Over the course of my career, I’ve learned plenty about how unscrupulous or unqualified advisors can damage their clients. But I’ve also learned that investors themselves are often their own worst enemies. Take one of my first clients, for example.
In my early days as an advisor, my biggest challenge was attracting customers. To get prospects in the door, I’d offer a “free investment performance analysis.” Basically, I’d look at three years of transactions, analyzing performance and asset allocation (how the investments in the portfolio balanced risk and reward), and provide a second opinion on how well the prospects’ investment advisor was managing their investments.
My hope, frankly, was to find that my competition was doing a lousy job—which would conveniently allow me to position myself as an alternative. When an advisor seemed to be serving his or her client well, of course, I told the client so. Unfortunately, in most cases, I found a lack of diversification and a bias toward products that were better for the broker than the client. As a result, my new business was booming.
One day, a fellow I’ll call “Joe” was introduced to me and took me up on my offer. Like many wealthy people, Joe had his money invested with more than one advisor. His instructions to me were simple: Evaluate which of his two advisors was doing a better job managing his wealth. He planned to fire one and keep ...