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Canadian Blue-chip Industrial Forum
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Why I fired my financial advisor Credit Kevin Noblet I read this. I am thinking it May interest someone. WEALTH ADVISER Why I Fired My Financial Adviser The Relationship Got Off to a Rocky Start, Says This Journal Editor. Nine Months Later, It Was Over Larger By KEVIN NOBLET Aug. 29, 2014 10:48 a.m. ET Kevin Noblet Give it a year, I told myself, as my wife and I handed over our savings to a financial adviser. That seemed a reasonable amount of time to get used to someone other than me managing our investments. We lasted nine months. Also in Wealth Adviser: How Advisers Become Better Bosses Voices: Using Model Portfolios Visit the Wealth Adviser Page By the time we fired our adviser in June, I was unhappy—and embarrassed. If anyone should know how to pick an adviser, I should. As an editor responsible for wealth-management coverage at The Wall Street Journal, I know what questions investors should ask about their services and fees, and how to check their records. I guess I didn't know enough—about the adviser I would pick, and maybe about myself. Over our 30-plus years of marriage, I had made most of our investment decisions with my wife, Joan, as a sounding board. It had worked out pretty well. We stayed in stocks, for example, after the market plunged in 2008 and reaped rewards when it rebounded. We took a long-term view, used low-cost mutual funds and were tax-conscious. (In accordance with rules for Journal staff, I owned only diversified funds, not individual securities.) Related How to Fire Your Financial Adviser Still, I thought professionals might do better. They might have a fuller understanding of certain assets—bonds, for example, which were wobbling in mid-2013. They might know the world of active stock-fund managers well enough to pick good ones. I would worry less, and sleep better. Also, it would be reassuring to know that, if I got hurt or died suddenly, Joan could count on the adviser's help. The comfort would be worth the 1% annual fee an adviser would charge on our investments, which were in the healthy six figures. I looked for a small firm with a spotless record, a good-size business and a stable client base. I wanted a lead adviser with experience and gray hairs, like those I have in my early 60s. I found a firm that met my criteria. In meetings with its founder and an adviser who would be our direct contact, we asked lots of questions and liked what we heard. So we signed on. And the trouble started right away. My adviser immediately redeemed all of our mutual funds, so the money could be shifted to his choice of funds. I wondered: Had he considered the tax implications? The market had been on a tear. While most of our money was in tax-deferred individual retirement accounts, some was in taxable accounts, and I had bought shares in a couple of funds less than a year earlier. Those gains would be considered short-term and taxed at a higher rate. If we had held onto one of the funds for two more weeks, the rate would have dropped to that for long-term gains. I emailed the firm and asked, why the rush? My adviser called. "Always be happy with gains," he said. I didn't want an argument this early, so I mentally filed the matter away. I did tell him I was used to counting not just gains but costs, and I had counted the pennies. In January, after the market dipped about 4%, I noticed an international stock fund had been cashed in at a loss. It was, my adviser explained in an email, "a short-term move" to protect against the risk of a market pullback. The money was reinvested a few weeks later, after the market bounced back. It was the kind of market-timing effort I didn't believe in; studies have shown it fails more often than it succeeds. My wife put it more plainly: "We just sold low and bought high," she said. In March, when we had our first (and, as it turned out, only) semiannual sit-down with our adviser, my wife and I were frank about this concern. Still, he sent us home feeling better by stressing the bottom line: In the first six months, our investments had risen about 3.5%. Not wonderful—the S&P 500 had risen 11.5%—but, adjusting for risk, our returns were strong, he said. Our retirement plan was still firmly on track. But more short-term trades followed, and they involved a product I never would have touched: inverse exchange-traded funds, designed to rise in value when broad market indexes fall. These are considered risky for the individual investor. Markets kept rising instead, and my shares steadily lost value. My adviser redeemed them at a loss in March, then bought them again a month later, at a higher price because markets dipped in the interim. I asked my adviser about this on-again, off-again approach. He explained that the firm owner's ideas about where markets were headed were based on recent adviser gatherings in Chicago, San Diego and Omaha, Neb., with "many of the industry's top independent thinkers." I wondered about those meetings. My job took me to similar gatherings. I had seen how marketers of mutual funds blanketed those events, sponsoring lavish dinners and pitching products. Who had my adviser's ear? Management fees for several of the funds my adviser used were high. Some exceeded 2% a year. How much in net gains would be left for me after a fund manager got his 2% and my adviser, his 1%? I started drafting a "Dear John" letter, articulating the reasons I was unhappy. "I don't think they'll want to hear it," my wife said. I decided she was right. I sent a short email on June 18, saying I wanted to end the relationship. He sent back a shorter one 25 minutes later. "We wish you all the best for the future," it said. Would I have stuck with him, if more of his moves had paid off? I don't know. But the fact that they didn't reinforced for me that even professionals have a hard time timing the market, and that a reasonably smart investor can do pretty well if he stays away from that kind of trading. Investors will do even better if they count the pennies instead. I am back to doing that now. —Mr. Noblet is an editor responsible for wealth-management coverage at The Wall Street Journal. |
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