How to Know Advice is in YOUR best interest--and not the advisor's

Recent news about a class action lawsuit and separate FINRA arbitration case against independent broker dealer (B/D) Securities America for selling a certain Reg D security from Provident Royalties and Medical Capital Holdings raises a related question:  “should you be able to sue your broker?”   

Read this before you answer!!  

Registered Representatives (RRs) of Broker Dealers (B/Ds) exist in a split standard where they are representatives of a B/D paying them to sell products that are “suitable” for the consumer.   The implication is “buyer- beware”; while the representative is required to sell a “suitable” product, it also leaves the door open to the possibility that a BETTER solution also exists.   However, it’s YOUR responsibility and not the RR to reveal the alternative.  This is the agreement the consumer enters with the B/D through its RRs.    

On the other hand, Registered Investment Advisory firms and Investment Advisor Representatives are legally and ethically bound to put your interest above their own.  This is called the “fiduciary standard of care”.  You’re paying for this with hourly fees and/or a small percentage of the total value of assets they manage for you. 

So how do know you’re getting the best advice or recommendation from your advisor?   Start by finding an advisor who’ll put in writing their commitment or covenant to your interest above their own! 

And here’s the challenge:   I don’t know a B/D in existence that allows its representatives (RR’s) to do this.   Registered Investment Advisors or Investment Advisor Representatives WILL put in writing their covenant and commitment to give you the best advice possible.   This is the “fiduciary standard of care” you’re entitled to.      

While there are still MANY registered representatives that care deeply for their clients, the B/D giving them a paycheck calls the shots and will NOT allow a written covenant like this to exist.    

While my heart goes out to the individuals that bought inferior product or took bad advice from Securities America representatives, I don’t believe they should be able to sue them because of the difference between the “fiduciary and suitability standard”.  The consumer entered into the relationship and the B/D had the client sign an acknowledgement of this relationship when they transacted the sale of product.

A question for another discussion is this:  “Is Securities America the first B/D to be made an example of by financial regulation reform?”    

Take control by educating; understand what market rates of return are and capture them with proven investment strategies.   

Chasing hot funds, hot money managers and hot investment stories isn't the best way to build wealth.

USA Today article highlights the end of another fund manager's streak of hot stock picking. 

Why attempt to beat the market when capturing market rates of return are totally possible with "truly" broadly diversified portfolios.   Are you getting market rates of return?  Do you know how to measure diversification in your portfolio?   
http://www.usatoday.com/money/perfi/columnist/krantz/2007-01-29-legg-mason-value_x.htm

"Financial Advice" Is Destroying Your Wealth

Dan Solin: "Financial Advice" Is Destroying Your Wealth: "The securities and insurance industries divert attention away from basic principles of finance and Smart Investing by offering a dizzying array of products intended to confuse, seduce and finally separate investors from their money. The financial media is complicit at each stage, reinforcing these erroneous messages."

NPR Interview-Five Key Answers for Every Investor

NPR recently interviewed Dan Goldie the co-author of The Investment Answer.  It's a 4 minute interview that gives insight into why it was written and for whom.

Click here to listen.......

Become a "FOLLOWER" (click on FOLLOW in toolbar above) of this blog or forward this post to your FACEBOOK or TWITTER account and I'll send you a FREE copy of the book. 

What do YOU need?

My role as your Investor Coach is to help you understand the most important concepts that impact you as an investor.

What I've heard and learned sounds a lot like these comments:

"We need a better way to invest."
"We need a better understanding of how Wall Street really functions and how markets work?"
"We need to feel confident that we are investing prudently and making smart financial decisions."

How about YOU?
Post a comment or email me directly with what you need, what you want to hear about, if you disagree or agree.

The Investment Answer

The Investment Answer

To get your FREE copy, start "FOLLOWING" this blog by clicking on "FOLLOW" or "SHARE IT" to your Facebook or Twitter account (both on the right of this posting).

Consider this: do you know how much you weigh?  Do you know whether you have high or low blood pressure?  Have you ever had your cholesterol tested?   Is it high or low?

You probably know the answers to these questions about your physical health.
Now, can you answer these questions about your financial health?

The Five Questions Every Investor Needs to Know are:
1)  Should I invest on my own or seek help from an investment professional?
2)  How should I allocate my investments among stocks, bonds, and cash?
3)  Which specific asset classes within these broad categories should I include in my portfolio?
4)  Should I take an actively managed approach to investing, or follow a passive alternative?
5)  When should I sell assets and when should I buy more. 

Attend my Investor Education Events to learn more and get on the road to better "financial health".

Needle.....Haystack; What's more important?

I promised a story about “true diversification” and this led me to consider an “age-old” parable of looking for a needle in a haystack. You know this parable don’t you? The emphasis leans more toward the needle and not the haystack. Think about it. Finding the needle in the haystack is a good thing---perhaps like finding the goose that lays golden eggs!

Or is it a good thing in the context of wealth creation and investing? Is finding the needle in the haystack more important than the haystack? I think not! Successful investing requires a shift in what you think about; a shift in the questions you seek answers to. Change your perspective by embracing the haystack. Wasting your most valuable asset, time, while looking for the needle is a loser’s game.

The key to long term investment performance is minimizing losses. The hay stack is analogous to all the asset classes-or the entire market. This is infinitely more important than the needle; a single company stock or class. Owning a portfolio with a large % of value associated with one asset class can lead to massive increases or losses. This is volatility and something that can destroy your peace of mind and account value. (Volatility is scientifically measurable.)

Over the years, I’ve analyzed numerous client portfolios. While working with one client to purchase a new home, she asked me her employer sponsored 401k plan was so volatile? The answer was clear after I analyzed it. On the surface, the 15 individual mutual funds and company stock she owned gave the impression of a diversified retirement plan. Additionally, she had a total of about 3,750 unique holdings inside the mutual funds. However, 56% of the value of her 401k was tied to the performance of only 51 individual US Large Cap stocks inside the mutual funds!! She had no idea her portfolio was so overly weighted to one class with so few holdings.

It’s easy as an Investor Coach to see how negative investor behavior is influenced by what a person believes to be true. What’s heard from co-workers around the water cooler or a family member at the holiday get together influences individuals to focus on searching for these proverbial needles instead of embracing the haystack!

Picking stocks with high rates of return, predicting the next market move in a way that makes “buying high and selling low”, unknowingly having a mix of investments overly weighted to one asset class fall into this category of negative behaviors.

Life would be much easier if we could predict the future. However, when it comes to investing, not even mutual fund managers, with their countless research resources can predict the future. Change your focus by getting answers to the right questions. Work with an Investor Coach to show you the way. You won’t waste time, know what’s in the haystack and not have to worry about looking for the needle!