Recently, a client received their annual token call from their 'financial advisor' who let them know it was time for portfolio rebalancing. This rebalancing would result in significant capital gains & taxes. I'm grateful she thought to reach out before approving the moves.
Having previously been series 6, 7, 63, 65, and 66 licensed, I am familiar with the SEC rules and the minimum services that need to be provided to justify the management fees and the ability to claim 'fiduciary' status.
I provided her a few questions for her 'fiduciary' advisor to help her make her decision. Here's what the professional's answers yielded.
1- The suggestion to 'rebalance' the portfolio was based solely on percentages of assets held in stocks vs. bonds and her age.
2- The proposed moves were not based on portfolio winners and losers.
3- The proposed moves were not based on hot investment tips generated by the large and well-known firm's market research division.
4- Her personal needs for cash and her likelihood to draw on her investment account were NOT considered.
Knowing that she doesn't need access to the funds, she decided to temporarily forgo portfolio rebalancing because she feels she has the time required to bear potential stock market risks and fluctuations.
Shockingly, she is paying almost $20K per year in management fees for this paltry level of service. For the privilege of having a 'fiduciary' manage her finances.
I get it, some people don't want to learn about investing or make their own decisions about what to invest in. But do they really need to pay a nearly 1% management fee for this level of service? Knowing that the large firm is taking a good-sized cut of the management fee, how many hours of personalized service should an investor receive from a fiduciary? How about 20 hours? More?
If you're paying a percentage of assets under management for a financial advisor, you should consider the minimum amount of service you expect for the fees you're paying. You're paying the fees, let them know your expectations. This is financial advice. π
One thing is for sure, the financial advisory system is seriously broken. Frankly, it disgusts me, and I'm glad I left the industry many years ago.
