Financial Advisers

There are many financial advisers looking to earn a fee.  Should you or I hire one?  Here are my thoughts.

1.  Unfortunately only a handful of people in Fort Collins, Colorado can afford those advisers that could make us very rich.   Those advisers that have the inside track to the most lucrative deals are the investment bankers/advisers with firms such as Goldman Sachs that only work with the super wealthy.   Its ironic that those of us who need to be in on the best deals cannot have access to them.

2.  The other extreme are those advisers that are dishonest.  There are always a handful of investment advisers that are in the court system heading for prison for stealing client money.

3.  In between these two extremes there are many advisers that are trying to sell products to earn commissions.  Some offer a full range of products including stocks, bonds, and insurance products.  In my opinion, everyone that has someone depending on him or her for support MUST have pure insurance to protect those children or a spouse during the time they are dependent on that support.   By pure insurance I am referring to term insurance.  I call it pure insurance,  because that is all it is, insurance...you pay a premium in exchange for the promise to pay an amount certain upon your death or disability.  There is no investment in pure insurance...if you do not die or become disabled the insurance company pays nothing.

Insurance companies have a full range of products that in addition to the death benefit will pay additional monies in return for a premium larger than that for the term insurance.  In considering those products, be very careful.   The monies promised to be paid as a return on investment always appear greater than what they really are.  Just remember that the returns on your investment are split between you and the insurance company .  The reason that the return as quoted by the agent seems so high, is that the insurance contract which grants you a healthy profit is very complex and contains limits, fees, and other devices used  to make sure that the insurance company earns its profits before you get any profits from the investment made.  If you are considering investing in any insurance product other than a term policy,  you should read one of Warren Buffett's letters to his shareholders.   In recent years, he explains how the insurance companies that Berkshire Hathaway owns are cash cows...leaving him with hundreds of millions of dollars to invest.   Also have an attorney or other expert review the proposed contract you are considering so you know exactly what the fees, limits, etc. are.

My final thought, probably should have been stated first.   You are most likely to obtain unbiased advice from a fee based adviser as opposed to an adviser who earns commissions from products sold.  Use only fee based advisers for advice.

4.  If you are nearing retirement after a successful career,  it is very likely that you should be your own adviser.   If you have spent thirty years in an industry, you probably have extremely valuable knowledge that could be very lucrative.  For example if you have been a successful farmer or rancher,  you probably could invest in farms, ranches, crops, etc and make far more money than any adviser.   Likewise if you have been involved in construction, real estate, etc. you may be able to invest in real estate, rentals, etc. and do far better than any financial investor with your own money.

Hope these ideas are helpful to you in finding a financial adviser...even if it is you.

Posted on May 25, 2014 .