Are You Working With a "Lowest Common Denominator Advisor"? - J.E. Wilson Advisors

Are You Working With a “Lowest Common Denominator Advisor”?

Estimated Reading Time: 3 minutes

Let’s face facts. The overwhelming majority of firms operating broadly as financial advisors are of the “lowest common denominator” variety. Traditional financial services firms (Wall Street firms, insurance companies, banks, etc.) aren’t really about “service” at all, they’re about sales.

Investors want advisors they can trust but that’s not what they’re getting. Any “advice” provided by these firms is incidental to selling expensive investment or insurance products. The more stuff they can sell you, the better off they are, wholly at your expense.

Is Your Advisor Acting in Your Best Interest?

Most of these self-described advisors aren’t required to act in your best interest. Instead, these “advisors” just can’t defraud you. Comforting right?! Most of these firms are selling, in one way or another, their ability to beat the market, despite the overwhelming evidence showing the futility of this approach. That’s really all they have to offer and unfortunately this “chasing the best investment returns” approach can be like consuming too much candy at Halloween. All seems good until you get sick to your stomach the next day!

As the infographic below depicts, there are an estimated 300,000 so-called “financial advisors” in the U.S. For perspective, there are about 200,000 dentists in America today. About two-thirds of all those holding out as “financial advisors” fall into the broad category described above; they are just selling products. Among those with a fiduciary duty to protect their clients, perhaps 10% (my estimate based on several sources, likely less) of that subgroup are fee-only advisors utilizing Evidence Based Investing. That is, only 3-4% of all financial advisors align their compensation whereby they only owe allegiance to you AND utilize long-term market evidence for investments.

Is Your Advisor Just Selling “Stuff”?

We sometimes see prospective clients who come to us from “lowest common denominator” advisors. They generally “like” the advisor but have a sense they are mostly being sold stuff instead of actually receiving planning advice. Selling expensive insurance or investment products that promise to provide high returns isn’t what investors need. But this is precisely what 96% or so of the “advisors” provide.

One commonality most “lowest common denominator” advisors share is their almost total emphasis on investments. Yep, not much else matters in their world as everything revolves around investments, particularly investments that follow some fad or approach that is in vogue at the moment. Here’s the thing- “investments are not financial planning and financial planning is not investments.” The real test is if the investments lead towards financial wellness. If not, run for the hills.

How Does Your Advisor Add Value?

Investment diversification matters; investment costs matter; but ultimately, real financial advisors create the most value for clients outside of the investment realm. That’s right, investment or insurance products masquerading as investments won’t create a sustainable financial future. Helping clients stay focused on the road ahead, taking appropriate risks, and avoiding big mistakes ultimately is more valuable than anything else.

The investment world is essentially divided between those without help (no advisor) and those with help (those working with fiduciary advisors). In reality, there is a very large component who actually think they are receiving help from an advisor, that are just being sold investments. That’s probably the least favorable place of all.

Is your financial future in the hands of a “lowest common denominator advisor”? Your financial health demands better. Start there. Ready for a real conversation?

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What I’m Reading:

Churchill-Walking With Destiny by Andrew Roberts- There have been over 1,000 books written on Winston Churchill since his death in 1965. Historian Andrew Roberts takes his best swat at making his the best yet by venturing into some new areas. The author’s research, including notes from King George, VI, about his regular luncheons with Churchill, add some flair to the sometimes drab colored frame of history. This book and another I read on Churchill last year, No More Champagne by David Lough do a good job of presenting Churchill in all his glory and despair. Not “the man is a myth” but more so, “the myth is the man.”

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