The Myth of the “Independent” Financial Adviser (Part 2 of 2)

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Why he cannot be treated like a lawyer.

He often laments why he cannot be like a lawyer, charge by the hour for his time. He complains about the very people who he depends on for his livelihood. That they do not understand the value of his advice. I believe he is not up to the standard which lawyers are held up to because he has no skin in the game. For example, if a lawyer loses your case, that loss goes into his record of success and failure. This is not the case for the IFA. Nobody knows how much failure and losses he has caused for the client. Even worse than that he wants to be put on retainer, which means the client has to pay him every month, regardless, for doing next to nothing, which is pure rentier mentality.

These are actual questions I have posed to him and never got even a half-satisfactory answer, even after repeated requests.

1. “Since you say I need a million dollars to retire, can you draw up a practical plan to reach that financial goal? Taking into account the current world economic growth and recession going forward?”

2. “If your advice fails in the end, can you be held accountable?”

3. “You know that Unit Trusts are proven mathematically and academically to lose money for the client and yet you push them to me so aggressively? Why?”

4. “You say bankers are losing their client’s money and lousy at giving financial advice, yet you also applied to join the banks? That is so illogical, isn’t it?”

5. “Using only the methods you recommend to all your clients, you can reach your retirement goal of $2 million dollars? How is that possible?”

The fact that he does not use stocks and shares to make money for his clients (at that time) is strange, to say the least. Famous investors like Warren Buffett have many stocks of great companies in their portfolios. His reasons for not doing so are also equally strange:

1. He did not take the exams required in order to trade in shares for his clients. In other words, he does not have the license.

2. “Stocks and shares require a lot of monitoring”
Strange, coming from a financial professional.

3. “A monkey throwing darts at stock names can outperform most fund managers”.
Is he trying to tell me that he thinks it is too easy or that he cannot outperform a monkey?

Despite all his boasting and criticising of other financial professionals, he also lost some of my money during the Great Financial Crisis of 2008. That is understandable, but his proposal to help me was totally ridiculous.

He proposed to keep my money safe by transferring to an offshore account which paid no interest or annual coupon! I asked in anger, “How is this different from putting my money in a box under my bed?” As usual, he was silent after that.

After that, I fired him. What a useless financial professional.

Positive things I learnt from him:

1. Handle your money yourself. Now that there is the Internet, one can read as much about finance as one has the time. No one can take care of your money as well as you can.

2. You can create your own kind of financial products. You can listen to the advice of bankers but double and triple check their advice as if you are their manager or boss. Which you are. Never forget that fact.

3. He says his ideal clients are young professionals earning high salaries, because time is on their side with regards to saving/investing for retirement. That is like saying a doctor’s best patients are young and healthy people. Then what value does he bring to the table? Following his line of reasoning, if you are young and earn a high salary, you can also save or invest your way to a million dollars or more. We live in a world where we exchange the value we provide for money, whether you are a salaried worker or an entrepreneur. If we buy a product and it is defective, we can exchange it for a working one. If a doctor prescribes the wrong medication to a patient, he will be held accountable. But a financial advisor is not held accountable if his advice leads to losses for the client. In light of this, the value he can provide to any client is suspect and my advice to any reader is to approach any financial advisor with a sceptical mind: Is his advice for your good financial health or for his?

4. He advised me to ‘have many sources of income’. That is good advice but I did not know at the time was that I was one of his many sources of income. With nothing in exchange to boot!

5. Beware the banker and financial adviser!
 

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