Finding a Financial Consultant - Three More STRATEGIES FOR Choosing the best One

If you're frustrated from having one financial consultant after another financial consultant provide you with inadequate returns on your stock portfolio, i quickly hope you read my first article "Three Tips for Finding a Superior Financial Consultant." On this page, I'll drill down even more to really hammer home those points.

Finding a superior financial consultant, isn't always concerning the financial consultant. It is sometimes also about you. Do you want to also make the commitments to locate a superior financial consultant? In this post, I'll discuss yet another crucial behavior about financial consultants and two concerning the behavior of you, the investor.

Three more tips:

(1) Don't hold mutual funds;

(2) You shouldn't be stingy if you find an excellent advisor; and

(3) Be patient and ask lots of questions in your search for a superior financial consultant.

Don't Hold Mutual Funds

Without a doubt why I'm not just a fan of mutual funds.  Find out more  have so many hidden fees that it's often difficult to know just what your costs are. Besides upfront costs that may be upward of 5% for a few funds, there are 12b-1 advertising , marketing and distribution fees that range between 0.25% to 1 1.0%, administrative fees that range between 0.20% to 0.40% not to mention management fees paid to the mutual fund manager of 0.50% to a lot more than 1.0% annually. This won't even include undisclosed "soft" costs of trade commissions that may add another 2.0% to 4.0% in costs. And yes you didn't incorrectly read the first part of that last sentence. Many mutual funds charge you 12b-1 expenses they incur from advertisements and commercials that urge you to buy their funds, and if you're buying no load funds, it’s likely that your 12b-1 fees are greater than average.

Add to this, intangible costs such as the performance that is sacrificed to maintain the required level of liquidity to fulfill share redemption, and your costs become sustained. For a fund that turns over 100% of its assets annually, Roger Edelson of the University of Pennsylvania Wharton School estimated this sacrificed performance to be 1.5% of returns annually. Lastly to add salt to the wound, sometimes fund managers sell out of these biggest winners to meet up liquidity needs, generating a capital gains income tax for you, the investor, even if the mutual fund lost money that year.

But this isn't even where in fact the negative traits of mutual funds end. In case you have one of the numerous financial consultants that merely make an effort to join the hot emerging market bandwagon by buying mutual funds in China, India, or any country, I help you to exercise extreme care. When pullbacks happen in these country's economies as will inevitably happen, you're at high risk of losing profits quickly. Why? In a mutual fund, you're at the mercy of a herd mentality that generally, will induce panic upon the release of bad news, and cause millions of investors to redeem their shares over a brief period of time. Should this happen, fund prices will plummet before you even knew what hit you.

But if you opt to own just the best stocks in the best industries in these countries, probably your stock prices will undoubtedly be a lot more insulated and less volatile in that scenario. While these stocks may still decline, they will most likely decline not nearly as expensive the fund will. Strong companies' stock prices tend to weather country-wide economic downturns much better than fund prices, and when they are in the right niche, they could even continue steadily to flourish.

Be Willing to Pay Fees for Superior Advice

Superior advice is superior because a lot of hard work and time go into producing that advice. I remember speaking with a potential client one time that had a million dollars in the currency markets and was adament about not paying fees. He just wished to pay commissions on stock trades. When he showed me his statements (incidentally he was with a significant Wall Street firm that I will not name), there seemed to be no structure or investment strategy in his portfolio. He owned a variety of mutual funds and individual stocks, and several times those stocks were traded when there was a nominal 5% gain in virtually any of these. Furthermore, the statements by his financial consultants were misleading. The consultant handwrote on his statements he was doing great because he was up 6% that quarter (that i believe nearly matched the S&P 500's performance that quarter). He told me that annualized, that the 6% translated into 24% returns.

However when I explained that his net returns will be much lower because his portfolios quarterly 100% turnover rate produced excessively high capital gains taxes that could undercut his net returns, he didn't seem to understand. I assume his financial consultant didn't bother explaining this small detail to him. Still, he insisted on paying no fees regardless of what. I could tell he was the type of person who was blindly loyal to his financial consultant, therefore i moved on without wanting to schedule a second meeting.

Superior advice costs money. And when your financial consultant is superior, he or she will be transparent about his fees as well as your costs, so that you will won't be confused in what your true gains are really. Avoid being stingy. After everything you just learned about mutual funds, why would you not be willing to pay even up to 2% annually for superior individual advice and management if you are almost certain to be paying a lot more than that a year just to own a mutual fund?

Be Patient and have Lots of Questions

In the event that you persistently ask the three questions I mentioned in part one of this short article, you can find frustrated after talking to ten financial consultants, none of whom can answer those questions. My advice is to just be patient. Don't quit and don't settle for a salesperson that's trained to answer those questions to cause you to believe that he or she has answered your questions when that is not the case at all. What do I mean?

For example, when you begin drilling down about specific stock picks, a standard sales strategy to avoid your query is an answer like the following: "I'm not just a stock picker. But don't worry. I understand how to find the best money managers in the united kingdom to manage your cash for you, so you're in great hands." Don't be misled by smokescreens such as this. Understand that if your financial consultant truly understands how to locate you the very best money managers, then he or she must necessarily have discussions about geographical preferences, industry preferences, and specific stocks with those money managers. How do a financial consultant claim to choose the best money managers for you but have no knowledge of what stocks you own and why is those stocks special?

To summarize, buy individual stocks over mutual funds, be willing to pay fees for an exceptional advisory in case you are so lucky as to find one, and remember, the luckiness of finding a fantastic advisor is not really luckiness at all. It comes from your hard work, tough questions, and your unwillingness to be led astray by the professional smoke screens of financial consultants.

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