wealth manager.
On further probing, we realized he had been sold some bad investments which he regrets making.
The bank (and many wealth management firms) earns commissions when investors buy its products. We explained how commissions create a conflict of interest. In this case of adding misaligned investments, maybe the wealth manager’s interest is to maximize commission by selling those products that offer higher commissions to help him meet his monthly targets.
Despite you being extra careful, there are moments of oversight when you end up buying something not suitable to your objectives. I have seen this happening with many savvy investors.
And I often ponder. . .
Why do you want a relationship where you are always suspecting that something wrong could be sold to you?
An investment advisory relationship should be completely fiduciary. Your wealth manager should be like a friend who gives you an honest opinion on what is best for you. When you are meeting your advisor, you should not be holding a shield and raising your guard against unscrupulous advice, rather you should be trusting enough to discuss everything with him.
A commission-based advisor could exploit your greed and fear, by agreeing with you how you feel, to sell products. Whereas an honest and competent fee-only advisor not only safeguards your investments from market volatility but also from you making wrong decisions due to your own emotions of greed and fear. He coaches you to manage your emotions.
Warren Buffett famously stated “In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they do not have the first, the other two will kill you.”
Originally posted on LinkedIn: www.linkedin.com/sumitduseja
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