Your parents should be treated like people not numbers.
Cookie Cutter solutions are abundant.
If your parents are dealing with a retail brokerage like a bank or major investment company, they probably don’t realize that their “Financial Advisor” is either marching in step with the whole office “or else.” That’s because the management philosophy of the whole company is very top-down. “Management” exercises a huge amount of control over what is done on a daily basis. Actually, your parents will probably never even meet the people who are behind the choices that are being recommended for their investments. A random investigator we met dumpster-dove behind a major investment company’s office. He was surprised to find the statements all showed basically the same holdings. He shouldn’t have been surprised. But your parents are NOT like everybody else.
Financial Advisors are merely licensed sales people.
Your parents’ Financial Advisor probably took a cram course that lasted 2 weeks and then took an all-day test, and passed. Wow! Then their manager sat them down and told them to call everybody they knew, gave them a script or two, and set them free to reap havoc. Really. Did you know that “Financial Advisors” used to be called “Stockbrokers?” They don’t actually manage the money — that is handed off to specialists who don’t talk to your parents.
What if they’re getting lame investment advice?
Sure, you want them safe and secure for the long term. Yeah, it’s totally ok hoping to get some of that money through inheritance. NOW, you should inquire whether their investment advice stacks up. It probably doesn’t. Truth is, most people are clueless about money and how to invest. Just because they have succeeded in their careers doesn’t automatically make them good investors. In fact, people can be very vulnerable, meaning their STANDARDS for picking investment advice are low or non-existent. Many follow their friends’ suggestions. The vast majority of successful Americans get crappy investment advice. If not, so many wouldn’t have lost their butt in 2007-8. Yes, we said it. Why?
The Common Way To Invest is Flawed.
Your parents grew up in a time when the “wow” factor was about mutual funds. Boring, in hindsight, but true. Do you know that over 95% of mutual funds don’t exceed performance of their benchmark? So if their funds benchmark to the S&P500, its’ better and cheaper to buy the index. But the index has a fatal flaw: It invests pro-rata in all 11 economic sectors even when at least a few are sucking wind. That’s a problem, because it guarantees at least some lackluster performance. The method is called “sector neutral investing” and it can impact your parents’ security. It could wipe out your potential for inheritance. Training for Financial Planners and Portfolio Managers drinks sector neutral Kool-aid big time. The sector neutral approach assumes nobody is smart enough to notice that some sectors are doing poorly. They recommend you should spread your money evenly, like mayo, all over the sectors in the portfolio. That approach works best for people who never pay attention – meaning the Financial Advisors who recommend it. Paying attention, a professional investor can see what sectors are heating up, and overweight them. That’s a “sector rotation” approach. Think about that, it makes sense.
Give your parents some “mom and pop advice.”
- Get your parents to move their money out of big name retail investment companies like banks who are essentially self-serving.
- Teach them to notice how they are being treated like a number, and avoid such treatment. For example, they get precious little personal face time with the “advisor.”
- Have them stop the blind-leading-the-blind approach of following their friends who claim they “get it’ but who are just a smidge better at investing.
- Have them consult with a Registered Investment Advisor or firm that doesn’t charge commissions.
- Use a sector rotation strategy that is intelligently monitored and discussed in person, at least quarterly.