Choosing a financial advisor can be one of the most important decisions youll ever make. If your advisors management style matches yours, it will allow you to sleep at night. If it doesnt, you may be forced to endure countless sleepless nights. In part 2 of this series, well look at the most important aspect of all to consider when choosing an advisor.
Guarding Your Wealth" is a nationally syndicated weekly personal finance column written by Jeffrey D. Voudrie, CFP. Mr. Voudrie is the president of Legacy Planning Group, a private wealth management firm that employs sophisticated proprietary strategies designed to protect and grow its clients' investments. Please visit our website, www.guardingyourwealth.com to read past articles in our archive.
(PRWEB) April 11, 2004 -- Choosing a financial advisor can be one of the most important decisions youll ever make. If your advisors management style matches yours, it will allow you to sleep at night. If it doesnt, you may be forced to endure countless sleepless nights. In part 2 of this series, well look at the most important aspect of all to consider when choosing an advisor.
Simply put, how will this advisor manage your money? Once your money is invested, will they passively manage, only reviewing your account once or twice a year? Or will they actively manage it, having systems in place to constantly monitor each investment and make changes whenever necessary to protect your money, minimize your losses and maximize your returns?
(Mr. Voudrie responds to questions from readers on an almost daily basis. If you would like clear straightforward unbiased answers to your financial questions, contact Jeff@guardingyourwealth.com)
Let me explain by using the analogy of a garden. Imagine paying someone to plant your garden and manage the harvest. A ‘passive gardener would plant seeds for you, but once theyre in the ground, theyd move on to plant their next customers garden without doing much to maintain yours. They wouldnt bother pulling weeds, thinning out less desirable plants, watering or fertilizing. Changes in the weather, such as a late frost or summer drought, would pass with little concern on their part. Passively tended gardens place your harvest at risk and may not provide enough to last through the winter.
On the other hand, an ‘active gardener should have a far better result. Theyd have picked the best seeds possible, and carefully monitor each plants progress. During a frost, theyd take action. During a dry season plants would be well watered. If a crop turned out to be a disappointment, theyd quickly be replaced. Each crops performance would be tracked carefully so under-performers would be thinned out.
Any gardener knows that a well tended garden results in less loss and a bountiful harvest. When your garden is being ‘actively tended, you can sleep at night, knowing your harvest is less likely to result in your going hungry in the coming winter.
Those of you who are avid gardeners wouldnt dream of being ‘passive with your treasured plot of earth. But unlike the relaxation associated with ‘active gardening, ‘actively managing your finances would be a stressful do-it-yourself job.
When it comes to financial advisors, probably 90% are ‘passive gardeners; especially those recommending Equity-Indexed Annuities and Variable Annuities. After ‘planting your money in high-commission products, they move on to ‘plant someone else. They might look at your account once or twice a year, unless you have new money that needs to be ‘planted. Once all your money is ‘planted, they lose interest.
When the market or the economy turns sour, they stick to their buy and hold strategy, telling you to hang in there. Theyve made their money, whats it matter to them if your investments take a hit? They reason that the market will go back up, but how much sleep do you lose in the process?
While ‘passive advisors get paid to ‘plant your garden, ‘active advisors are paid to ‘tend your garden. Most are paid a small percentage fee on a yearly basis, so they are motivated to do a good job of managing your money. If they dont, you can easily fire them and choose someone else. You dont have high commissions to earn back or surrender fees to lock you in.
All fee-based advisors arent created equal. Some big firms are moving to fee-based accounts, but in reality theyre still holding to their passive money management strategy. If you want someone to actively manage your nest egg, ask them what specific systems and procedures they have in place to monitor their clients accounts. For instance, my firm has a proprietary system that constantly monitors each and every one of our clients investments over 4,500 times a day, giving our clients, whose chief concern is preservation of capital, peace of mind.
‘Passive advisors can do a good job of selling investors on their brand of money management. But ask anyone who followed this advice in 2000-2002 how it worked out for them and Ill bet youll get a different story. Dont settle for a passive advisor that wont tend your garden. Find an active advisor to carefully watch over your seed; one who is motivated to produce the crop you need.
Mr. Voudrie is a Certified Financial Planner and the President of Legacy Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN. For more information call 1-877-827-1463 or email jeff@guardingyourwealth.com.
Related Articles can be found at www.guardingyourwealth.com under the Guarding Your Wealth Article Archive:
The Secrets To Choosing An Advisor - Part I
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